KGHM: solid growth despite a challenging macroeconomic environment
The KGHM Polska Miedź S.A. Group enjoyed another set of record copper production and financial results. In the first half of 2019 the Group earned a profit of PLN 970 million, or 59 percent more than in the corresponding period of 2018. One of the observable trends is the consistent rise in production by the Group, including in the Chilean asset Sierra Gorda. In the second quarter of 2019 alone, production of payable copper by KGHM Polska Miedź S.A. was nearly 145 thousand tonnes. This was the best quarterly result since the third quarter of 2015. As compared to the second quarter of 2018 production rose by 24%.
Financial records
The high net profit earned by the KGHM Group accompanies record revenues of PLN 11.2 billion and outstanding EBITDA, which reached PLN 2.7 billion. During the same period of 2018, revenues amounted to PLN 9.4 billion with EBITDA of PLN 2.6 billion. This means an increase year-over-year in EBITDA of 7 percent and higher revenues by 19 percent.
The substantially better production and financial results compared to the corresponding period of 2018 were achieved despite the challenging macroeconomic environment.
“We are consistently advancing our strategy, based on excellent management and efficient operations. This leads to excellent results. The published data clearly show that we have done a good job of assessing trends and, quarter by quarter, we are building a stronger position for our company, not only for the present but for years to come,” says Marcin Chludziński, President of the Management Board of KGHM Polska Miedź S.A.
In the first six months of this year the Group earned a net profit higher by PLN 359 million than in the first half of 2018, while its revenues increased by PLN 1.8 billion. Such a positive dynamic was achieved despite a drop of around 11 percent in the avererage annual copper price.
In the first half of 2019 KGHM also issued corporate bonds, successfully placing PLN 2 billion on the market.
“The achievement of an impressive consolidated net profit, in the amount of PLN 970 million and a substantial increase in revenues and EBITDA by the Group, are related to the higher copper and silver sales and to a favourable exchange rate for these metals, which was strong enough to minimise the lower metals prices over the last six months,” says Katarzyna Kreczmańska-Gigol, Vice President of the Management Board and CFO of KGHM Polska Miedź S.A.
More copper and silver and cheaper concentrates
The good financial results are related to better production than in 2018. The company produced more electrolytic copper in its assets in Poland and more payable copper in its Chilean mine Sierra Gorda. The Group also recorded a drop in the C1 cash cost of producing copper concentrate.
In the first half of 2019 the Group produced a total of 352 thousand tonnes of payable copper, or 19 percent more than in the corresponding period of last year. The plan for electrolytic copper production was exceeded by producing 287 thousand tonnes, due to improved availability of production equipment.
“The high metals production was achieved despite the ambitious investments program carried out at the same time, which partially slowed work by our metallurgical plants processing copper concentrate. At the Legnica Smelter and Refinery the long-anticipated RCR furnace was commissioned, while the Głogów II Smelter and Refinery underwent an extensive 3-month maintenance shutdown,” explains Radosław Stach, Vice President of the Management Board (Production).
Amongst the data for the first half of this year, note should be made of the 47 percent rise in silver production (713 tonnes), versus the corresponding period of the prior year (485 tonnes).
The Chilean mine Sierra Gorda in the past half year recorded a stable increase in payable copper production. This is the result of efforts at reorganising the mine’s operations, which enabled a systematic increase in ore extraction and processing. The increase in mining by Sierra Gorda was also a cause of the increase in the production of precious metals, including silver and gold. The drop in molybdenum production was due to mining in areas with lower molybdenum content as compared to ore extracted in prior years. Production of copper in concentrate by Sierra Gorda in the first half of this year amounted to 53.2 thousand tonnes and molybdenum over 10 million pounds.
“Optimalisation of the operation of Sierra Gorda’s processing plant enables the gradual increase in ore processing and a more efficient production process. Our efforts are aimed at maximising the value of the existing mine infrastructure," says Paweł Gruza, Vice President of the Management Board (International Assets).
In the first half of this year the company recorded a drop in production by KGHM INTERNATIONAL, caused by lower production from the Morrison mine, and temporarily from the Robinson mine, which was not offset by higher production by the Carlota and Franke mines. Good information included substantially higher silver production by the Sudbury Basin versus the same period of 2018, due to mining in a different area of higher mineralisation in the McCreedy mine.
Consistent advancement of strategic investments
The uncertain macroeconomic environment has required the company to adhere to strict discipline as regards the advancement of its adopted strategy under the 4.0. Program. Among others it calls for the rational management of the resources of the Polish copper basin (a.k.a. LGOM), optimisation of metallurgical production, the gradual automisation of production lines and the implementation of programs to cut energy consumption. The company is also continuing programs such as BATAs, improving organisational health and safety and a closed-circuit management project.
During the first 6 months of 2019 the Group spent over PLN 1.6 billion on investments. Among others, KGHM commissioned the largest investment in the history of the Legnica Copper Smelter and Refinery – the RCR copper scrap processing furnace. All of our development projects are proceeding on plan.
In terms of implementation of the strategy, in the first half of 2019, the company concentrated on the process of decomposing its strategic assumptions, representing the basis for operationlisation of the strategy. Simultaneously to this operationlisation process, the company engaged in activities which are critical for its functioning and development. Projects of a strategic nature were continued, the completion of which are a priority for the company. Advancement of the strategic directions of development of the KGHM Group proceeded smoothly, ensuring the continued advancement of strategic goals.
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