KGHM Group in 2015: a stable condition in a challenging period

KGHM’s financial results in 2015 were impacted by, among others, the economic slowdown in China and record-low oil prices. As a result of these factors, the average annual price of copper on the London Metal Exchange (LME) was USD 5,495 per tonne, which translates into a nearly 20% decrease compared to 2014. The price of silver, according to the London Bullion Market Association (LBMA), dropped by almost 18% in 2015 to an average of USD 15.68 per ounce.

In the face of difficult macroeconomic conditions, the KGHM Group focused on increasing copper equivalent production as compared to 2014, which enabled a decrease in unit costs. Production increased in both the Polish and international assets. The lower metals prices were partly offset by a favourable USD/PLN exchange rate, as well as the lower value of purchased metal-bearing materials consumed and the lower value of the minerals extraction tax. Full year 2015 EBITDA, adjusted for the non-cash write-downs, was only slightly below the 2014 level (a decrease of 4%) and amounted to PLN 4,710 million.

The low commodity prices resulted in a decrease in the carrying amount of the investment in Sierra Gorda (Chile), the Sudbury Basin mines (Canada), the Robinson mine (USA) and the Franke mine (Chile). The recognised impairments resulted in a net loss for 2015 at the unconsolidated level of PLN (2,788) million, and at the consolidated level of PLN (5,009) million. Impairment tests were also carried out for the Polish assets, but these did not indicate the need to adjust their values. The significant weakening of the Polish złoty against the US dollar was among the factors supporting the valuation of KGHM’s domestic assets.

“Despite the non-cash write-downs affecting our financial results, the condition of the KGHM Group remains strong. The way we respond to macroeconomic forecasts is consistent with the reaction of leaders in this sector,” assured Krzysztof Skóra, President of the Management Board of KGHM. “We are focusing primarily on higher cost competitiveness, the development of modern technological solutions and the optimization of project portfolio management. These factors determine our potential to generate operating profits and value for our shareholders.”

In the current market environment, the Management Board decided to revise the strategy for the years 2015–2020, including reviewing and prioritizing investment projects throughout the Group. The aim is to reduce capital needs in the short and medium term. This should result in proper timing of investment expenditures, and in turn should enable KGHM to follow a consistent path of growth, while maintaining operating profitability.

“We will advance key investments, while the schedules and budgets of individual projects will be better adapted to market conditions. We have adopted conservative macroeconomic assumptions, particularly with respect to copper prices,” added Stefan Świątkowski, Vice President of the Management Board (Finance). “At the same time, as a response to the expectations of our shareholders, we are working on further cost reduction in our assets. The Group's financial position is stable, based on predictable levels of production, cost discipline and rational investment expenditures.”

KGHM’s internal analysis indicates a 2016 average price of copper at the level of around USD 5,000 per tonne, and silver of around USD 14 per ounce. The negative impact of the relatively low prices should continue to be partially mitigated by the weakness of the Polish złoty against the US dollar. The Group plans to maintain stable production of copper in concentrate. However, the production of electrolytic copper will be lower by around 10% and metallic silver by around 20%. This is due to the change in technology, from shaft furnace to flash furnace, which will require a four-month maintenance downtime in the Głogów I Copper Smelter/Refinery. Investment expenditures will be similar to the 2014 level, which will allow for the completion of the above-mentioned metallurgical investments, the development of the Deep Głogów area, and the support of the international operations of KGHM, including the Sierra Gorda mine.

Communication and CSR Department