Kazakhmys, the London-listed Central Asian copper giant, is scrapping its dividend to save cash in the face of a 30 per cent drop in profits.
The group is the latest addition to a growing list of miners taking drastic measures to absorb the collapse in commodities prices from the boom in 2007. The spot price for copper has dropped by 58 per cent since July alone. Although Kazakhmys's annual sales fell just 2 per cent to $5.15bn (£3.7bn) in the year to December, earnings before interest, tax, deductions and amortisation fell from $2.34bn to $1.63bn, according to a trading statement published yesterday.
With difficult market conditions and falling prices leading to impairment charges of $400m in 2008, and the year ahead looking no easier, the company's strategy is strict cost-cutting. Alongside the decision to cancel the dividend, Kazakhmys is also considering selling part of its power business to help manage debts of $1.63bn requiring repayments of $44m per month, starting this month.
Although copper production last year grew slightly, producing some 343 kilo tons (kt) of cathode-equivalent, compared with 341kt in 2007, capacity will be "managed down" to 300kt in 2009 to cut production costs. The group is also hedging 80kt of copper production against further falls in the copper price.
"Market conditions in 2009 are challenging but we are taking decisive action to conserve cash while at the same time preserving the underlying strength and potential of the business," Oleg Novachuk, the chief executive, said.
Kazakhmys is not the first miner to sacrifice its dividend. Anglo American, a larger rival, announced similar measures last month alongside plans to cut 19,000 jobs worldwide. "The cut in final dividend may be disappointing, but should be no surprise after Anglo American," Chris Pearson, an analyst at Seymour Pierce, said.
But investors reacted warily nonetheless yesterday. Although the profit declines were largely in line with expectations, the share price still closed off 8.25 per cent at 258.50p.
Yesterday's trading statement did not include either costs or income from Eurasian Natural Resources Company (ENRC), in which Kazakhmys owns a 26 per cent stake.