Stable production and good financial results

In 2012 KGHM Polska Miedź S.A. maintained a high level of production of electrolytic copper - 566 thousand tons of copper (compared to 571 thousand tons in 2011) and of silver – 1274 tons (compared to 1260 tons in 2011). EBITDA in 2012 amounted to PLN 8.1 billion and profit - PLN 4.868 billion. The major factors that affected the financial results of KGHM were as follows: production level, copper and silver prices and the USD/PLN exchange rate. In relation to 2011, the average copper prices were 10 percent lower while the average silver prices were lower by 11 percent. The exchange rate appreciated by 10 percent. Production of electrolytic copper was according to plan with a 26 percent share of third party input. In reference to 2011, the overall cost of copper production with internal input was 42 percent higher, mainly due to the new tax on minerals.
In 2012 KGHM International produced 110.5 thousand tons of copper and 95.2 thousand troy ounces of precious metals (including gold, platinum, palladium). The company generated EBIDTA of USD 333 million in excess of the budget.
The total copper production of the KGHM Group was 676.3 thousand tons (growth of 18 % in relation to 2011). 

- “We have accomplished most of our original assumptions, once again confirming our reliability and predictability. The projections for 2012 were accomplished with a 3 percent surplus and we generated PLN 4 868 million net profit”, says Włodzimierz Kiciński, first deputy president of KGHM Polska Miedź S.A. - “Despite the new tax on the mining of certain minerals, when we took over Quadra FNX, the stock of KGHM grew above average in the mining industry. At the same time, the total return to investors in terms of the stock price growth over the last year grew by over 60 percent. This is way above the results of the competitors in the mining sector”.

New investment projects of the KGHM Group in Poland and abroad 

Niecka Grodziecka 

With the positive results of the first drilling, further steps have been planned and the project can be developed in Niecka Grodziecka close to Bolesławiec. In the nine exploration drillings, the average copper content was about 1.4% and silver content - 50 grams per ton of ore. The scope of planned geological work, exploration and project and technical analysis will help develop a preliminary feasibility study of the project that will support the company’s management board in their investment decision on building a mine and applying for a licence for mining operations.

Sierra Gorda

At Sierra Gorda the mine and processing plant is being built, and the overlay is being removed. The progress of work at the end of 2012 was 33 percent with designing work 92 percent completed. Production will start in the second quarter 2014. According to an updated projection, capital outlays on the project will amount to USD 3.9 billion. That is an increase of 35 percent in relation to the previous assumptions, however without providing for potential savings (USD 160 million – leasing program of mining equipment and USD 55 million of the positive impact of the hedged FX rate).
The need to update the investment outlays on the Sierra Gorda project is mainly due to external reasons, independent of KGHM. This was primarily due to modified legal regulations concerning seismic requirements, increased costs of energy, labour and materials, and appreciation of the Chilean currency. The update of the outlays also includes additional enhancements and modifications to the project in relation to the original assumptions in the Feasibility Study. 
The Sierra Gorda project is a strategic project for KGHM since that investment will reduce the average cost of copper mining in the whole Group, which is of particular importance in view of dropping copper prices. As a result, the KGHM Group will be competitive even with low global copper prices.

It should further be noted that the investment pursued by KGHM International is now one of the few projects implemented on time which makes it stand out in the sector where average delays of starting greenfield mining projects are up to 3 years. 

The Sierra Gorda project already generates positive value added for KGHM shareholders. Analysts attribute 30-50 percent of the value of KGHM to its international business, primarily to Sierra Gorda. With today’s market capitalisation of KGHM, that means that USD 3.4 – 5.7 billion is attributed to foreign assets of KGHM. 

- “Verification of investment outlays in such complex mining projects is common practice, which is confirmed in international auditor reports. The construction costs of mining facilities have been growing all over the world, the average increased outlays amount to 60 percent of the budget, KGHM International has been maintaining high budget discipline”, says Herbert Wirth, President of the Management Board of KGHM Polska Miedź S.A. “The updated assumptions show that the Sierra Gorda project has significant growth potential. We continue to analyse the possibilities of better utilisation of the deposits. Work is underway on exploring additional deposits of sulphide ore. It will also be possible to use a part of the overlay containing oxide ores. As a result, the anticipated mining period can be substantially extended.

International reporting standards 

In the third quarter 2012, KGHM retained the independent Canadian company Micon to audit its production assets and deposits in Poland. The audit was performed in accordance with the NI-43.101 methodology (which is the reporting standard required of mining sector companies listed on the stock exchange in Toronto) and it confirmed the quality of the production assets and volume of the deposits of KGHM in Poland. KGHM Polska Miedź SA, which is listed on WSE, is not required to make and publish technical reports. With the audit and publication of the report, the existing and future investors in KGHM have received systematic knowledge, verified by independent competent specialists, on the deposits and production operations of the company in Poland.

Communications Department 
KGHM Polska Miedź S.A.