Strategy of KGHM Polska Miedź S.A. for the years 2019-2023

Wednesday, 19 December, 2018
45/2018

The Management Board of KGHM Polska Miedź S.A. (“Company”) announces that on 19 December 2018  the Strategy of KGHM Polska Miedź S.A. for the years 2019-2023, submitted by the Management Board, was approved by the Company’s Supervisory Board.

In the face of macroeconomic changes in the minerals industry, as well as the strong influence of worldwide megatrends, in the fourth quarter of 2018 the Management Board of KGHM Polska  Miedź S.A. decided that it was necessary to review the Strategy of KGHM Polska Miedź S.A. This decision was mainly dictated by:

  • dynamic changes in the mining and metallurgical industries, caused by macroeconomic, technological and legislative challenges,
  • the evolution of directions of global economic growth – megatrends impacting the mining industry, including technological breakthroughs, demographic and social changes, shortages of natural resources, climate change, the fluctuating strengths of global economies and rapid urbanisation,
  • prioritisation and adaptation of the investment program to the Company’s financial capabilities, and
  • partial realisation of the objectives and strategic initiatives under the Company’s Strategy adopted in 2017.

The strategy review was aimed at ensuring the cohesion of the Company’s Strategy with current market conditions and the needs of the KGHM Polska Miedź S.A. Group (“KGHM Group”). As a result, the assumptions of the Company’s Strategy for the years 2019-2023 (“the Strategy”) were decided upon. Four strategic development directions were identified:   

  • Elasticity – mainly encompassing the concepts related to the 4.0 industry, digitalisation and electromobility,
  • Efficiency – a response to the increasing competitiveness in the production and mining industries and the 4.0 industry,
  • Ecology – based on electromobility, development of pro-ecological legislation, closed-circuit industry and environmentally-friendly production,
  • E-industry – based on automation, digitalisation, a knowledge-based society and concepts of the 4.0 industry.

The aforementioned directions were reflected in individual strategic areas with the following specified main targets:

  • Production,

main target: “Maintain cost-effective Polish and international production”;

  • Development,

main target: “Increase the efficiency and flexibility of the KGHM Group’s Polish and international assets”;

  • Innovation,

main target: “Increase the KGHM Group’s efficiency through innovation”;

  • Financial Stability,

main target: “Ensure long-term financial stability and the development of mechanisms supporting further development”.

  • Efficient Organisation,

main target: “Implement systemic solutions aimed at increasing the KGHM Group’s value”;

  • People and the Environment,

main target: “Growth based on the idea of sustainable development and safety as well as enhancing the KGHM Group’s image of social responsibility”;

Each of the main targets was broken down into operational goals, aimed at the realisation of the main target. Each of the six strategic areas was correlated to the four aforementioned development directions, which resulted in the creation of the initiatives matrix.

Each of the strategic areas was measured by the following KPIs (Key Performance Indicators):

  • Production,

1. Mining production in Poland at the level of 450 thousand tonnes of copper in ore, with an average yearly C1 cost not higher than 3800 USD/t in the years 2019-2023.

2. Yearly average of daily ore processing in Sierra Gorda at the level of at least 130 thousand tonnes – from 2020.

3. Average yearly metallurgical production in Poland at the level of 540 thousand tonnes in the years 2019-2023.

  • Development:

1. Ensure the possibility of basing 35% of metallurgical production on purchased copper-bearing materials, including scrap, to 2030.

2. Increase the share of highly processed copper products (OFE-Cu rod, OFE-Cu granulate and end-application products) in the KGHM Group’s total sales to the level of 10% at the end of 2030.

3. Satisfy 50% of KGHM Polska Miedź S.A.’s demand for electricity from its own sources of energy generation and renewable energy sources by the end of 2030.  

  • Innovation,

1. Ensure that 100% of innovation projects are realised pursuant to the rules of a coherent model of innovation management and research and development work (R&D) in the KGHM Group, in the years 2019-2023.

2. Increase expenditures on innovation and R&D work to the level of 1% of KGHM Polska Miedź S.A.’s revenues by 2023.

3. Allocation of at least 75% of funds for R&D and innovation in the years 2019-2023 to meet the challenges faced by KGHM Polska Miedź S.A. in the Core Business.

  • Financial Stability,

1. Basing the KGHM Group’s financing on long-term instruments.

2. Shorter cash conversion cycle.

3. Efficient management of market and credit risk by the KGHM Group.   

  • Efficient Organisation,

1. Ensure the financial stability of the Polish-based KGHM Group companies, on the basis of their own activities, from 2022.

2. Increase the efficiency of support functions by 20% as a result of centralisation and digitalisation of key back-office processes by 2023.

3. Achievement of key strategic targets, at the level of at least 80% of the yearly goals assigned to them, in each of the years the strategy is in force.

4. Flexible reaction to volatile macroeconomic, geological and mining conditions. A halt in the Morrison mine’s production in Sudbury is being considered.

  • People and the environment,

1. Annual improvement of the Lost-time injury frequency rate (LTIFR – for Polish assets) and the Total Recordable Incident Rate (TRIR – for international assets) by at least 20%.

2. Maintain a participation budget at the level of 20% of the amount of deductions for donations from the minerals extraction tax by 2020.

3. Achievement of a 70% level of commitment and satisfaction of the KGHM Group’s employees by 2023.

The updated Strategy does not change the Company’s current approach to business operations. KGHM Polska Miedź S.A. upholds its responsible approach and its long-term thinking about the company’s future.

Legal basis: Art. 17 (1) of MAR (Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of the European Union dated 12 June 2014, no. L 173/1)

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