Miedzi Copper loses Poland concessions

Ross Beaty isn’t the type of businessman who normally airs his grievances in public. But when two of his copper concessions in Poland were apparently revoked by the Polish government, he felt he had no choice.

On July 30 Poland’s Minister of the Environment revoked two concessions awarded to Miedzi Copper, a private copper exploration company in which Beaty’s Lumina Capital investment group has a large stake. The ministry also cancelled a third concession that it awarded to Miedzi Copper’s rival KGHM Polska Miedz (WSE: KGH; US-OTC: KGHPF), Poland’s largest copper producer and a company in which the government owns 63.6 million shares, or 31.8% of the share capital.

Beaty alleges that KGHM brought political pressure to bear on the Ministry of Environment to reverse its decision awarding two of the concessions to his group. Miedzi Copper is suspending all new investment in Poland.

Miedzi Copper has invested $35 million on exploration in the country since 2010, and had planned to spend another $65 million over the next few years.  The company holds 11 concessions in the country on which it has carried out extensive geochemical, geophysical, geological and drilling activities. 

“When a company is granted a concession you can’t just revoke it for spurious reasons, which is what the government has done in responding to pressure from KGHM,” Beaty says in a phone interview from his office in Vancouver. “They revoked the concessions saying they were not in the public interest, which doesn’t make sense.”

“It’s so obvious they’re not playing by what you would call international rules of fair and transparent treatment. We have a desire to continue to explore for copper in Poland, but the end remedy is just to leave the country and write off our investment, and go somewhere we can be fairly treated . . . when you work in a country where you can’t trust its laws it’s just like working in Russia. How the Polish government feels there can be any benefit from what they have done here is beyond me.”

The roots of the conflict began more than 18 months ago when Miedzi Copper applied for three concessions in southwestern Poland and KGHM applied for two concessions — some of which overlapped the same ground.

After lengthy decision-making, Poland’s Ministry of Environment ruled that two of the three concessions Miedzi Copper applied for (Bytom Odrzanski and Kotla) should be awarded to the Canadian company and one of the two concessions that KGHM had applied for (Kulow Luboszyce) should be granted to the Polish company.

KGHM appealed the award of the two concessions to Miedzi Copper and the Canadian company followed suit, with an appeal of its own against the decision rejecting its application for the third concession. Called “Niechlow,” the concession was part of the Kulow Luboszyce concession that the ministry awarded to KGHM. 

In a private letter to Derek White, president and CEO of KGHM International (the Vancouver-based, wholly owned subsidiary of KGHM Polska Miedz that acquired Quadra FNX in 2012), Beaty charged that the parent company “urged through its contacts in the Ministry of Treasury the appointment by the government of an investigation by Poland’s internal security agency, and has engaged in some heavy-handed political pressure against us to force the government to revoke the granting of the concessions to us.”

In his letter to White, Beaty continued that “we have no issue with fair competition. We were granted the concessions in accordance with Polish laws and regulations, and KGHM was entitled to ask for a review to ensure nothing untoward was done. KGHM has, however, gone well beyond what is fair.”

Herbert Wirth, KGHM Polska Miedzi’s CEO, did not reply to a request for comment from The Northern Miner. But Sylwia Rozkosz, acting director of the company’s communications and corporate social responsibility department, rejected Beaty’s claims outright in an email.

“The Minister apparently considered that arguments of both KGHM and Miedzi Copper in their respective appeals were valid, and re-examined the case,” Rozkosz stated. “In such circumstances we are of the opinion that Mr. Beaty is incorrect in saying that the Ministry of Environment has ‘revoked the licence.’ A final decision on granting the licence has not yet [been] issued.”

Rozkosz also countered that Poland “is a democratic country with a rule of law,” and that the process for awarding concessions “is independent and impartial.”

She said that “KGHM has participated in other licence proceedings, some of which ended with failure. Even companies as large as KGHM cannot operate outside of this process. The comparison by Miedzi Copper of the practices of KGHM to the ‘larcenous’ practices of companies from countries with a limited democracy goes beyond any reason. Allegations by Miedzi Copper regarding actions taken by our company in the backrooms are equally unfounded.”

Lyle Braaten, Miedzi Copper’s Vancouver-based president and CEO, dismisses Rozkosz’s rebuttal and says even reports in the Polish media back up the company’s view that KGHM Polska Miedz sought help in the dispute from Poland’s secret service agency, which has attracted the attention of Polish Prime Minister Donald Tusk.  

According to an English translation of a Feb. 18 article published by the Polish Press Agency provided by Miedzi Copper, the prime minister acknowledged that the internal security agency was investigating the concessions. The article quoted Tusk as saying:  “Our intention with regard to the KGHM’s ownership structure, as well as care for the deposit, is to maintain a strong position for KGHM — a company in which the state has such a large share, and which is regarded by us as a company of particular importance.”

Braaten says that “the real offensive part of this — what’s really happened — is that the prime minister has interfered. The award happened in January, the appeal came in February and then the public relations machine got involved. KGHM invoked a strong campaign of PR. It decided to notify the internal security service of this, and the prime minister got involved.”

A date on when bids for the concessions can be resubmitted and on what criteria awards will be based has yet to be announced, Braaten says.  

Whether Miedzi Copper will re-apply remains unclear.