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May 31, 1998

Market mining

Talking to KGHM - a Polish company rapidly learning IR

Polish copper mining company KGHM has had a hard introduction to the realities of capitalism. For starters, it had a particularly tricky IPO in July of last year with analysts split on where the copper price was headed, and some economists worrying about zloty devaluation. Then KGHM found out about ongoing IR.

As a previously state-owned company, KGHM has found IR to be a new and sometimes unpredictable discipline. The investor relations function was set up as part of the information division, together with press relations (which already existed) and an office dealing with compliance issues and regulatory information.

'It was something very new for us,' admits Wojciech Marciniak, head of IR. 'Right now, we are still learning how to do it.'

KGHM management were coached by the global coordinators during the flotation period, enabling them to anticipate most questions that investors would ask. The banks also assisted in arranging a series of one-to-one investor meetings after the flotation, in September 1997. Now, KGHM has to take what it has learned from this experience and apply it on its own.

Reactive function

Investor relations for KGHM is still largely reactive, driven by the requirements of brokers and asset managers. Rather than having a structured program of meetings, the company tends to wait for analysts and shareholders to request meetings. KGHM has gained a good reputation for making those meetings happen, though, often including a visit to the mines and smelters, particularly for those analysts who happen to have an engineering background.

The one problem that the IR office still has is changing the attitudes of senior managers who have worked in a state mining company for 20-30 years and see investor relations as a low priority. Although IR is now in the hands of professionals, the top managers too need to learn how to talk to shareholders and to understand investors' concerns. This is changing, says Marciniak - but it does take time.

KGHM has been pragmatic in its approach. The company has had a London office for many years, handling the metals business. Now, the London office has an unofficial role in IR because of where it is based. Andrew Zemek, managing director of the London office, regularly talks to investors, and also runs KGHM's English language web site ( When interviewed he had just finished uploading the 168-page annual report. He has been pleasantly surprised by comments on the web site, and has started compiling a mailing list, using the web site registrations as an initial database.

Like many other larger eastern European companies, KGHM has a GDR program. Zemek believes that was key in making the stock more attractive to international investors at the time of listing. 'GDRs were popular because they were a 'one stop shop' for investors,' says Zemek.

The GDRs have seen heavy flowback into the Polish market, as traders took advantage of high retail demand and the fact that the underlying shares were trading at a slight premium to the depositary receipts. While 17.5 percent of the stock was originally placed as GDRs, these now represent only 13 percent of the total capitalization. Even so, that represents one in every four shares (excluding the government's 52 percent stake).

What does the City think of the company's investor relations program? Many professionals admire the IR effort, but are concerned about the quality of the company itself. It is very exposed to copper prices, and has higher production costs than most producers. 'The IR is good, but the company does not match the standard of the presentation,' says Christian Wall, a corporate financier with RZB-Austria. 'But they are open and honest, and well-informed.'

It has undoubtedly been a rocky year for KGHM since the float. Copper prices have headed downwards, and with the Asian crisis knocking emerging markets, IR has been challenged to keep up with events. It's difficult enough for most emerging market companies to get used to their new status and responsibilities after an IPO, without the turbulence of market conditions since October.

As Zemek says: 'IR is more complicated than we thought.'