Kazakhmys, the largest copper producer in Kazakhstan and one of the biggest worldwide, said on Thursday that it would be slashing its dividend for 2012 to reflect falling profits.

The company also warned that it could be hit with an impairment charge after reviewing the carrying value of its 26% interest in fellow FTSE 100 miner ENRC.

ENRC's market value slumped from $3.29bn to just $1.55bn over 2012. Any impairment would be announced at the full-year results in March.

Shares were down nearly 9.0% by the end of trade at 616.5p, from yesterday's close of 677p.

The trading update comes alongside the news that both the group's Chairman and Chief Financial Officer are to step down from the board at the annual general meeting in May.

Dividend cut

The company said it would pay a final dividend of 8.0 US cents per share, down from 20 cents per share in 2011, which when combined with the interim dividend gives a full-year payout of just 11 cents per share. In 2011, the company paid shareholders 28 cents per share at the end of the year.

The firm said that move reflected the reduction in profits and high levels of capital investment in new projects.

"The decrease in the dividend from the prior year reflects the lower underlying profits of the group and also acknowledges that in the near future the gearing of the group is likely to increase given the development of the group's major projects," Kazakhmys said in a pre-close trading statement.

Analyst Peter Mallin-Jones from Canaccord Genuity said that he continues to expect small dividends from Kazakhmys "until the two large projects are in production as we expect net debt to peak in 2015 at $3.2bn as management invest in both Bozshakol and Aktogay".

EBITDA falls

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 31% from $1.96bn to $1.36bn in 2012, partly due to higher mining costs driven by labour and transportation.

Meanwhile, full-year revenues totalled $3.35bn in 2012, down 5.9% from $3.56bn previously.

This was partly due to a 10% decline in the price of copper during the year, though the company said this was a "relatively strong performance given the weak economic conditions".

As already announced in January, Kazakhmys hit production targets across all asset classes in 2012, with copper output in line and zinc, silver and gold production ahead of the guidance set at the start of the year.

However, the firm said that copper production would be "in line" with 2012, as falling grades are offset by higher ore volumes.

Net debt stood at $707m at the end of the period, compared with net funds of $19m the year before and Canaccord Genuity's estimate for net debt of $599m, owing to weaker operating cash inflows.

Broker view

Canaccord Genuity kept its 'hold' recommendation for the stock on Thursday, despite the shares showing good upside to its price target.

Mallin-Jones said that the company's comments about higher costs, smaller by-product credits and higher-than-expected debt mean that "the opportunity looks less compelling to us at this point".

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