KGHM Starts Copper Output in Chile After Record Takeover

KGHM Polska Miedz SA, the copper producer with the largest European output, began production in its Chilean mine, acquired two years ago as part of a record Polish takeover transaction abroad.

The Sierra Gorda mine will operate at full capacity at the start of 2015 and will produce 120,000 tons of copper a year, the Lubin, Poland-based company said in a regulatory statement today. KGHM will also produce 50 million pounds of molybdenum, used to toughen stainless steel, and 60,000 ounces of gold annually in the mine.

KGHM acquired the Sierra Gorda project as part of its $2.9 billion takeover of Canada’s Quadra FNX Mining Ltd. in 2012. The state-controlled company expands outside Poland as it seeks to cut production costs and raise output.

“The start of Sierra Gorda production will help us cut unit cost in the group,” Chief Financial Officer Jaroslaw Romanowski said in an e-mailed statement today. “This is mainly due to additional products from the site, like gold as well as molybdenum, whose price is currently one fourth above what we initially estimated.”

Higher Production

KGHM produced 666,000 tons of copper in its Polish and northern American sites last year at an average cost of $1.85 a pound, which includes $0.53-a-pound impact of Polish copper taxes imposed in 2012. The production cost at Sierra Gorda is estimated at $1.13 a pound, according to its presentation.

The company owns 55 percent of the Sierra Gorda project, while Sumitomo Corp. and Sumitomo Metal and Mining Co. Ltd hold the remaining stake.

KGHM forecasts Sierra Gorda will produce 220,000 tons of copper a year in the 20 years of its estimated life if owners decide to start the second phase of the project. The forecast also sees molybdenum production at 25 million tons and gold output at 64,000 ounces a year.

KGHM will ship the first batch of copper in September, planning to use an “alternative solution” for transport routes until a Chilean court gives an environmental approval for the Antofagasta port, it said in the statement today.

The cost of using different port will be as much as $10 million in three years, Romanowski said in May. Half of copper from the mine will be sold to Japanese smelters of Sumitomo, KGHM said in the statement, adding that the remainder will be placed on “different markets.”

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