Polish Audit Office blasts KGHM acquisition of Chilean copper mine

Poland’s Supreme Audit Office (NIK) has lambasted state-controlled miner KGHM (WSE:KGH) for buying the Sierra Gorda copper mine in northern Chile, saying that company has spent more than PLN 19.6 billion (about $5.2 billion) managing the operation and the ore processing plant over the last three years.

The Office, which looks into the way the Polish state operates and how it spends public funds, said the sustained loses in the operation has resulted in the need to co-finance it, while the mine has failed to achieve the daily ore processing level planned for its first stage, local newspaper Gospodarka reported.

The Office, which looks into the way the Polish state operates and how it spends public funds, said Sierra Gorda's sustained loses have resulted in the need to co-finance the operation.

Sierra Gorda, a joint venture 55% owned by KGHM and 45% by Japan's Sumitomo Metal Mining Co Ltd, began operations in July 2014 with an expected output of 220,000 tonnes of copper a year once an ongoing expansion is completed.

Asked about the chances of selling KGHM’s majority stake in the mine, chief executive Marcin Chludzinski said the company was focused on upgrading the asset so it achieves its full potential.

"At the moment we do not have plans to sell the Sierra Gorda asset, even though the project historically has been difficult, we are now managing to rebuild its value," Chludzinski told Biznez Alert.

KGHM grabbed the copper and molybdenum project in 2012, after completing the acquisition of Canadian rival Quadra FNX, in what was the largest-ever foreign acquisition by a Polish company.

KGHM, Europe's second-largest copper producer and one the world's largest silver miners, had planned to expand Sierra Gorda earlier, but the 2015-2016 rout in commodity prices forced the company to place the project in the backburner.

Last year, the Polish miner was granted environmental approval for a $2 billion expansion and upgrade of the mine, which would extend its productive life by 21 years.

The improvements include increasing the capacity of the facility's mill from 190,000 tonnes to 230,000 tonnes per day, though overall production of copper cathodes will stay at 55,000 tonnes.

The mine, located in northern Chile, 60 km south-west of the town of Calama, is expected to process 130,000 tonnes of copper per day this year, according to KGHM.