Cost discipline in response to the macroeconomic conditions

The KGHM Group recorded an increase in the production of copper equivalent of 5,000 tonnes, which was a result of higher production of associated metals: gold and molybdenum. The total production volume of precious metals increased by 26%, compared to 2015.

In the first half of 2016, mined production at KGHM Polska Miedź S.A. increased by 3% (from 15.7 milion tonnes to 16.2 million tonnes dry weight), versus the comparable period last year. While there was a decrease in copper content in ore from 1.540% to 1.50%, it is expected that in the coming quarters it will remain at the level of 1.510%.

Production of electrolytic copper was lower, while the inventories of half-finished products increased. These products will be used during the maintenance shutdown of the Głogów 1 smelter, related to the transfer of operations from the shaft to the flash furnace. The minor decline in the production of metallic silver in the first half of 2016 is the consequence of lower production of electrolytic copper.

Compared to the same period of 2015, costs were lower by PLN 177 million. The net profit of KGHM Polska Miedź S.A.  amounted to PLN 668 million. “As we previously announced, we are maintaining cost discipline and are closely monitoring the metals market. In the process of revising the strategy, our major focus is on matching our investment plans to the expected financial capabilities, taking into account market conditions and the need to optimize costs,” commented Krzysztof Skóra, President and CEO of KGHM Polska Miedź S.A.

Challenges remain in the commodities market. Compared to the same period last year, the price of copper in the first half of 2016 was lower by 21% (4.701 USD/tonne), the price of silver by 4% (15.82 USD/troz), and the price of molybdenum by 25% (6.04 USD/lb). Consolidated net profit of the KGHM Group in the first half of 2016 amounted to PLN 298 million.

“The low prices of both copper and molybdenum, as well as the reduced sales volumes due to the planned maintenance shutdown of the Głogów 1 smelter, had the most significant impact on our results. These factors were partially offset by the favourable depreciation of the Polish złoty against the US dollar, as well as by lower costs,” explained Stefan Świątkowski, Vice-President and CFO of KGHM Polska Miedź S.A.

The KGHM Group continues its key projects. At the Sierra Gorda mine, intensive work is underway to achieve Phase 1 financial and production targets. Selected contracts and agreements are being renegotiated, while the long-term plan of activities and development is being reviewed. Moreover, cooperation with the Chilean Environmental Regulator (SMA) is being continued. Sierra Gorda presented a compliance programme to meet the regulator’s requirements, and is currently awaiting its formal approval by SMA. “In addition, based on Poland’s proven solutions, an international team of experts has been set up, in order to supervise the Sierra Gorda tailings storage facility,” stated Mirosław Biliński, Vice-President of KGHM Polska Miedź S.A., in charge of development.

In Poland, two major investments are being carried out. Work on accessing the Deep Głogów deposit is underway. The Metallurgy Development Program has entered the decisive phase. The Głogów 1 copper smelter is switching to technology which is based solely on the flash furnace process. On July 16th, the shaft furnaces in the smelter were finally shut down. The process of launching the new furnace is in accordance with the approved schedule. Shaft furnace-based technology will still be in use at KGHM’s Legnica smelter.

The Group’s net debt in the period from January to June 2016 increased by USD 207 million, due to the financing of investment activities. The Net debt/EBITDA ratio (with EBITDA for the 12 months ending June 30th, 2016) is 1.8, and remains at a safe and controllable level.

The company’s General Meeting of Shareholders decided to pay a dividend for the year 2015, amounting to PLN 300 million. The payment of the first instalment, amounting to PLN 150 million or PLN 0.75 per share, is due on August 18th, 2016. The second instalment, which is also PLN 0.75 per share, will be paid on November 17th, 2016.

The priority of the Management Board is to review the strategy and review and set the optimal development path for its international assets, as well as focus on effective development programs for the copper deposits in Poland, with the use of cutting-edge technologies.