Optimising costs and investments in the core business

The Group’s revenues in the first quarter of 2016 amounted to PLN 3.9 billion, with a profit for the quarter of PLN 163 million. The results were impacted by the macroeconomic environment and by the particular volume of yearly production by KGHM. The increase in copper equivalent production by 4.5 thousand tonnes (3 percent compared to the corresponding period in 2015) was due to higher production of gold and molybdenum. Silver production was at a similar level to that in the first quarter of 2015. However, the production of payable copper was lower (by 4%) as a result of preparations for the start-up of a flash furnace in KGHM Polska Miedź S.A., related to the need to build up half-finished products inventories.

The Group’s C1 unit cost of copper production in the first quarter of 2016 was lower by 13% compared to the corresponding period in 2015, mainly due to a higher production volume of copper and associated metals. Moreover, C1 cost in KGHM Polska Miedź S.A., which decreased by 9% compared to the corresponding period in 2015, was favourably impacted by a weaker PLN versus the USD and by a lower minerals extraction tax charge.

EBITDA in the KGHM Group amounted to PLN 987 million – lower by PLN 294 million than in the corresponding period in 2015. During this same period the Group’s net result decreased by 59% and amounted to PLN 163 million. Operating results (EBITDA expressed in USD) were positive both in KGHM International (USD 35 million) and in Sierra Gorda (USD 21 million). However, both KGHM International and Sierra Gorda recorded net losses, though these were lower than in the corresponding period in 2015.

“The lower EBITDA in the case of KGHM Polska Miedź S.A. by PLN 422 was mainly due to the deterioration in metals prices and to differences in sales volumes caused by the planned change in production technology at the Głogów I smelter/refinery. EBITDA in the company in the first quarter amounted to PLN 673 million,” says Stefan Świątkowski, Vice President of the Management Board (Finance).

„The policy of the company is to maintain cost discipline, which is of particular importance in the context of low metals prices. We are engaged in intensive work on pursuing a corrective program and on revising the strategy, in particular in terms of our international assets,” says Krzysztof Skóra, President of the Management Board of KGHM Polska Miedź S.A.

Despite a macroeconomic situation which remains challenging, the investments programs in Poland – both the ore access of the Deep Głogów deposit, as well as the Pyrometallurgy Modernisation Program (at the Głogów smelter/refinery) – are on track according to plan. The PMP investment has reached a critical stage – in the fourth quarter of 2016 we will fire up our flash smelter. “As a result of this investment we will have a functionally-integrated, cost-effective and environmentally-friendly smelter,” says Krzysztof Skóra.

To date, the Sierra Gorda mine has not yet achieved its initially assumed operating and efficiency parameters. Consequently, we have commenced a revision of the long-term operating plan, and are implementing a more robust cost cutting program, as well as enhancing operational efficiency.

“Taking into account actual levels of molybdenum and copper prices and of operational efficiency of the Sierra Gorda mine in Chile, it is not possible at the present time to make a decision as to the commencement of Phase 2 of the project,” says Mirosław Biliński, Vice President of the Management Board (Development).

In 2016 we will be revising the long-term investment programs and operating assumptions of the mines of KGHM International. The results of this work will determine the further path of development and operation of these mines.

The 20% drop in the copper price from the end of March 2015 to the end of March 2016 has substantially limited the investment capabilities of the KGHM Group. In particular, in light of the underestimated capital expenditures and the overestimated forecasts of operational efficiencies of the international assets, it is critical to revise KGHM’s development strategy. The Management Board plans to present the results of this strategic review in the first months of 2017.

Department of Communications and CSR