December 21, 2011 / 11:03 AM / 6 years ago

UPDATE 2-KGHM surprises with hefty profit forecast upgrade

* Ups 2011 profit estimate to 11.19 bln zlotys from 9.6 bln

* Sees sales of 20 bln zlotys, copper price at $8,827/tonne

* Shares up 1.31 percent (Adds analyst comments)

By Chris Borowski

WARSAW, Dec 21 (Reuters) - KGHM, Europe’s No.2 copper producer, raised its 2011 net profit forecast by 16 percent on Wednesday thanks to the stronger dollar and higher metal prices and volumes, surprising investors who expected a more modest upgrade.

The Polish state-controlled company, which has benefited from surging metal prices, expects to earn a record net profit of 11.19 billion zlotys ($3.30 billion) compared to 9.6 billion it previously expected.

“The news (was) widely anticipated... but the scale of the positive surprise... is stunning,” said Pawel Puchalski, head of equity research at Bank Zachodni WBK.

KGHM reaped the benefits of its weak local currency, the zloty, as the copper it extracts is denominated in dollars.

The group said it also benefited from gains from derivatives related to its hedges on copper prices and the dollar level.

In its second upward revision this year, KGHM raised its sales forecast by 6 percent to 20.1 billion zlotys, although it cut its expectations of the average annual copper price by 2 percent to $8,827 per tonne.

“The result on other operating activities in 2011 will depend on the actual level of metals prices and the exchange rate at the end of the current year, and may vary substantially from the amounts assumed in this forecast,” the company said.

Even though it is on track to post the highest ever bottom line by a Polish company, KGHM’s shares have shed a third of their value since Polish Prime Minister Donald Tusk announced plans last month for a hefty mining tax. Analysts fear the tax could derail KGHM’s share buyback and dividend plans.

Shares in KGHM were up 1.31 percent at 108.00 zlotys 1258 GMT. The shares reached a high for the year of 200.30 zlotys in April, but fell sharply in November after the government announced plans for its new tax.

Poland, which holds 32 percent in KGHM, expects the levy, which mainly targets the miner, to bring 1.8 billion zlotys to the state coffers next year and 2.2 billion annually in later years.

Earlier this month, the group announced plans to buy Canada-based miner Quadra FNX for about C$3 billion ($2.92 billion) to boost its copper production abroad. ($1 = 1.0281 Canadian dollars) ($1 = 3.3960 Polish zlotys) (Editing by Jane Merriman)

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