Sierra Gorda to turn profit in 3-4 years as copper output rises

[SANTIAGO] Polish miner KGHM's flagship international asset, the Sierra Gorda copper mine in Chile, should produce more than 100,000 tonnes of copper this year and could be profitable in three to four years, the chief executive said Thursday.

The mine produced 94,000 tonnes last year, CEO Radoslaw Domagalski told Reuters in an interview in Santiago.

"The situation in KGHM is much better than in 2016," he said. Executives from Poland are increasing their visits to Chile as they make maximising the project's potential one of their top priorities.

"We have much better control of the Sierra Gorda project and can fully say we want to stay," he said. "There is a huge space for improvement within the current model." State-run KGHM bought Chilean and Canadian copper deposits in 2011 through its US$2 billion purchase of Quadra FNX, the largest ever foreign acquisition by a Polish company.

But a fall in copper prices and technical issues in the ramp-up at Sierra Gorda, a new project in the Atacama desert, led to ballooning costs and a record loss in 2016 for the company.

Copper recovery at the mine was now at around 80 per cent and molybdenum - used to harden steel - at almost 60 per cent, Mr Domagalski added.

Sierra Gorda was originally intended to be a two-phase project, with profits from the molybdenum operations used to finance the second phase.

But, citing market conditions, the second phase was shelved earlier this year.

"We changed the operational model. We have shortened the life of the mine. The shareholders are not ready to contribute additional billions of dollars," said the CEO.

"Phase two is not considered at this moment and I wouldn't think we'd come back to the idea." Co-operation and communication with the project's Japanese partners Sumitomo Corp was a learning process that had sometimes been difficult at first but had improved, he said.

Adding more international assets is not on the table as KGHM works on investing in and improving its current ones, said Mr Domagalski. Other large projects include Victoria in Ontario and Ajax in British Columbia, both yet to begin production.

Ajax has faced opposition from environmental and indigenous First Nation activists and is frozen while it awaits an environmental permit, which Mr Domagalski said he hoped would happen this year.

REUTERS