Tenge tumble allows Kaz Minerals to cut cost forecasts

* Currency decline helps to lower costs

* Kaz shares up 13 percent

* Boost after earnings fall and no interim dividend paid (Adds copper output target, analyst comment)

By Olivia Kumwenda-Mtambo

JOHANNESBURG, Aug 20 (Reuters) - Kazakh copper producer Kaz Minerals cut its cost forecasts for the year, helped by a weaker tenge currency, and the prospect of more benefits sent its shares soaring on Thursday.

Kaz, which is listed on the stock market in London, said the decision to introduce a floating exchange rate in Kazakhstan announced on Thursday could help it to lower costs further if the currency continues to weaken.

The company, which pays its bills in the local tenge currency but makes revenues in U.S (Other OTC: UBGXF - news) . dollars, reduced its full-year forecasts for production costs to 260-280 U.S. dollar cents per pound from 280-300 cents earlier.

Those adjustments were based on a tenge rate of 170-198 per dollar, the miner said. The currency weakened to 257.20 per dollar on Thursday in response to the policy shift.

"We are not able to tell you any level we should expect, it's a free float exchange rate.(Tenge weakness) will help us because about 60 percent of our costs are in tenge," Chief Executive Oleg Novachuk told journalists in a conference call.

Kaz shares were up 13 percent as of 1045 GMT, outperforming a 2 percent rise in the FTSE 350 mining index.

"We attribute this reaction to expectations that some of the cost benefits of a currency depreciation would be retained by the company," Morgan Stanley (Xetra: 885836 - news) analysts said in a note.

"However, we maintain that cost benefits of a weaker currency are typically eroded by an increase in underlying inflation."

EARNINGS FALL

The lower cost forecasts are a relief as the company said its first-half earnings more than halved following a drop in copper prices and that it would not pay an interim dividend.

Earnings before interest, tax, depreciation and amortisation (EBITDA), excluding special items, fell 55 percent to $88 million in the six months to the end of June.

"We thought the company might run a bit short of money in 2017, but the devaluation of the tenge could go some way to offset those concerns," said Ed Sterck, an analyst at BMO Capital Markets.

Prices of copper are at six-year lows, weighed down by a slowdown in China, one of the world's biggest consumers of metals and other raw materials.

Miner and commodities trader Glencore (Amsterdam: GX8.AS - news) -- which also has high exposure to copper - reported a slump in first-half earnings on Wednesday on sliding metal prices.

But Kaz was optimistic about copper outlook.

"I am very bullish on copper," Novachuk said.

"We believe demand for copper will not decline significantly in the medium term," he added.

The company said it was on track to achieve its 2015 copper cathode production target of 80,000 to 85,000 tonnes.

Kaz plans to grow its copper output to about 300,000 tonnes by 2018 through three new projects: Bozshakol, Aktogay and Koksay.

The commissioning of its Bozshakol project in northern Kazakhstan, initially expected in the fourth quarter of this year, was now expected in the first quarter of 2016, following a fire there this month.

Kaz last year hived off some of its oldest and least-profitable assets to a private company owned by two of its shareholders to focus on lower-cost, open-pit mines and growth projects. (Additional reporting by Mamidipudi Soumithri in Bengaluru; Editing by Pravin Char and Keith Weir)