Q2 2017 – Results Highlights

Highlights

Financial performance

Key indicators (mn PLN)2Q 20172Q 2016Change (%)20162015Change (%)
Sales revenue 4 802
4 544 +6 19 156
20 008 -4.3
Adjusted EBITDA* 1 282
1 075 +19 4 666
4 710 -0.9
Profit/(loss) for the period 96 135 -29 -4 449
-5 009 -11.2

* Adjusted EBITDA = EBIT + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets (recognised in cost of sales, selling costs and administrative expenses)

  • In the 2nd quarter of 2017 consolidated sales revenue were higher by 6% y/y, mainly due to copper prices which were higher by over 900 USD/t (+20% y/y), the impact of which was partially offset by a lower volume of copper sales and a weaker USD exchange rate (by 1%).
  • Higher EBITDA by 19% y/y in the second quarter mainly due to higher consolidated sales revenues by PLN 258 mn, which were partially offset, mainly by a higher minerals extraction tax by PLN 79 mn.

C1

  • C1 cost in the Group was higher by 5% in the first half of 2017 due to an increase in the minerals extraction tax.
  • C1 cost in KGHM Polska Miedź S.A. in the 2nd quarter 2017 was slightly higher y/y. This level of C1 was mainly due to the higher minerals extraction tax (+31%) and the higher silver content in own concentrate.
  • The increase in C1 cost y/y in KGHM International in the 2nd quarter 2017 was mainly due to a lower volume of copper sales and to lower revenues from sales of precious metals, which reduce C1.
  • Amongst the main reasons for the drop in C1 in Sierra Gorda are:
    - a higher volume of Cu sales, and
    - higher revenues from sales of molybdenum and by-products.

Operational performance

Production 2Q 20172Q 2016Change (%)20162015Change (%)
Payable copper (kt) 168 170 -1 677 718 -5.7
Metallic silver (t) 302 276 +10 1 207 1 299 -7.1
Precious metals production (koz t) 50.4 56.1 -10 228.8 205.0 +11.6

  • Production of payable copper in the Group was lower than in the 2nd quarter by 1% y/y (-3% y/y in the 1st quarter of 2017), mainly thanks to improved results by the Robinson mine - compared to the 1st quarter of 2017, with stable production by KGHM Polska Miedź S.A. and Sierra Gorda.
  • Stable payable copper production with higher silver production and lower gold production (TPM) in KGHM Polska Miedź S.A.
  • The increase in metallic silver production is a result of the higher Ag content in domestic concentrate.
  • The lower production of payable copper in KGHM International was due to the extraction of a lower quality ore in the mines of the Sudbury Basin. The drop in precious metals production was mainly due to the Robinson mine, in which the gold content in ore was lower.
  • Copper production in Sierra Gorda rose by 8%, while molybdenum production was over four times higher than in 2Q’16. The substantial increase in molybdenum output was due to improved efficiency in molybdenum concentrate production, as may be seen by the near doubling of Mo recovery. The production results were also significantly impacted by an increase in ore processing as well as by a higher Mo grade.

Commodity prices and exchange rates

 2Q 20172Q 2016Change (%)20162015Change (%)
Copper price (USD/t) 5 662
4 729 +20 4 863
5 494 -12
Silver price (USD/oz t) 17.21 16.78 +3 17.14 15.68 +9
Molybdenum price (USD/lb) 8.33
6.90 +21 6.56
6.73 -3
Exchange rate (USD/PLN) 3.83 3.87 -1 3.94 3.77 +5

  • In the first half of 2017 the price of copper ranged from 5500-6000 USD/t, initially supported by supply-side problems (strikes and delays in the start of production from new projects), and subsequently by a weakening of the US dollar.
  • In the second quarter of 2017, compared to the same period of 2016, the prices of copper and molybdenum recorded dynamic, double-digit increases. The price of silver was slightly higher than recorded in the second quarter of 2016.
  • The average USD/PLN exchange rate remained at nearly the same level, thanks to which the copper price expressed in PLN was slightly higher in the second quarter of 2017 than in the same period of 2016.

 

Summary

SELECTED FINANCIAL DATA (mn PLN)20152Q'163Q'164Q'161Q'172Q'17% Change
(2Q'17 to 2Q'16)
Sales revenue 20 008
4 544 4 685 6 015 4 911 4 802
+6
Profit/(loss) for the period (5 009)
135 331 (5 078) 398 96 -29
Adjusted EBITDA* 4 710
1 075 1 089 1 515 1 459 1 282
+19
Net cash generated from operating activities 4 163
747 949 1 932 458 734 -2
Cash expenditures on property, plant and equipment and intangible assets** 4 701
843 749 786 841 657 -22

* Adjusted EBITDA = EBIT + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets (recognised in cost of sales, selling costs and administrative expenses).
** KGHM Polska Miedź, KGHM INTERNATIONAL, Sierra Gorda

C1 Cost (USD/lb)20152Q’163Q’164Q’161Q’172Q'17% Change
(2Q'17 to 2Q'16)
KGHM Polska Miedź S.A. Group, including: 1.59 1.40 1.36 1.49 1.53 1.41 +1
 - KGHM Polska Miedź S.A. 1.47 1.32 1.18 1.34 1.33 1.34 +2
 - KGHM INTERNATIONAL LTD Group 1.87 1.59 1.73 1.72 2.35 1.72 +8
 - Sierra Gorda S.C.M. 2.58 1.77 2.19 2.11 1.94 1.53 -14

SALES OF BASIC GROUP PRODUCTS20152Q’163Q’164Q’161Q’172Q'17% Change
(2Q'17 to 2Q'16)
KGHM Polska Miedź S.A.
Cathodes and cathode parts (kt) 294.4 58.5 56.7 80.5 51.0 55.3 -5.5
Copper wire rod and OFE rod (kt) 264.8 73.7 69.8 55.9 65.0 66.3 -10.0
Other copper products (kt) 12.2 3.4 3.5 2.8 3.6 3.8 +11.8
Total copper and copper products (kt) 571.4 135.6 130.1 139.2 119.6 125.4 -7.5
Metallic silver (t) 1 245.0 328.1 301.2 343.0 247.1 307.9 -6.2
Metallic gold (kg) 2 660.0 751.0 1 032.0 859.0 960.0 865.0 +15.2
Refined lead (kt) 30.4 8.2 6.3 7.8 7.6 7.0 -14.6
KGHM INTERNATIONAL LTD. Group
Copper* (kt) 98.9 22.0 21.1 24.6 17.2 19.2 -12.7
Nickel (kt) 2.2 0.6 0.5 0.5 0.3 0.3 -50.0
Precious metals** (koz t) 97 24.7 21.7 25.0 13.8 19.9 -19.4

* copper in the form of copper cathodes, payable copper in concentrate, payable copper in ore
** gold, platinum, palladium

1 - Financial data_ KGHM_2Q2017
2 - Financial data_KGHM Group_2Q2017
3 - Sales volume_Q2_2017

CEO/CFO comments

Higher sales revenues and EBITDA in the KGHM Polska Miedź Group in the 2nd quarter thanks to continuing positive sentiment in the commodities markets, with stable production and sales.

The clear increases in the sales revenues and operational results of the KGHM Group in the second quarter are chiefly the result of the continued positive macroeconomic tendencies, in particular the upward price trend of our basic metals on the international market. Despite the fact that this increase was weakened in the first half by a depreciation of the US dollar, the positive sentiment in the commodities markets continues to bring improvement to the KGHM Group’s results. – says Radosław Domagalski-Łabędzki, President of the Management Board of KGHM Polska Miedź S.A.

The increase in consolidated sales revenue by 6% y/y in the second quarter of 2017 is mainly due to an increase in the price of copper by 900 USD/t (+20% y/y) and silver by more than 0.4 USD/ounce (+3% y/y). This price affect was partially offset by a 7% lower volume of copper sales y/y and by a weakening in the USD/PLN exchange rate by 1% y/y.

Adjusted consolidated EBITDA in the second quarter of 2017 was higher by 16% versus the corresponding period of 2016 (from PLN 1 075 million to PLN 1 282 million). This was mainly due to higher sales revenue (by PLN 258 million) and was partially offset by a higher minerals extraction tax (by PLN 79 million), with a stable base of other operating costs.

Consolidated profit for the second quarter amounted to PLN 96 million and was 29% lower versus the corresponding period of 2016. This difference, despite the increase in EBITDA, was mainly due to unrealised negative exchange rate differences on the loans granted to Sierra Gorda – analogously to the situation in the first quarter of 2017.

This was another quarter of greater financial stability by the KGHM Group. Firstly, the ratio of net debt to adjusted EBITDA again decreased, thanks to an improvement in operating results alongside a decrease in borrowings due to a weakening of the USD, the currency in which our loans are denominated. Over the last 12 months, consolidated EBITDA increased by more than PLN 1 200 million, while net debt fell by over PLN 700 million, resulting in a drop in debt as compared to EBITDA from 1.8 to 1.3. Moreover, by changing the financing of Sierra Gorda from project finance to corporate credit we took an important step towards enhancing the operational and financial flexibility of this mine. – says Stefan Świątkowski, Vice President of the Management Board (Finance).