* Q1 ferroalloy output up 1.5 pct; ferrochrome up 4.2 pct
* Q1 iron ore pellet production up 2.6 percent
* Operating at full capacity for main commodities
* Revenue growth in line with expectations, warns on costs
* Shares down 3.4 percent, underperforming weak sector
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By Clara Ferreira-Marques
LONDON, May 12 (Reuters) - Kazakh-based miner ENRC ENRC.L said rising costs would remain a challenge through 2011 as it faces higher prices for materials, taxes and rail tariffs, when reporting first-quarter revenues increased significantly.
ENRC, the world’s largest producer of ferrochrome, a key component of stainless steel, said output of key commodities rose in the three months to March, with ferrochrome output up 4.2 percent and overall ferroalloy volumes up 1.5 percent.
It operated at full tilt during the period to keep up with demand and said on Thursday it planned to operate at or close to full capacity for the rest of the year.
The miner has told investors in recent quarters to expect rising costs, as the price of materials such as diesel and steel climb above expectations and put pressure on profits across the sector.
It forecast the increase in the annualised unit cost of sales at 15-20 percent this year, adding that, for the group overall, the rise was likely to be at the top end of that range.
“Revenues are underpinned by sales volumes and the strong commodities pricing environment; however, cost pressures continue to represent a key challenge for the business,” chief executive Felix Vulis said.
ENRC shares were hit along with peers by fresh falls in commodity prices and were down 3.6 percent at 831 pence at 0900 GMT, with the broader sector down 3.3 percent.
The company said revenues were growing in line with expectations for the full year after increasing “significantly” in the first three months.
Group revenue was broadly in line with the fourth quarter.
The London-listed company said volumes for total saleable ferroalloys rose to 395,000 tonnes from 389,000 tonnes. Average ferroalloy prices were 24 percent higher.
Output of iron ore pellets rose 2.6 percent as demand continued to recover. Average prices there were almost double year-on-year .
Ferroalloys accounted for almost 44 percent of ENRC’s core profit in 2010, while iron ore made up 35 percent. ENRC is one of the world’s biggest producers of ferrochrome, a key ingredient in stainless steel.
Vulis said in February he planned to step down for personal reasons. A replacement has not yet been announced. (Editing by Dan Lalor)