ENRC back to capacity on core metals

Diversified miner Eurasian Natural Resources Corporation (ENRC) has released a fourth quarter 2009 update which shows that production in its core ferroalloy and iron ore operations in Kazakhstan is essentially back up to full capacity, following cutbacks from late 2008 onwards due to lower demand. Ferroalloy production was up 54.5 per cent year-on-year, and 8.5 per cent on the third quarter, while primary iron ore concentrate production was up 79.3 per cent year-on-year, although 3.7 per cent down on the third quarter due to adverse weather.

Aluminium output climbed as Phase 2 of the company's newly-built smelter was initiated. Fourth quarter 2009 also includes the first official contribution from the Congolese copper and cobalt assets of what was previously Aim-listed mining play CAMEC, the acquisition of which ENRC completed in December.

CREDIT SUISSE says...

Outperform. Overall a solid production report with ongoing recovery in volumes and the fourth quarter of 2009 close to full capacity across all divisions. While primary iron ore concentrate production was four per cent lower quarter-on-quarter due to harsh weather, the increase in higher-margin pellet production, with volumes up 23 per cent quarter-on-quarter, was positive. We maintain our overweight recommendation; we expect ferrochrome prices to rise in 2010 and believe consensus estimates are too low. The valuation is attractive and growth catalysts are ahead. Anticipate full year 2009 adjusted EPS of 65¢ (2008 actual adjusted - 205¢).

LIBERUM CAPITAL says...

Conditional buy. ENRC looks fully-valued on a 12x price-earnings ratio if 2010 earnings are calculated on the basis of current spot commodity prices. Ferrochrome producers are reportedly looking for a 30 per cent increase (to $1.30 per lb) in the contract price for the next quarter, which will make ENRC attractive at 9.9x price-earnings on 2010 earnings (assuming a 40 per cent iron ore price increase in tandem). Current ferrochrome spot price (albeit in a thin market) is $1.07/lb. Given acquisition risk and possible Kazakh tenge revaluation, we remain cautious on ENRC at current levels, but will be buyers at a ferrochrome price above $1.20/lb, due to its low cost position and growth options via CAMEC.