Banner year for KGHM

The net profit of metals group KGHM reached zł.660 million in Q4 2005, which was six times the figure in the same period of 2004.

Fourth-quarter revenues jumped by approximately 50 percent to zł.2.42 billion. The firm's 2005 earnings stood at zł.2.37 billion, which was 70 percent higher than the previous year's result and 14 percent above the company's own forecast for the year, which amounted to zł.2.08 billion.

The bumper prices can largely be attributed to the effect of growing copper prices, which were driven by increasing demand from China. KGHM is the sixth-largest producer of copper in the world, and the metal's price shot up by 39 percent on the London Metal Exchange (LME) last year. Favorable currency rates also played their part.

Despite the huge profits, the company will receive zł.32 million in financial support from the state budget and the EU. "According to law each company, irrespective of its status, may apply for support," said Elżbieta Paradowska, director of the financial instruments department at the Economy Ministry. However, Andrzej Sadowski, from the Adam Smith Center, told Puls Biznesu: "It is a paradox that support is granted to companies involved in politics. This program in fact destroys the competitiveness of Polish enterprises since the government supports several companies with the funds of others."

Another factor that is causing concern in KGHM is the growing cost of copper production, as the cost of producing a tonne grew by almost 20 percent. As KGHM's report states, this was due to an increase in labor costs, as well as preparatory mining works and renovations. For this year, KGHM has set a net profit target of zł.1.84 billion. (Reuters)