Q1 2017 – Results Highlights

Highlights

Financial performance

Key indicators (bn PLN)1Q 20171Q 2016Change (%)20162015Change (%)
Sales revenue 4.9 3.9 26 19.1 20.0 -4.5
Adjusted EBITDA* 1.6 1.0 60 4.7 4.7 0
Profit/(loss) for the period 0.4 0.2 x2.4 -4.4 -5.0 -12

* Adjusted EBITDA = profit/loss for the period pursuant to IFRS, excluding income tax (current and deferred), finance costs, other operating income and costs, the share of losses of joint ventures accounted for using the equity method, impairment losses on interest in a joint venture, depreciation/amortisation, impairment losses on property, plant and equipment included in the cost of sales, selling costs and administrative expenses.

  • Higher consolidated revenues by 26% mainly due to an increase in the copper price by nearly 1 200 USD/t (+25% y/y) and silver by over 2.5 USD/ounce (+17% y/y), with additional support by the USD/PLN exchange rate, which was higher by 3% y/y.
  • The substantial increase in adjusted EBITDA is mainly due to higher revenues, partially offeset by operating costs (mainly due to a higher by PLN 173 million minerals extraction tax and higher labour costs in KGHM Polska Miedź S.A. by PLN 53 million), as well as lower EBITDA in the international assets: an increase by PLN 38 million in Sierra Gorda (on a 55% basis), with a decrease by PLN 64 million in KGHM International.
  • The increase in consolidated profit for the period was mainly due to higher EBITDA and to a change in the financial result of the Group, as a result of not recognising in the first quarter of 2017 the share in the loss of this mine,  which was related to the decrease in the value of this investment to zero.
  • The above increase was offset to a substantial degree by the result on other operating income and costs, which includes recognition of costs due to negative unrealised exchange differences on USD-denominated loans granted within the Group.

C1

  • C1 cost in the Group was higher by 10% in the first quarter of 2017 due to an increase in C1 in the international production assets. Under the metals prices and exchange rates of the same period of 2016, C1 cost would have been higher by 3%.
  • C1 cost in KGHM Polska Miedź S.A. was at the level of the first quarter of 2016. This level of C1 was achieved mainly due to the higher minerals extraction tax. Under the metals prices and USD exchange rates of the first quarter of 2016, C1 cost would have amounted to 1.17 USD/lb and would have been lower than the level in the prior year by 12% due to the increase in silver content in own concentrate.
  • The increase in C1 cost in KGHM INTERNATIONAL was mainly due to lower sales volumes of copper and precious metals, alongside an increase in production costs (materials and energy).
  • The increase in C1 cost in the Sierra Gorda mine was mainly due to higher energy costs, including mainly fixed costs and coal prices. Molybdenum processing costs were also higher due to the higher content of iron in concentrate.

Operational performance

Production 1Q 20171Q 2016Change (%)20162015Change (%)
Copper (kt) 173 181 -4 742 749 -0.9
Metallic silver (t) 298 299 0 1 207 1 299 -7.1
Precious metals production (koz t) 54.3 55.7 -3 228.8 205.0 11.6

  • The lower production of copper equivalent from own concentrates in the Group was mainly due to lower production by the Robinson mine.
  • Stable payable copper and silver production by KGHM Polska Miedź S.A. with higher TPM production was due to the processing of purchased concentrates rich in gold.
  • The lower production of payable copper and TPM by KGHM International was mainly due to extracting ore from the higher parts of the deposit in the Robinson mine with a lower copper content (0.40% compared to 0.47% in 1Q’16).
  • The gradual inprovement in copper recovery in Sierra Gorda ensured production at a similar level, despite the processing of ore with lower Cu content. The higher molybdenum content mainly offset the lower level of recovery of this metal.

Commodity prices and exchange rates

 1Q 20171Q 2016Change (%)20162015Change (%)
Copper price (USD/t) 5 831
4 672 25 4 863
5 494 -12
Silver price (USD/oz t) 17.42 14.85 17 17.14 15.68 9
Molybdenum price (USD/lb) 6.92
5.48 26 6.56
6.73 -3
Exchange rate (USD/PLN) 4.06 3.96 3 3.94 3.77 5

  • Compared to the corresponding prior year period, copper and silver prices recorded double digit increases, supported additionally by a slight depreciation in the PLN compared to the USD.
  • CLI indicators* for individual countries suggest that positive economic trends will be sustained in the coming months.
  • Improved global economic conditions along with positive macroeconomic readings enabled continued tightening of monetary policy in the USA. In March 2017, the FOMC** once again raised interest rates (currently at 0.75-1.00%), declaring it would continue these actions.

* OECD Composite Leading Indicators
** Federal Open Market Committee

Summary

SELECTED FINANCIAL DATA (mn PLN)20151Q'162Q'163Q'164Q'161Q'17% Change
(1Q'17 to 1Q'16)
Sales revenue 20,008
3,912 4,544 4,685 6,015 4,911 26
Profit/(loss) for the period (5,009)
163 135 331 (5,078) 398 144
Adjusted EBITDA* 4,710
987 1,075 1,089 1,515 1,459 48
Net cash generated from operating activities 4,163
584 747 949 1,932 458 -22
Total cash expenditures 3,939
935 851 697 768 615 -34

* Adjusted EBITDA = profit/loss for the period pursuant to IFRS, excluding income tax (current and deferred), finance costs, other operating income and costs, the share of losses of joint ventures accounted for using the equity method, impairment losses on interest in a joint venture, depreciation/amortisation, impairment losses on property, plant and equipment included in the cost of sales, selling costs and administrative expenses.

C1 Cost (USD/lb)20151Q’162Q’163Q’164Q’161Q'17% Change
(1Q'17 to 1Q'16)
KGHM Polska Miedź S.A. Group, including: 1.59 1.39 1.40 1.36 1.49 1.64 18
 - KGHM Polska Miedź S.A. 1.47 1.33 1.32 1.18 1.34 1.33 0
 - KGHM INTERNATIONAL LTD Group 1.87 1.48 1.59 1.73 1.72 2.35 59
 - Sierra Gorda S.C.M. 2.58 1.73 1.77 2.19 2.11 1.94 12

SALES OF BASIC GROUP PRODUCTS20151Q’162Q’163Q’164Q’161Q'17% Change
(1Q'17 to 1Q'16)
KGHM Polska Miedź S.A.
Cathodes and cathode parts (kt) 294.4 50.7 58.5 56.7 80.5 51.0 1
Copper wire rod and OFE rod (kt) 264.8 65.6 73.7 69.8 55.9 65.0 -1
Other copper products (kt) 12.2 3.3 3.4 3.5 2.8 3.6 9
Total copper and copper products (kt) 571.4 119.6 135.6 130.1 139.2 119.6 0
Metallic silver (t) 1,245.0 216.4 328.1 301.2 343.0 247.1 14
Metallic gold (kg) 2,660.0 857.0 751.0 1.032.0 859.0 960.0 12
Refined lead (kt) 30.4 7.4 8.2 6.3 7.8 7.6 3
KGHM INTERNATIONAL LTD. Group
Copper* (kt) 98.9 22.6 22.0 21.1 24.6 17.2 -24
Nickel (kt) 2.2 0.5 0.6 0.5 0.5 0.3 -40
Precious metals** (koz t) 97 23.0 24.7 21.7 25.0 13.8 -40

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

Group results Q1 2017

CEO/CFO comments

In the first quarter the KGHM Polska Miedź Group maintained stable production and sales of payable copper, with consolidated sales revenue higher by 26% and EBITDA by 60% compared to the corresponding period of 2016.

„The good results of the first quarter are mainly a result of the double-digit increase in copper, silver and molybdenum prices compared to the corresponding period of 2016. The production of payable copper, metallic silver, molybdenum and precious metals by the Group remained at the same level. Domestic investment projects (Deep Głogów and the Metallurgy Development Program) continue on schedule. If the positive trends in the global economy are sustained, then we feel comfortable about the coming months’ results,” says Radosław Domagalski-Łabędzki, President of the Management Board of KGHM Polska Miedź S.A.

The increase in consolidated sales revenue by 26% is mainly due to an increase in the copper price by nearly 1 200 USD/t (+25% y/y) and silver by over 2.5 USD/ounce (+17% y/y) with additional support by the USD/PLN exchange rate, which was higher by 3% y/y.

The increase in consolidated adjusted EBITDA by 60% (PLN 987 million - first quarter 2016, PLN 1 581 million - first quarter 2017) is mainly due to higher sales revenue.

The increase in adjusted EBITDA mainly came from KGHM S.A. (PLN 1 304 million – an increase by 94%).

Net debt at the end of the first quarter amounted to PLN 7 055 million (USD 1 788 million), while the level of net debt to adjusted EBITDA fell from 1.6 at the end of 2016 to 1.4 at the end of the first quarter of 2017.

„The good macroeconomic situation had a positive impact on the level of Group debt in the first quarter of 2017. The basic currency in which we incur debt is the USD and here our debt level increased (by USD 51 million), while the amount denominated in PLN fell, by PLN 207 million. It is important that the relation of net debt to EBITDA is decreasing. The level of debt in the first quarter of 2017 was mainly affected by investments in Poland (around PLN 612 million) and the minerals extraction tax (around PLN 457 million),” says Stefan Świątkowski, Vice President of the Management Board (Finance).