Eurasian Natural Resources Corporation Begins Construction of 440,000-Ton Kazakh Smelter

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading metals and mining group, Eurasian Natural Resources Corporation plc (LSE:ENRC) (ENRC) (London, England), has started construction of a direct-current smelter in Aktobe, Kazakhstan. Construction of the project will be executed by the group's ferroalloys division. The state-of-the-art facility will produce 440,000 tons per year of high-carbon ferrochrome using four direct-current furnaces. The total cost of the project is estimated to be about $590 million. The smelter is scheduled to be commissioned by 2012.

The facility will help ENRC not only in expanding smelting operations in Aktobe, but also to gradually phase out older units. The new advanced smelter is expected to augment ENRC's productivity and also deliver huge cost savings on raw materials and reductants. Company officials have stated that the environmentally friendlier and fully automated production facility will be built with the latest safety standards and equipment. Arrangements have also been made to undertake complete recycling of slag produced in the ferrochrome-manufacturing process.

ENRC is a leading name in the natural resources and minerals sector in Kazakhstan. The company, which is 11.65% government-controlled, operates five business divisions focused on the logistics, minerals- and metals-processing, power, and mining sectors. ENRC owns large reserves of manganese, iron ore, bauxite, chromium and coal. The firm is one of the world's largest producers of ferrochrome and is also one of Kazakhstan's largest electricity providers. The company is ranked ninth in the global list of top producers of traded alumina. The company's facilities are strategically located to cater to the needs of consumers in Russia, China, Europe and other Central Asian countries. In 2008-09, the group made capital expenditures of about $1.3 billion.

In a related development, ENRC acquired a stake of 25% in Kazakhstan's leading thermal electricity producer, Shubarkol Komir JSC (Karaganda, Kazakhstan), for $200 million. As of July 1, 2008, Shubarkol had coal reserves of about 1.419 billion tons, with proven reserves of about 365 million tons.

During the first half of 2009, ENRC's total ferrochrome production fell 24.5% year over year to 478,000 tons, while ferroalloy output slumped 28.4% to 585,000 tons, and extraction of iron ore declined by 28.2% to 14.985 million tons. This has been attributed to the global financial meltdown, which led to a plunge in commodity prices and reduced customer demand.

During the first quarter of 2009, ENRC was forced to undertake cutbacks of 35% for primary iron ore and 30% for ferroalloys production. This move was made to bring down piling inventory. During the second quarter of this year, iron ore pellets production was up 63.5% compared to the previous quarter, while ferrochrome output increased 35.8%. During the first half of 2009, the company recorded revenues of $1.695 billion, a dip of 50.8% year over year. Company officials are optimistic about a spur in demand during the second half of this year caused by increased demand from China and other Asian countries.

ENRC CEO Johannes Sittard recently indicated that the rise in demand in the next quarter is expected to increase the price of ferrochrome globally. He said that ENRC has already started operating facilities at full capacity in order to meet growing demand. In the last quarter of this year, the global price of ferrochrome is expected to increase at least 10%. In 2008, iron ore contributed about 21% to ENRC's revenues, while alumina and ferrochrome accounted for 12% and 58%, respectively.

Kazakhstan is richly endowed with natural resources and minerals. Spread across 2.7 million square kilometers, Kazakhstan is the ninth-largest country in the world. Minerals, metals, oil and gas are the key contributors to the country's economy and gross domestic product. The country is rich in iron ore, zinc, uranium, gold, copper and coal. Kazakhstan also has substantial reserves of manganese, chrome, molybdenum, nickel, silver and lead. The country is the world leader in the production of tungsten, zinc and bauxite, and stands second in production of chrome, lead and silver. In 2008, ENRC contributed about 5% to Kazakhstan's GDP.

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