Over the years we have become accustomed copper boom that KGHM is “cash
cow “generating a lot of revenue to the State, employees, investors and governments.
But the descent copper prices below $ 4,000
can change things.
The copper market caught up with the same
condition, which for several months bothering oil sector. After years of
raw boom there were many new producers (mines), attracted by high
prices. At the same time, however, since 2010, steadily declining growth rate
Chinese economy – a decisive player in the copper market, consuming more than
40% of world production of this metal.
Analysts quite as
estimate that for this reason, in 2015
market will be a surplus of copper , resulting in a decrease in prices. With this opinion
representatives agree to the mining industry – PwC report as many as 60% of manufacturers
expected to decline in copper prices in 2015.
But rather few of them
expected so strong and sudden depreciation of the red metal, which within the first two weeks of the year became cheaper
from 6315 to 5 550 USD / t, ie, up to 12% . Meanwhile, plans for most companies
extraction rates were based on the order of $ 3 per pound, which is approx. 6.660 USD / t .
Bessa throw from the market the most expensive producers
Fast rising costs
mining is a problem all over the copper mining. The average total cost
tons of refined copper production of two years ago was estimated at approx. $ 4,300 / t,
ie at the level of 2.5-fold higher than in 2003. But last spring
CRU analysts, the marginal cost of production per tonne of copper indicated
the amount of US $ 6,613 / t. Below this level becomes unprofitable 10% of the world
production. According to CRU production costs in major mining corporations
amounts to approx. US $ 5,000 / t., which is only slightly below the current trading
in London. And as for the background falls KGHM?
In the report for the third quarter
2014 years, the company wrote that “coupled unit cost of copper production
electrolytic “amounted to 21 820 zł / t was about 5% lower than in the corresponding
period of 2013. At the current – historically high – dollar exchange rate (3.6355
zł) would give a break-even KGHM at US $ 6,000 / t – that is quite
dull.
But the results of KGHM-saving “products
collateral “, primarily silver, the company produces over Lubin
1.1 thousand. tons per year. The costing income from the sale of silver
reduce the unit cost of copper production. So count the cost decreases to
16 922 zł / t and 14.670 zł / t for
production from own concentrate. This would mean that the break even point (at
current, relatively high, the USD / PLN!) lies somewhere in the around $ 4,000 per tonne . When the dollar after 3.30 zł threshold
KGHM profitability rises to 4.450 USD / t.
The tax on deposits will lead the company to the bottom?
Another factor, which in the case
further decline in copper prices could aggravate the copper plant is a “tax
extracting some digging “incriminating results of KGHM amount of the order of 1.5-1.8 billion
zł per year.
“Kagiemne ‘is constructed in such a way that it does not take into account
profitability of mining and in certain circumstances can lead to
generated by the company’s net loss despite a positive result on business
operations.
When the price of a tonne of copper
exceed 13,000 zł (currently equivalent to US $ 3,575), KGHM pays you
tax calculated according to the formula: 0,025 x average price of copper + (0.001 x average
the price of copper) to the power of 2.6. In practice, this means an extra cost of 425 zł to
30,000 zł for each ton of produced crude oil. In the range of 3.575-4.000 USD / t at the current price of the dollar KGHM
would pay a progressive income tax, despite the loss on your core business!
In dark golden and firm
dollar and copper after 5.5 thousand. USD / t KGHM
appears to be safe .Tym more that in November, the company launched a Chilean mining in Sierra Gordes, where production costs are 40% lower than in Poland.
But given the recent experience with
oil, management and shareholders of the company should be prepared for the worst
scenario. Before the turn of the year 2008/09 course was temporarily copper
less than $ 3,000, the price of shares of KGHM dołowała on almost unimaginably low
at 20 zł.
Christopher Kolany
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