Bloomberg News

KGHM Drops to 15-Month Low as Poland Details Copper Tax Plan

December 16, 2011

Dec. 15 (Bloomberg) -- KGHM Polska Miedz SA, the copper miner with the biggest European mine output, dropped to a 15- month low after Poland published a draft of the new copper tax bill it plans to implement in 2012.

KGHM lost 7.1 percent to 112 zloty in Warsaw, falling to the lowest intraday level since Sept. 10, 2010. The benchmark WIG20 Index declined 0.9 percent. Poland said last week it plans to raise about 1.8 billion zloty ($517 million) from a new copper and silver extraction tax, which would be paid by KGHM, Poland’s sole copper producer.

The government confirmed the number in the draft bill published today, saying it expects to raise about 2.2 billion zloty from the tax in the following years. The Finance Ministry set the maximum level of the tax at 32,000 zloty ($9,138) a ton, it said on its website. The upper limit is based on a monthly average copper price exceeding 52,000 zloty a ton.

“According to my estimates for copper and the zloty-dollar rate, the tax will be higher than expected,” Leszek Iwaszko, an analyst at Societe Generale, said by phone from Warsaw today.

The new copper won’t be treated as a cost for calculating the corporate income tax, said Marek Firlej from the Finance Ministry’s tax policy department in a phone interview.

Below the maximum level, copper producers will pay the tax according to a formula with a lower tax limit set at 130 zloty a ton when the average monthly price of the metal doesn’t exceed 13,000 zloty a ton. Iwaszko estimates that copper will trade at $7,950 a ton in 2012, with the zloty-dollar rate at 3.13.

‘Progressive’ Formula

“The formula is very progressive, Iwaszko said. ‘‘It penalizes the company when the copper price is high and it’s lenient when the price drops.’’

Iwaszko said the formula implies ‘‘eating up’’ about 40 percent of annual net income in the next four years.

‘‘The progressive formula is triggered at a very low copper price, which is very negative news,’’ Tomasz Duda, an analyst at Ipopema Securities SA, said by phone today. ‘‘It means that any KGHM’s profit will be taxed at quite a high rate.’’

According to the document published today, the new tax, to be paid monthly, is planned to be introduced on March 1, compared with a previous plan of April 1.

--Editor: James M. Gomez

To contact the reporter on this story: Maciej Martewicz in Warsaw at

To contact the editor responsible for this story: James M. Gomez at

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