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U.S. safety regulators probe GM recall linked to 13 deaths

DETROIT (Reuters) – U.S. safety regulators have opened an investigation into whether General Motors Co (GM.N) reacted fast enough in its recall of more than 1.6 million cars over an ignition-switch defect linked to 13 deaths in crashes.

The issue could prove costly to GM as the automaker faces a potential fine from the U.S. National Highway Traffic Safety Administration, the cost of replacing the ignition switches in question and the possibility of costly lawsuits.

“The National Highway Traffic Safety Administration has opened an investigation into the timeliness of General Motors’ recall of faulty ignition switches to determine whether GM properly followed the legal processes and requirements for reporting recalls,” the safety agency said in a statement released on Wednesday.

GM, which went through a bankruptcy restructuring in 2009, could face a maximum fine of $35 million if it failed to notify NHTSA within five days of a recall after learning of a vehicle safety defect.

The company did not say how much the recall would cost, but LMC Automotive analyst Jeff Schuster said the biggest cost to the automaker could result from the flurry of lawsuits likely to be triggered by the defect and the company’s actions.

Toyota Motor Corp (7203.T) last year paid more than $1 billion to resolve economic-loss claims related to the recall of millions of vehicles for unintended acceleration. The Japanese automaker is still trying to settle personal-injury lawsuits.

GM’s recall was to correct a condition that may allow the engine and other components, including front airbags, to be unintentionally turned off.

GM previously said the weight on the key ring, road conditions or some other jarring event may cause the ignition switch to move out of the “run” position, turning off the engine and most of the car’s electrical components.

NHTSA urged owners to follow GM’s recommendation to “use only the ignition key with nothing else on the key ring” when operating the vehicle and seek the repair as soon as replacement parts become available. GM said the initial replacement parts will be available in early April.

NHTSA said it will monitor the recall and take additional action as needed. Up to now, Toyota Motor Corp (7203.T) and Ford Motor Co (F.N) have paid the largest fines of more than $17 million to NHTSA for delaying recalls.

On Tuesday GM more than doubled its recall related to the issue, saying it was “deeply sorry” and that the company was reviewing its recall process, acknowledging it was not as “robust as it should have been.

GM said then that it was aware of 31 reported incidents, including 13 front-seat fatalities, involving frontal crashes in which the condition may have caused or contributed to the front airbags not deploying.

On Thursday, GM Chief Executive Mary Barra declined to address the issue at an event in Boston. But the company said in a statement: “We deeply regret the events that led to the recall and this investigation. As our detailed chronology indicates, we intend to fully cooperate with NHTSA and we welcome the opportunity to help the agency have a full understanding of the facts.”

GM previously said all the crashes occurred off-road and at high speeds, where the probability of serious or fatal injuries was high regardless of airbag deployment. Failure to wear seat belts and alcohol use also were factors in some cases, the company said.

Clarence Ditlow, executive director of the Center for Auto Safety, a Washington advocacy group that pushed for the wider recall, said the whole recall system is broken. “GM doesn’t get a get-out-of-jail-free card just because NHTSA did a sloppy job,” he said.

In light of GM’s bigger recall, U.S. Sen. Edward Markey, a Democrat from Massachusetts, on Wednesday called on NHTSA to require automakers to provide detailed information to the agency when they become aware of accidents involving deaths. He said GM was aware of fatal accidents in Maryland and Wisconsin in 2005 and 2006 involving safety issues and notified dealers, but did not recall the vehicles involved.

“The current early warning reporting system is too little, too late,” he said in a statement. “We need to overhaul the early warning reporting system so that NHTSA is not looking at auto defects through a rear-view mirror.”

David Strickland, who was head of NHTSA from January 2010 until December 2013 and oversaw NHTSA’s investigation of Toyota, said it was too soon to blame NHSTA for failing to act sooner.

Strickland, now a partner at Venable LLP, a law firm that represents the auto industry, said the agency’s probe will focus more on the timeliness of GM’s response to the problem than on the number of deaths or injuries related to the ignition issue.

“They’ll try to figure out when the manufacturer knew it had a defect that posed a risk to safety,” he said.

Kelley Blue Book senior analyst Arthur Henry said recalls typically do not hurt automakers’ brand image. GM’s recall and the media fervor around it is reminiscent of what Toyota went through in 2009 and 2010, he said, when it recalled more than 19 million vehicles globally related to unintended acceleration.

“Toyota has shown that a brand can recover from an incident like this and what may help GM is the fact that the majority of the models recalled are discontinued,” he said. “This may dissolve any negative projection toward its new products.”

Earlier this month, GM said it was recalling 778,562 Chevrolet Cobalt and Pontiac G5 compact cars from model years 2005 through 2007. On Tuesday, it added 842,103 Saturn Ion compact cars from 2003 through 2007 model years, Chevy HHR mid-sized vehicles from 2006 and 2007, and the Pontiac Solstice and Saturn Sky sports cars from 2006 and 2007.

A spokesman for GM’s Europe unit, Opel, said the 2007 Opel GT Roadster, which was based on the same platform as the Solstice and Sky, also is affected, adding around 2,300 more vehicles to the recall.

GM no longer makes any of the affected cars.

It previously said it is working with suppliers to increase production of replacement parts. GM said the ignition switch torque performance may not meet company specifications. The involved parts were made in Mexico, according to documents previously filed with NHTSA.

Of the cars recalled, 1,367,146 vehicles are in the United States, 235,855 are in Canada, 15,073 are in Mexico and 2,591 were exported outside North America, according to GM.

GM said in documents filed with NHTSA that it first learned of the issue in 2004, around the time of the 2005 Cobalt launch with a report of at least one incident where a Cobalt lost engine power because the key moved out of the “run” position.

The company later issued a bulletin alerting dealers to advise owners of the issue.

In March 2007, NHTSA officials alerted GM to a fatal Cobalt crash from July 2005 in which the front airbags did not deploy, according to the NHTSA documents. While GM’s legal department had opened a file on that crash in September 2005, GM employees meeting with NHTSA in 2007 were unaware of the crash.

In late July 2011, a meeting of GM legal staff and engineers led to the an investigation of crashes in which airbags did not deploy, according to the NHTSA documents.

(Additonal reporting by Bernie Woodall and James B. Kelleher in Detroit, Eric Beech in Washington, Richard Valdmanis in Boston and Edward Taylor in Frankfurt; Editing by Chizu Nomiyama)

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Foreign exchange dents Gap profit forecast for new fiscal year

(Reuters) – Gap Inc (GPS.N) on Thursday reported a higher-than-expected holiday quarter profit, helped by January sales gains, but the fashion company said it expected unfavorable currency exchange rates will hit its full-year profit.

Gap, which also operates the Old Navy and Banana Republic chains in addition to its eponymous stores, expects a profit of $2.90 to $2.95 per share this fiscal year, below analyst forecasts for $3.02, according to Thomson Reuters I/B/E/S.

The company said weaker foreign currencies would cut about 5 percentage points from its earnings per share growth rate.

For the fourth quarter, which included the key holiday season, Gap reported a profit of $307 million, or 68 cents per share, two cents better than expected. In the same quarter last year, Gap’s profit was $351 million, or 73 cents.

Analysts, on average, had expected a quarterly profit of 66 cents per share.

Gap was one of few retailers to report a rise in comparable sales in January, when cold weather and low confidence led U.S. consumers to curb spending. As previously reported, Gap’s comparable sales, consisting of e-commerce and sales at stores open at least a year, rose 1 percent last month.

Gap also said it was opening its first five Old Navy stores in China this fiscal year.

(Reporting by Phil Wahba in New York; Editing by Nick Zieminski)

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Bright prospects? China’s rooftop solar goal looks too ambitious

(Reuters) – Beijing’s goal of tripling solar power from small-scale operations such as rooftop panels looks overly ambitious, risking disappointment for investors who have bid up shares in Chinese solar panel makers in the past year.

China has a target of installing 14.5 gigawatts (GW) of solar generating capacity this year – close to Finland’s entire power capacity.

Of that, it expects 8GW from so-called distributed solar, which includes rooftop panels and other small installations. The aim is to redress an imbalance caused by a glut of large solar farms in China’s vast western region, where there is plenty of sunshine but not enough infrastructure to harness and transmit the power to the densely populated south and east.

But unless China promises bigger subsidies and financing support, and streamlines the process of acquiring rooftop rights, companies say the rooftop installations just aren’t worth it.

“The economics of distributed solar are in doubt,” said Wang Xiangfu, chief executive of Hong Kong-listed solar panel maker and solar power developer Shunfeng Photovoltaic International Ltd. “The goal is very difficult to achieve unless the state raises subsidy,” said Wang, echoing the view of officials at numerous major Chinese solar makers and developers interviewed by Reuters over the past few weeks.

Even state-run media have cast doubt on the government’s projections for distributed solar.

China Energy News, which is published by the People’s Daily – the flagship newspaper of the Communist Party – on Sunday quoted industry experts as saying that it would be “difficult” to realize the plan due to a series of challenges, from unattractive returns to the quality of many rooftops in China.

U.S.-listed Yingli Green Energy, whose shares have doubled in the past year, said its focus remained on solar farms even though it announced in January that it had partnered with China National Nuclear Corp to develop 500 megawatts (MW) of distributed solar in China.

“We are increasing our efforts in the (distributed) market segment … that said, the majority of our 2014 pipeline is from the utility sector,” said Yingli spokeswoman Qing Miao.

Lured by generous subsidies and easy loans, Chinese solar developers installed 10-11 GWs of solar generating capacity last year, mostly solar farms in the Gobi desert and barren hills of western China. Some solar farms are still sitting idle, unconnected to the grids.


Chinese solar companies are lobbying Beijing to transfer part of the quota for distributed energy projects this year to the construction of solar farms, which offer more attractive annual returns of above 10 percent at a subsidized feed-in tariff of up to 1 yuan per kilowatt hour (kwh).

But if there is no quick response, it could disrupt China’s solar installation plan this year and hurt sales of major solar panel makers, analysts say.

After being hit hard by overcapacity, trade and price wars in the past few years, companies including JinkoSolar, Trina Solar, JA Solar and Canadian Solar saw a strong rebound in their business and share prices over the last two quarters.

That was mainly driven by China’s announcement in July that it planned to more than quadruple solar generating capacity to 35 GWs – which entails total investment of $50 billion – by 2015. Japan’s push to find alternatives to lost nuclear power following the 2011 Fukushima disaster added to optimism in the solar sector.

Analysts expect global panel shipments to rise by at least a 10th this year to more than 40 GWs, led by China and Japan.

That has fuelled investor optimism.

Edward Guinness, co-portfolio manager at Guinness Atkinson Asset Management in London, which holds shares in Trina and Yingli, believes the solar industry is moving into an upcycle, with demand strong and panel prices unlikely to fall further.

“I think China can get to 14.5GW this year,” he said. “I expect China to exceed expectations over the next two years in terms of installations.”


China offers a subsidy of 0.42 yuan per kwh for distributed solar, which solar companies say isn’t enough to make up for the risks and hassles. It is difficult to get rooftop rights, and customers have to pay upfront to install systems that take years to pay off.

Some analysts say China would need to raise the subsidy by at least 0.10 yuan per kwh to make distributed solar attractive.

China hopes rooftops of industrial properties would become a major target for solar installation and factory owners can become a source of demand for solar-generated electricity. But solar power developers have their doubts about credit-worthiness among China’s small businesses.

Financing is a problem because banks and local capital market investors generally don’t understand the economics of distributed solar projects and have doubts about the earnings prospects.

Distributed solar yields annual returns of less than 10 percent, industry officials estimate, compared with around 12 percent for large-scale solar farms. That is not enough to attract the cash-starved smaller businesses that it is hoped will play a big role in distributed solar development.

Returns may be even lower if solar developers have to rent rooftops. Most of China’s existing 5 GWs of distributed solar projects were installed under a pilot scheme called Golden Sun, which offers more generous subsidies but will be terminated soon, industry experts say.

“The 8-GW distributed solar may eventually get built this year. said Jiang Zhe, chief executive of Shanghai-based Upsolar, which specialises in installing rooftop solar in China. “But we all know it is an extremely challenging target.”

(Editing by Emily Kaiser and Alex Richardson)

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In nosedive, Qantas CEO Joyce may find path to safety

SYDNEY (Reuters) – Whether through error or circumstance, Qantas Airways Ltd’s (QAN.AX) spectacular fall from grace is giving chief executive Alan Joyce his best chance of steering the airline toward long-term salvation.

Joyce has called on the Australian government to help the national flag carrier in its hour of need. If Canberra is convinced Qantas is in peril, it may have little option but to abandon decades of resistance and provide state aid.

The executive needs little help making a convincing case: losses from a domestic price war and international competition are piling up; Qantas is now worth only half what it was when Joyce took the helm in 2007; and its credit rating is now junk across the board.

The A$2 billion cost savings and 5,000 job cuts Joyce announced on Thursday represent the airline’s most radical shake-up since it was privatized in 1995.

As yet, Prime Minister Tony Abbott appears unmoved by Joyce’s plea for the government to offer a debt guarantee that would lower Qantas’s costs. A change in laws to allow more foreign investment to flow into Qantas, as it has done to rival Virgin Australia Holdings Ltd (VAH.AX), is a longer-term proposition.

Yet Qantas still has plenty of cash to keep it afloat pending changes, as well as inevitable disputes with trade unions over cutting 15 percent of the carrier’s workforce.

As Joyce’s calls for state support grow louder, so too does criticism of the way he has run the airline. The spotlight on his management has spurred some to call for his resignation.

“The only way for Qantas to get out of this nosedive is for Alan Joyce and the board to resign,” said lawmaker Nick Xenophon.


There’s no sign of that happening. The Irish-born executive, 47, promoted from Qantas’s low-cost Jetstar unit seven years ago, likes to say that the struggling carrier is fighting lavishly funded competitors “with one hand tied behind our back”, citing the unfettered foreign funds provided to Virgin Australia and others.

The law authorizing Qantas’s privatization contains a provision that foreign investors may not hold more than 49 percent of the company: Though officially a domestic airline, Virgin Australia is nearly two-thirds owned by non-Australian carriers – Etihad, Singapore Airlines (SIAL.SI) and Air New Zealand (AIR.NZ) – whose investments have provided funds for growth.

Others say Qantas’ troubles rest squarely with the airline – and in part with Joyce himself.

Analysts point to what they say are a number of key errors by Joyce, notably the fight to retain Qantas’s share of an already crowded domestic market and the failure to get proper lift-off for low-cost subsidiary Jetstar.

“Alan Joyce came from Jetstar, his performance in Jetstar was pretty good, but Jetstar is a cheap airline and the cheap airlines were quite popular during the global financial crisis,” said Biyi Cheng, head of Asia Pacific dealing at City Index. “Since he took over the role at Qantas I haven’t seen too much improvement for the company structure or commercial plans to improve the revenue.”

Joyce has dug in his heels in the Australian market, spending on planes and staff to keep Qantas’ domestic market share at 65 percent or above. That has locked the airline in to a deeply unprofitable price war with Virgin Australia.

Joyce defended that strategy on Thursday after unveiling A$252 million ($226 million) for the six months ended December 31. The domestic arm remained profitable but earnings of just A$57 million were a quarter of the A$218 million it made the previous year.

“We are very clearly protecting our position in the domestic market,” he told reporters, noting Qantas’s dominance of flight schedules gave it a significant advantage. “It would be remiss of us to weaken that product in any way,” he added.

Joyce does have supporters, who credit him with decent stewardship through competitive times in the Asian airline business, the most attractive in the world with passenger numbers growing faster than in any other region.

“I think Joyce has done a solid job,” said Geoff Wilson at Wilson Asset Management. “It’s a lot easier when you are running a company and things are going forward. I don’t necessarily think he’s the wrong man for the job.”


Still, analysts say, the brand was weakened in an incident in 2011 when Joyce grounded the entire airline in an attempt to win an industrial dispute, stranding passengers and creating headlines around the world.

The incident cost shareholders some A$70 million and allowed Virgin Australia, under the stewardship of Joyce’s former rival for the top Qantas job, John Borghetti, to ramp up its business, adding lounges and routes and building up an international alliance network.

The A$262 million first-half loss in Qantas’s international division was greater than analysts anticipated, raising concern that an alliance it signed last year with ambitious Gulf carrier Emirates is not yet paying off.

“The leakage out of the international business is really surprising and we think that Qantas will find it very hard to articulate how it plans to stop this,” Peter Esho, chief market analyst at Invast Financial Services.

Meanwhile, the Jetstar brand, launched 10 years ago, has sputtered after its strong start amid well-leveraged competition. Jetstar recorded a pre-tax loss of A$16 million for the six months to December 31 compared with a A$128 million profit the previous year, largely blaming regional operation Jetstar Asia for the result.

Joyce said Jetstar Asia had suspended further expansion until market conditions improved. At home, Jetstar is competing with its parent as well as Virgin.

“Expansion into Asia is a long-term plan and it doesn’t seem like it is paying off anytime soon,” Invast Financial’s Esho said.

The change to a law dating back to Qantas’s privatization that restricts how much money foreign investors can put into the carrier would make a significant difference.

Prime Minister Tony Abbott has suggested he is in favor of amending the Qantas Sale Act privatization legislation, to lift the current 49 percent foreign ownership limit, as well as alter restrictions on smaller shareholdings for foreign airlines.

Such a move may be some time coming. It will require the government to win over the major opposition parties which have vowed to block any bill in the Upper House of parliament, preventing it from becoming law.

Still, if the opposition is eventually won over, Joyce and his management team will score a big win.

Relaxing the foreign ownership rules, as well as providing a potential direct funding injection, would allow the capital- intensive group to move offshore, outsourcing parts of its operation.

($1 = 1.1159 Australian dollars)

(Reporting by Jane Wardell; Editing by Kenneth Maxwell)

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No clarity from economists on clarity of BoE’s new policy: Reuters poll

LONDON (Reuters) – The Bank of England’s revamped forward guidance has split economists in a Reuters poll as to whether it has improved clarity about where British interest rates are headed.

While the 64 economists polled this week were unanimous in saying the Bank Rate would be left unchanged at a record low of 0.5 percent on March 6, there was no consensus on what they thought of Governor Mark Carney’s updated guidance.

While inconclusive, this shows how tough it is for markets to make sense of the new policy, which is more complex than the previous one but aimed at reducing uncertainty over the timing and speed of any future interest rate rises.

Within six months of tying monetary policy to joblessness, the central bank was forced to abandon its initial plan after unemployment fell within a whisker of its 7 percent target three years earlier than when they first forecast it would.

Instead, it said earlier this month it would focus on 18 separate measures of data in order to gauge the right time to start raising rates.

Twenty-five of the economists who answered an extra question said the new guidance provided more clarity on the Bank’s monetary policy path but 22 said there was less clarity.

“The previous incarnation of forward guidance was flawed but at least we knew what the BoE was looking at,” said Peter Dixon at Commerzbank, one of the dissenters.

With the Bank focusing on measures including spare capacity in Britain’s economy, business surveys and the number of hours worked, economists said it gave the BoE more room to operate but would also make it harder to guess the next moves.

“It’s good for them to be flexible. I don’t think they can give clarity about what they are going to do with interest rates down the road,” said Michael Saunders at Citi.

Saunders had one of the most aggressive calls for additional quantitative easing – or stimulus – before the focus switched to tightening policy. He is now one of the few economists who expect a rate hike this year.

“I don’t think it’s a bad thing that they are not over-promising what they can do,” he said.


The Bank has stressed there is no rush to raise interest rates. Earlier this month it suggested that expectations for a hike in the second quarter of 2015 would be consistent with keeping inflation at its 2 percent target.

As in the last several Reuters polls, that was when the first 25 basis point hike in Bank Rate was predicted to take place, followed by a similar move in the third quarter.

But Monetary Policy Committee member Ian McCafferty told Reuters this week uncertainty over how Britain’s economy will perform in coming months means the chances the BoE will move either earlier or later were “reasonably well balanced.

The economy – still smaller than before the financial crisis began – grew 0.7 percent in the final quarter of last year, taking full-year growth to its fastest pace since 2007, as business investment and trade picked up.

Accelerating business investment is essential to securing long-awaited growth in productivity, according to the BoE, and is something it expects to happen this year.

It has linked low interest rates to the amount of spare capacity in the economy, which is something that is very difficult to estimate and virtually impossible to measure.

Still, only six are forecasting a rate move this year, with a median 30 percent chance of a rate hike happening based on all respondents’ answers to a question on probability.

That median probability jumps to 80 percent for a hike before next year ends and a near-certain 95 percent that the Bank will have raised rates by the end of 2016.

(Additional reporting and analysis by Swati Chaturvedi and polling by Diptarka Roy Editing by Jeremy Gaunt)

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Societe Generale to pay $122 million to resolve U.S. mortgage lawsuit

NEW YORK (Reuters) – Societe Generale has agreed to pay $122 million to settle a lawsuit by a U.S. regulator accusing the bank of misleading Fannie Mae and Freddie Mac in the purchase of mortgage-backed securities.

The settlement, announced by the Federal Housing Finance Agency (FHFA) on Thursday, marked the eighth to date by the FHFA, which in 2011 filed 18 lawsuits over some $200 billion in mortgage-backed securities that were at the heart of the 2008 financial crisis.

The deal, which resolves a case over $1.3 billion in securities, was the latest reminder of the continuing mortgage liabilities facing banks.

Some the largest headaches have been the cases by the FHFA, which has acted as conservator for Fannie and Freddie since their government takeover in 2008.

The deal with Paris-based Societe Generale follows Morgan Stanley’s agreement earlier this month to pay $1.25 billion to resolve a similar case by the FHFA.

The agency has overall has recovered $8.91 billion in settlements in the litigation with deals being cut with banks including JPMorgan Chase Co, Deutsche Bank AG and Citigroup Inc, among others.

The FHFA reached a separate $335.2 million settlement with Wells Fargo Co over mortgage securities without filing a lawsuit.

The settlement is “already substantially reflected in an existing specific reserve for this matter,” Societe Generale said in a statement. The bank on February 12 said it had set aside about 700 million euros (US$960 million) at year-end for litigation.

“The settlement will have no material impact on the group’s earnings,” Societe Generale said Thursday.

Litigation remains pending against several other banks, including Bank of America Corp, Credit Suisse Group AG and Royal Bank of Scotland Group Plc. Bank of America’s Merrill Lynch is scheduled to go to trial first on June 2.

The case is Federal Housing Finance Agency v. SG Americas, Inc. et al, U.S. District Court, Southern District of New York, No. 11-06203.

(Reporting by Nate Raymond in New York; Editing by Nick Zieminski)

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NY court revives Assured’s damage claims against Credit Suisse

NEW YORK (Reuters) – A New York appeals court on Thursday revived Assured Guaranty Corp’s claims for certain damages in its lawsuit against Credit Suisse Group AG over allegedly defective loans underlying mortgage-backed securities.

Assured, which guaranteed the loans, sued Credit Suisse in 2011 claiming the bank misrepresented the quality of loans, and that a “massive number” of bad mortgages were packaged into the securities.

The lawsuit is among numerous cases brought after the housing collapse seeking to hold banks accountable for losses incurred by insurers who guaranteed securities during the financial crisis. Many of the cases have been settled.

In a unanimous opinion in the Assured case, the Appellate Division, First Department, ruled a lower court wrongly held that the only remedy available to the insurer was to cure the defect or repurchase the loan. Their contract said otherwise, the appeals court found.

The insurer, “is not one of the parties affected by the ‘sole remedy’ clause of the representations and warranties provision,” the five-judge panel wrote.

The ruling reinstates Assured’s demands for rescissory and other damages and fees. The lower court had held that the bond insurer was barred from rescinding the policies or obtaining the equivalent in damages as a result of accepting premiums after they knew of the alleged breach.

Drew Benson, a spokesman for Credit Suisse, declined to comment.

Assured spokeswoman Ashweeta Durani had no immediate comment.

The transactions at issue had an original principal loan balance of about $1.8 billion, according to court papers.

The case is Assured Guaranty Municipal Corp v DLJ Mortgage Capital Inc, New York state Supreme Court, New York County, No. 652837/2011.

(Reporting By Karen Freifeld.; Additional reporting by Bernard Vaughan. Editing by Andre Grenon)

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Kazakhmys restructuring plan lifts shares

London-listed Kazakhmys plc has said it was looking at restructuring the company and spinning off a number of its mature assets in Kazakhstan as it would struggle to fund them in the future.

The revelation came after the copper focused company swung into the red, reporting a net loss of US$681 million for 2013, compared with a profit of US$151 million in 2012, after being hit by US$670 million of impairments mostly tied to the ageing assets in the Zhezkazgan Region of Kazakhstan.

The company’s shares rose 21% on the back of this news to £2.70/share (US$4.49/share) as of 09:23 on February 27 in the UK, compared with the previous day’s close of £2.23/share.

Kazakhmys chief executive Oleg Novachuk said that the company had already made cost cuts and looked to reduce sustaining capital expenditure at the company’s core copper operations, however it had “become apparent that more significant changes are required.”

“The restructuring being reviewed will result in the operations of the group consisting of the four mines in the East Region, along with the three associated concentrator facilities, Bozymchak mine in Kyrgyzstan, and the major growth projects,” Novachuk explained.

The East Region accounts for 28% of copper concentrate production, 41% of gold, 36% of silver and all zinc concentrate, according to Novachuk. “Although modest in output, the cash generation of the East Region assets will put the group in a strong position to move through the development phase of the major growth projects.” Later on a conference call, he added that 80,000t/y-90,000t/y of copper could be produced from this division, compared with the 294,000t (copper equivalent) Kazakhmys produced last year.

The mines in the Zhezkazgan and Central Regions, in addition to captive power, smelting and refining assets would become part of a separate entity that former-chairman Vladimir Kim could own through a new vehicle. Kazakhmys wrote down US$609 million from these assets out of total impairments of US$670 million in 2013.

“A restructuring of this nature would be highly complicated, especially for a group that has been so fully integrated. The division and management of central and shared services will require careful planning in order not to disrupt production and to ensure a stable base for both entities in the future,” Novachuk added.

Louise Collinge from investment bank Investec, which had previously looked at the consequences of the company closing its Central and Zhezkazgan mines, said in a note: “While the proposal is not finalised, the fact that there is a potential solution may appease the market.”

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Vale income takes massive hit on Brazil tax deal

Vale SA, the world’s biggest iron ore producer, posted a whopping US$6.45 billion net loss in the December quarter.

For 2013 as a whole, the Brazilian leviathan saw after-tax profit fall 90% to just US$584 million due to impairments and adjustments linked to a wide-ranging tax settlement.

In November the company decided to participate in the Brazilian government’s federal tax settlement programme (REFIS) for payment of corporate income tax and social contributions on the net income of non-Brazilian subsidiaries and affiliates from 2003 to 2012.

Under this deal, Vale opted to pay its debt with a combination of BRL5.97 billion (US$2.56 billion) in upfront payments and BRL16.36 billion in 179 monthly instalments adjusted by the Central Bank of Brazil policy interest rate.

Vale also recorded US$3.0 billion in impairments, mainly related to the stoppage of its Rio Colorado potash project in Argentina, although this was smaller than the 2012 write-down tally of $4.02 billion.

Operationally, Vale said it delivered solid results across its business, stating: “2013 was a year in which the benefits of our ongoing cost-cutting efforts, capex discipline and focus on core business became more visible. It was also a year in which we laid-out the foundations to deliver solid volume and free cash flow growth in the years ahead.”

According to the company, highlights included record sales volume of iron ore and pellets (305.6Mt), copper (353,000t), gold (297,000oz) and coal (8.1Mt), and production records in copper, gold, coal and phosphate rock.

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