KGHM to revise profit forecast

KGHM's President Stanisław Speczik announced that the firm would increase its 2002 unconsolidated profit forecast next month, causing a rally in the firm's share price. The increase will have no impact on the firm's consolidated results, which remain bogged down by the losses of KGHM's fixed-line business Telefonia Dialog (TD), analysts said. After the second quarter of this year, KGHM saw its consolidated losses leap to zł. 66.8 million ($16 million), an increase of 208% year-on-year, while TD recorded a net loss of zł. 154.5 million ($37.5 million) with revenue of zł. 173 million ($42 million) during the first half of the year. While the company's share price has been in decline since February, the market responded with high trading volumes and growing prices to the news of a potential profit increase. "The board of directors is counting on an increase in copper prices at the start of September, although the low copper prices on the London Metal Exchange in the past three weeks means that we have to hold back with our official forecast," Speczik told a press conference last Thursday. "We will present our 2002 forecast at the end of September."

Analysts pointed out that the optimism of stock exchange investors following Speczik's news was premature since the firm's promise of improved profits was conditioned on an increase in world copper prices that have been depressed during the past three months, and have hinged on an economic recovery in the world's key copper markets. "We can only have faith in improvements in U.S. industry, the world's biggest copper buyer," said Paweł Puchalski, an analyst at Raiffeisen Bank. "If the price of copper is high, then we will see profits. But profits are very, very unlikely at the consolidated level." According to Puchalski, KGHM will remain a dubious investment while it maintains control of TKD. "My recommendation is to sell KGHM until it completely resolves the problem of Telefonia Dialog, because this is the key factor," he said. "While KGHM can do little about price fluctuations on the London Metals Exchange, this is something it can do that would yield much greater benefits." But KGHM's chances of finding a buyer for TD are slim, since the company's asking price for TD is too high, said Michał Mierzwa, an analyst at Erste Securities Polska. "This would be a fi-gure of at least zł. 850 million ($207 million), and the investor would have to take over the company's debts which total zł. 1.2 billion ($292 million). So, an investor would need around zł. 2 billion ($487 million) and money for investment. The total sum would approach the capitalization of Telekomunikacja Polska." Speczik also declared plans to expand KGHM's mining operations beyond copper into cobalt mining last week. But analysts see the move as holding little chance of improving the company's falling profits since the mining venture would generate only minor revenues.