UPDATE 1-Poland's KGHM says launches production at key Chilean mine

Thu Jul 31, 2014 2:38am EDT

(Adds more company comments, details)

WARSAW, July 31 (Reuters) - Europe's No.2 copper producer KGHM launched production at its Sierra Gorda mine in Chile, one of the world's largest copper projects, the Polish group said on Thursday.

The Polish state-controlled miner acquired the then unfinished project two years ago. It become a symbol of Polish industry's efforts to expand internationally after years of struggling with the transition from Communist rule.

But since the acquisition 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.

"Following the ramp-up period, which will be completed in early 2015, the Sierra Gorda mine will produce approximately 120 thousand tonnes of copper, 50 million pounds of molybdenum and 60 thousand ounces of gold annually in the first years of operations," KGHM said in a statement.

"The commencement of production at the Chilean mine will decrease the weighted average cost of copper production in the KGHM group and will decrease its sensitivity to changes in the copper price," the miner said.

Sierra Gorda's target annual production is for 220 thousand tonnes of copper, 25 million pounds of molybdenum and 64 thousand ounces of gold.

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.

The Polish miner controls 55 percent of the Chilean project, while Japanese partner Sumitomo holds the rest.

Across the group, 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 = 1.0901 Canadian Dollars) ($1 = 3.1042 Polish Zlotys) (Reporting by Adrian Krajewski. Editing by Jane Merriman)