November 21, 2014 / 1:32 PM / 4 years ago

Foreign firms challenge Poland over access to mine concessions

WARSAW (Reuters) - Two foreign-owned mining firms have challenged the Polish government over what they see as the unfair allocation of copper and potash extraction permits to state-controlled miner KGHM (KGH.WA).

Miners ride an elevator to the underground in a pit-shaft at Polkowice-Sieroszowice mine in Polkowice near Lubin, southern-western Poland July 29, 2011. REUTERS/Kacper Pempel

Poland’s environment ministry, which allocates concessions, denied it gave preferential treatment to KGHM over Canadian Miedzi Copper, which has filed a lawsuit, or British firm Darley Energy, which has submitted an appeal.

KGHM, Europe’s second-largest copper producer and an industrial champion for Poland, is 31.8-percent owned by the state. It said it did not limit competition.

Whatever the outcome, the row could rattle foreign investors at a time when Poland’s resource sector, struggling with low prices on the world market, badly needs investment.

The government is also anxious to bring investors into shale gas, which it hopes will reduce its reliance on imported Russian gas. But a number of firms have pulled out, citing difficult geology and unclear regulations.

The founders of Darley also control 3Legs Resources 3LEG.L, which earlier this year sold its Polish shale gas business in which it was partnered with ConocoPhilips (COP.N).

Miedzi Copper told Reuters it had filed a case with a local court after two copper concessions were awarded to it and then withdrawn following a challenge from KGHM.

The ministry said the bidding would be rerun as bidders had insufficient information. KGHM said the permit granted to Miedzi Copper was part of a deposit it had previously invested in.

“The only other place where I had such a negative experience was Russia,” Ross Beaty, the main shareholder in Miedzi Copper, told Reuters. “I’ll never go back to Russia and I’m afraid that I’m starting to feel the same with Poland right now.”


Darley Energy told Reuters separately that it had submitted an appeal to the ministry over the decision to deny it a permit to mine for fertilizer ingredient potash, in favor of KGHM. It said it had also instructed lawyers to prepare to lodge a complaint with the European Commission.

In the Darley case, the ministry said KGHM won because its bid was stronger, and denied manipulation. It is expected to reply to Darley’s appeal by Dec 12. KGHM declined to comment on Darley’s allegations of irregularities.

Darley bid for a potash mining concession in the Baltic coast town of Puck in 2012 and says it should have been granted access by May last year. It was initially the only bidder.

But it said the process was delayed beyond the timetable set out under Polish rules, which allowed KGHM to enter the race later and win.

The environment ministry spokesman said an offer from KGHM was picked because it envisaged a wider scope as KGHM planned to mine copper, silver and salt in Puck, in addition to potash. It declined to comment on Darley’s allegations of irregularities about the timing of the bidding process.

On Miedzi Copper, KGHM said it was down to the environment ministry to explain why Miedzi was given access to a concession where KGHM had already done work.

“It came to be accepted in this sector that grown-up mining organisations do not cross each other’s paths,” Artur Tarnowski, head of KGHM’s investor relations, said. “Competition is welcome in our opinion. But let it work on a healthy basis.”

Environment ministry spokesman Pawel Mikusek said the bidding process was invalidated because companies taking part were not given necessary details about what the state required.

He said KGHM often loses out to rivals in bidding for concessions, proving it was not being given preferential treatment. “When we award each concession, we treat all entities equally,” said Mikusek.

KGHM bought Canadian miner Quadra almost three years ago, hoping to boost production with projects like Sierra Gorda in Chile — but it has also sought to lift output at home.

Writing by Adrian Krajewski; editing by Philippa Fletcher

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