UPDATE 1-Poland's KGHM expects higher profit, surpassing output goals

Thu Aug 14, 2014 8:38am EDT

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By Adrian Krajewski

WARSAW Aug 14 (Reuters) - Poland's KGHM, Europe's second-biggest copper producer, expects to exceed its output targets for this year and beat analysts' forecast for its full year earnings thanks to higher global demand for the metal, the Polish group said.

The state-controlled miner did not provide its own guidance for 2014, but has previously said it would come close to analysts' forecasts for its full year net profit of 2.26 billion zlotys ($724 million).

"Our results in the first half of the year exceeded our expectations slightly," KGHM deputy head Jaroslaw Romanowski told a news conference.

"I had said earlier that the market consensus for our net income could be seen as a good benchmark. I think that at the end of the year we will be able to pleasantly surprise in this regard," he added.

According to KGHM, the world's largest silver producer, lower metals prices have reduced its earnings in the first half of the year by 905 million zlotys to 1.12 billion zlotys, or around half of what analyst estimate for the full year.

Copper prices averaged $6,916 a tonne in the first half of 2014, below the miner's full-year goal of $7,100. KGHM has, however, got halfway towards its copper output target of 567,500 tonnes for this year.

It now expects to exceed the copper output goal by 4,000-5,000 tonnes, planning also to produce 55 tonnes more silver this year that the targeted 1,140 tonnes.

"We agree with the IMF, which expects global growth of 4 percent next year. That growth will for sure support demand for copper," Romanowski said.

"The suspicion that China's economic slowdown would accelerate also turns out to be overly pessimistic. That is a good sign for the second half of 2014 and the more so for 2015," he added, saying that KGHM wants to maintain its policy of paying out around a third of its profits as dividends.

SIERRA GORDA MINE

The earnings estimates are for KGHM's unconsolidated results, generated only by the parent company. They are the basis for dividend payouts and KGHM's foreign subsidiaries do not add much to the bottom line.

This will change thanks to the start up last month of production from the miner's key overseas asset, the Sierra Gorda mine in Chile.

The target for Sierra Gorda's annual production is 220,000 tonnes of copper, 25 million pounds of molybdenum and 64,000 ounces of gold.

KGHM controls 55 percent of the Chilean project, launched at a cost of $4.16 billion, while Japan's Sumitomo holds the rest. The mine's capacity is seen holding a total 1.4 billion tonnes of ore, which is expected to take 23 years to mine.

To finance its investment plans, pegged at a company-wide total of 4.3 billion zlotys this year alone, KGHM signed a five-year revolving credit deal worth $2.5 billion with a group of lenders earlier this month.

The previously almost debt-free company additionally signed a 2 billion-zloty credit deal with the European Investment Bank (EIB) earlier this month.

(1 US dollar = 3.1230 Polish zloty) (Editing by David Evans)

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