April 9, 2013 / 5:04 PM / 5 years ago

Poland to investigate KGHM's cost overrun in Chile

WARSAW, April 8 (Reuters) - Poland will look into why mining company KGHM’s Chilean project Sierra Gorda could cost a third more than previously expected and wants an explanation from management, the country’s deputy treasury minister told Reuters.

KGHM, which the government controls via a 32-percent stake, warned of the cost overrun at Sierra Gorda last month and said the project may be delayed.

“We will be looking attentively at KGHM’s investment in Sierra Gorda,” said the minister, Pawel Tamborski. “I hope that the supervisory board will receive an explanation from the management regarding the increased spending and its impact on the project’s profitability.”

Such a terse comment from a top official suggests a growing frustration with how Europe’s number-two copper producer, an important source of income for the state, is managing the largest foreign investment by a Polish company.

Despite the hefty spending on Sierra Gorda, one of the world’s largest copper projects, the government still expects KGHM to pay out a “significant dividend” from its 2012 profits, Tamborski said.

KGHM’s chief executive said last month that expectations of a dividend of 20 zlotys per share - equivalent to 82 percent of 2012 net profit - were too high.

The company beat its own guidance last year by making a net profit of 4.87 billion zlotys ($1.54 billion).

KGHM is about to announce a new strategy this quarter. The miner has already signalled it might scrap the aim of securing 30 percent of its revenue from the energy sector by buying into utilities and taking part in energy production projects.

Tamborski said the government also expected KGHM to focus on its core mining operations.

“KGHM should get involved in energy only to an extent which would ensure the company’s energy supplies for its own needs,” he said.

The miner, Poland’s No. 2 energy consumer behind the national railways, eats up 2.5 terawatt-hours of energy annually - as much as a town of 150,000 inhabitants.

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