Answers to Shareholder’s questions raised during the Ordinary General Meeting

Thursday, 12 July, 2012
Report no. 35/2012

The Management Board of KGHM Polska Miedź S.A. hereby publishes answers to the questions by the Shareholder: Stowarzyszenie Inwestorów Indywidualnych (Association of Individual Investors) during the Ordinary General Meeting of KGHM Polska Miedź S.A., convened on 28 June 2012 in Lubin. The answers were provided on the basis of art. 428 § 5 of the Commercial Partnerships and Companies Code. 

Question 1 
What was the discount rate applied in the NPV analysis of the Afton-Ajax project? 

A discount rate of 8% was applied, which conforms to generally applied standards in the valuation of mining projects at this stage of development. 

Question 2 
What was the reason for the large drop in trade receivables versus 2010 (1 387 659 thousand versus 2 041 065 thousand)? 

In accordance with the payment policy in effect, with respect to customers for basic products, unsettled balances at the end of the year generally relate to sales by the Parent Entity of the Group, realised in the month of December. 
The amount of receivables depends on the volume of sales and the settlement price for the basic product of the Group – copper – as well as on the USD exchange rate. 
The amount of trade receivables at the end of 2011 was not fundamentally different from their level in prior years, and at 31 December 2009 receivables amounted to PLN 1 266 369 thousand. 

In 2010 the level of receivables was exceptionally high, due to the following factors: 

  • the copper price in settlements for December in 2010 amounted to 27 631.73 PLN/t, while for December 2011 - 25 702.17 PLN/t, 
  • the volume of copper sales in the month of December 2010 represented 120.5% of the volume in December 2011, and was due among others to higher domestic demand due to a change in VAT from 1 January 2011, 
  • the volume of silver sales in the month of December 2010 represented 175% of the volume in December 2011, which respectively impacted the value of revenues and unsettled balances at 31 December, 
  • an agreement signed with a key customer prolonging the payment deadline from December 2010 to the beginning of January 2011. 

In addition, the level of receivables at 31 December 2011 was impacted by transferring a portion of them for factoring settlement. 

Question 3 
What events were responsible for the substantial increase in the costs of future employee benefits (provisions) due to retirement benefits, jubilee awards and related benefits versus the prior year (116 075 thousand versus 36 322 thousand)? 

The change in the level of liabilities due to future employee benefits and the assumptions used in the actuarial model for updating estimated liabilities is discussed in note 25 of the consolidated financial statements and in note 21 of the separate financial statements. 
In accordance with the assumptions based on market forecasts, the updated estimate at 31 December 2011 applied a coal price increase rate of 8% for 2012 and 3.3% - 3.0% respectively for subsequent years, which in terms of amounts represents a change in actuarial losses for liabilities due to the coal equivalent in the amount of PLN 82.9 million, between the years 2011 and 2010. 

The change in the above assumptions in respect to those applied at the end of 2010 were responsible to a large extent for the substantial increase in liabilities due to future employee benefits. 

Question 4 
What was the reason for the dynamic increase in the Group's revenues from the United Kingdom? 

The increase in revenues from sales of commodities in the United Kingdom was due to the increase in the average annual price of copper and silver in 2011 versus 2010, respectively by 16.9% and 73.9%. 

Question 5 
What is the present stage of integration by the Group with KGHM International? 

KGHM International at present is a 100% subsidiary of KGHM Polska Miedź S.A. and is fully included in the KGHM Group. The process of integration is proceeding smoothly and in accordance with the plan developed prior to the acquisition of the company. At that time, three main objectives were identified for this process: ensuring business continuity, ensuring appropriate control and increasing the value of the company post-acquisition. Towards this end, 18 working groups were created, which were engaged in the initial phase of integration and were involved in analysing all significant operational areas (e.g. production, exploration projects, the Sierra Gorda project, sales and risk management, accounting and taxation, etc.). At present, the highest bodies of KGHM International include representatives nominated by KGHM Polska Miedź S.A., with the main integration activities involving the areas of production, communications, procurement and finance, and conducted by Integration Management Office teams, some of which are located at the head office of KGHM International, and some at KGHM Polska Miedź S.A. 

Question 6 
Has the Management Board decided to list KGHM International on a stock exchange? 

The current priority of the Management Board with respect to KGHM International is to enhance the value of this company. Listing the shares of KGHM International is one of several possibilities which may be considered by the Management Board of the Company, although at the present stage no decisions have been made in this matter. 

Legal basis: § 38 sec. 1 point 12 of the Decree of the Minister of Finance dated 19 February 2009 regarding current and periodic information published by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state (Journal of Laws from 2009 No. 33, item 259 with subsequent amendments)