Tale of Two Polish Mines Shows Biggest EU Producer’s Woes – by Maciej Martewicz and Marek Strzeleck (Bloomberg News – December 23, 2013)

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Stock markets aren’t usually a subject of discussion when you’re a kilometer underground, yet Dariusz Batyra isn’t a typical Polish miner.

“I check the share price each day,” said Batyra, 39, a senior foreman at the mine run by Lubelski Wegiel Bogdanka SA, one of three coal companies in Poland not controlled by the government. “Everybody does in here.”

The performance of his employer compared with competitor Kompania Weglowa SA, the biggest producer in the European Union, explains why. Since debuting on the Warsaw Stock Exchange in 2009, Bogdanka has more than doubled in value as profits rose every year but one. It has done so even as the price of coal more than halved since 2008, when the global financial crisis took hold, pushing Kompania Weglowa to the brink of collapse.

Another year of diverging fortunes for the two miners underscores the contrast in an industry that’s struggled to adapt to the reality of the free market almost a quarter of a century after communism ended in Poland.

Bogdanka employs about 5,000 and analysts expect net income of 313.5 million zloty ($103 million) for 2013, making it the most profitable of seven Polish coal producers. Kompania Weglowa has 56,000 miners, the biggest employer after the postal service and railroad. It lost about $100 million after nine months with the coal price below the cost to mine it.

“At such a level of prices and costs and without restructuring, we won’t survive,” Marek Uszko, 55, the acting chief executive officer of Kompania Weglowa, said on Nov. 19. “We all need to face the truth. Illusions will cost us dear,” he said at the company’s convention later that month.

For decades, that’s proved easier said than done for an industry that politicians have been unwilling to grapple with because of concern about strikes and civil unrest.

The Solidarity labor movement that helped bring down Poland’s Soviet-backed communist government led some protests. In 2005, it blocked government plans to raise the retirement age for miners after demonstrations turned into street fights.

While Bogdanka is based in eastern Poland about 200 kilometers from Warsaw, Kompania Weglowa is located in Silesia, the cradle of mining in eastern Europe and a region that produces more than a half of the EU’s hard coal.

“In Silesia, mining is put on a pedestal and any changes are difficult to execute,” Marcin Gatarz, an analyst at UniCredit SpA in Warsaw, said last week. “The government will do everything to save it. Failure to do so would cause a big social problem. It’s hard to foresee any government could afford it, especially that miners’ protests are usually violent.”

Historic Benefits

The coal price is forcing change in a country that relies on the fuel to generate 90 percent of its electricity.

Polish Prime Minister Donald Tusk has repeated his government’s commitment to the strategic importance of coal, saying on Dec. 4 miners are “needed now as much as ever.”

For the rest of this article, click here: http://www.bloomberg.com/news/2013-12-22/tale-of-two-polish-mines-shows-biggest-eu-producer-s-woes.html

 

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