Kazakhmys Reports $2.27 Billion Annual Loss with ENRC Write-Down

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Kazakh copper mining firm Kazakhmys (LN:KAZ) (Karaganda, Kazakhstan) reported a net loss of $2.27 billion last year, following a $2.39 billion write-down against the value of its 26% stake in Kazakhstan-focused miner Eurasian Natural Resources Corporation (ENRC) (LN:ENRC). Kazakhmys reported an annual profit of $930 million in 2011.

"The risk to Kazakhyms is above all from lower copper prices," said Darren Butler, a mining analyst at Barclays Capital in London. "Every 10% move in the copper price leads to a 33% change in 2013 earnings per share, making it by far the most geared of the pure plays to the copper price. It is worth noting the 2014 sensitivity increases, with a 10% change in copper leading to a 37% change in earnings."

The write-down on ENRC came after the company swung to an annual loss after being forced to write $1.5 billion off the value of its own assets. ENRC's write-downs are mostly related to its aluminium division, a sector that has long been suffering with the burden of high costs amid weak metal prices. Last week, ENRC said that alumina supply contract with OAO Rusal (ENX:RUSAL) (Moscow, Russia) will cost it $328 million. Kazakhmys reduced the carrying value of its ENRC stake to $2.03 billion at the end of 2012, compared with $4.6 billion at the end of 2011.

Mining stocks account for the four worst performers in the London's FTSE-100 index over the past 12 months, hurt by concern about falling commodity prices and rising costs. They also have the potential for the biggest returns in the coming year based on the difference between their current share price and the average 12-month price target of analysts tracking the stocks.

"Kazakhmys is facing a bleak few years," said Richard Curr, an analyst at Prime Markets in London. "Technically, we believe there is little standing in the way of the shares eventually returning to retest the all time lows in 2008 of around 220 pence. In order to arrest this very negative downward trend, Kazakhmys will need to deliver some good news sooner rather than later."

Kazakhmys stock dropped 9.5% to 401 pence after the announcement.

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