Questor share tip: ENRC could measure from World Cup energy outages

By Garry White, Questor Editor 700AM GMT twenty-six March 2010

Eurasian Natural Resources Corporation

ENRC

11.86 -15p

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Questor says BUY

Yesterday, economists at Citigroup pronounced that China appeared on lane for an "asset boom, burble and bust". However, it pronounced this would take about 3 years to fool around out and it "probably" would not be thwarted by tighter mercantile policy.

China will need to import tender materials at an startling rate for a little time to come. This should good Eurasian Natural Resources (ENRC).

The dual majority poignant line as far as ENRC is endangered are ferrochrome and iron ore. In 2009, ferroalloys constituted 48pc of the gain prior to interest, tax, debasement and amortisation (EBITDA), with iron ore generating 33pc. The opinion for both these products this year is positive.

Kazakhstan-focused ENRC is the world"s largest writer of ferrochrome, that is used in the prolongation of immaculate steel. It is a reduce cost writer than South African mining groups, that additionally face appetite supply issues. Smelters that furnish ferrochrome, an amalgamate of chromium and iron, are really appetite complete and there is conjecture that vital mining groups in South Africa have been asked to extent appetite use during the World Cup after this year. There are genuine fears of rolling blackouts in the nation as tellurian media and hundreds of thousands of fans arrive. These energy interruptions would be certain for ENRC.

Ferrochrome stipulate prices are set in quarterly cost talks but there has been no allotment of the second entertain price. It is approaching that prices will climb by in between twenty thirty cents per pound, compared $1.01 in the initial quarter.

An engaging direction has additionally been function not long ago that could progress direct further. John Meyer, head of mining at attorney Fairfax, remarkable this week that there has been marketplace share expansion for 400-series immaculate steel that contains some-more chrome, mostly at the responsibility of higher-nickel 300 series.

The marketplace share of 400 array in the initial entertain of 2009 was 25.2pc of production, but this rose to 31.1pc by the fourth entertain of the year. However, the direction could reverse, as 300 array is some-more corrosion-resistant than 400 series.

The association is additionally rarely unprotected to iron ore. The largest producers in the universe Vale, BHP Billiton and Rio Tinto are seeking for an enlarge in prices close to 100pc. BHP and Vale have additionally been really outspoken about wanting to move afar from annual pricing talks to some-more short-term cost setting, that is certain for producers in a longhorn market.

ENRC released the 2009 formula on Wednesday, that showed a pointy tumble in earnings. After last year"s tumult, this was expected. Revenues fell 44pc to $3.8bn (2.5bn) and pre-tax increase fell 62pc to $1.44bn.

The association has a process of profitable out 15pc of gain as the division and as increase fell the division was cut too. The last division was 6p a share, bringing the sum payout for the year to 12p compared with 31p in 2008. However, gain should miscarry this year and the division is expected to be raised.

The last remuneration will be done on Jun sixteen and the shares go ex-dividend for this remuneration on Apr 4.

Perhaps the majority critical piece of the formula is headlines that the organisation is on the acquisitions trail. The association has already done a little purchases in Africa together with cobalt and copper organisation Camec and we can design some-more to come as the organisation diversifies by commodity and by region.

The organisation stream has net money of $402m, but pronounced it could move to a debt incident of a limit of dual times EBITDA. Obviously, there is regularly merger risk when the organisation pursues such as strategy, but the right purchases in the stream marketplace will be certain for the company"s medium-term prospects.

The shares were initial endorsed on Dec twelve last year at 886p a shares and they are right away up 34pc compared with a marketplace up 9pc. They are trade on a Dec 2010 gain mixed of 11.9, descending to 9.6 in 2011.

The position on the shares stays buy.