KGHM puts Chile's Sierra Gorda mine expansion on the backburner

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Monday, March 20, 2017

Poland's KGHM International has confirmed its decision not to move ahead with the expansion of its Sierra Gorda mine in northern Chile, citing the low price environment and existing problems at the mine.

"Phase 2 of the project, taking into consideration actual molybdenum and copper price levels and the current level of Sierra Gorda's operational efficiency, is currently not expected to be advanced," the Polish miner said in its 2016 annual report.

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The company had announced back in May last year that it was delaying the implementation of the expansion, also citing the price environment and the operational inefficiencies at the mine.

Sierra Gorda, one of the last major greenfield mines to go into operation in Chile, has been underperforming since it was commissioned in 2014. Output in 2016 reached 94,000t and 22.1Mlb (10,024t), far below the projected 220,000t copper and 25Mlb molybdenum planned by the end of phase 2.

KGHM said that its plans to process oxide ore at Sierra Gorda moved forward last year, focused on reviewing and optimizing the project's technical and economic assumptions, with "possible scenarios for developing the project being reviewed."

State-owned KGHM took over Sierra Gorda in 2011 when it bought Canadian firm Quadra FNX for US$2.1bn. Sierra Gorda is 55%-controlled by KGHM International, while the remaining 45% is held by Japan's Sumitomo.

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The KGHM group reported a fourth quarter loss of 5.08bn zlotys (US$1.278bn) compared to a 6.24bn-zloty loss in the same period of the previous year, on the back of impairment charges.

The company reported a loss of 4.45bn zlotys in 2016, down from the 5.01bn-zloty loss in 2015, as KGHM recognized 5.7bn zlotys in impairment charges last year. After excluding the charges, the company reported a net profit of 1.225bn zlotys, including 548mn zlotys in the fourth quarter, it stated in a press release.

Group-wide copper equivalent output in the fourth quarter was 182,600t, while for the full year production was down 0.9% to 742,000t.

Sierra Gorda reported a US$2.64bn loss in 2016, due to a US$2.90bn impairment loss reported in the fourth quarter. Capital expenditure was US$268mn in the same period.

Group-wide C1 costs last year reached US$1.63/lb and Sierra Gorda's were US$1.96/lb.

Pictured: A tailings thickener at Sierra Gorda (CREDIT: KGHM International)