Friday, March 25, 2011

I wish I won the Lotto

Sometimes, when there is 20 million zlotys to be won in the Polish Lotto I stop to daydream. "What would I do with all that money...." However, having some basic concept of probability, I usually don't even bother buying a ticket.

Often I think that we Poles have a similar feeling on a national level. "If we had oil like the Saudis, we would be rich and powerful...." We long for unimaginable riches on a national scale that would just drop from the sky or pop out from the ground effortlessly. Look at all the commotion about unconventional gas in Poland and you will see what I'm talking about.

Poland, however, does have a resource that is now ridiculously expensive and lucrative -- copper. Poland's KGHM is Europe's second largest producer and, to show how lucrative the business is, let me just point out its net profit margin was 28 percent last year.

But that is not even the most important point. Take a look at what KGHM does with all its lucre. First, it pays its employees handsomely. With such margins it can afford to spoil them rotten and it does. Bonuses the company pays its managers are legendary. It also spoils its shareholders, mainly the state, with one of the highest dividend payouts from earnings on the market. I said it did because last year's dividend was unusually modest.

KGHM's investment patterns in recent were...chaotic to say the least. It made a decent move into telecoms to buy a stake in what turned out to be the leading mobile operator in Poland, but it also sponsors a loss-generating fixed-line operator. It bought a stake in the country's second-largest power producer, Tauron, for about a billion zlotys in order "to gain experience in the energy sector." It owns such things as hospitals, travel agencies and is now buying into travel resorts.

There are two things KGHM has not invested in: efficiency and copper. Efficiency plans have always fizzled on labour unions while after a disastrous venture into Congo to acquire copper deposits KGHM has dropped international expansion plans, slumbering through the now gone period of low copper prices and cheap buyout opportunities.

Now with prices at all-time highs, the company is finally trying to flex its muscle and, after a recent acquisition of a deposit in Canada, it promises to spend 2.5 billion dollars -- not doll-hairs -- on buying prospective copper fields across the globe.

KGHM's example is instructive and can help us answer the question of what Poland would do if it suddenly struck gold in the middle of Warsaw's main street? Easy. We would spend it all and then move to make more when it was too late.

No comments:

Post a Comment