Significant agreement entered into by a subsidiary

Thursday, 08 March, 2012
Report no. 13/2012

The Management Board of KGHM Polska Miedź S.A.(„KGHM”) announces that on 8 March 2012, an indirect subsidiary of KGHM – Sierra Gorda SCM, held by Quadra FNX Mining Ltd („Quadra FNX”), Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, signed a loan agreement with financial institutions for USD 1 billion (representing the equivalent of PLN 3.12 billion at the average National Bank of Poland exchange rate for USD/PLN from 8 March 2012). 

The loan will be used to finance the Sierra Gorda Project („Sierra Gorda”) in Chile. Sierra Gorda is a joint venture of Quadra FNX and Sumitomo Group companies in which Quadra FNX holds 55%, Sumitomo Metal Mining Co., Ltd., holds 31.5% and Sumitomo Corporation holds 13.5 %. Sierra Gorda is the major development project of Quadra FNX, advancing one of the largest new porphyry copper and molybdenum deposits in the world. It is estimated that capital expenditure for the project will amount to approximately USD 3 billion. Start-up of Sierra Gorda is expected in 2014. Planned annual production: approx. 220 thousand tonnes Cu, 11 thousand tonnes Mo and 2 tonnes Au for over 20 years.ś 

The loan was granted by the following financial institutions: Japan Bank for International Cooperation, and four private banks: Mizuho Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and The Sumitomo Trust & Banking Co., Ltd. 

The loan was granted for a period of 9.5 years. Interest on the loan is based on standard market terms applied to this type of financing, and was set based on LIBOR + a bank margin. This is a project finance type of loan, without regress to Quadra FNX. During construction of the project, the loan is secured by a completion guarantee issued by Sumitomo Metal Mining and Sumitomo Corporation. Following commencement of the project, repayment of the loan will be guaranteed by long term copper and molybdenum off-take agreements. 

The criteria used for describing the aforementioned agreement as significant is that the value of the agreement exceeds 10% of the equity of KGHM. 

Legal basis: § 5 sec. 1 point 3 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).