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The Warsaw Voice » Business » March 29, 2012
Business & Economy
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KGHM Goes Global
March 29, 2012   
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Poland’s KGHM Polska Mied¼, one of the world’s largest copper producers, has officially acquired Canadian company Quadra FNX Mining—along with its ore deposits in Canada, the United States and Chile—in the largest foreign acquisition ever by a Polish company.

The deal, whose final value was zl.9.1 billion, was inked at the beginning of March, following a preliminary agreement signed by KGHM and Quadra in December. Under the agreement, KGHM was to buy a 100-percent stake in Quadra, paying over 15 Canadian dollars per share. Consent from Quadra shareholders, the Supreme Court of Canada and Canada’s industry minister was needed for the deal to go ahead.

Quadra will change its name to KGHM International. Quadra CEO Paul Blythe will remain in his post and KGHM will have two officials on the executive committee. KGHM will also have a majority on the board of directors. KGHM International is to become listed on the Canadian stock market in several years’ time.

Thanks to Quadra’s deposits, KGHM is to increase its copper output by 100,000 tons, or 25 percent, this year compared to 2011. Ultimately, copper output is to rise to around 700,000 tonnes.

“This marks the beginning of a new era in the company’s development,” Herbert Wirth, president of KGHM Polska Mied¼, told the newseria.pl portal. “KGHM is turning into a global corporation, one seeking to ensure secure raw material supplies. This is very important these days when increasingly good metals are needed for new devices. This is what KGHM wants to specialize in. The assets we have acquired are very attractive to us. They open long-term prospects for KGHM as a competitive operator and a multiple-metals company, that is one dealing not only with copper and silver but also molybdenum, nickel, platinum group metals and gold, and with an output of as much as 10.5 tons annually.”

After the acquisition of Quadra, KGHM will have the world’s fourth largest reserves of copper. It will also hold 6 percent of global molybdenum reserves. The company hopes that its average production costs will drop considerably thanks to the acquisition of foreign deposits. At present, production costs at KGHM’s Polish sub-surface mines are among the highest in the world. The company expects to cut its operating costs by 20 percent by 2018 and become more competitive.

Jacek Socha, deputy chairman of PricewaterhouseCoopers in Poland, said the diversification of deposits by KGHM was in keeping with the strategy pursued by large global corporations. “The Polish company will have the fourth largest copper reserves in the world. KGHM is turning into a global corporation, which means it will hold deposits not only in Poland but also in Canada and the United States. And in two years extraction will be launched in Chile,” Socha said. “KGHM is entering international markets. And most giant companies operating on the international market have mines in different locations around the world.”

Socha added it would be possible to say whether the deal is a success two years from now, when the Sierra Gorda project in Chile is to be launched. The deposit contains over 1.3 billion tonnes of ore rich in copper, gold and molybdenum.

Wies³aw Roz³ucki, an adviser to the Rothschild investment bank and former president of the Warsaw Stock Exchange, agrees. “We are all talking about copper. And of course KGHM is one of the world’s top copper producers. But we should also remember rare metals, such as silver and molybdenum, which are also present in the Chilean deposits. Who knows, it may be these rare metals that will make this investment highly profitable.”

There are further benefits resulting from the deal. “I would like to point to the very transparent process by which Quadra was acquired. All the Canadian regulations turned out to be very transparent. It seems to me that in Poland we should also take a good look at how such things are done in another country,” Roz³ucki added.

Experts say that foreign acquisitions are the right way to go for Polish companies that want to expand. In the energy sector in particular, this is the only opportunity to become a global player. “This is the right road for the expansion of Polish business and Poland’s largest firms,” said Andrzej Arendarski, president of the Polish Chamber of Commerce (KIG).

By acquiring Quadra, KGHM gained access to new deposits and a stronger position on the global market. “Quadra is a medium-sized company and there are larger copper firms. But the company will certainly join the top players and will have a significant role in the production and sales of copper and other metals globally,” Arendarski said. “I suspect that more acquisitions will come in the future and that KGHM will expand rapidly in this way.”
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