Polish Firm’s $2.83 Billion Bid for Canadian Copper Miner Is Jump Into ‘Deep End’ by Marynia Kruk (Wall Street Journal Europe – December 8, 2011)


To outsiders, Polish copper producer KGHM Polska Miedz SA’s $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 $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.

KGHM couldn’t wait forever with its “bold move”, said a Warsaw-based investment banker who didn’t advice on the Quadra deal but hopes to work for the company in the future and spoke on the condition of anonymity.

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, analysts said.

“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,” one of them said.

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.

“This is of another calibre than PKN Orlen’s acquisitions in Lithuania or the Czech Republic,” said Leszek Iwaszko, an analyst at Societe General who has a buy recommendation on KGHM at a target price of 138.40 zlotys. KGHM traded around 124 zlotys on Thursday afternoon.

After a botched acquisition by a previous management team in the Democratic Republic of Congo, Chief Executive Herbert Wirth 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.

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, said an investment banker who admitted to wish KGHM well.

“It’s not opportunistic, it’s well thought through,” he added. 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 Krzysztof Kubacki, KGHM’s head of exploration and business development, and Jaroslaw Romanowski, director of trade and hedging.

KGHM Chief Executive Herbert Wirth said the Quadra deal was among five potential acquisitions his company had looked at this year, all in North and South America. He said the company still has another acquisition to make in the size of 50,000 to 100,000 tons of annual production in order to meet the company’s 2018 growth strategy and that it is continuing to look in the same region.

For the rest of this article, please go to the Wall Street Journal Europe website: http://blogs.wsj.com/emergingeurope/2011/12/08/polish-firms-2-83-billion-bid-for-canadian-copper-miner-is-jump-into-deep-end/