13th May 2009 07:00
13 May 2009
Eurasian Natural Resources Corporation PLC
May 2009 Interim Management Statement and
Production Report for the First-quarter Ended 31 March 2009
London - Eurasian Natural Resources Corporation PLC ('ENRC' or, together with its subsidiaries, the 'Group'), the holding company of a leading diversified natural resources group principally based in Kazakhstan, today announces its May 2009 Interim Management Statement and its Production Report for the First-quarter ended 31 March 2009.
Highlights for the 3 Months to 31 March 2009
Significant pricing pressure across all Divisions.
Better than expected sales and production volumes in Q1 2009, with production cutbacks in the Ferroalloys (excluding Serov and Tuoli) and Iron Ore Divisions, of around 30% and 35% respectively, in the period.
The Group achieved good control of unit costs across all of its businesses, helped in part by the devaluation of the tenge in February.
The Group maintained a strong balance sheet. Working capital remained well-controlled.
The Group acquired a 25% stake in Shubarkol, a major semi-coke and thermal coal producer in Kazakhstan, in February.
Outlook for 2009
The outlook for the full year remains unclear and it is premature to suggest that current levels of improved demand from China signal the onset of a global economic recovery.
Demand in Q2 2009 is ahead of our original expectations. We continue to closely monitor production levels.
We anticipate that pressure on prices will remain into H2 2009; particularly as the Group is selling a higher proportion of ferrochrome and iron ore at spot prices.
Continued focus on control of operating costs, combined with the recent devaluation, should help us maintain our competitive cost curve position. However, given the unit cost reductions already achieved, we expect our ability to reduce costs further to be limited.
"As indicated with our 2008 Preliminary Results, demand so far in 2009 has been better than we had anticipated. Given the current operating environment, we remain focused on the rigorous control of costs in order to maintain our competitive cost curve position. Whilst we remain appropriately cautious of the general outlook, in the near term we believe that the current improved production levels can be maintained, although they will be kept under constant review. With the benefit of a strong balance sheet, the Group continues to pursue productivity and replacement capex projects as well as selective acquisition opportunities. We believe that we are well positioned for future growth from our advantaged cost position and strategic location."
Dr Johannes Sittard, Chief Executive Officer
For further information, please contact:
|
ENRC: Investor Relations |
|
|
Mounissa Chodieva |
+44 (0) 20 7389 1879 |
|
James S Johnson |
+44 (0) 20 7389 1862 |
|
Marianna Adams |
+44 (0) 20 7389 1886 |
|
ENRC: Press Relations |
|
|
Julia Kalcheva |
+44 (0) 20 7389 1861 |
|
M: Communications |
|
|
Hugh Morrison |
+44 (0) 20 7153 1534 |
|
Edward Orlebar Elly Williamson |
+44 (0) 20 7153 1523 +44 (0) 20 7153 1539 |
Interim Management Statement and Production Report Conference Call Details
The Chief Financial Officer's briefing will be available as a live conference call for investors and analysts at 09.00 (BST) on Wednesday, 13 May 2009. The dial-in number for callers is +44 (0) 20 3037 9118, with the identifier, 'the ENRC call'. From shortly after the conference call there will be a replay available until Friday, 29 May 2009: Tel: +44 (0) 20 8196 1998, access code: 6745151#. A recording of the briefing will be posted on the website in due course.
Results timetable
|
Wednesday, 10 June 2009 |
Annual General Meeting |
|
Wednesday, 5 August 2009 |
2009 Q2 Production Report |
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Wednesday, 19 August 2009 |
2009 Half-year Results Announcement |
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Wednesday, 11 November 2009 |
2009 Second-half Interim Management Statement & 2009 Q3 Production Report |
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Wednesday, 3 February 2010 |
2009 Q4 Production Report |
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Wednesday, 24 March 2010 |
2009 Preliminary Results Announcement |
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Wednesday, 12 May 2010 |
2010 First-half Interim Management Statement & 2010 Q1 Production Report. |
All future dates are provisional and subject to change.
About ENRC
ENRC is a leading diversified natural resources group performing integrated mining, processing, energy, logistics and marketing operations. The operations comprise: the mining and processing of chrome, manganese and iron ore; the smelting of ferroalloys; the mining and processing of bauxite for the extraction of alumina and the production of aluminium; coal extraction and electricity generation, and the transportation and sales of Group products and railway repairs and engineering. The Group's production assets are principally located in the Republic of Kazakhstan. The Group's entities, for the year ended 31 December 2008, employed approximately 67,000 (2007: 64,000) people. In 2008, the Group accounted for approximately 5% of Kazakhstan's GDP. The Group currently sells its products around the world, with the majority of sales being to Russia, China, Japan, Western Europe and the United States. For the year ended 31 December 2008, the Group had revenue of US$6,823 million (2007: US$4,106 million) and profit attributable to equity shareholders of the Group of US$2,642 million (2007: US$798 million). For further information please see the Group's website, www.enrc.com.
Forward-looking statement
This announcement includes statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'plans', 'projects', 'anticipates', 'expects', 'intends', 'may', 'will', or 'should' or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include matters that are not historical facts or are statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies, and the industries in which the Group operates. Forward-looking statements are based on current plans, estimates and projections, and therefore too much reliance should not be placed upon them. Such statements are subject to risks and uncertainties, most of which are difficult to predict and generally beyond the Group's control. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. The Group cautions you that forward-looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the Group's actual results of operations, financial condition and liquidity and the development of the industry in which the Group operates may materially differ from those made in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the Group's results of operations, financial condition and liquidity and the development of the industry in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in future periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations, changes in business strategy, political and economic uncertainty. Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules or any applicable law or regulation, the Group expressly disclaims any obligation or undertaking publicly to review or confirm analysts expectations or estimates or to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Disclosure and Transparency Rules
This Interim Management Statement ('IMS') and Production Report is drafted to meet the requirements of the Disclosure and Transparency Rules of the United Kingdom Financial Services Authority ('FSA') to provide additional information to shareholders. The IMS should not be relied on for any other purpose or by any other party.
May 2009 Interim Management Statement
The information set out below, unless stated otherwise, relates to the three months ended 31 March 2009, and is compared to the corresponding three months of 2008. The Outlook includes an update for the period since 31 March 2009. Production cutbacks are referenced to the 2007 sales volumes of the ongoing businesses.
From Q2 2008, the Group included incremental sales from Serov, whilst Tuoli was incorporated from Q4 2008. In Q1 2009 Serov had limited activity, whilst Tuoli's production was suspended. In addition, the new aluminium smelter reached its full Phase 1 annual run rate production capacity of 125 thousand tonnes during Q2 2008.
Financial Review
Revenue
For the Group, sales volumes exceeded management's prior expectations for Q1 2009. The global economic background continued to be weak. As a result, compared to the prior year period, Q1 2009 showed significantly lower revenue, notably in the Ferroalloys Division. In the Iron Ore Division revenue also deteriorated, reflecting reduced sales to MMK, partially offset by increased sales to China. Alumina and Aluminium Division revenues were most impacted by lower aluminium prices. Third-party revenue improved in both the Energy and Logistics Divisions.
In the Ferroalloys Division, as a result of the production cutbacks announced in Q4 2008, Q1 2009 production was significantly lower than in the comparable period. However, sales in Q1 2009 were better than had been previously expected for the ongoing businesses and the outturn for production cutbacks was some 30% (referenced to 2007 sales volumes). Average ferroalloy sales prices decreased 26% compared to the comparable period, and declined 53% on Q4 2008. Realised prices were affected by the increased proportion of spot sales.
In the Iron Ore Division, as a result of the production cutbacks announced in Q4 2008, Q1 2009 production was significantly lower than in the comparable period. Sales in Q1 2009 were better than had been previously expected, mainly into China, and the outturn for production cutbacks was some 35% (referenced to 2007 sales volumes). Revenue from iron ore concentrate sales saw a moderate decline on the comparable period, whilst pellets revenue was exceptionally lower, reflecting a much reduced demand for higher-priced pellets relative to concentrate. Average sales prices increased 21% on the prior year period, but declined 24% on Q4 2008. Revenue from MMK sales in Q1 2009 was recognised at the contracted price.
In the Alumina and Aluminium Division, alumina sales volumes were maintained. Higher aluminium sales reflected the start-up of the new smelter in December 2007 and the ramp up in production; Q1 2009 includes sales at the full Phase 1 run rate. Revenue in the Division deteriorated sharply due to the 50% decline in the London Metal Exchange ('LME') price for aluminium against the corresponding period, and a 25% decline on Q4 2008.
Energy Division third-party revenue showed good growth compared to the corresponding period. This was mainly due to exceptionally strong third-party electricity sales, as more electricity was available for external sales offsetting a fall in internal consumption due to reduced demand from the Ferroalloys and Iron Ore Divisions. Third-party coal sales volumes deteriorated sharply because of lower customer demand as a result of the weakening economic environment and a milder winter, however, internal coal demand was broadly steady. Whilst Kazakhstani tenge, and Russian rouble, prices rose, the impact of the devaluation saw a net reduction in US dollar prices versus the comparable period - thermal coal fell 9% and electricity was down 6%.
In the Logistics Division, despite higher third party revenue, overall revenue was adversely affected by lower volumes of shipments and repairs.
Costs
Cost of sales for the Group fell significantly, although notably less than the decline in revenues. This was partially offset by the first time impact of Mineral Extraction Taxes ('MET'), amounting to some US$30 million in the period and reflecting the reduced rates of ore extraction.
The Group successfully continued to control underlying unit costs. In the period we achieved very significant reductions against average 2008 unit costs in the Alumina and Aluminium and Energy Divisions. Notwithstanding significant production cutbacks, the Group also achieved a reduction in the Ferroalloys Division, whilst Iron Ore Division unit costs were flat. The main drivers for reduced costs across the main operating Divisions were lower labour and transportation costs and reduced costs for key input materials, notably coke, anodes, fuel and explosives.
Distribution costs decreased significantly, mainly reflecting lower volumes, with an exceptional reduction in the Ferroalloys Division as proportionately more output was shipped to nearby China. Selling, general and administrative expenses also saw an exceptional reduction for the Group, a consequence of cost controls.
In addition, the 25% devaluation of the Kazakhstani tenge provided some additional benefit to certain input costs, such as labour, transportation costs and some input materials, and will help ensure that the Group maintains its competitive cost position. Any devaluation benefit will in part be offset by the foreign exchange forward hedge in place, as well as likely cost inflation and the growing incidence of the pegging of some supply prices to the US dollar.
Devaluation Impact on the Income Statement and Balance Sheet
The devaluation of the Kazakhstani tenge in early February 2009 gave rise to significant one-off foreign exchange movements on the revaluation of US dollar denominated balances in the Kazakhstani operations, primarily inter-company receivables and loans, and term deposits. In the Income Statement the Group recognised a foreign exchange gain in Other operating income and foreign exchange gains/losses in Finance income/costs (primarily on term deposits and inter-company loans to Kazakhstan) resulting in a significant one-off net gain to Profit before tax.
Separately, in the Group's Balance Sheet, the devaluation impact on net assets was reflected in a significant one-off reduction in the currency translation reserve within equity.
Taxation
There is potential for a reduction in the effective rate of tax for 2009 from the previous guidance - of 34.5%-35.5% (inclusive of Minerals Extraction Taxes ('MET') in the tax line) - given the outlook of reduced commodity prices and their prospective impact on MET and Excess Profit Tax ('EPT').
Balance Sheet
The Group's financial position is robust, with gross available funds as at 31 March 2009 of approximately US$2.4 billion. The Group continued to pay down its trade finance facility in line with the pre-determined schedule to December 2010; the amount outstanding was US$0.6 billion as at 31 March 2009. In addition the Group paid US$200 million for the acquisition of its stake in Shubarkol (See note 5).
As expected, total inventory levels for most products reduced significantly in Q1 2009, compared to the levels at 31 December 2008, notably for ferroalloys, alumina, aluminium and coal. There was a smaller reduction in iron ore inventories, whilst chrome ore inventories increased, anticipating stronger demand. Strict management of production resulted in stocks generally reducing to pre-crisis levels by the end of March 2009. Trade receivables were broadly flat against 31 December 2008.
Save as set out in this statement, there have been no material events, transactions or changes to the financial position of the Group since 31 December 2008.
Capital Expenditure and Projects Update
The current capital expenditure programme for the Group gives priority to replacement and productivity enhancing projects. During Q1 2009 the principal areas of expenditure were: expanded processing capacity, and the construction of a pelletiser in the Ferroalloys Division to be completed in 2009; the ongoing construction of Phase 2 of the aluminium smelter, including an anode plant; and expanded extraction capacity and the installation of an additional power unit (turbine 2) in the Energy Division. In addition, the Logistics Division is conducting design and engineering work on the China Gateway Project. There have been no revisions to the revised capital expenditure programme previously detailed in the 2008 Preliminary Results.
Outlook
Our current outlook remains broadly consistent with our comments in our Preliminary Results announcement on 25 March 2009. We continue to expect that market conditions will remain determined largely by demand factors in 2009.
Despite being significantly lower than the comparable period in 2008, sales volumes in Q1 2009 have been better than expected. However, the outlook for the full year remains unclear and it is premature to suggest that current levels of improved demand from China signal the onset of a global economic recovery.
Based on our current outlook for Q2 2009 the current production cutbacks in the Ferroalloys (excluding Serov and Tuoli) and Iron Ore Divisions, of 30% and 35% respectively, are not expected to be any greater through H1 2009, however, we continue to review the production plans for the businesses and will adjust appropriately to reflect demand. We also anticipate that pressure on prices will remain. Whilst we remain committed to cost control measures in the present environment we expect our ability to reduce costs further to be limited, notwithstanding the full quarter benefit of the currency devaluation going forward.
Notes
The Group's own measured consensus is of sell-side analysts' 2009 forecasts - based on a simple arithmetic mean of those analysts who have published since the 2008 Preliminary Results announcement and who have supplied to the Group their detailed estimates - and is as at the close of business on 12 May 2009. Consensus 2009 underlying EBITDA (excluding MET) is US$1,109 million; and consensus 2009 profit attributable to ordinary shareholders is US$548 million. The consensus MET is US$162 million.
Total costs: Cost of sales plus Distribution costs plus Selling, general and administrative expenses plus Other operating income/(expenses) net.
On 4 April 2008, the Group announced the completion of the acquisition of a controlling interest in the Serov group and certain related entities ('Serov'). Serov's results have been consolidated in the Group's Income Statement and Balance Sheet with effect from 4 April 2008.
On 15 October 2008 the Group completed its acquisition of a 50% stake in Xinjiang Tuoli Taihang Ferro-Alloy Co. LTD ('Tuoli'), a Chinese ferroalloys producer. The joint venture company has been renamed Xinjiang Tuoli ENRC Taihang Chrome Co. Ltd ('Tuoli'). Tuoli is accounted for by the Group as a subsidiary.
On 16 February 2009 the Group acquired a 25% interest in Shubarkol Komir JSC ('Shubarkol'), a major semi-coke and thermal coal producer in Kazakhstan, for a gross cash consideration of US$200 million. In addition the Group has a right of first refusal, combined with a call option, over all or part of the remaining shares in Shubarkol held by EFIC. The call option is exercisable (at the Group's discretion) at any time until 31 January 2011 and is expected to be subject to the approval of the Group's shareholders with any required regulatory approvals having been obtained. Shubarkol is accounted for as an associate.
The Directors recommended a final dividend for the year ended 31 December 2008 of 19 US cents per ordinary share in the Company. If the recommended final dividend is approved at the Annual General Meeting, to be held on Wednesday, 10 June 2009, this will be paid on Wednesday, 17 June 2009, to all registered shareholders on the Register of Members at close of business on 3 April 2009.
The Kazakhstani tenge ('KZT') to US dollar ('US$') spot exchange rate as at 31 March 2009 was KZT151.40/US$1.00. The average exchange rate for the three months ended 31 March was KZT138.97/US$1.00; the average exchange rate for Q1 2008 was KZT120.45/US$1.00.
On 4 February 2009 the National Bank of Kazakhstan announced that it would support the Kazakhstani tenge within a range of approximately +/-3% of KZT150/US$1.00, resulting in the devaluation of the tenge to this level. The weakening of the KZT against the US dollar gives rise to foreign currency translation losses on the carrying value of net assets, which on consolidation are charged directly to equity, and a translation gain recorded in the Income Statement. The devaluation has a beneficial impact on the profitability of ENRC's core commodity businesses as its revenues are largely based on US dollar metals prices and most of its costs are in KZT. However, there is an adverse impact for the Energy and Logistics Divisions since most of their revenues are denominated in KZT. Inflationary pressures may occur later in 2009 due to the change in the relative purchasing power of the KZT against the US dollar for imported goods and services.
Production Report for the First-quarter Ended 31 March 2009
In the quarter ended 31 March 2009, production volumes in the Ferroalloys and Iron Ore Divisions were broadly at the same levels as in Q4 2008, as production had been cut back in response to market conditions and reduced demand that affected the industry. For the Alumina and Aluminium Division production volumes were broadly steady on the levels of Q4 2008. Ore grades remained broadly consistent with the corresponding period. In the Energy Division there was an increase in the electricity generated and external sales increased significantly. Coal production volumes reduced, mainly due to lower external demand.
Ferroalloys Division (excluding Serov and Tuoli). Production volumes decreased, reflecting the previously announced cutback in ferrochrome production for the ongoing business of the Division from Q4 2008:
(31.3%) for saleable chrome ore;
(55.5%) for manganese concentrate; and
(37.4%) for total ferroalloys, with silicomanganese production remaining broadly steady.
The current 30% ferrochrome production cutback (referenced to 2007 sales volumes) is not expected to any be greater through H1 2009. Serov added saleable chrome ore production of 6 thousand tonnes and total ferroalloys production of 19 thousand tonnes. Production was cut back in Serov in Q1 2009 by approximately 70% compared to Q3 2008 volumes. Tuoli's output remained suspended in Q1 2009.
Iron Ore Division. Production volumes decreased, reflecting the previously announced cutback for the Division:
(34.8%) for iron ore extraction;
(34.3%) for primary concentrate; and
(32.3%) for saleable ore.
The current 35% production cutback is not expected to any be greater through H1 2009. There was a change in the saleable mix with an increased proportion of concentrate. Pellet production declined 61.1%, however saleable concentrate production decreased only 1.9%.
Alumina and Aluminium Division. Production volumes were broadly steady for saleable alumina, with a decrease of 0.8% compared to Q1 2008. Aluminium production increased 93.8% compared to Q1 2008, reflecting the ramping up of production in H1 2008. The Division produced 31 thousand tonnes of aluminium, in line with the Phase 1 run rate capacity of 125 thousand tonnes per annum. Bauxite extraction decreased slightly, in line with the destocking of material at the mines.
Energy Division. Production volumes decreased 7.8% for coal extracted, principally due to reduced coal demand. Electricity external sales increased about two times, reflecting lower internal consumption and increased capacity underpinning an 8.3% increase in electricity generated.
Logistics Division. The tonnage of goods transported by railway decreased 17.6% as a result of reduced production in the main operating Divisions.
The information set out in this Production Report, unless stated otherwise, relates to the three months ended 31 March 2009, and is compared to the corresponding three months ended 31 March 2008. Production volumes for Q4 2008 are provided for information only. Within the Ferroalloys Division production volumes, unless otherwise stated, exclude Serov, which was incorporated by the Group from 4 April 2008, and Tuoli, which was included by the Group from 15 October 2008. All references to 't' in the Production Report are to metric tonnes unless otherwise stated.
FERROALLOYS DIVISION
Ore Mining and Processing - Excluding Serov and Tuoli
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Chrome ore |
|||||
|
Ore extraction (Run of Mine, 'RoM') |
000' t |
834 |
1,191 |
(30.0%) |
850 |
|
Processing of low grade stockpiles |
000' t |
0 |
372 |
NA |
253 |
|
Saleable ore production |
000' t |
618 |
900 |
(31.3%) |
681 |
|
Internal consumption of saleable ore |
000' t |
367 |
645 |
(43.1%) |
394 |
|
- percentage |
59.4% |
71.7% |
57.9% |
||
|
Manganese ore |
|||||
|
Ore extraction (RoM) |
000' t |
323 |
447 |
(27.7%) |
429 |
|
Processing of low grade stockpiles |
000' t |
169 |
107 |
57.9% |
289 |
|
Saleable concentrate production |
000' t |
81 |
182 |
(55.5%) |
144 |
|
Internal consumption of saleable concentrate |
000' t |
59 |
85 |
(30.6%) |
55 |
|
- percentage |
72.8% |
46.7% |
38.2% |
||
|
Iron-Manganese ore |
|||||
|
Ore extraction (RoM) |
000' t |
40 |
75 |
(46.7%) |
25 |
|
Processing of low grade stockpiles |
000' t |
0 |
155 |
NA |
89 |
|
Saleable concentrate production |
000' t |
0 |
100 |
NA |
48 |
In Q1 2009 production in the Ferroalloys Division (excluding Serov and Tuoli) was cut back in response to significantly reduced customer demand and to avoid an inventory build up, continuing the actions taken in Q4 2008. Chrome ore extraction was reduced to match internal consumption and sales requirements.
As a result, chrome ore extraction amounted to 834 thousand tonnes, a decrease of 30.0% from the comparable quarter, and a reduction of 16 thousand tonnes, or 1.9%, from Q4 2008. Processing of low grade ore from stockpiles fell to zero as all available stocks had been processed during Q4 2008. From the extracted ore the Division produced 618 thousand tonnes of saleable chrome ore, a 31.3% decrease on the comparable period, and a reduction of 63 thousand tonnes, or 9.3%, from Q4 2008. Of the saleable chrome ore produced, 367 thousand tonnes, representing 59.4% (2008: 71.7%), was consumed internally to produce chrome ferroalloys.
Reflecting similar external market factors, manganese ore extraction decreased 27.7% to 323 thousand tonnes, whilst the processing of low grade stocks rose 57.9% to 169 thousand tonnes. Total manganese concentrate production decreased 55.5% to 81 thousand tonnes in response to a very significant reduction in export sales. Production at Zhairemsky GOK, which mainly sells concentrates to export markets, decreased 62.8% to 57 thousand tonnes. Production at Kazmarganets GOK which supplies manganese concentrates to the Aksu ferroalloys plant of TNC Kazchrome JSC for use in silico-manganese production, fell 17.3% to 23 thousand tonnes. The decline reflected a decrease of 9.8% in silico-manganese production, due to lower market demand, and the use of inventory stocks of concentrate. The proportion of total manganese concentrate production consumed internally increased significantly to 72.8% (2008: 46.7%). There was no production of saleable iron-manganese concentrate due to a lack of demand.
Ore Mining and Processing - Including Serov from Q2 2008
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Chrome ore |
|||||
|
Ore extraction (RoM) |
000' t |
843 |
1,191 |
(29.2%) |
887 |
|
Processing of low grade stockpiles |
000' t |
0 |
372 |
NA |
253 |
|
Saleable ore production |
000' t |
623 |
900 |
(30.8%) |
704 |
|
Internal consumption of saleable ore |
000' t |
388 |
645 |
(39.8%) |
462 |
|
- percentage |
62.3% |
71.7% |
65.6% |
Serov did not have a significant impact on the volume of ore extracted by the Ferroalloys Division in Q1 2009 (Q1 2008: not applicable). Serov's ore extraction was 9 thousand tonnes and saleable ore production was 6 thousand tonnes (see Note 3 below). Serov was impacted by production cutbacks in Q3 and Q4 2008.
Saleable ore production decreased 30.8%, of which a 31.3 percentage points decrease was attributable to the existing business and a 0.5 percentage points increase was attributable to Serov. Despite the inclusion of Serov there was a decrease in internal consumption of 257 thousand tonnes, or 39.8%, with Serov's own internal consumption increasing to 83.3% (Q4 2008: 47.8%). The overall proportion of ore consumed internally from total saleable ore production decreased to 62.3% (2008: 71.7%).
Ferroalloys Production - Excluding Serov and Tuoli
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Ferrochrome |
000' t |
193 |
293 |
(34.1%) |
194 |
|
- High-carbon |
000' t |
188 |
273 |
(31.1%) |
175 |
|
- Medium-carbon |
000' t |
3 |
12 |
(75.0%) |
11 |
|
- Low-carbon |
000' t |
2 |
8 |
(75.0%) |
8 |
|
Ferrosilicochrome |
000' t |
4 |
29 |
(86.2%) |
21 |
|
Silico-manganese |
000' t |
37 |
41 |
(9.8%) |
26 |
|
Ferro-silicon |
000' t |
0 |
12 |
NA |
5 |
|
Total ferroalloys |
000' t |
234 |
374 |
(37.4%) |
246 |
|
Internal consumption of ferroalloys |
000' t |
40 |
43 |
(7.0%) |
37 |
|
- percentage |
17.1% |
11.5% |
15.0% |
Note: table may not sum precisely due to roundings.
In Q1 2009, the Ferroalloys Division (excluding Serov and Tuoli) produced 234 thousand tonnes of ferroalloys, a decrease of 37.4%. Within this the Division produced 193 thousand tonnes of ferrochrome, a decrease of 34.1%, at the same level as in Q4 2008. High-carbon ferrochrome production decreased 31.1% from the comparable period of 2008, but increased 7.4% versus Q4 2008. Internal consumption of ferroalloys decreased 3 thousand tonnes, or 7.0%, but the rate of internal consumption of total ferroalloys production rose to 17.1% (Q1 2008: 11.5%).
To avoid the creation of excess inventory the Group managed production cutbacks broadly in line with market demand which in Q1 2009 resulted in a ferrochrome production cutback of about 30%. There was significant variation in the production mix of specific alloys. High-carbon ferrochrome production increased 13 thousand tonnes relative to Q4 2008 and silico-manganese production increased 42.3%, whilst the decrease in the production of silico-manganese compared to Q1 2008 was only 9.8%. The production of medium- and low-carbon ferrochrome and ferrosilicochrome decreased dramatically, by more than 75% from both Q1 2008 and Q4 2008. These cutbacks reflect a significant slowdown in the engineering and alloy steel markets, notably in Japan and Russia. Ferro-silicon production was suspended due to a decrease in demand.
Ferroalloys Production - Including Serov from Q2 2008 and Tuoli from Q4 2008
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Ferrochrome |
000' t |
203 |
293 |
(30.7%) |
224 |
|
- High-carbon |
000' t |
190 |
273 |
(30.4%) |
188 |
|
- Medium-carbon |
000' t |
3 |
12 |
(75.0%) |
19 |
|
- Low-carbon |
000' t |
10 |
8 |
25.0% |
17 |
|
Ferrosilicochrome |
000' t |
10 |
29 |
(65.5%) |
32 |
|
Silico-manganese |
000' t |
37 |
41 |
(9.8%) |
26 |
|
Ferro-silicon |
000' t |
2 |
12 |
(83.3%) |
7 |
|
Total ferroalloys |
000' t |
253 |
374 |
(32.4%) |
290 |
|
Internal consumption of ferroalloys |
000' t |
48 |
43 |
11.6% |
52 |
|
- percentage |
19.0% |
11.5% |
17.9% |
Note: table may not sum precisely due to roundings.
The acquisition of Serov added significantly to the Division's production capacity, especially in low- and medium-carbon ferrochrome and ferro-silicon. However, Serov did not add significant production volumes to the Group in Q1 2009 as production was cut back approximately 70% relative to the incremental capacity (200 thousand tonnes per annum). The cutbacks in ferroalloys production in Serov in Q4 2008 and in Q1 2009 reflected market conditions and the relatively higher cost position of Serov's operations within the Group. Serov added 19 thousand tonnes to total ferroalloys production (see Note 3 below) in Q1 2009.
Tuoli, which was acquired early in Q4 2008, also added significant capacity (120 thousand tonnes per annum of high-carbon ferrochrome) to the Group. However, output was suspended in response to external market conditions in Q4 2008 and remained suspended through Q1 2009, reflecting the relatively higher cost position of Tuoli's operations within the Group.
In Q1 2009, the Ferroalloys Division produced 253 thousand tonnes of ferroalloys, a decrease of 32.4%. Of this, a decline of 37.4 percentage points was attributable to the existing business, partially offset by a 5.0 percentage points increase attributable to Serov and Tuoli.
IRON ORE DIVISION
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Ore extraction (RoM) |
000' t |
6,617 |
10,142 |
(34.8%) |
6,111 |
|
Primary concentrate production |
000' t |
2,657 |
4,046 |
(34.3%) |
2,448 |
|
Saleable concentrate production |
000' t |
1,834 |
1,870 |
(1.9%) |
1,225 |
|
Saleable pellet production |
000' t |
770 |
1,979 |
(61.1%) |
1,128 |
In Q1 2009, the Iron Ore Division extracted 6,617 thousand tonnes of iron ore, a decrease of 34.8%, largely reflecting the production cutback announced in Q4 2008 in response to the significant reduction in iron ore demand and sales. Ore extraction rose in Q1 2009 against Q4 2008 by 506 thousand tonnes, or 8.3%, in response to improved sales. The Group managed production cutbacks broadly in line with market demand which in Q1 2009 resulted in a production cutback of about 35% to primary iron ore concentrate (in Q4 2008, the production cutback was 50%). From the extracted ore the Division produced 2,657 thousand tonnes of primary concentrate, a decrease of 34.3%, but an increase by 209 thousand tonnes, or 8.5%, compared to Q4 2008.
Primary concentrate is either sold as saleable concentrate or used for pellet production. Saleable concentrate production (with an iron content of 66.1%) was broadly steady, decreasing 1.9%, at 1,834 thousand tonnes (609 thousand tonnes, or a 49.7% increase on Q4 2008).
Pellet production (with an iron content of 63.7%) decreased 61.1% to 770 thousand tonnes. This reflected a particularly significant reduction in the demand for pellets.
ALUMINA AND ALUMINIUM DIVISION
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Bauxite extraction (RoM) |
000' t |
1,175 |
1,276 |
(7.9%) |
1,240 |
|
Alumina production |
000' t |
395 |
398 |
(0.8%) |
402 |
|
Internal consumption of alumina |
000' t |
59 |
33 |
78.8% |
59 |
|
- percentage |
14.9% |
8.3% |
14.7% |
||
|
Aluminium production |
000' t |
31 |
16 |
93.8% |
31 |
|
Gallium production |
kilogrammes |
4,302 |
3,991 |
7.8% |
4,931 |
Alumina and Aluminium Division production remained largely unaffected by weaker market conditions, largely due to the long-term contract and continued strength of the business with the Division's main customer. In Q1 2009, the Alumina and Aluminium Division extracted 1,175 thousand tonnes of bauxite, a decrease of (7.9%), but with some additional consumption from inventory. Alumina production from bauxite was 395 thousand tonnes, a decrease of only 0.8%.
Production commenced at the aluminium smelter during Q4 2007 and was ramped up through H1 2008 to reach the Phase 1 run rate capacity of 125 thousand tonnes per annum in Q2 2008. As a result, a higher proportion of alumina output is now consumed internally as a material input for the Group's own primary aluminium production. Internal consumption of alumina amounted to 59 thousand tonnes in Q1 2009, representing 14.9% (Q4 2009: 14.7%) of total alumina production.
Primary aluminium production in Q1 2009 was the same as in Q4 2008 at 31 thousand tonnes, reflecting the smelter working at its full Phase 1 run rate capacity.
Gallium production in Q1 2009 was 4,302 kilogrammes, a 7.8% increase. Production was 12.8% down on Q4 2008 reflecting the lower gallium content in the bauxite extracted during the latest quarter.
ENERGY DIVISION
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Coal extraction (RoM) |
000' t |
5,284 |
5,732 |
(7.8%) |
5,402 |
|
Energy Division consumption of coal |
000' t |
2,087 |
1,912 |
9.2% |
1,773 |
|
- percentage |
39.5% |
33.4% |
32.8% |
||
|
Sales of coal to other Group Divisions |
000' t |
1,260 |
1,388 |
(9.2%) |
1,341 |
|
- percentage |
23.8% |
24.2% |
24.8% |
||
|
Electricity generation |
GWh |
3,390 |
3,130 |
8.3% |
2,877 |
|
Sales of electricity to other Group Divisions |
GWh |
1,474 |
2,044 |
(27.9%) |
1,587 |
|
- percentage |
43.5% |
65.3% |
55.2% |
In Q1 2009, the Energy Division extracted 5,284 thousand tonnes of coal from the Vostochny mine, a decrease of 7.8%. The 448 thousand tonnes reduction in coal extraction was predominantly due to reduced third party sales, reflecting lower demand due to the weakening economy and a relatively mild winter and with some sales supplied from stock.
Electricity generation in the period was 3,390 GWh, an increase of 8.3%. Electricity supplied by the Energy Division to other Group entities was 1,474 GWh, or 43.5% of total energy generation. This was 570 GWh less than in the comparable quarter of 2008 (65.3% of total energy generation), in response to reduced internal energy requirements for production from the Group's main commodity Divisions.
The impact of the new aluminium smelter in Q1 2009 was to increase the Group's internal consumption of electricity by 179 GWh, 5.3% of the total output in the period (Q1 2009: 485 GWh; Q4 2008: 476 GWh; Q1 2008: 306 GWh). The 749 GWh reduction in internal energy consumption by the ongoing businesses of the Group in the period reflected production cutbacks in the Ferroalloys (627 GWh) and Iron Ore (122 GWh) Divisions.
External sales of electricity increased about two times on the comparable period. Against Q4 2008, external sales of electricity increased 58% as reduced internal consumption allowed for more to be available for third-party external sales.
LOGISTICS DIVISION
|
Q1 2009 |
Q1 2008 |
Q1 2009 v Q1 2008 % growth |
Q4 2008 |
||
|
Tonnage of the Group's products transported by railway |
000' t |
12,734 |
15,450 |
(17.6%) |
12,812 |
In Q1 2009 the Logistics Division transported 12,734 thousand tonnes by railway, a decrease of 17.6%. This was broadly at the same level as in Q4 2008. The decline versus the comparable period principally reflected reduced production in the Ferroalloys and Iron Ore Divisions.
Notes
1. The Production Report for the first-quarter ended 31 March 2009 is published in accordance with Rule 4.3 of the Disclosure and Transparency Rules ('DTR') of the United Kingdom Financial Services Authority ('FSA').
2. Definition of Run of Mine ('RoM'): uncrushed ore in its natural state, as when it is blasted.
3. On 4 April 2008, the Group announced the completion of the acquisition of a controlling interest in the Serov group and certain related entities ('Serov'). Serov's results have been consolidated in the Group's Income Statement with effect from Q2 2008.
Ferroalloys Division: Serov - Ore Mining and Processing - Quarter ended 31 March 2009
|
Q1 2009 |
Q4 2008 |
Q3 2008 |
Q2 2008 |
||
|
Chrome ore |
|||||
|
Ore extraction (RoM) |
000' t |
9 |
37 |
33 |
54 |
|
Saleable ore production |
000' t |
6 |
23 |
20 |
34 |
|
Internal consumption of saleable ore |
000' t |
5 |
11 |
23 |
35 |
|
- percentage |
83.3% |
47.8% |
115.0% |
102.9% |
|
|
Consumption of saleable ore from Kazchrome |
000' t |
16 |
45 |
71 |
78 |
Note: internal consumption of saleable ore above 100% reflected consumption from stock.
Ferroalloys Division: Serov - Ferroalloys Production - Quarter ended 31 March 2009
|
Q1 2009 |
Q4 2008 |
Q3 2008 |
Q2 2008 |
||
|
Ferrochrome |
000' t |
10 |
27 |
45 |
46 |
|
- High-carbon |
000' t |
2 |
9 |
22 |
23 |
|
- Medium-carbon |
000' t |
0 |
8 |
8 |
8 |
|
- Low-carbon |
000' t |
8 |
10 |
15 |
15 |
|
Ferrosilicochrome |
000' t |
6 |
10 |
15 |
15 |
|
Ferro-silicon |
000' t |
2 |
2 |
10 |
8 |
|
Total ferroalloys |
000' t |
19 |
39 |
69 |
70 |
|
Internal consumption of ferroalloys |
000' t |
8 |
14 |
19 |
22 |
|
- percentage |
42.1% |
35.9% |
27.5% |
31.4% |
|
|
Internal consumption of ferroalloys from Kazchrome (High-carbon Ferrochrome and Ferrosilicochrome) |
000' t |
1 |
1 |
3 |
0 |
Note: table may not sum precisely due to roundings.
4. On 15 October 2008 the Group announced the completion of the acquisition of a 50% stake in Xinjiang Tuoli Taihang Ferro-Alloy Co. LTD, a Chinese ferroalloys producer. The joint venture company has been renamed Xinjiang Tuoli ENRC Taihang Chrome Co. Ltd ('Tuoli'). Tuoli is accounted for by the Group as a subsidiary and its results have been consolidated in the Group's Income Statement with effect from Q4 2008.
Ferroalloys Division: Tuoli - Ferroalloys Production - Quarter ended 31 March 2009
|
Q1 2009 |
Q4 2008 |
||
|
Ferrochrome |
000' t |
0 |
4 |
|
- High-carbon |
000' t |
0 |
4 |
|
Total ferroalloys |
000' t |
0 |
4 |
|
Internal consumption of ferroalloys |
000' t |
0 |
0 |
|
- percentage |
n/a |
n/a |
|
|
Consumption of saleable ore from Kazchrome |
000' t |
0 |
12 |
- ENDS -
Production Data for Q1 2009 and the 4 quarters ended 31 December 2008
Notes:
Tables may not sum precisely due to roundings.
2007 quarterly production data is available on the website (www.enrc.com).
FERROALLOYS DIVISION (Including Serov from Q2 2008 and Tuoli from the Q4 2008)
|
2009 |
2008 |
|||||||||||
|
'000 Metric Tonnes = ('t') |
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
year |
Q1 '09 vs. Q1 '08 |
|||||
|
Chrome Ore |
||||||||||||
|
Ore Extraction (RoM) |
843 |
1,191 |
1,116 |
1,137 |
887 |
4,331 |
(29.2%) |
|||||
|
Processing of low grade stockpiles |
0 |
372 |
436 |
375 |
253 |
1,437 |
NA |
|||||
|
Saleable ore production |
623 |
900 |
1,014 |
1,011 |
704 |
3,629 |
(30.8%) |
|||||
|
Internal consumption of saleable ore |
388 |
645 |
760 |
727 |
462 |
2,594 |
(39.8%) |
|||||
|
- percentage |
62.3% |
71.7% |
75.0% |
71.9% |
65.6% |
71.5% |
||||||
|
Manganese Ore |
||||||||||||
|
Ore Extraction (RoM) |
323 |
447 |
696 |
717 |
429 |
2,290 |
(27.7%) |
|||||
|
Processing of low grade stockpiles |
169 |
107 |
338 |
301 |
289 |
1,035 |
57.9% |
|||||
|
Saleable ore production |
81 |
182 |
349 |
350 |
144 |
1,024 |
(55.5%) |
|||||
|
Internal consumption of saleable ore |
59 |
85 |
80 |
87 |
55 |
307 |
(30.6%) |
|||||
|
- percentage |
72.8% |
46.7% |
22.9% |
24.9% |
38.2% |
30.0% |
||||||
|
Iron-Manganese Ore |
||||||||||||
|
Ore Extraction (RoM) |
40 |
75 |
80 |
148 |
25 |
328 |
(46.7%) |
|||||
|
Processing of low grade stockpiles |
0 |
155 |
176 |
64 |
89 |
484 |
NA |
|||||
|
Saleable ore production |
0 |
100 |
151 |
133 |
48 |
433 |
NA |
|||||
|
Ferrochrome |
203 |
293 |
340 |
339 |
224 |
1,196 |
(30.7%) |
|||||
|
- High-carbon |
190 |
273 |
296 |
297 |
188 |
1,054 |
(30.4%) |
|||||
|
- Medium-carbon |
3 |
12 |
20 |
18 |
19 |
69 |
(75.0)% |
|||||
|
- Low-carbon |
10 |
8 |
24 |
24 |
17 |
73 |
25.0% |
|||||
|
Ferrosilicochrome |
10 |
29 |
49 |
46 |
32 |
156 |
(65.5%) |
|||||
|
Silico-manganese |
37 |
41 |
38 |
42 |
26 |
147 |
(9.8%) |
|||||
|
Ferro-silicon |
2 |
12 |
16 |
17 |
7 |
52 |
(83.3%) |
|||||
|
Total ferroalloys |
253 |
374 |
443 |
444 |
290 |
1,551 |
(32.4%) |
|||||
|
Internal consumption of ferroalloys |
48 |
43 |
67 |
68 |
52 |
230 |
11.6% |
|||||
|
- percentage |
19.0% |
11.5% |
15.1% |
15.3% |
17.9% |
14.8% |
||||||
IRON ORE DIVISION
|
2009 |
2008 |
||||||||||
|
'000 Metric Tonnes = ('t') |
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
year |
Q1 '09 vs. Q1 '08 |
||||
|
Ore extraction (RoM) |
6,617 |
10,142 |
10,722 |
10,776 |
6,111 |
37,751 |
(34.8%) |
||||
|
Primary concentrate production |
2,657 |
4,046 |
4,479 |
4,514 |
2,448 |
15,487 |
(34.3%) |
||||
|
Saleable concentrate production |
1,834 |
1,870 |
2,260 |
2,481 |
1,225 |
7,835 |
(1.9%) |
||||
|
Saleable pellets production |
770 |
1,979 |
1,984 |
1,860 |
1,128 |
6,952 |
(61.1%) |
||||
ALUMINA AND ALUMINIUM DIVISION
|
2009 |
2008 |
||||||||||
|
'000 Metric Tonnes = ('t') |
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
year |
Q1 '09 vs. Q1 '08 |
||||
|
Bauxite extraction (RoM) |
1,175 |
1,276 |
1,310 |
1,334 |
1,240 |
5,160 |
(7.9%) |
||||
|
Alumina production |
395 |
398 |
398 |
402 |
402 |
1,600 |
(0.8%) |
||||
|
Internal consumption of alumina |
59 |
33 |
56 |
61 |
59 |
209 |
78.8% |
||||
|
- percentage |
14.9% |
8.3% |
14.1% |
15.2% |
14.7% |
13.1% |
|||||
|
Aluminium production |
31 |
16 |
27 |
32 |
31 |
106 |
93.8% |
||||
|
Gallium production (kilogrammes) |
4,302 |
3,991 |
4,852 |
4,892 |
4,931 |
18,666 |
7.8% |
||||
ENERGY DIVISION
|
2009 |
2008 |
||||||||||
|
'000 Metric Tonnes = ('t') |
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
year |
Q1 '09 vs. Q1 '08 |
||||
|
Coal extraction (RoM) |
5,284 |
5,732 |
4,436 |
4,220 |
5,402 |
19,790 |
(7.8%) |
||||
|
Energy Division consumption of coal |
2,087 |
1,912 |
1,733 |
1,729 |
1,773 |
7,148 |
9.2% |
||||
|
- percentage |
39.5% |
33.4% |
39.1% |
41.0% |
32.8% |
36.1% |
|||||
|
Sales of coal to other Group Divisions |
1,260 |
1,388 |
1,020 |
1,024 |
1,341 |
4,773 |
(9.2%) |
||||
|
- percentage |
23.8% |
24.2% |
23.0% |
24.3% |
24.8% |
24.1% |
|||||
|
Electricity generation (GWh) |
3,390 |
3,130 |
2,825 |
2,808 |
2,877 |
11,640 |
8.3% |
||||
|
Sales of electricity to Group Divisions (GWh) |
1,474 |
2,044 |
2,129 |
2,214 |
1,587 |
7,974 |
(27.9%) |
||||
|
- percentage |
43.5% |
65.3% |
75.4% |
78.8% |
55.2% |
68.5% |
|||||
LOGISTICS DIVISION
|
2009 |
2008 |
||||||||||
|
'000 Metric Tonnes = ('t') |
Q1 |
Q1 |
Q2 |
Q3 |
Q4 |
year |
Q1 '09 vs. Q1 '08 |
||||
|
Tonnage of the Group's products transported by railway |
12,734 |
15,450 |
14,854 |
15,373 |
12,812 |
58,489 |
(17.6%) |
||||
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