Poland’s KGHM seeking new acquisitions in the Americas

With mining stocks falling to cheaper levels on almost a daily basis, it is little wonder that talk of M&A  activity has been picking up. Unfortunately for most junior mining companies, much of the talk has remained just that… talk.

But while some market pundits speculate that senior producers won’t start making acquisitions until their own equity valuations rise, one senior producer from across the pond has already proclaimed its intention to take advantage of the current state of low prices.

Lubin-based KGHM Polska Miedz is the world’s ninth-largest producer of copper and the third-largest producer of silver and the company is planning on shaking up the copper-mining business with US$3 billion earmarked for M&A activities over the next two years.

Such a large sum is supported by the US$3billion in profits it expects to take in this year (it made a profit of US$1.4 billion last year), making it Poland’s most profitable company, and its most globally ambitious.

Most of that profit is generated from its copper and silver mines in the  Lgenica-Glogow copper belt in Poland, as 83% of revenues comes from copper production and 13% comes from silver.

And while KGHM still has exploration programs in Poland – its most intensive is at its Wartowice project near its past producing Konrad mine – its fledgling aggressiveness outside of Poland’s borders marks a change in strategy.

Krzysztof Olszewski, who is handling investor relations on behalf of KGHM, says the move into foreign markets comes as mining depths at some Polish operations are reaching down to below 1,200 metres and the company prepares for the dwindling of its resources over the next 40 years.

Rather than accept such a decline, KGHM is looking bolster its growth profile to 700,000 tonnes of copper production annually from the current 500,000 tonnes.

o do that, it will acquire projects that are situated only in politically stable countries, as evidenced by its exploration drill program for copper in the German province of Saxony and by its deal to develop a copper gold project in British Columbia.

The company’s arrival in B.C. came by way of a joint venture with Abacus Mining & Exploration (AME-V) that was announced in May of last year. The deal saw KGHM take a 51% stake in the Afton-Ajax copper-gold project near Kamloops for a $37 million capital commitment.

A feasibility study on the project is slated to be done by the end of this year, with production anticipated in 2014.  A preliminary economic assessment on the project carried out by Abacus and released in 2009 envisioned a mine that would produce 106 million lbs. copper per year and 99,400 oz. gold over a 23-year mine life.

The deposit has measured and indicated resources of 442 million tonnes grading 0.3% copper and 0.19 gram gold per tonne for 2.9 billion lbs. copper and 2.6 million oz. gold.

As for North American investors who want a way to play KGHM’s aggressive growth strategy, the company is currently only listed on the Warsaw exchange, but Olszewski says that is soon to change.

KGHM is currently in the midst of taking a controlling position in a Western mining firm that trades on one of North America’s largest exchange. While he wouldn’t offer any more details, he did say the deal should be completed in the coming weeks.

The Warsaw listing hasn’t prevented large investors from holding the company however, as roughly 14% of its shares are held by North American financial institutions. The largest shareholder in the company, however, remains the Polish government with a 32% stake.