KGHM’s latest number’s indicate challenges

LETTER — The 80-per-cent owner of Ajax Mine has released its 2013 financial results on Friday and they were a total disaster. Revenue declined by 23 per cent from $1,385,400,000 to $1,062,800,000 while net income fell from $103.8 million to $9.4 million, a poor return on their over $3-billion investment in North and South America.

LEarnings were negatively impacted by low metal prices, the closure of the Podolsky near Sudbury and the $55.4 million write-down of their Carlotta Mine in Arizona, which is now scheduled for closure.

A review of their current projects highlights their flagship Sierra Gorda Mine in Chile, 55-per-cent owned by KGHM International, which is now 83-per-cent complete and scheduled for ramp-up later this year.

The $3.9 billion project is $1 billion over budget and more if you consider that the mining equipment, originally planned to be purchased, will now be leased to reduce capex costs. This will result in higher operating costs at the mine.

There are also other challenges such as several legal actions and two injunctions against the locations of facilities at the project plus and increased resource taxes and pressure on labor costs in Chile.

Their second priority is the Victoria Mine near Sudbury, which is proceeding well in its permitting stage and should be well underway in its $750-million project in the near future.

It is very interesting that Ajax is not even mentioned in the 50-page financial report or the 23-page Manager’s Discussion and Analysis. The only reference to Ajax can be found in the parent company’s annual report that states that a new mine design will be produced to take into consideration the “new North Ajax Pit.” It should also be noted that the grade of copper for Ajax in the report was 10-per-cent overstated when compared to the feasibility study.

By looking at these results, it is obvious that KGHM International cannot afford to cash flow both Victoria and Ajax mines, therefore management in Poland have stated that it will attempt to issue a $2-billion bond to pay for these projects. A share issue to fund these projects seems to have been shelved due to poor market conditions.

The above highlights the many poor choices made by the parent company over the past two years as it purchased foreign assets at inflated prices all while taking a company that made over $3.5 billion in profits in 2011 with over $4 billion in the bank to one that made less than $1 billion in 2013.



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About Mel Rothenburger (6810 Articles) is a forum about Kamloops and the world. It has more than one million views. Mel Rothenburger is the former Editor of The Daily News in Kamloops, B.C. (retiring in 2012), and past mayor of Kamloops (1999-2005). At he is the publisher, editor, news editor, city editor, reporter, webmaster, and just about anything else you can think of. He is grateful for the contributions of several local columnists. This blog doesn't require a subscription but gratefully accepts donations to help defray costs.

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