ENRC eyes fresh blood for board as costs bite

[miningmx.com] — KAZAKH miner ENRC plans to add “fresh blood” to its board as it seeks to draw a line under governance troubles that have hit its shares.

However, the London-listed group came under pressure on Wednesday as costs took a bite out of 2011 profits.

ENRC is the latest miner to warn of escalating costs, a downside of robust prices that has been a feature for all major producers through the reporting season.

Like others operating in Kazakhstan, ENRC warned of escalating rail tariffs, power costs and even the rising price of tyres – set to climb 3% percent in 2012 as it brings in better quality stock for its trucks.

Rival Kazakhmys this month reported real inflation in Kazakhstan at almost three times the official rate.

Total costs at ENRC rose 24% over 2011 and the miner said it expected unit costs of sales from its Kazakh operations, which account for the bulk of profit despite growth projects in Africa and Brazil, to rise 20% this year.

“Looking at almost every single set of results, cost inflation is coming back in a big way,” analyst Andrei Kroupnik at Collins Stewart said, adding this could prompt negative revisions to analysts’ valuations across the sector.

ENRC reported a 7% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for 2011 to $3.41bn, just shy of analysts’ consensus expectations of closer to $3.5bn.

ENRC tried to draw a line under a corporate governance storm that hit last year, when the controversial 2010 purchase of an expropriated Congo asset was followed by a boardroom spat that pitted the founding shareholders against some directors.

It settled the long-running dispute in Congo with rival miner First Quantum in January, and weeks later replaced its chairman with veteran investment banker Mehmet Dalman, already senior independent director on the board.

Dalman, taking in his first opportunity to address the market and investors since taking the chairman’s seat, said the group could not afford to “stand still” and would continue to review board composition to bring in more mining experience.

Dalman said he wanted “fresh blood” on the board and was interviewing candidates, though any announcement was weeks away.

“We had a dysfunctional board, it is as simple as that… but that period of our history is over,” Dalman said.

“It is not personal… but you will see some gaps, and we need to fill those gaps, in terms of ability.”


ENRC, the largest ferrochrome producer in the world by chrome content, said it expected the price for the key stainless steel ingredient to improve in the second quarter as the stainless steel industry improved in 2012 and South African producers faced power troubles.

The benchmark European ferrochrome price settled at $1.15 per pound for the first quarter, down 4%.

“All in all, we are more bullish about the ferrochrome market than we were, although we recognise the chrome ore going from South Africa to China will prevent the tightness that we saw back in 2008,” Jim Cochrane, chief commercial officer, said.

ENRC is an increasingly strong player in iron ore, the largest contributor to its profit in 2011, and the miner said it broadly agreed with views of flattening iron ore demand in China over time.

Cochrane said the northwest of the country, ENRC’s key destination, would grow at a faster rate, as the region builds 60,000 km of highway and 18 airports.

“Northwest China is looking extremely strong and no one is better placed than ENRC to fill that iron ore gap,” he said.

ENRC also said on Wednesday it was set for a fresh push on its planned $650m acquisition of outstanding shares in coal producer Shubarkol from its own founders, adding it was now confident independent shareholders would back the deal.

The acquisition was postponed in November to give ENRC more time to woo minority investors, but the meeting has been reconvened for April 2. As a related party transaction, it will have to be approved by the independent shareholders.