KGHM invests in its future
KGHM Polska Miedz announced plans last week to pour zl. 1.15 billion ($260 million) into its copper production facilities and telecom holdings this year.
The world's seventh-largest copper producer will devote zl. 650 million ($147 million) to upgrade its production facilities and add zl. 500 million ($113 million) to its already heavy telecom investments. The company is also looking to expand internationally.
"We're also looking at some projects abroad now, some mining projects," said Wojciech Marciniak, KGHM's investor relations director. Though he declined to name the potential global investments, Marciniak said they'd most likely be located in Eastern Europe, Africa or South America. He also said they would probably entail business agreements or the purchase of smaller operations as opposed to a joint venture or buyout of a major global copper company.
Smaller European mines are the best bet, said Zbigniew Lapinski, an analyst at Deutsche Bank Research, adding that there were too many potential investments to talk about. Mines and smelters in Canada, Australia, Chile and Mexico are also possibilities, he said.
The copper conglomerate is stepping cautiously into the international arena, analysts said. This is due to last year's failed attempt to exploit high-grade copper in the Democratic Republic of Congo, which left KGHM with $38.5 million in losses and 164,000 tons of stockpiled unprocessed ore. The company also pulled out of a similar venture in Zambia.
Marciniak stressed that investment abroad remains a "third leg" for KGHM behind copper production and its byproduct, silver production, and telecoms.
Of KGHM's zl. 3 billion ($680 million), five-year capital expenditure program, only $125 million has been allocated for foreign projects.
KGHM plans to see zl. 512 million ($116 million) net profit on sales of zl. 4.64 billion ($1 billion) in 2000 after producing 476,000 tons of copper and 1,070 tons of silver. The facility upgrades and telecom investment is to be 50% financed with company cash, while the other half will come from external financing sources, Marciniak said. Any investment abroad will most likely be financed externally, he added.
But financing is not a cause for concern, Lapinski said. "The main problem for KGHM, which might sound weird, is that they have too much cash," he said, adding that the company is debt free. Deciding whether to pay shareholder dividends or use money in other ways is KGHM's only financial quandary, he said.
The facility upgrades might include purchasing new machinery, modernizing KGHM's three mines and two smelters in Poland, as well as building a planned lead plant, analysts and Marciniak said.
As for telecom investments, KGHM holds a 50% stake in fixed-line operator Telefonia Lokalna, with the Polish Power Grid (PSE) holding the other half. KGHM also has 20% in mobile operator Polkomtel, which operates the Plus GSM network.
The copper giant would rather put investment dough into Polkomtel, but might have an easier time taking control of Telefonia Lokalna, said Krzysztof Skoczynski, an analyst at CDM Pekao Securities.
PSE might decide to sell its 50% holding in Telefonia Lokalna since after pumping money into Tel-Energo, a telecom subsidiary of PSE and Polski Koncern Naftowy Orlen, it doesn't have the funds that Telefonia Lokalna needs for infrastructure development, Skoczynski said.
Marciniak said that if KGHM can't take control of Telefonia Lokalna, it might sell its stake. If it does succeed in gaining control, it will likely merge with another major fixed-line provider such as Netia or Elektrim's El-Net.
Polkomtel could eventually open up for new investment to raise funds for the zl. 600 million-zl. 800 million ($136 million-$182 million) it will need to pay the Treasury Ministry next year in return for Universal Mobile Telecommunication System (UMTS) licenses, he said, or it could increase capital through an initial public offering.
KGHM is also planning to start up an investment fund through which it will plow $50 million into internet companies, Skoczynski said.
