Poland's KGHM expects production at Chilean mine to start this month
WARSAW, July 17
WARSAW, July 17 (Reuters) - Polish mining company KGHM said it expected to start production this month from its Sierra Gorda mine in Chile, one of the world's largest copper projects, as its bet to expand globally is soon to boost sales.
KGHM, Europe's second-biggest copper producer, acquired the then unfinished project two years ago. It became a symbol of the move by Polish industry to the global stage after years of struggling with the transition from Communist rule.
Since the acquisition, however, the cost of getting production underway at Sierra Gorda, exceeding $4 billion, has been over a third more than KGHM initially expected, while falling global copper prices have hit its profits.
"Construction is finished. I think that this month we'll see the first production of copper ore, and maybe we'll also see the first sales," KGHM Chief Executive Herbert Wirth told a news conference in the Polish capital on Thursday.
KGHM acquired the project in 2012 as part of a C$3 billion ($2.8 billion) purchase of Canada's Quadra FNX, now named KGHM International. That deal allowed it to book the world's fourth-largest copper deposits.
KGHM controls 55 percent of the Chilean project, and Japanese partner Sumitomo holds the rest.
The plan is for Sierra Gorda to produce 217,000 tonnes of copper by 2018, which would account for one third of the group's copper output.
KGHM sees the mine's 2014 output at 110,000 tonnes of copper. It will also produce 11,000 tonnes of molybdenum a year, or 10 percent of the global supply.
Molybdenum provides strength, heat tolerance and corrosion resistance in a range of specialized steel alloys for industrial and military use.
Analysts polled by Reuters expect KGHM to book net income of 2.26 billion zlotys this year, its lowest since 2004, but those forecasts do not factor in the start of production from Sierra Gorda.
Lower copper prices have already made it miss its profit target last year of 3.2 billion zlotys. Its 2013 profit was 3.06 billion zlotys.
The miner has other projects in Germany, Canada and the United States, but estimates that Polish assets still represent around 80 percent of its value. Its push for assets abroad was partly driven by high production costs at home.
Across the company, KGHM wants to scale up copper production by over 40 percent to 1 million tonnes annually by the end of the decade as its overseas assets gradually kick in.
To finance its investment plans, pegged at a company-wide total of 4.3 billion zlotys ($1.4 billion) this year alone, the miner signed a five-year revolving credit deal worth $2.5 billion with a group of lenders earlier this month. ($1 = 1.0737 Canadian Dollars) ($1 = 3.0604 Polish Zlotys) (Editing by Christian Lowe and Jane Baird)