KGHM Group and its cooperation environment

The KGHM Polska Miedź S.A. Group is a global and innovative organisation, which conducts technologically advanced exploration-mining and metallurgical activities. For several decades, the Company has been mining and processing valuable underground resources, providing the world with commodities that enable its sustainable development. 

The Company’s history began in 1957 with the discovery of one of the world’s largest deposits of polymetallic ores, predominantly copper and silver, located in south-western Poland. The deposit has been effectively and reasonably mined to this day. 

As the years went by, the KGHM Polska Miedź S.A. Group significantly grew its business both in terms of products and the market. KGHM Polska Miedź S.A. is present on four continents: in Europe, South America, North America and Asia. KGHM Polska Miedź S.A. Group is composed of its Parent Entity, KGHM Polska Miedź S.A. with its registered office in Lubin, and 72 subsidiaries (including two closed-end, non-public investment funds), employing more than 34 thousand people globally, trusting that what they do is important for the world. 

Owing to their knowledge, courage and responsibility, the KGHM Polska Miedź S.A. Group produces valuable commodities, predominantly metals. The Group’s core line of business is the production of copper along with non-ferrous metals accompanying it and the development of the resource base. The Company is ranked among the world’s top producers of silver and copper. It also produces gold, nickel, rhenium, lead and platinum. The high quality of the copper, silver and other commodities produced by the Company have been confirmed by certificates awarded by various international com.

Specifically, the business of the KGHM Polska Miedź S.A. Group covers the following areas

The activities of the KGHM Polska Miedź S.A. Group with respect to the exploration and mining of e.g. copper and silver ore and precious metals deposits is based on the concessions held by KGHM Polska Miedź S.A. for the mining of deposits in Poland and the legal titles held by companies belonging to the KGHM INTERNATIONAL LTD. Group for exploration and extraction of raw materials in the USA, Canada and Chile.

The Group’s main entities, which are engaged in the mining sector, comprise three primary reporting segments which are independently evaluated by management bodies. These are: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M. Other companies, excluding Future 1 Sp. z o.o., Future 2 Sp. z o.o., Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o., Future 6 Sp. z o.o. and Future 7 Sp. z o.o., are part of the segment called Other segments. 

The following diagram presents the significant production assets and projects underway within the reporting segments: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD., Sierra Gorda S.C.M. and other segments.

Major reporting segments of the KGHM Polska Miedź S.A. Group

Do żadnego z wyżej wymienionych segmentów nie zostały zaklasyfikowane spółki:

• Future 1 Sp. z o.o., która pełni funkcje holdingowe w stosunku do Grupy Kapitałowej KGHM INTERNATIONAL LTD.,
• Future 2 Sp. z o.o., Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o., Future 6 Sp. z o.o., Future 7 Sp. z o.o., które funkcjonują w ramach struktury związanej z utworzeniem Podatkowej Grupy Kapitałowej.

Spółki te nie prowadzą działalności operacyjnej mającej wpływ na wyniki osiągane przez poszczególne segmenty.

In 2019 there were no substantial changes to the principles of managing the Group. The undertaken actions aimed at improving the coordination of Group processes and enhancing the security of its operations included the introduction of new, or the improvement of existing, tools. One of the most important actions was the establishment of an advisory body to the Management Board, i.e. the KGHM Group Council.

The KGHM Group Council is a permanent team with advisory/consulting rights, facilitating the taking of organised actions within the KGHM Group. The Council cooperates with entities in the Group in a manner which does not conflict with the rights and entitlements of these companies’ statutory bodies. The KGHM Group Council’s mandate covers all matters of significance for the functioning of the Group. The Council comprises the management staff of the KGHM Head Office, which is responsible for managing all areas of substance. In justified cases, other persons may participate in the Council, including representatives of companies in the KGHM Group.

In 2019, the multi-divisional organisational structure of the Company, acting under the name KGHM Polska Miedź S.A., comprised the Head Office of the Company and 10 Divisions

Organisational structure of KGHM Polska Miedź S.A. as at 31 December 2019

The KGHM Polska Miedź S.A. Group holds geographically diversified mining assets (mines with copper, silver, molybdenum, nickel and other metals) located in Poland, the USA, Chile and Canada. 

The key international asset – the Sierra Gorda mine, which is a joint venture between KGHM INTERNATIONAL LTD., Sumitomo Metal Mining and the Sumitomo Corporation – is located in Chile. In addition, the KGHM Polska Miedź S.A. Group has mine projects which are at the preproduction phase (among others Victoria, Sierra Gorda Oxide), as well as exploration projects.

Location of the KGHM Polska Miedź S.A. Group’s assets

The KGHM Polska Miedź S.A. Group endeavours to build its portfolio of geological assets based on two principal assumptions. One provides for sufficiently high concentration of a useful product in a deposit. It enables generation of high levels of economic efficiency in the mining work on these geological assets in the short term. The other assumption is to rely on deposits with appropriate levels of prospectiveness of their mining time. It permits the achievement of high levels of economic efficiency in strategic terms, which is possible owing to a sufficiently long life of mining projects. It is important for KGHM also due to high standards in the area of corporate social responsibility.

For the reasons mentioned above and in connection with the issue of sources of the mined raw materials, which is fundamental for the mining activity, KGHM tries to locate its activity in the deposit districts the role of which is acknowledged worldwide and which are often the largest ones in a given part of the world. These criteria served the purpose of selecting and developing the current portfolio of KGHM’s geological assets. Polymetallic deposits mined by KGHM are situated in Poland in the Fore-Sudetic Monocline and in the North-Sudetic Basin. KGHM holds or is applying for exploration and mining concessions on the richest and most prospective deposits of copper, silver and other metals in Europe. They form the basis for the functioning of mining assets of KGHM Polska Miedź S.A. for the next 35 years.  This concerns the already mined deposits in the vicinity of Lubin and Polkowice as well as the deposits near Głogów, Bytom Odrzański and Luboszyce. In connection with the mining of the deposit of Zechstein salt above the said polymetallic deposits for ten-odd years, KGHM has developed also its competences in the area of exploration and mining of salt deposits. 

The KGHM Polska Miedź S.A. Group’s geological assets in South America and North America are oriented not only towards the development of the copper reserve in the Company’s resource base but also towards the expansion of the Group’s competences related to the metals that have been merely accompanying to date, with a prospect of a few decades of operations on their deposits.

Based on the abovementioned geological assets, mining and, subsequently, metallurgical assets are developed. They are described below, in successive Tables:

Polkowice-Sieroszowice mine / Poland

The Polkowice-Sieroszowice mine is located in Lower Silesia, to the west of the town of Polkowice. Currently, it conducts mining works in four mining areas: Polkowice, Radwanice Wschodnie, Sieroszowice and in a part of the Głogów Głęboki – Przemysłowy (Deep Głogów) deposit.

Within the Sieroszowice mining area, there are also rich deposits of rock salt above the copper-bearing horizon. Mining is conducted using room-and-pillar methods with natural roof settlement, using blasting technology. The Polkowice-Sieroszowice mine’s current production capacity is around 12 million tonnes of ore per year.

Rudna mine / Poland

The Rudna mine is located in Lower Silesia, to the north of the town of Polkowice. It mines the copper deposit in the Rudna mining area as well as in parts of the mining areas of Sieroszowice, Lubin-Małomice and Głogów Głęboki-Przemysłowy (Deep Głogów).

The copper orebody in the currently mined deposit ranges from 844 meters to 1,250 meters. Mining is conducted using room-and-pillar methods with natural roof settlement with hydraulic backfill, using blasting technology. The current average production capacity is approx. 12 million tonnes of ore per year.

Lubin mine

The Lubin mine is located in Lower Silesia, Poland, to the north of the town of Lubin. It mines the copper deposit in the mining area Lubin-Małomice at a depth from 368 meters to 1,006 meters.

Mining is conducted using room-and-pillar methods with natural roof settlement with hydraulic backfill, in the vicinity of the support pillar of the town of Lubin, using blasting technology. The mine’s current production capacity is around 8 million tonnes of ore per year.

Głogów Copper Smelter and Refinery / Poland

This complex of metallurgical plants located in Głogów comprises two copper concentrate smelting lines based on the one-stage smelting of concentrate in a flash furnace directly into blister copper.

Apart from electrolytic copper, the Głogów Copper Smelter and Refinery produces crude lead (up to 30 thousand tonnes annually), silver (around 1,400 tonnes), gold (around 2 tonnes) and sulphuric acid (over 500 thousand tonnes). 

Legnica Copper Smelter and Refinery / Poland

The copper smelter and refinery located in Legnica has a current production capacity of 120 thousand tonnes of electrolytic copper. In operation since the 1950s based on shaft furnace technology.

Apart from electrolytic copper, the plant also produces around 30 thousand tonnes annually of refined lead and also around 100 thousand tonnes of sulphuric acid, as well as copper sulphate and nickel sulphate. 

Cedynia Wire Rod Plant / Poland

Production at the Cedynia Wire Rod Plant located in the vicinity of Orsk is based on the use of copper cathodes, around 75% of which come from the Głogów Copper Smelter and Refinery and around 25% from the Legnica Copper Smelter and Refinery.

The basic product of the Cedynia Wire Rod Plant is copper wire rod produced in a Contirod line amounting to around 250 thousand tonnes annually and around 18 thousand tonnes annually of oxygen-free copper wire rod produced in an UPCAST line, including oxygen-free, siler-bearing copper wire rod. 

Robinson mine / The United States

The mine is located in White Pine county, Nevada, USA, around 11 km west of Ely (approx. 400 km north of Las Vegas), in the Egan range, at an average altitude of 2,130 meters a.s.l., near highway no. 50. 

The mine is comprised of 3 large pits: Liberty, Tripp-Veteran and Ruth. Currently, Ruth is in operation. The ore is extracted by conventional methods, and is then processed into a copper and gold concentrate, and separately into molybdenum concentrate in a concentrating plant.

Carlota mine / The United States

The Carlota mine is located in the Western part of the Miami-Globe mining region, in the state of Arizona at an altitude of 1,300 meters (4,200 feet) a.s.l. Surrounding the mine is mountainous, desert terrain.

Copper ore extraction by the Carlota mine is by conventional methods typical for open-pit metals mines, i.e. the ore is mined by blasting and then is transported by haulage trucks. In 2018 mining re-commenced in the Eder South area.

Sudbury Basin / Canada

The Sudbury Basin is located in central Ontario in Canada, approx. 400 km north of Toronto. In this region KGHM International Ltd. owns a variety of assets; however, since April 2019, mining has only been conducted in the underground McCreedy West mine due to the fact that the Morrison/Levack mine was placed into Care & Maintenance (i.e. mining of the deposit was suspended).

Extraction is through mining methods which are dependent on the geometry of the deposit – mainly a mechanised method of selective extraction using undercutting of successive levels from bottom to top at various mine levels. All of the ore extracted from the mine, containing copper, nickel and precious metals, is processed in the Clarabelle plant in Sudbury, owned by Vale.

Victoria Project / Canada

This project is located in the Canadian province of Ontario, around 35 km west of the town of Sudbury. In 2002 rights were acquired to the Victoria mineral deposit and a campaign of exploration in this region commenced. All of the ore extracted from the mine will be processed in the Clarabelle plant in Sudbury, owned by Vale.

The current development scenario for the project calls for the sinking of 2 shafts to access the deposit (a production shaft and a ventilation shaft). Exploration work performed thus far confirmed the continuity and characteristics of the mineralisation to the level of approximately 2,200 meters below the surface.

Ajax Project  / Canada

The Ajax project is located in British Columbia, Canada, 400 km north-east of Vancouver near the town of Kamloops. The project assumes the construction of an open-pit copper and gold mine and an ore enrichment plant, with associated infrastructure. In January 2012, Abacus Mining and Exploration Inc. prepared a feasibility study, based on which the preliminary economic parameters of this project were described.

Due to the substantial risk of not receiving an environmental permit based on the assumed technological parameters of the project, including the siting of basic mine plant infrastructure, the assumptions of the feasibility study from 2012 were reviewed in terms of the identified risk factors and the potential for increasing the project’s value.

Sierra Gorda mine and Sierra Gorda Oxide project / Chile

The Sierra Gorda mine is located in the Atacama desert, in the Sierra Gorda administrative area in the Antofagasta region, in northern Chile, approx. 60 km south-west of the city of Calama. The mine is situated at the altitude of 1,700 meters a.s.l. and 4 km from the town of Sierra Gorda.

On 1 July 2015 the Sierra Gorda mine commenced commercial production (since then it has prepared statements of profit or loss). The ore is extracted using explosives, and next is loaded and hauled away in trucks to the processing plant, where it is crushed and milled.

The end product of Sierra Gorda’s processing plant is copper concentrate and molybdenum concentrate.

Franke mine / Chile

The mine is located in a desert area of northern Chile, in the Altamira region, near the southern boundary of the Antofagasta region, near a public road connecting the mine with the Pan-American highway.

Mining is conducted by conventional open-pit methods. Due to the nature of the ore, it is processed using the heap leach, solvent-extraction and electrowinning method. The end product is electrolytic copper in the form of cathodes.

In terms of assuring the operations of the core business of KGHM Polska Miedź S.A., of significance are investments in domestic companies acting on its behalf, such as:

• PeBeKa S.A. – mining work contractor,
• KGHM ZANAM S.A. –  a supplier and service provider for mining machinery, it also provides production maintenance services in selected areas and participates in investment tasks,
• KGHM Metraco S.A. – a supplier of copper scrap,
• „Energetyka” sp. z o.o. – this company secures part of the energy needs of KGHM Polska Miedź S.A.

In terms of the amount of capital committed, an important investment are the shares of TAURON Polska Energia S.A., a company listed on the Warsaw Stock Exchange.

Investments in closed-end investment funds are a tool used to diversify the investment risk for KGHM Polska Miedź S.A. In advancing the strategy of the Group, they fill a role in the management of selected non-core assets and are a tool in the advancement of projects aimed at increasing value. A significant portion of these Funds’ assets are investments in the general field of healthcare.

In addition, amongst the international companies is a group operating under the DMC Mining Services brand: DMC Mining Services Ltd., FNX Mining Company Inc., Raise Boring Mining Services S.A. de C.V., DMC Mining Services Corporation, DMC Mining Services Colombia S.A.S., DMC Mining Services (UK) Ltd. and DMC Mining Services Chile SpA, which provide services in shaft sinking, mine development work, above-ground and underground mine facilities, mine drilling, tunnel drilling for general construction purposes and engineering services.

A good relationship with stakeholders based on mutual understanding and trust are of crucial importance to the KGHM Polska Miedź S.A. Group as an organisation exerting a significant impact on its economic, social and natural environment, of which it is fully aware and for which it is prepared to accept responsibility. Cooperation – one of the company's values – is the basis for its success on in business and social activity. The Group builds relationships with Stakeholders based on partnership and complete transparency, with an awareness of their importance in its long-term strategy and sustainable approach to business. The basis of this process is dialogue geared towards learning about mutual expectations and capabilities and implementing agreements. During the strategic review conducted in 2019 in order to implement the 2019–2023 Strategy of KGHM Polska Miedź S.A., it was established that the Stakeholder map of the KGHM Polska Miedź S.A. Group developed during the earlier mapping in 2016 should be revised for the new strategic perspective.

As a result of the above, a process to identify and map the KGHM Polska Miedź S.A. Group’s Stakeholders was conducted based on the Johnson & Scholes methodology. Its first stage was to distinguish Stakeholder groups. This was accomplished in the same manner as in 2016, by using a questionnaire filled out by senior managers of each member of the KGHM Polska Miedź S.A. Group representing various business areas. During a validation workshop conducted at the second stage of this process, these same respondents assessed the degree of Stakeholders’ interest in and orientation towards the organisation and vice versa, as well as the levels of their mutual Impact. In addition to the individuals identified above, this workshop was also attended by external experts, including professors of Polish universities, members of organisations focusing on responsible business and representatives of local communities. The results of this research allowed us to identify four categories of Stakeholders presented in the Johnson & Scholes matrix for the KGHM Polska Miedź S.A. Group.  One of these groups is the Key Stakeholders, who are the KGHM Polska Miedź S.A. Group’s most influential and significant Stakeholders. It was established that the category includes not only all of KGHM’s current Key Stakeholders (identified in 2016) but also Bondholders, which is associated with the bond issuances that are likely to be conducted by the Group in the future. During the round of discussion meetings with the representatives of KGHM Polska Miedź S.A. and the KGHM Group, it was determined on this basis (i.e. the strength of interest and the strength of impact of the individual Stakeholders and the organisation, for Key Stakeholders) that the aspects of reporting by the KGHM Polska Miedź S.A. Group resulting from the above will not change significantly as compared to the past and only a slightly greater weight will be attached to environmental matters.

Key Stakeholders in the KGHM Polska Miedź S.A. Group

The KGHM Group joins in actions within the European Green Deal concept ( GRI 102-12 ) announced on 13 December 2019 and Implementing the Recommendations of the Task Force on the Climate-related Financial Disclosures (TCFD) of June 2017 as well as the Communication from the European Commission 2019/C 209/01 of 19 June 2019 Guidelines on non-financial reporting: Supplement on reporting climate-related information. KGHM Polska Miedź S.A. has been implementing many of the recommendations indicated in the abovementioned documents for a much longer time, following the path of sustainable, environmentally responsible development.

Cooperation with trade organisations

As the KGHM Polska Miedź S.A. Group, we take part in the works performed by numerous Polish and international organisations and associations. In its relations with clients, employees, external partners and local communities, the KGHM Polska Miedź S.A. Group complies with the laws which are in effect in the countries where it operates. The Group also complies with voluntary obligations resulting from ISO and ASTM standards as well as from membership in international organisations such as International Copper Association, European Precious Metals Federation, Eurometaux, Euromines, the London Bullion Market Association, the European Technology Platform on Sustainable Mineral Resources, the European Innovation Partnership, and domestic organisations, including: the Polish Association of Listed Companies, Stowarzyszenie Inżynierów i Techników Metali Nieżelaznych [Association of Non-Ferrous Metals Engineers and Technicians], the Economic Chamber of Non-Ferrous Metals and Recycling, the Polish Committee of the World Mining Congress, Polish-Canadian Chamber of Commerce, the Polish Chamber of Commerce for High Technology, and the Employers’ Organization of Polish Copper.

The KGHM Polska Miedź S.A. Group does not participate in undertakings which involve breaking the law and pose a threat to its reputation.

Macroeconomic environment 

In 2019, there was a continuation of the reduction in global economic growth forecasts published by the International Monetary Fund (IMF). The accrued revision for 2020 in the period from January 2019 to January 2020 amounted to -0.2 percentage points globally. The structure of the forecast reductions in global economic growth mainly affected emerging market and developing economies, whose expected rate of growth was reduced by 0.5 percentage points, compared to the revision in advanced economies of -0.1 percentage points.  

Forecasts of real GDP growth per the IMF from January 2020 versus previous forecasts

According to the IMF’s latest estimates, global GDP growth in 2019 amounted to 2.9% compared to 3.6% in the prior year. Growth in advanced economies is estimated at 1.7% compared to 2.2% growth in 2018. The main reason for the decrease in rate of growth was the slowdown in the US economy (estimated at 2.3% in 2019 compared to 2.9% in the prior year) and in the eurozone (estimated at 1.2% compared to 1.9% in the prior year). In emerging market and developing economies, the rate of growth decreased from 4.5% to 3.7% year on year, mainly due to an economic slowdown in China and India respectively by 0.5 percentage points and 2 percentage points compared to the rate of growth in 2018. The reason for the lower rate of growth came from a substantial deterioration in perceived global industrial activity, as seen in the lower PMI (Purchasing Manager Index), which, month by month in 2019, fell to increasingly lower levels. Another major reason for this slowdown in global economic activity in 2019 was the lower volume of global trade in goods and services, whose annual level fell from 3.7% to 1% globally. The slowdown in international commercial activity was most felt in developing economies, in which the growth in the volume of trade decreased from 4.5% in 2018 to 0.4% in 2019. This slowdown in global trade was caused by the trade conflict between the USA and China, but was also due to the hard negotiating stance of the United States with other trading partners. The result of these actions was an increase in global protectionism, evident in the increased amount of customs barriers in trade between the USA and its trading partners (the European Union, Japan, Canada and many others). In late November/early December 2019, the administration of President Donald Trump reached an agreement with China, but the increased divergence in interests along with subsequent rounds of negotiations were not enough to enable complete agreement to be reached, which led to a change in negotiating tactics and separation of the process into phases. The conditions for the first of these were set at year’s end and officially signed in January 2020. The market reacted positively to the achievement of a partial agreement, lending hope to a gradual easing of the conflict. 

The slowdown in growth and the weakening macroeconomic readings generated a reaction on the part of central banks, with a response and implementation of further easing in monetary parameters. The greatest surprise for the financial markets was the change in monetary policy assumptions by the US Federal Reserve (Fed), which, in the expectations published in the first half of 2019 by the members of the Federal Open Market Committee (FOMC), assumed continuation of rising rates. These forecasts failed to materialise, and the change in rhetoric led to three decreases in interest rates in a row. The change in monetary policy assumptions also affected the Fed’s balance sheet. The decrease in the balance sheet announced by the members of the FOMC did not occur and, given the problems with liquidity at the turn of the third and fourth quarters, the amount of short-term securities accumulated by the Fed rose dramatically. 

Despite the weaker macroeconomic readings and problematic global trade relations, the commodities market, measured by the Bloomberg Commodity TR Index (BCOM) recorded an increase of 7.7% year on year (yoy). However, the commodities market was weakest compared to the American S&P500 (+31.5% yoy) and to the bond market measured by the Barclays U.S. Aggregate Index (+8.7% yoy). The greatest impediment to a higher rate of return in the general BCOM index were the prices of agricultural goods and livestock (+0.4% yoy). The greatest impact on raising the index came from precious metals (+17% yoy) and energy materials (+11.8% yoy) and, to a lesser extent, industrial metals (+7% yoy). 

Comparing the difference in the price of copper from the first (5,839 USD/t) and last (6,156 USD/t) official cash settlement price of 2019, which was just 317 USD/t (approx. 5%), one can conclude that the past year did not abound in breakthrough events for the red metal. The average cash settlement price amounted to nearly 6,000 USD/t, and remained within a range of no more than 600 USD/t. Although this would suggest a relatively low level of copper price volatility, 2019 was nonetheless full of the aforementioned events, macroeconomic readings and geopolitical aspects, which affected the copper market. 

While in the first half of the year the copper price was supported by a halt in the appreciation of the USD and hope for an imminent solution to the trade conflict, the US administration, contrary to expectations by the market, imposed duties on Chinese goods. As a result the USD strengthened, although given the fears of an expansion of the trade conflict into further areas of the economy, there was a sell-off of assets in many markets, including that of the basic metals. This led, in June 2019, to a fall in the copper price to under 6,000 USD/t. The global trade conflict is a natural cause of the rise in market uncertainty, which affects demand for copper, since those countries engaged in the trade conflict (which includes, apart from the USA and China, the European Union and Japan) represent a majority of the market. For example – China accounts for over 50% of global copper consumption and for many years has been responsible for the largest rise in the volume of consumption. If economic growth slows as a result of an escalation in the trade conflict and the imposition of new duties and sanctions, the resulting negative sentiment could lead to a lower rate of growth in demand, and this would undoubtedly have an impact on the price of the metal.

The second half of the year was mainly affected by a deterioration in macroeconomic readings and further escalation of the trade conflict. Apart from the weakening data from China (the lowest rate of GDP growth in more than two decades), the German economy also recorded a slowdown in economic activity. This mainly affected the industrial sector, where the PMI reading fell to record lows, substantially below 50 points, demarcating the theoretical boundary of the slowdown from growth. 

n terms of fundamentals, the copper price was stabilised by information on higher costs in the sector and lower availability of concentrate and copper scrap. This had a significant impact on the decrease in discounts (including TC/RC) to a level which to a significant degree reduces the profitability of non-integrated refined copper producers, located mainly in China. The first signals about restrictions to production appeared in the fourth quarter of 2019, yet the impact of lower TC/RCs on the copper market in subsequent periods remains an open question. According to data from the International Copper Study Group (ICSG) for the first 11 months of 2019, the deficit on the refined copper market (based on apparent demand in China) amounted to 385 thousand tonnes. The price of copper in the fourth quarter was also affected by country-wide protests in Chile, which apart from their social aspects impacted the operations of copper producers. Part of the November and December production was interrupted, which could be a reason for the heightened imbalance on the copper market and one of the reasons for the higher prices in the last weeks of 2019.

Change in commodities prices in 2019

Source: Refinitiv, KGHM Polska Miedź S.A.

Syntetyczne zestawienie najistotniejszych dla działalności Spółki czynników makroekonomicznych przedstawione jest w poniższej tabeli.

Macroeconomic factors significant for the operations of the KGHM Polska Miedź S.A. Group – average prices ⁽¹

	J.m.	2019	2018	Zmiana (%)	IVQ'19	IIIQ'19	IIQ'19	IQ'19
Copper price on the LME	USD/t	6 000	6 523	(8,0)	5 881	5 802	6 113	6 215
Copper price on the LME in PLN	PLN/t	23 029	23 520	(2,1)	22 773	22 520	23 304	23 548
Silver price per the LBMA	USD/troz	16,21	15,71	+3,2	17,32	16,98	14,88	15,57
Molybdenum price per the CRU	USD/funt	11,85	12,14	(2,4)	10,75	12,18	12,51	11,94
USD/PLN exchange rate per the NBP		3,8399	3,6117	+6,3	3,8741	3,8831	3,8125	3,7883
USD/CAD exchange rate per the Bank of Canada		1,3269	1,2957	+2,4	1,3200	1,3204	1,3377	1,3295
USD/CAD exchange rate per the Bank of Chile		703	640	+9,8	755	705	684	667

The average annual price of copper on the London Metal Exchange (LME) in 2019 was 6,000 USD/t, 8% below the average price in 2018 (6,523 USD/t).

Copper price per the LME (USD/t)

At the start of the year investors showed little interest in the precious metals market. Subsequent unsuccessful negotiating rounds generated additional geopolitical risk, which nonetheless failed to convince market participants to avoid risky assets in favour of safer, preserving value, ones. At the time, silver recorded its yearly minimum of 14.38 USD/oz t. The upsurge in prices of gold, followed by silver, which began in late May/early June 2019, coincided with the further escalation of the trade conflict between the USA and China, and consequently with the imposition of new tariffs. In addition, the monetary policy was reviewed in the USA, while the announced easing led to a large extent to higher prices of precious metals. The increases in gold and silver prices resulted in rapid inflows to ETFs. At the end of 2019 the price of silver amounted to 18.05 USD/oz t. The average price of silver according to the London Bullion Market Association (LBMA) rose in 2019 by 3.2% and amounted to 16.21 USD/oz t compared to 15.71 USD/oz t in 2018.

Silver price per the LBMA (USD/oz t) 

The high volatility in demand for molybdenum was the main factor affecting its price in 2019. For an extended period the price of the metal remained within a relatively narrow range of 11–12 USD/lb, while the drop in activity on the physical market in the USA and lower smelter demand near the end of the year in China led to a price drop to below 10 USD/lb, despite the decrease in inventories. As a result the average price of the metal in 2019 amounted to 11.85 USD/lb and was 2.4% lower than the average price recorded in 2018 (12.14 USD/lb).

Molybdenum price per the CRU (USD/lb)

From the start of 2019 the Polish złoty showed little volatility versus the euro, mainly due to stable fundamentals (industrial production, retail sales, export orders). Nonetheless, uncertainty related to the trade conflict, lower global economic activity and interest rate decreases in the USA in 2019, as well as the return of the ECB to quantitative easing, led to heightened USD volatility versus other currencies. The USD/PLN exchange rate reached its lowest level in January. At that time it ranged around 3.70, thereafter followed by a gradual depreciation of the PLN to above 4.00. The PLN ended 2019 at around 3.80 to the USD. The average USD/PLN exchange rate (per the NBP) in 2019 amounted to 3.8399 and was higher by 6.3% than the rate in 2018 (3.6117 USD/PLN).

USD/PLN exchange rate per the NBP

In 2019, the Canadian dollar was slightly weaker compared to the USD. The average USD/CAD exchange rate (per the Bank of Canada) in 2019 amounted to 1.3269 and was slightly higher by 2.41% than the rate recorded in 2018 (1.2957). 

USD/CAD exchange rate per the Bank of Canada

In the case of the USD/CLP exchange rate, worth noting is the gradual depreciation of the Chilean peso in 2019. In the second half of the year, this depreciation accelerated as a result of country-wide protests, which to quite a large extent were responsible for the slowdown in economic activity and to a certain degree increased risk aversion towards what until now has been the most politically and socially stable country in South America. The average annual USD/CLP exchange rate (per the Bank of Chile) in 2019 amounted to 703, meaning a weakening of the local currency as compared to the USD by 9.77% (640 in 2018).

USD/CLP exchange rate per the Bank of Chile

Macroeconomic conditions at the start of 2020

The first weeks of 2020 were rich in events of significance for the financial markets. The agreement announced in the final weeks of 2019 summarising the first of three stages in the trade negotiations between the USA and China was signed on 15 January 2020. 

As the agreement was announced and expected by investors, it was greeted by them with calm. At the end of January the second factor causing economic uncertainty – brexit – was delayed and eased. The agreement reached on the United Kingdom’s exit from the European Union provided additional time for negotiations involving trade and other principles of cooperation between this country and the member states. At the start of January the USA conducted an attack on an Iranian general, as a result of which Qasem Soleimani, as well as several persons travelling with him, including some Iranian leadership, were killed. The attack provoked retaliation by Iran and a diplomatic crisis in the Middle East. Although the situation did not escalate further, it exacerbated political uncertainty in a region which is the world’s main oil exporter. The price of oil began to fall, and this trend deepened in the second half of January. 

Also in January there appeared a new unexpected threat, which could have a substantial, yet hard to judge now, impact on economic activity and global commerce – the emergence of the COVID-19 epidemic in the Chinese province of Hubei. This virus quickly spread throughout the country, and in subsequent weeks appeared in every part of the world. Following the experience gained in the SARS epidemic of 2003, China acted decisively to contain the spread of the epidemic, which included tight quarantines in several large cities, restrictions to human movement within and between cities and the prolongation of the New Year’s holiday by 10 days. As a result of the actions taken the Chinese economy was partially paralysed and the process of re-starting operations by many Chinese companies was spread over several weeks. These production stoppages led to a breakdown in the supply chains of many sectors of the economy, not only in China, but also in other parts of the world. The epidemic is spreading to other countries and, in many of them, causes not only further interruptions to production but also consumption-related problems. There was a rapid and surprising emergence of a large pocket of the disease in Italy as well as in highly industrialised South Korea, which in the last week of February instigated a nervous reaction among investors around the world and a rapid collapse of share prices. Investors appear to be expecting decisive actions by the main central banks and governments of individual countries if it appears that the stability of the world’s economic growth is threatened.

Due to the significance of the Chinese economy for copper consumption (around 50% share), investors reacted to information on the extended shutdown in Chinese factories by a sell-off of the red metal. The copper price offset the price rises in the last months of 2019 and fell, in the last days of January 2020, from 6,300 USD/t to the level of last year’s lows, and in subsequent weeks remained in a range of 5,500–5,800 USD/t. While the epidemic brings the risk of a global slowdown, the scope of any potential negative consequences is difficult to determine at present and demands monitoring of development of the situation in the coming months.

Copper

The primary products offered by the companies of the KGHM Group are concentrates, cathodes and copper wire rod. They are products of individual stages of copper ore processing and recycling of copper scrap. For all of these products, the price benchmark (i.e. the global benchmark of copper prices for physical sales contracts of copper-bearing materials and products) is stock market quotations, with the cash settlement of the London Metal Exchange (LME) being most commonly used. 

Less commonly used are alternative quotations of copper on stock exchanges in New York (COMEX) and Shanghai (Shanghai Futures Exchange). Grade “A” type, with a copper content of at least 99.99% (standard BS:EN 1978:1998 – Cu-CATH-1) is quoted on the LME. In order to be able to apply stock exchange prices to purchase/sale transactions of the products to which this quality standard is not applicable (i.e. all types of copper-bearing materials like copper concentrates, copper scrap or more processed products like copper wire rod), market participants have developed a premium and discount system, which adjusts stock quotations. It allows setting of a market price for a product which takes into account its processing stage, its physical state and chemical makeup, as well as costs of transport and insurance to an agreed delivery destination and the current availability of the metal in a given location.

Copper concentrates require processing into refined copper, which leads to incurring processing costs and the incomplete recovery of metals in individual production stages. Therefore, the transaction price should have a set of discounts as compared to quoted prices for refined copper. The benchmark of these discounts (for TC/RC) is determined during negotiations with the main producers of concentrates (Freeport McMoRan, Antofagasta) and their customers (mainly Chinese and Japanese smelters and refineries).  

Companies of the KGHM Group participate in the copper concentrate markets mainly by selling the concentrate from Sierra Gorda in Chile and from Robinson in the USA.  Occasionally, KGHM Polska Miedź S.A. also sells copper concentrate produced by the Lubin, Rudna and Polkowice-Sieroszowice mines. At the same time the Company purchases copper concentrates from the market with characteristics suitable for more efficient utilisation of the production capabilities of the smelters and refineries in Poland.   

It is a standard practice on the Grade “A” copper cathodes market to add a producer’s premium to the prices set by global exchanges. Its level allows the producer to cover the cost of transport and insurance to the agreed delivery destination, and it also includes the premium for quality (of a given cathodes brand) and supply-demand situation on a given market.

The companies of the KGHM Group participate on the cathodes market mainly by selling cathodes from the Group’s Polish assets. The Głogów Copper Smelter and Refinery produces cathodes of the HMG-S and HMG-B brands, while the Legnica Copper Smelter and Refinery produces cathodes of the HML brand, registered on the exchanges in London (LME) and in Shanghai (SHFE). Moreover, the KGHM Group offers cathodes produced through the leaching and electrowinning process (SX/EW) in the Franke mine in Chile and in the Carlota mine in the United States. Production of refined copper in the companies of the KGHM Group amounted to 566 thousand tonnes, which represents approx. 2.4% of global production. 

Wire rod’s price structure, apart from the copper quotations on the London Metal Exchange, also includes a producer’s fee (added to cathodes) and the refining charges due to the costs of processing cathodes into wire rod. KGHM Polska Miedź S.A. produces wire rod in the Cedynia Wire Rod Plant in Orsk. 

Usually, participants in the silver market make use of London Bullion Market Association quotations when setting the price for silver in physical transactions, after adjusting for current market conditions.

KGHM sells silver in the form of bars and grains (produced at the Głogów Copper Smelter and Refinery) and is one of the largest producers of metallic silver. Yearly, the Company produces around 1,200 tonnes of this valuable metal. In 2019, KGHM produced approx. 1,400 tonnes of silver, making the Company one of the world’s leading producers of silver. Silver in the form of bars is registered under the KGHM HG brand and has a registered certificate on the New York Mercantile Exchange (NYMEX) as well as Good Delivery certificates issued by the London Bullion Market Association. Silver is supplied in the form of grains to the photographic, jewellery and metals industries, which produce alloys containing silver. Silver in the form of bars (ingots) is mainly purchased by financial institutions.

The scope of activities of the KGHM Polska Miedź S.A. Group, the unique comprehensiveness of our mining and processing operations on a global scale, our pursuit of innovation and continued financial stability, along with our extensive in-depth experience allow us to market products that satisfy the expectations of even the most demanding buyers of our products and services.

Competitive advantages of KGHM

Global reach of its operations

In the 21st century, KGHM Polska Miedź S.A. became a global miner present on four continents. On the one hand, such a large scale of operation substantially curtails the risk of disturbance in the continuity and quality of production, while on the other hand, it facilitates the continual transfer of knowledge and experience between its various units. Its mobility policy enables it to post the Company’s most prominent experts wherever their expert knowledge is needed to derive business benefits. That also leads to the diversification and enlargement of its product portfolio.

Unique competences and skills

During its nearly 60 years of history, KGHM Polska Miedź S.A. has acquired experience, knowledge and skills that have enabled the Company to transform its business from a local miner into an international Group acting as a major player in the global market for non-ferrous metals. The skills developed by our employees are and will be used in the future as one of the fundamental assets for winning a competitive edge in the industry and for building a strong position of Poland as an industrial centre. Also unique is the KGHM Polska Miedź S.A. Group’s complete business chain: from the exploration of deposits, opening of deposits and their mining, including the manufacturing of mining machinery and explosives, processing, smelting, refining and sales to recycling, all the while keeping in mind during the execution of these processes the principles of sustainable development and corporate social responsibility.

Innovation

Innovation is one of the competitive advantages of the KGHM Polska Miedź S.A. Group. Work on innovative solutions is conducted at various business levels, drawing on cooperation with independent entities while appreciating the potential and ingenuity of our own employees. They are the most familiar with our specific needs and are able to identify areas and solutions that translate into better performance and greater safety. Creating change and innovation should be an everyday practice of each employee of the KGHM Polska Miedź S.A. Group. The KGHM Polska Miedź S.A. Group’s success hinges on the innovation, commitment and collaboration of many thousands of employees representing diverse knowledge and experience. The identification of in-house talent and the creation of individual development paths aligned to the organisation's potential and needs are the key to the future development of the KGHM Polska Miedź S.A. Group.

Integrated process from exploration to sales

Production in KGHM Polska Miedź S.A. is a fully integrated process, in which the end product of one technological phase is the starting material (half-finished product) used in the next phase. Mining in KGHM Polska Miedź S.A. is performed by three mining Divisions: Lubin, Rudna and Polkowice-Sieroszowice. In the subsequent phase the Concentrators Division prepares concentrate for the smelters and refineries, while the Tailings Division is responsible for storing and managing the tailings generated by the copper ore enrichment process. The organisational structure of KGHM Polska Miedź S.A. includes two metallurgical facilities: the Legnica Copper Smelter and Refinery and the Głogów Copper Smelter and Refinery, as well as the Cedynia copper wire rod plant. A fact worth noting is that recently, as part of its business, KGHM Polska Miedź S.A. has been rapidly developing and implementing certain elements of the circular economy concept. To this end, it has been making progress in the areas of recycling and further improving the utilisation of post-production waste as the so-called secondary sources of raw materials.

In the KGHM Polska Miedź S.A. Group, production and production-related processes are performed in accordance with the following two models:

Integrated mining, processing, smelting and refining processes in KGHM Polska Miedź S.A.

Simplified flowchart of the core business of the KGHM INTERNATIONAL LTD. Group

The core business of the KGHM INTERNATIONAL LTD. Group of companies is the mined production of metals, such as copper, nickel, gold, platinum and palladium, from both open-pit and underground mines, as well as advancement of mining and exploration projects. The drawing above shows a simplified flowchart of the core business of the KGHM INTERNATIONAL LTD. Group.

Financial stability

Ensuring financial stability is one of the pillars of the Group’s development. As part of enhancing its competitive advantage in this respect, KGHM Polska Miedź S.A. strives for relying the Group’s financing structure on long-term instruments, shortening the cash conversion cycle and managing market and credit risk effectively.

KGHM Polska Miedź S.A. debuted on the Warsaw Stock Exchange (WSE) in July 1997. The Company’s shares are traded on the primary market of the WSE in the continuous trading system and are a component of the WIG, WIG20 and WIG30 main indices as well as the WIG – ESG index published since 3 September 2019, comprising listed companies which adhere to the principles of corporate social responsibility. 

The Company was also a permanent component of the RESPECT Index, from 19 November 2009 until 1 January 2020 when it ceased to be calculated and published. KGHM Polska Miedź S.A. is also included in the WIG-Mining sector index. Moreover, KGHM Polska Miedź S.A. forms part of the FTSE4Good Index Series, which is part of the group of ethical investment indicators, reflecting criteria of corporate social responsibility and ESG risk management.

In 2019, the share price of KGHM Polska Miedź S.A. on the WSE rose by 7.5% and at the close of trading on 30 December 2019 amounted to PLN 95.58. During the same period the price of copper – the Company’s main product – recorded an increase of 3.2%, alongside an increase in the average USD/PLN exchange rate by 1.0%. At the same time the WIG index recorded a slight rise – by 0.2%, while the WIG20 and WIG30 indices fell respectively by 5.6% and 4.2%. The FTSE 350 mining index also rose, by 11.6% – an index comprised of companies from the mining sector, listed on the London Stock Exchange.

On 10 April 2019, the Company’s shares reached their maximum closing price for the year of PLN 112.00. The minimum closing price of PLN 73.76 was recorded on 26 and 28 August 2019.

Percentage change of share price of KGHM Polska Miedź S.A. versus the WIG index and FTSE 350 mining index (compared to the quotations from the last trading day in 2018)

Bonds of KGHM Polska Miedź S.A. 
on the Catalyst market 

On 27 May 2019 an issue agreement was signed under which the Management Board of KGHM Polska Miedź S.A. established a bond issue programme up to the amount of PLN 4 billion. The Parties to the Issue Agreement were KGHM Polska Miedź S.A. as Issuer and Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna, Bank Handlowy w Warszawie Spółka Akcyjna, Bank Polska Kasa Opieki Spółka Akcyjna and Santander Bank Polska Spółka Akcyjna as Organisers and Dealers. The issue took place in June 2019, the maximum total nominal value of bonds amounted to PLN 2 billion. Under the Bond Issue Programme, Series A and Series B bonds were issued. The bond issue was made through a private placement, was directed toward no more than 149 investors and was offered exclusively in Poland. 

On 20 September 2019, by a resolution of the Management Board of the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.) bearer bonds Series A and Series B of KGHM Polska Miedź S.A. were introduced to the alternative trading system on the Catalyst bond market. The first day of trading of the bonds on the Alternative Trading System was set at 3 October 2019.

Detailed information is available on the Company’s website, www.kghm.com in the section Investors – Investor Information – Fixed income investors.

Allocation of profit 

In accordance with a Resolution of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 7 June 2019 regarding the allocation of profit from financial year 2018 and a Resolution of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 6 July 2018 regarding the allocation of profit from financial year 2017, all of the profit from these periods was transferred to the Company’s share capital.

The final decision regarding the amount of dividends paid is made by the General Meeting of KGHM Polska Miedź S.A. 

Investor relations 

The investor relations team maintains an on-going dialogue with the capital market pursuant to its policy of ensuring a transparent company and adherence to stock exchange Best Practices. For KGHM Polska Miedź S.A., as a global company operating on four continents, it is a priority to ensure equal access to information to all members of the global capital markets. KGHM Polska Miedź S.A.’s actions are aimed at maintaining regular communication and transparent dialogue with analysts, institutional and individual investors as well as at ensuring conformance with our regulatory legal obligations. The Company fulfils its disclosure obligations by publishing regulatory filings and periodic reports via the official reporting system (ESPI).

2019 was another year of intense activities by KGHM Polska Miedź S.A. in terms of communicating with investors. Following are the main actions taken by KGHM Polska Miedź S.A. with respect to investor relations:

Investor conferences in Poland and abroad	The Company actively meets with investors and analysts in Poland and abroad during conferences organised by brokers. In 2019, the Company took part in more than a dozen investor conferences and more than 100 meetings.
Results conferences	The Company organises group meetings with the Management Board to discuss the financial results of the Company and Group. Publication of the Company’s financial results is accompanied by a results conference open to all stakeholders, with a webcast in Polish and English, with the possibility of submitting questions by email as well as listening in by phone. Video recordings of these conferences are available on the Company’s website, www.kghm.com, in the Investors section.
Capital Market Day	The Investor Relations Department regularly organises events for the capital market. This type of meeting is aimed at familiarising investors with the degree of advancement of the development strategy as well as with the current operating and financial situation of the KGHM Group and its individual assets. In 2019, the Company organised both an Analyst Day and an Individual Investor Day in Lubin, with highlights of these events along with accompanying presentations provided in the section Investors – Investor Events.
WallStreet conference	In 2019, representatives of KGHM Polska Miedź S.A. once again took active part in the 3-day WallStreet conference – the largest event in the region organised for individual investors and one of the largest such events on the Polish capital market. Apart from a presentation by a Management Board Member, individual investors had the opportunity of meeting with the IR team, including during the so-called Shareholders Fair.
Investor chats	Representatives of the Company are available to individual investors during on-line chats. These are organised on a regular basis following the publication of the Company’s financial statements. In 2019, four investor chats were held.
Active Investor Relations section on the Company website	The IR section is continuously updated with new information and documents. Among others these include regulatory filings and periodic reports, information on the shareholder structure, documents related to General Meetings and corporate governance, as well as presentations and video material for investors. In 2019, the IR section was enhanced to include a page on IR Events, which shows the current pending initiatives for the capital market.
Quarterly IR Newsletter	In 2019, the Investors page was extended by adding added a section named Newsletter for Investors, which summarises the most important events of the past quarter and is distributed by email.

In 2019, sell-side reports on KGHM Polska Miedź S.A. were published by 10 analysts based in Poland and 6 based abroad. 

Brokerages which prepare reports on KGHM Polska Miedź S.A. Polska

Poland
Biuro Maklerskie mBanku	Dom Maklerski BOŚ	Santander Biuro Maklerskie
JP Morgan	Erste Group	IPOPEMA Securities
Vestor Dom Maklerski	Pekao Investment Banking	Trigon Dom Maklerski
Biuro Maklerskie PKO BP
Abroad
Bank of America Merrill Lynch	BMO	Goldman Sachs
Morgan Stanley	UBS	WOOD & Company

Awards and distinctions in 2019 for activities related to communicating with investors and being present on the capital market:

• KGHM Polska Miedź S.A. won The Best of The Best award in the competition Annual Report 2018, organised by the Polish Institute of Accountancy and Taxes. The award is presented to companies which maintain a continuously high standard of reporting and communicating with the market and which, during all of the competition’s editions, win first place three times. The purpose of the competition is to promote annual reports with the highest utility for shareholders and investors. 
• KGHM Polska Miedź S.A. was distinguished by the market newspaper Gazeta Giełdy i Inwestorów “Parkiet” in the ranking “Transparentna Spółka”, or Transparent Company.  This distinction by “Parkiet” was presented for the third time to companies listed on the Warsaw Stock Exchange which present information on their activities to the public in the most open manner. The list was developed by the newspaper in cooperation with the Institute of Accountancy and Taxes, based on the results of a survey in which 140 companies listed on the WSE participated – from the WIG 20, mWIG40 and sWIG80 indices. The survey asked questions about financial reporting, investor relations and corporate governance.

Shareholding structure KGHM Polska Miedź S.A. 

As at 31 December 2019, the share capital of the Company, in accordance with the entry in the National Court Register, amounted to PLN 2,000 million and was divided into 200 million shares, series A, fully paid, having a face value of PLN 10 each. All of the shares are bearer shares. Each share represents one vote at the General Meeting. The Company has not issued preference shares.

In 2019, there was no change in either registered share capital or in the number of outstanding shares issued. During this time there was a change in the ownership structure of significant blocks of shares of KGHM Polska Miedź S.A. The pension fund Otwarty Fundusz Emerytalny PZU "Złota Jesień", as a result of the sale of shares, on 15 February 2019 reduced its interest in the share capital of the Company and in the total number of votes to a level below 5%.

The Company’s shareholder structure as at 31 December 2019 and at the date this report was signed, established on the basis of notifications received by the Company pursuant to art. 69 of the Act on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies, is as follows:

Shareholder structure as at 31 December 2019 and at the date this report was signed Shareholder	Number of shares /votes	% of share capital / total number of votes
State Treasury (1	63 589 900	31,79%
Nationale-Nederlanden Otwarty Fundusz Emerytalny (2	10 104 354	5,05%
Aviva Otwarty Fundusz Emerytalny Aviva Santander (3	10 039 684	5,02%
Other shareholders	116 266 062	58,14%
Total	200 000 000	100,00%

1) based on a notification received by the Company dated 12 January 2010 
2) based on a notification received by the Company dated 18 August 2016 
3) based on a notification received by the Company dated 17 July 2018 

Other shareholders, whose combined interest in the share capital and in the total number of votes amounts to 58%, are mainly institutional investors, both international and domestic.

Following is the geographic distribution of the shareholder structure of KGHM Polska Miedź S.A. The data is based on research into the Company’s shareholder structure performed in November 2019.

Geographic shareholder structure of KGHM Polska Miedź S.A. (%)

source: CMi2i, listopad 2019

The Company does not hold any treasury shares. 

he Management Board of the Company is unaware of any agreements which could result in changes in the proportion of the Company’s shares held by present shareholders in the future and bondholders. Moreover, the Management Board is unaware of any agreements between bondholders, which could result in changes in the number of bonds held by them.  

Based on the information held by KGHM Polska Miedź S.A., as at 31 December 2019 and at the date this report was signed, no Member of the Management Board of the Company held shares of KGHM Polska Miedź S.A. or rights to them.

Amongst the Members of the Company’s Supervisory Board, as at 31 December 2019 and at the date this report was signed, only Józef Czyczerski held 10 shares of KGHM Polska Miedź S.A. with a total nominal value of PLN 100. Based on the information held by the Company, the remaining Members of the Company’s Supervisory Board did not hold shares of KGHM Polska Miedź S.A. or rights to them. 

As far as the Company is aware, Members of the Management Board and Supervisory Board did not hold shares of the related entities of KGHM Polska Miedź S.A. as at 31 December 2019 and at the date this report was signed.

The Company did not have an employee share incentive programme in 2019.

In 2019, work commenced on preparing the process of implementation of the Strategy of KGHM Polska Miedź S.A. for the years 2019-2023. Work continues on defining a detailed implementation schedule and organising a system to monitor progress in advancing the Strategy. 

Information on the KGHM Polska Miedź S.A.’s strategy is presented on our website at https://kghm.com/en/about-us/strategy

In 2019, we continued our policy of development directions for the KGHM Group. Further actions were also taken aimed at adapting the Group’s organisational functioning model to the business model of KGHM Polska Miedź S.A. and the market environment. 

In terms of the domestic companies, development policy was also aimed at cooperation between the Group’s entities and at eliminating overlapping areas of competence in terms of individual entities. With respect to implementation of the Strategy of KGHM for the years 2019–2023, in the case of the international companies of the Group, KGHM is aiming at developing unified reporting principles, coherent internal regulations and standardised solutions with respect to individual functional areas of the international entities.

With respect to domestic companies, the main goal of the development intent is to ensure continuity of operations and occupational safety within the KGHM Polska Miedź S.A.’s core production business and to integrate the KGHM Group around the sustainable development concept. One of the most important actions is the implementation of development initiatives under the circular economy programme aimed at limiting the environmental footprint.

In the case of the international part of the Group, the Company is concentrating on maximising the value of its assets portfolio. In terms of the development directions adopted in the Company’s Strategy, investments focus on projects leading to improved efficiencies in the core business. 

The investment policy of KGHM Polska Miedź S.A. is based on advancing the Company’s five-year investment plan, enabling execution of the long-term production plan.

In 2020 the Company will continue to advance key mining and metallurgical investments, such as:

•  The Deposit Access Programme (Deep Głogów along with access and development tunnels);  
• Development of the Żelazny Most Tailings Storage Facility  Investment projects aiding in de-watering in the Polkowice-Sieroszowice mine;  
• The programme to adapt to the requirements of BAT Conclusions for the non-ferrous metals industry and to restrict emissions of arsenic (BAT-As);  
• Optimal utilisation of the production capacity of the Legnica Copper Smelter and Refinery by the processing of scrap;  
• Investment projects related to replacing equipment  and optimisation at the Głogów I Copper Smelter and Refinery.

In addition, with respect to development of the resource base, the Company will conduct further exploration and geological work under the existing concessions to search for and explore copper ore deposits in areas directly adjacent to those currently in operation.

The directions adopted also include the advancement of actions under the circular economy concept. Additionally the Company will engage in unceasing work on new, intelligent technologies and production management systems, based on online communication between elements of the production process and advanced data analysis, in accordance with the KGHM 4.0 Programme concept.

The Company is also intensifying actions aimed at improving energy efficiency through investments in its own generating capacity, in particular those which have little to no emissions. Also under review are the possibilities for investing in energy projects, for example in the area of photovoltaics. Pursuant to the Strategy of the KGHM Group for the years 2019–2023 published in 2018, it is expected that by the end of 2030, 50% of KGHM Polska Miedź S.A.’s demand for electricity will be met by its own sources of energy generation and renewable energy sources.

Energy development programme

Development of renewable energy sources

• Photovoltaics: 200 ha of own land for PV projects, including 160 ha in the vicinity of energy consumption sites
• Onshore wind farm: Power Purchase Agreements¹⁾ - virtual, purchases / acquisitions

Optimisation and development of conventional sources

• Increase in electricity production from the existing gas-steam blocks
• Construction of local gas engines

Seeking alternative options through R&D activities

• Waste heat utilisation from mining and metallurgical processes
• Electricity storage – stabilisation and optimisation functions
• Alternative fuel utilisation, e.g. waste/RDF

Competence building

• Adjusting the organisational structure to the changing environment
• Building competencies to ensure energy supply
• Supporting legislation maintaining competitiveness of the energy intensive industry

¹⁾ PPA – Power Purchase Agreement energochłonnego

 

First PV projects PV ¹⁾