To outsiders, Polish copper producer KGHM Polska Miedz SA’s USD 2.83 billion offer for Canada’s Quadra FNX Mining may look like just another cross continental deal, a bet copper prices will go higher. Maybe similar to Chinese Jinchuan Group’s USD 1.1 billion takeover of Johannesburg listed Metorex, driven by a desire to gain access to higher quality assets to replenish depleting reserves.
But until now, government controlled KGHM which has a lock on all the copper and silver deposits in Poland sat on the sidelines of the acquisition game, even as the government’s stake in it protected it from unsolicited takeovers.
Analysts said that the alternative to this acquisition was stagnation, paying out a juicy dividend year after year and then shutting down the company when copper deposits run out in about 30 years. Eventually you run out of copper and then it’s game over. If you don’t find new deposits, you have to eventually lay off workers. The Quadra deal if it goes through, will top the largest foreign acquisition by a Polish company so far, PKN Orlen’s acquisition of Lithuanian refiner Mazeikiu.
Mr Leszek Iwaszko an analyst at Societe General who has a buy recommendation on KGHM at a target price of PLN 138.40 said that “This is of another calibre than PKN Orlen’s acquisitions in Lithuania or the Czech Republic.
After a botched acquisition by a previous management team in the Mr Herbert Wirth CEO of Democratic Republic of Congo was cautious, repeatedly saying he only planned on making purchases in politically stable countries. Many analysts doubted he would ever take the plunge at all.
An investment banker who admitted to wish KGHM well said that the magic ingredient? Tuesday’s surprise announcement was preceded by a full year of meetings and analysis which enabled KGHM’s management to feel they knew Quadra’s management, their mines and the company’s financials.
He said that it’s not opportunistic, it’s well thought through. What’s more, due to this deal, KGHM has created a qualified team of world class English speaking professionals to conduct more international acquisitions, he said, specifying he meant Mr Krzysztof Kubacki, KGHM’s head of exploration and business development and Mr Jaroslaw Romanowski director of trade and hedging.
Mr Herbert Wirth CEO of KGHM said that the Quadra deal was among five potential acquisitions his company had looked at this year all in North and South America. The company still has another acquisition to make in the size of 50,000 tonnes to 100,000 tonnes of annual production in order to meet the company’s 2018 growth strategy and that it is continuing to look in the same region.
The deal also makes sense because it diversifies the company’s portfolio both geographically to Canada, Chile and Greenland and to new raw materials such as molybdenum, and increases its production of gold and other precious metals. Plus, when Quadra’s main projects Sierra Gorde in Chile and Victora in Ontario, Canada, come on stream, it will lower KGHM’s admittedly very high current cost of copper production.
Mr Pawel Puchalski head of equities research at Bank Zachodni WBK said that “When Quadra’s Sierra Gorde comes online KGHM will become a leading copper producer in the world. It will join the first league of industrial metals producers in the world. Right now, KGHM is only ranked 10th without upside if it’s operations stay predominantly Poland focused.”
(Sourced from blogs.wsj.com)
