ENRC cuts capital spending as profits slide

http://www.guardian.co.uk/business/2012/aug/15/enrc-slashes-spending-profits-dividend

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Eurasian Natural Resources Corporation (ENRC), one of the largest and most controversial companies on the London Stock Exchange, has been forced to slash its dividend and capital spending after seeing a 40% plunge to $1.1bn (£700m) in first half profits.

The Kazakh-focused mining group at the centre of a recent storm over corporate governance, has been badly hit by a global economic slowdown that has sent commodity prices spinning downwards.

The dividend was cut by 60% to 6.5¢ per share while wider spending plans for 2012 have been cut by $300m to $2.4bn and a longer term investment target of $8.8bn is now under review.

"We have implemented a review of our capex (spending on) projects and are revising the development plan for our copper assets in the DRC (Democratic Republic of Congo) so as to improve the capital efficiency of our investment programme and returns to shareholders," said Felix Vulis, the ENRC chief executive.

The company said it expected "volatile market environment and pricing uncertainty" to persist, putting further pressure on ENRC to come up quickly with a comprehensive restructuring promised earlier.

ENRC shares fell 7% to 385p bringing cumulative losses of nearly 50% over the last 12 months as a result of a worsening business environment for mining but also because of internal disputes and poor corporate governance structures.

Last year former GlaxoSmithKline chairman Sir Richard Sykes, and another non-executive director, Ken Olisa, were pushed off the board leading the latter to claim the company's approach to business was "more Soviet than City".

In June ENRC brought in two new non-execs in British American Tobacco chairman, Richard Burrows, and World Bank executive, Mohsen Khalil. Last week it announced further changes in the chairmanships of internal committees in an attempt to "refresh" them.

There was no further news on Wednesday on plans to either spin off or bring in new partners for the international business outside of Kazakhstan but more information could come at a City briefing planned for October.

The $1.1bn first half profit figure was slightly ahead of City forecasts but underlying earnings per share of 36¢ per share, compared with 91¢ for the same period last year, were below the forecasts of mining analysts at Barclays Capital.

In a research note on ENRC the investment bank said "we retain our long-running concern over the company's balance sheet and think it is a near certainty the company raises capital over the next six months."

Analysts at Credit Suisse said ENRC had over-extended itself by spending more than $5bn on acquisitions over the last three years "at the wrong stage in the cycle, resulting in rapidly rising debt levels."

The company has seen net borrowing levels rise by more than 100% since last year to $3.4bn. It said it would be spending less this year on its iron ore project in Brazil and expected no significant recovery in either iron ore or ferrochrome prices this year.