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KGHM: Quadra prospects for 2013 worse-than-expected (negative)

KGHM: Quadra prospects for 2013 worse-than-expected (negative)

01.03.2013 10:11

4Q12 unitary net profit below the consensus, Quadra surprises negatively: Unitary net profit came in at PLN 753m (down 80.4% y/y and down 32.8% q/q) in 4Q12. The outcome was 8.8% below the
consensus expectation of PLN 826m (source: PAP) and 13.8% below our own forecast of PLN 873m. Negative impact of other operating result (mainly hedging activities and Tauron write-off) on EBIT line was higher than our expectations of PLN -150 m and came in at loss of to PLN 267m. The unexpected negative surprise are the KGHM International results which at EBITDA level came in at USD 90m which is 8.0% lower than our expectations. We believe that this was mainly driven by higher precious metals production which amounted to 26.8 kozs (11% higher than our forecast of 24.2 kozs). Also the copper production in the period was 11% higher than our expectations of 61.2 Mlbs and amounted to 67.7 Mlbs Nickel production came in line with expectations at 2.8 Mlbs.

However, there are too few details to say decisively what was the reason for lower earnings in 4Q12 at KGHM International as the company did not publish the full results yet. The company published
also an update of Sierra Gorda CAPEX which now stands at USD 3.9bn vs initially expected USD 2.9bn. This was flagged to some extent by the CEO Wirth who in one of the interviews stated that the CAPEX should not be higher than USD 4bn. Hence we would see the market neglecting such a high discrepancy to the initial estimates (recently published Parkiet consensus was at USD 3.76bn vs our own expectations of USD 3.3bn). On the other hand KGHM says that the start of production is planned for 2014 which means that the company does not hold anymore to the 1Q14 which was set initially. This is something which seems to us realistic however we still expect the full production to start rather in 2015.

KGHM International published also the key production figures for 2013: the production of copper stands at 93.7 ktonnes which is fully in line with our forecast of 94 ktonnes. The lower production at Quadra stems mainly from the lower production at Podolsky mine which is set to be shut down in 2H13. The production of nickel at 5 ktonnes is slightly higher than our forecast of 4.7ktonnes while the most disappointing is the expected slump in precious metals production: the company expects it to average at 64 ktonnes vs our expectations of 90 ktonnes.

Overall, we would expect negative market reaction to the information presented today mainly on the back of lower prospects of old Quadra mine production in 2013 and lower unitary earnings at KGHM in 4Q12. Revenues in line with expectations: Unitary revenues came in at PLN 5,178.m for 4Q12, up 7.0% y/y, 4.8% higher than market expectations and 4.0% lower than our own forecast. Copper production volumes came in at 147,000 tonnes up 2% y/y, higher than our estimate of 146,000. Volume sold stood at 147,000 and was 1% above our projections of 146,000 tonnes. Silver production level of 318t was 3% above our expectations, and silver volume sold was in line with our forecast and arrived at 320 tonnes.

EBIT in line with the market consensus, Quadra below our forecast: The EBIT came in at PLN 1,114.2m, down by 76.4%y/y and down 25.7% q/q, in line with the market consensus and 2.4% above our own forecast. Quadra EBITDA arrived at USD 90m vs our expectations of USD 97m. We expect the management to explain in more details regarding the Quadra results at the analyst meeting which is

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