Significant agreements, acquisition of significant assets in the KGHM Group

Monday, 05 March, 2012
Report no. 11/2012

The Management Board of KGHM Polska Miedź S.A. („KGHM”) announces that in relation to the purchase of 100% of the shares of Quadra FNX Mining Ltd. with its registered head office in Vancouver ("Quadra FNX") by an indirect subsidiary of KGHM – the company 0929260 B.C. Unlimited Liability Company with its registered head office in Vancouver („0929260 B.C.U.L.C.”), on 5 March 2012 the following transactions took place in the KGHM Group to optimise the purchase structure: 

1. 
An agreement was entered into between KGHM and the company Fermat 1 S.a.r.l. with its registered head office in Luxembourg, a wholly-owned subsidiary of KGHM („Fermat 1”), based on which KGHM granted to Fermat 1 a loan in the amount of USD 2 936 840 000 (representing the equivalent of PLN 9 208 461 820 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012) to be converted into the equity of Fermat 1 on the date the loan is granted. 

As a result of the aforementioned loan's conversion into equity, KGHM acquired 29 368 400 newly-issued shares in the company Fermat 1 with a per-share nominal value of USD 1 in exchange for a contribution in the form of receivables on the loan. The difference between the nominal value of the shares and the value of the contribution was transferred to the reserve capital of Fermat 1. 

Acquisition of the assets was financed by the internal funds of KGHM. 

The shares acquired represent 99.94% of the share capital of Fermat 1. Following this increase, the share capital of Fermat 1 amounts to USD 29 385 057 (representing the equivalent of PLN 92 136 846 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012) and is divided into 29 385 057 shares with a per-share nominal value of USD 1. KGHM owns 100% of the share capital of Fermat 1, representing 100% of the votes at the general shareholders’ meeting of this company. 

The carrying amount of the assets acquired in the accounts of KGHM will represent the PLN equivalent of USD 2 936 840 000 (PLN 9 208 461 820 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012). 

2. 
An agreement was entered into between Fermat 1 and the company Fermat 2 S.a.r.l. with its registered head office in Luxembourg, a wholly-owned subsidiary of Fermat 1 („Fermat 2”), based on which Fermat 1 granted to Fermat 2 a loan in the amount of USD 1 063 740 000 (representing the equivalent of PLN 3 335 356 770 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012) to be converted into the equity of Fermat 2 on the date the loan is granted. 
As a result of the aforementioned loan's conversion into equity, Fermat 1 acquired 10 637 400 newly-issued shares in the company Fermat 2 with a per-share nominal value of USD 1 in exchange for a contribution in the form of receivables on the loan. The difference between the nominal value of the shares and the value of the contribution was transferred to the reserve capital of Fermat 2. 
The shares acquired represent 99.84% of the share capital of Fermat 2. Following this increase, the share capital of Fermat 2 amounts to USD 10 654 057 (representing the equivalent of PLN 33 405 796, at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012) and is divided into 10 654 057 shares with a per-share nominal value of USD 1. Fermat 1 owns 100% of the share capital of Fermat 2, representing 100% of the votes at the general shareholders’ meeting of this company. 

The carrying amount of the assets acquired in the accounts of Fermat 1 will represent USD 1 063 740 000 (representing the equivalent of PLN 3 335 356 770 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012). 

3. 
An agreement was entered into between Fermat 1 and the company Fermat 3 S.a.r.l. with its registered head office in Luxembourg, a wholly-owned subsidiary of Fermat 1 („Fermat 3”), based on which Fermat 1 granted to Fermat 3 an interest-free loan in the amount of USD 1 873 100 000 (representing the equivalent of PLN 5 873 105 050 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012). 

4. 
A loan agreement was entered into between Fermat 3 and Fermat 2, based on which Fermat 3 granted to Fermat 2 a loan in the amount of USD 1 873 100 000 (representing the equivalent of PLN 5 873 105 050 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012) to be converted into the shares of Fermat 2. 

This conversion will occur at a future date to be determined by the parties. The value at which the shares of Fermat 2 will be acquired by Fermat 3 based on conversion will be equal to the nominal value of the loan described in point 3 of this Report, increased by the fair market value of the proceeds directly or indirectly derived from the loan. 

5. 
Fermat 1 and Fermat 3 entered into a forward share purchase agreement, concerning purchase by Fermat 1 from Fermat 3 of the shares of Fermat 2, which Fermat 3 will acquire in the future from the conversion of the loan described in point 4 of this Report into the capital of Fermat 2. The purchase price amounts to USD 1 873 100 000 (representing the equivalent of PLN 5 873 105 050 at the average USD/PLN exchange rate of the National Bank of Poland from 5 March 2012). The amount due from purchase of the shares of Fermat 2 will be payable on a date subsequent to the acquisition by Fermat 3 of the shares of Fermat 2 based on conversion. The purchase price of the shares of Fermat 2 owed to Fermat 3 from Fermat 1 will be offset with the receivables of Fermat 3 toward Fermat 1 due to the loan described in point 3 of this Report. 

6. 
An agreement was entered into between Fermat 2 and the company 0929260 B.C.U.L.C., a wholly-owned subsidiary of Fermat 2, based on which Fermat 2 granted to 0929260 B.C.U.L.C. a loan in the amount of USD 1 873 100 000 (representing the equivalent of PLN 5 873 105 050 at the average USD /PLN exchange rate of the National Bank of Poland from 5 March 2012). Interest on the loan will be set at the level of the yield to maturity of the senior notes issued by Quadra FNX on 17 June 2011.The interest will be paid at the end of each calendar year. The parties may decide that the interest will be partially paid through the issuance of privileged shares of the borrower. Repayment of the loan will occur at a future date to be determined by the parties. 
In addition, Fermat 2 acquired in exchange for a cash contribution in the amount of CAD 1 050 620 650 (representing the equivalent of PLN 3 313 867 654 at the average CAD/PLN exchange rate of the National Bank of Poland from 5 March 2012) 1 050 620 650 newly-issued shares in the company 0929260 B.C.U.L.C. with a per-share nominal value of CAD 1. 
The shares acquired represent 99.99% of the share capital of 0929260 B.C.U.L.C. Following this increase, the share capital of 0929260 B.C.U.L.C. amounts to CAD 1 050 620 750 (representing the equivalent of PLN 3 313 867 970 at the average CAD/PLN exchange rate of the National Bank of Poland from 5 March 2012) and is divided into 1 050 620 750 shares with a per-share nominal value of CAD 1. Fermat 2 owns 100% of the share capital of 0929260 B.C.U.L.C., representing 100% of the votes at the general shareholders’ meeting of this company. 
The carrying amount of the assets acquired in the accounts of Fermat 2 will amount to CAD 1 050 620 650 (representing the equivalent of PLN 3 313 867 654 at the average CAD/PLN exchange rate of the National Bank of Poland from 5 March 2012). 
The funds obtained by 0929260 B.C.U.L.C. from the loan and the increase in share capital will be used to finance the purchase of 100% of the shares of Quadra FNX. 
The assets acquired under these events are of a long-term, equity investment nature. 
The criteria representing the basis for recognising the aforementioned agreements and assets acquired as a result of the aforementioned transactions as significant is their value, which exceeds 10% of the equity of KGHM. 
See also the following current reports: 40/2011 dated 6 December 2011, 1/2012 dated 4 January 2012, 8/2012 dated 20 February 2012, 9/2012 dated 22 February 2012, and 10/2012 dated 29 February 2012 


Legal basis: § 5 sec. 1 points 1 and 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).