KGHM Gains Most in Month as Foreign Mining Assets Boost Earnings

  • Polish copper miner posts slower-than-expected drop in profit
  • Producer managed to cut costs at Chilean mine, analyst say

KGHM Polska Miedz SA jumped on Monday after earnings at overseas units helped Poland’s sole copper producer beat analysts estimates for the first-quarter profit.

The shares rose as much as 4.7 percent, and traded 3.8 percent higher at 65.4 zloty at 12:33 p.m., reversing this year’s decline to a 3 percent gain. KGHM shares outperformed Warsaw’s WIG20 Index, which rose 1.9 percent as Poland’s currency, bonds and stocks jumped the most in emerging markets as the country escaped a credit downgrade by Moody’s Investors Service.

Net income declined to 161 million zloty ($42 million) in the first three months of this year from 397 million zloty a year earlier as copper prices slid, KGHM said late Friday, exceeding an average analyst estimate of 119.7 million zloty. The state-controlled company has been grappling with subdued demand for metals from its biggest consumer China and a delay in the completion of its flagship Sierra Gorda mining project in Chile.

“We positively acknowledge the company’s ability to lowering operational costs, which is visible” in its overseas operations, Robert Maj, an analyst at Haitong Bank SA in Warsaw, said in a note. “On the other hand, the drop in operating cash flows remains worrying, however we expect this to improve going forward once the company trims its capex plans and leaves only necessary projects in the pipeline.”

Strategy Review

At the start of the next year, the producer will present a strategy review, which will focus on “optimizing” its foreign assets, according to KGHM’s statement. As copper prices trade near the lowest level in more than two months KGHM also said it can’t decide on whether to proceed with an expansion of its Chilean mine, a project that saw costs rising and damped investor confidence in KGHM.

Earnings before interest, taxes, depreciation and amortization, or Ebitda at Sierra Gorda stood at $39 million with the production cost falling 32 percent from the previous quarter. The mine has generated a total Ebitda loss of $976 million since it started in July, including $928 million write-offs.

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