Author: Gordon Platt

POLISH COPPER, SILVER MINER ROLLS WITH THE PUNCHES

By Gordon Platt

After KGHM Polska Miedź reported that its third-quarter 2011 profits had tripled from the same period a year earlier, the Polish government immediately announced a significant increase in taxes on the company. Based in Lubin, Poland, KGMH is one of the world’s largest producers of copper and silver.

As part of a fiscal-tightening plan to protect the country’s credit rating, Prime minister Donald Tusk, proposed levying a tax on extraction of copper and silver from Polish deposits. KGHM, the only company to fit that description, saw its shares fall by nearly 14% the week after the tax announcement, to a year-to-date low in late November. The government appeared to have shot itself in the foot, since it holds a 32% stake in KGHM.

But the company is turning these events to its advantage. KGHM plans to launch a share-repurchase program for up to 10% of its shares, which it can now acquire at a lower price. The buyback program will be voted on at the company’s annual shareholders meeting on January 19.

The sharp rise in third-quarter profits—totaling $989 million—came on the back of rising prices and production of copper, as well as the weakening of the Polish zloty. KGHM is one of Poland’s largest exporters. In September it raised its 2011 net profit forecast 16% to $3.25 billion, on a projected increase of 18% in sales.

KGHM signed a joint venture agreement in October 2010 with Canadian firm Abacus Mining & Exploration to develop the Afton-Ajax copper- and gold-ore mining project in Canada. KGHM acquired a 51% stake in the joint venture company, and it holds an option to acquire a further 29%.