Results of the Bankable Feasibility Study on the Ajax project in Canada

Wednesday, 21 December, 2011
Report no. 45/2011

The Management Board of KGHM Polska Miedź S.A. („KGHM”) announces that work on the Bankable Feasibility Study on the Ajax project, in which KGHM has a 51% interest, has been completed. This document describes the specific technical and economic conditions related to the construction and operation of the future copper and gold mine in the vicinity of the town of Kamloops, in British Columbia in Canada. 
The Study confirmed the chief geologic and mining parameters of the Ajax project, which until now had been estimated in a preliminary report from 2009. 
Measured & Indicated mineral resources increased to 512 million tonnes of ore containing 0.31% copper and 0.19 g/t of gold, versus the previous 442 million tonnes of ore containing 0.30% copper and 0.19 g/t of gold. 
Proven & Probable mineral reserves were calculated at 1.34 million tonnes of copper and 2.75 million ounces of gold. Average annual production of copper and gold in concentrate amounts respectively to 50 000 tonnes of copper and 100 000 ounces of gold. Mine life was calculated at 23 years. 
The project's investment parameters, applying conservative market assumptions in the calculations, are as follows: NPV: USD 416 million, IRR: 14.5%. Under the base scenario, the investment payback period is approx. 8 years, while at current metals prices this period is less than 3 years. 
Capital expenditure, estimated at USD 795 million (the equivalent of PLN 2 687 million, according to the average USD/PLN exchange rate of the National Bank of Poland from 21 December 2011), reflects the introduction into the project of several important technological changes, aimed at increasing metals recovery during processing, decreasing operating costs, and reducing environmental impact (such as changes in preliminary milling and ore transport systems, technological solutions at the processing plant, and in the waste storage system). 

The costs of producing one tonne of copper was calculated in the range of USD 1740 – USD 2800. Mine construction will last two years. Considering the progress to date and the time needed to obtain further permits and administrative approval, the start-up date for the mine has been set at 2015. 

The Bankable Feasibility Study was prepared in accordance with Canadian standard NI 43-101 by a consortium of independent consultants under the direction of Tetra Tech WEI (Wardrop). 

In the near future, KGHM will receive the complete Bankable Feasibility Study for the project and, in accordance with the Joint Venture agreement with Abacus Mining and Exploration signed on 12 October 2010, KGHM has 90 days to decide on the continuation of the project and realisation of the option to increase its interest in KGHM Ajax Mining Inc. from 51% to 80%. Work is underway on developing an optimum financing model for the project. If the decision is made to commence the project's investment stage, at least 50% of the financing for the project would be in the form of bank loans. The majority of investment expenditures are planned in the years 2013-2014. 

Also, see current reports nos. 15/2010, 28/2010 and 29/2010. 

Legal basis: art. 56 sec. 5 of the Act dated 29 July 2005 on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies (Journal of Laws from 2005 No. 184, item 1539 with subsequent amendments).