Q3 2020 – Results Highlights

A third quarter with good effects – KGHM presents its financial results for the first nine months of 2020

Highlights

KGHM Polska Miedź S.A. has presented its financial results for the third quarter of 2020. Thanks to the Management Board’s adopted strategy, consistent decisions and flexibility, the KGHM Group achieved a record level of EBITDA and maintained the full capacity to operate its assets despite the pandemic. KGHM has reported stable production while maintaining the maximum level of safety and cost discipline.

“We are reporting the effects of 9 months of strenuous work. A rather tough period for the company and connected of course with the coronavirus pandemic, something the entire world is dealing with. But there is good information: we have made it through this time quite well, considering the demanding circumstances. We ended the quarter with a record EBITDA, at both the Group level, the international assets and in Poland. The results speak for themselves. Ahead of us are more months of operating under a pandemic threat, but KGHM is doing a great job. Mainly thanks to the commitment of our staff and our deep feeling of responsibility for the Company,” says Marcin Chludziński, President of the Management Board of KGHM Polska Miedź S.A.

Solid financial results

The increase in Group EBITDA by PLN 306 million to the record level of PLN 4 418 million was mainly in respect of KGHM Polska Miedź S.A. (+PLN 184 million; +6%) and Sierra Gorda (+PLN 257 million; +49%). The increase was due among others to the following factors: higher revenues by KGHM Polska Miedź S.A. due to an increase of PLN 160 million resulting from the adjustment by hedging transactions, a more favourable USD/PLN exchange rate (+3%) and higher prices of silver (+22%) and gold (+27%) while maintaining cost discipline.

KGHM Polska Miedź S.A. achieved revenues in the first three quarters of 2020 of PLN 13 360 million, meaning a 2% increase versus the period prior to the epidemic (the first three quarters of 2019). Also higher was EBITDA, rising from PLN 2 868 million to PLN 3 052 million after the first nine months of 2020. What is important is that both the level of revenues as well as EBITDA achieved exceeded the amounts set forth in the budget for this period.

The Group’s main source of operating income was the results of KGHM Polska Miedź S.A., which increased EBITDA Q3/Q3 by 18%. Sierra Gorda’s EBITDA doubled compared to the third quarter of 2019, the highest result yet achieved by this mine. Likewise KGHM INTERNATIONAL recorded a 30% higher EBITDA compared to the third quarter of 2019.

The decrease in consolidated profit by PLN 494 million (-30%) was mainly due to a decrease in the operating result by PLN 122 million, a decrease in the result on exchange differences by PLN 218 million and a lower result on the realisation and measurement of derivatives by PLN 137 million.

The KGHM Group reports another quarter in which its financial situation is stable and safe. Net debt of the Group fell in the first 9 months of 2020 from PLN 478 million to PLN 6 413 million.

Stable production

Payable copper production by the Group was slightly lower than in the first three quarters of 2019 and amounted to 521 thousand tonnes. The lower production of copper by KGHM Polska Miedź S.A. was due to the restricted supply of copper scrap in the first half of the year and to the maintenance shutdown at the Głogów I Copper Smelter and Refinery. The decrease in copper production by KGHM INTERNATIONAL was due to lower production in the Sudbury Basin, mainly due to the suspension of operations by the Morrison mine after the first quarter of 2019, and to lower production by the Robinson and Franke mines due to the processing of lower quality ore (a transition zone in Robinson, higher carbonates content in Franke).

On the other hand, copper production by the Sierra Gorda mine increased by 35% due to extracting ore with higher copper content as well as higher extraction. It is worth mentioning that in comparison to the first three quarters of 2019 there was an increase in the efficiency of utilisation of production machinery at Sierra Gorda, the result of preventative actions undertaken to minimise the number of breakdowns, and as a result unplanned maintenance shutdowns.

Other metals (including silver) also recorded lower volumes, mainly due to the maintenance shutdown at the Głogów I Copper Smelter and Refinery: silver lower by -3% (from 1031 t to 997 t in the first 9M of 2020), TPM lower by -8% (from 157 koz t to 145 koz t in the first three quarters of 2020) and molybdenum by -17% (from 8.8 mn lbs to 7.3 mn lbs in the first three quarters of 2020, mainly due to lower production by Sierra Gorda (the mining of ore with lower molybdenum content, lower recovery).

Since the start of the pandemic at the turn of February and March 2020, there have been no production shutdowns directly related to the pandemic in either KGHM Polska Miedź S.A. or in the Group’s international mines.

Since the start of the second quarter of 2020, copper prices have risen and as a result, the average price for the first three quarters of 2020 amounted to 22 931 PLN/t, or a level slightly lower than that recorded in the corresponding period of 2019 (23 115 PLN/t). Silver and gold prices were also favourable, which given the uncertain economic situation increased compared to the prior year period respectively by 24% and 31% (in PLN).

The impact of the fall in metals prices in the initial months of 2020 was to a large degree offset by the weakening in the PLN and to a consistently implemented hedging policy. The Company is consistently advancing its strategy, which foresees the continuation of stable production by the domestic and international assets and a level of costs guaranteeing financial security and safe workplace conditions.

The copper giant in the age of COVID-19

KGHM is continuously taking actions aimed at ensuring the safety of its employees. The discipline exercised by the staff and the consistent monitoring of threats along with the implementation of procedures to prevent infections has enabled KGHM to maintain the full capacity to continue its operations. The Company has instituted numerous educational and informational campaigns, has provided employees with access to special infolines as well as psychological support for persons in isolation, with the cooperation of medical staff from the hospital MCZ.

The Company is supporting the fight against COVID–19 in cooperation with state institutions. KGHM has joined the government program Solidarnościowy Korpus Pomocy Seniorom (Senior Citizens Solidarity Corps). The Company, with the support of volunteers, regional Social Welfare Centers, Caritas and local NGOs, has prepared action plans to enhance the safety of senior citizens. KGHM among others is providing packages with safety materials, including disinfectants, to persons in need.

Additionally, KGHM is also assisting in the organisation of additional beds in temporary hospitals for patients ill with the coronavirus in Lower Silesia. The regional base is increasing by more than 200 beds in Lubin, Legnica and Wałbrzych.

Consistent investments

We are advancing our capital expenditures pursuant with our targets. By the end of the third quarter of 2020 we had achieved 71% of planned expenditures. The largest share in the structure of expenditures incurred was held by the Deposit Access Program and by the development of the Southern Quarter of the Żelazny Most Tailings Storage Facility. Other investment goals comprise among others the outfitting of the mines, adapting production and related installations to the requirements of BAT Conclusions, exploration of the orebody in Poland and the modernisation of IT systems in the Company as part of the KGHM 4.0 Program.

Of increasing importance for the Company’s operations are investments related to renewable energy sources (RES). Our efforts to reduce CO2 emissions and to increase the predictability of energy costs mean that investments such as our projects related to solar energy will be of crucial importance for the Company and are consistent with our Strategy for the years 2019-2023.

KGHM in the near future is facing the consistent advancement of its optimisation and savings programs throughout the Group. KGHM will conduct a rational and responsible investment program, will advance its deposit access program in the Company’s concessioned areas and also its Energy Development Program.



i Adjusted EBITDA including 55% of EBITDA in Sierra Gorda, which is consolidated by using the equity method.

in mn PLN3rd quarter
2020
3rd quarter
2019
Change
in mn PLN
Change
in %
Revenue 5 632 5 641 -9 -0.2%
Cost of goods sold 4 666 4 818 -152 -3%
Adjusted EBITDA 1 767 1 380 +387 +28%
Net result on sales 966 823 +143 +17%
Profit for the period 473 696 -223 -32%


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Responses to questions raised at the Results Conference for 3Q2020

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