Problems persist for takeover-ripe Eurasian Natural Resources

Eurasian Natural Resources failed to thrill with its first-half results on Wednesday, with shares down nearly 3% as afternoon trading progressed.

Revenues declined by 1%, to $3.2 billion, as the mining group pointed to pricing pressure and higher cost of finance as the reason for the slump.

"We continued to invest in our business during the period making good progress at key projects in Kazakhstan and Africa. By extending maturities of our debt facilities we have also strengthened our balance sheet," said chief executive officer Felix Vulis, who pointed to the ongoing Serious Fraud Office investigation as a continuing point of stress for the group.

ENRC is under investigation for its dealings in Africa, where it owns assets in Zambia, Mozambique and the Democratic Republic of Congo. The SFO is looking into allegations of fraud, bribery and corruption in relation to the group's activities.

Separately, ENRC recently received a takeover offer from Eurasian Resources Group, a consortium of its founder shareholders and the Kazakhstan government, valuing the group at $2.65 (171p) a share. A formal response from ENRC is expected shortly.

Analysts' view

Mike van Dulken, head of research at Accendo Markets, noted lower commodity prices were in part to blame for ENRC missing the consensus expectations.

"Shares are off their recent lows of 200p, but still dogged by corporate governance issues and the SFO investigation," said van Dulken. He added that the cancellation of a dividend never goes down well with shareholders, "especially with the prospect of the company being taken private by founders at a price so near to all-time lows".

ENRC cancelled its interim dividend this time, having paid 6.5 US cents last year.

Broker Investec noted that cost control was better, as was was operational performance: "A key concern for the market was ENRC's debt, and while the group remains heavily indebted, it is positive that the 2014 debt has been extended to 2018."

Roger Bade, analyst at Whitman Howard, pointed out the results were somewhat "academic" at this point, in light of the impending takeover. "A 1% fall in revenues leading to a 17% decline in earnings before tax, interest, depreciation and amortisation and a 55% tumble in basic earnings per share illustrates why they won't be missed."