Signing of agreement with foreign partner

Monday, 03 May, 2010
Report no. 15/2010

The Management Board of KGHM Polska Miedź S.A. announces that on 4 May 2010 the Company signed an Investment Agreement with Abacus Mining & Exploration Corporation (“Abacus”) with its registered head office in Vancouver, regarding formation of a joint venture to advance the Afton-Ajax copper-gold mining project located in British Columbia in Canada.


Abacus Mining & Exploration Corporation is a mineral exploration and mining development company. The company is quoted on the TSX Venture Exchange (TSX-V) in Canada. 
In accordance with the “Strategy of KGHM Polska Miedź S.A. for the years 2009 – 2018” approved by the Supervisory Board of the Company on 23 February 2009, one of the five main strategic areas - development of the resource base - aimed at increasing the production of copper in concentrate to approx. 700 thousand tonnes annually, will be realised among others through investments in foreign mining assets.


The Investment Agreement signed today provides for: 
1. The acquisition by KGHM Polska Miedź S.A. of a 51% interest in the joint venture company formed together with Abacus, through a cash contribution in the amount of USD 37 million (the equivalent of PLN 110.7 million pursuant to the National Bank of Poland exchange rate for USD/PLN of 4 May 2010). Abacus will bring to the joint venture all the rights it owns to the Afton-Ajax deposit. The cash will be used to carry out a Bankable Feasibility Study and for further exploration. 
2. An option to acquire by KGHM Polska Miedź S.A. a further 29% in the joint venture company for an amount not higher than USD 35 million (the equivalent of PLN 104.7 million pursuant to the National Bank of Poland exchange rate for USD/PLN of 4 May 2010). KGHM shall have the right to execute this option following completion of the Bankable Feasibility Study. 

Realisation of the Investment Agreement is subject to approval by the shareholders of Abacus. In consideration of the above, the Parties have agreed to complete a definitive joint venture agreement by the end of the second quarter of 2010, and not later than 30 September 2010. 

In addition, the Investment Agreement also provides for the acquisition of up to 10% of Abacus’ shares (15 million shares) through private placement for a total amount of CAD 4.5 million (the equivalent of PLN 13.3 million pursuant to the National Bank of Poland exchange rate for CAD/PLN of 4 May 2010) by 10 May 2010. 
The Investment Agreement also includes a commitment by KGHM Polska Miedź S.A. to arrange financing for the project capex of USD 535 million (the equivalent of PLN 1601.1 million pursuant to the National Bank of Poland exchange rate for USD/PLN of 4 May 2010), estimated in accordance with the Technical report (scoping study) by Wardrop Engineering Inc. dated 29 July 2009. The commitment will arise at the moment of execution by KGHM of the option to acquire a further 29% in the joint venture company. 
In accordance with the above-mentioned Technical report, the project assumes annual copper production at the level of 50 thousand tonnes, and gold production at the level of 100 thousand troz. A 23-year mine-life is predicted, beginning from 2013. Production costs of one tonne of copper are estimated at the level of approx. USD 2000. 

In realising this transaction, KGHM Polska Miedź S.A. cooperated with the financial advisor TD Securities Inc. Legal advisors are Chadbourne & Parke and Stikeman Elliot. 

Legal basis: art. 56 sec. 1 point 1 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)