May 8, 2017 / 6:47 PM / in 7 months

KGHM cancel phase two of Sierra Gorda copper project in Chile

WARSAW, May 8 (Reuters) - A planned second phase of expansion of Polish miner KGHM’s Sierra Gorda copper project in Chile, which was put on hold in March, will definitely not happen now, the chief executive officer said on Monday.

State-run KGHM bought the Sierra Gorda project in Chile’s Atacama Desert mining belt in 2011, its largest ever foreign acquisition, and began shipments in 2014 after cost overruns in the ramp-up.

Originally the project, co-owned with Japan’s Sumitomo Metal Mining Co Ltd and Sumitomo Corp, targeted 220,000 tonnes of copper per year at completion of a second phase in 2018 or 2019.

But it has struggled to master complex ores and high production costs at a time of falling copper prices. Other new projects in Chile, the world’s top copper exporter, have suffered similar issues in recent years, with much of the easier ore now gone and companies needing to solve difficult technical issues in remote locations.

Both Sumitomo Metal and KGHM reported losses and booked writedowns on the project earlier this year, and in March KGHM said the second phase was on hold.

“In the current macro conditions, the second phase has lost sense,” KGHM CEO Radoslaw Domagalski-Labedzki said at a news conference in Poland on Monday.

When asked if the phase two expansion could one day be revisited and under what conditions, Domagalski-Labedzki said: “There is no such possibility.”

The CEO told Reuters last month that KGHM was still committed to Chile and was focused on optimizing the first phase of Sierra Gorda.

In 2016, the mine produced around 98,000 tonnes of copper, according to government figures.

Reporting by Agnieszka Barteczko; Writing by Rosalba O'Brien; Editing by Lisa Shumaker

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