Strategy for the years 2015-2020 with an outlook to 2040

Monday, 26 January, 2015
1/2015

The Management Board of KGHM Polska Miedź S.A. announces that on 26 January 2015 the Strategy of KGHM Polska Miedź S.A. for the years 2015-2020 with an outlook to 2040 (“the Strategy”), submitted by the Management Board, was approved by the Company’s Supervisory Board.

Adoption of the Strategy is connected with the prior completion of key provisions of the previous Strategy, which was approved on 23 February 2009.

The main objective of KGHM Polska Miedź S.A., as described in the Company’s new strategic outlook for the years 2015-2020, is to achieve annual production capacity of over 1 million tonnes of copper equivalent and to continue work aimed at improving mine operating efficiency.

The mission of KGHM Polska Miedź S.A. is the development of a global resources Group, created by people with passion and skill. The long-term vision of KGHM Polska Miedź S.A. assumes that the Company will increase its competitive advantage through the development and introduction on
an industrial scale of new technologies that will create an opportunity for a technological breakthrough in the industry.

The Strategy for the years 2015 – 2020 with an outlook to 2040 is based on the following three main pillars:

  1. Resource Base Development. As part of its exploration and acquisition activities, the Company plans to replace every mined tonne of copper with three tonnes of copper in new resources. This will ensure the long-term operational prospects of the Company and an enhanced position on the cost curve. The Company will mainly concentrate on exploration in areas adjacent to the Company’s current operations and on the search for low-cost assets in geopolitically-stable regions. The development plan of KGHM’s resource base will ensure long-term mining activities and secure higher production volume.
  2. Production Assets Development. According to the Strategy, the Company plans to invest PLN 27 billion over the period from 2015 to 2020. These funds will be allocated to developing the current portfolio of investment projects, including programs to develop the core business in Poland and those leading to the operational commissioning of resource projects in Poland and abroad (Deep Głogów, Victoria, Sierra Gorda phase II, Sierra Gorda oxides project and Afton-Ajax). Completion of its investments projects will enable a substantial increase in Group production capacity and enhance its position on the global cost curve of copper producers. KGHM Polska Miedź S.A. is committed to efficiently allocating financial resources and developing projects which have the highest rate of return.
  3. Production. KGHM Polska Miedź S.A. aims to ensure stable production levels while optimizing production costs and maintaining the highest safety level. Under KGHM’s Strategy for the years 2015-2020 the Company plans to increase the annual volume of mined ore from the mines of KGHM Polska Miedź S.A. in Poland. Moreover, the Company plans to achieve full phase I production capacity by the Sierra Gorda project, i.e. 120 thousand tonnes of annual copper production by mid-2015. Under the new strategy the Company plans to commence phase II of the project, which will ensure an increase in copper production. The Company also intends to commence processing of the oxide ore from the Sierra Gorda mine, which will lead to an additional increase in copper production from the mine and secure higher long-term production volumes.

The long-term vision foresees gaining a competitive advantage by implementing new technologies. The strategic objective of KGHM Polska Miedź S.A. is to develop and implement on an industrial scale modern technologies which are critical to developing the world’s first intelligent mine based on neural networks.

Basic production and economic assumptions for the Group (reflecting the 55% share in the Sierra Gorda project) for the years 2015 – 2020 *:

  • Production – over 1 million tonnes of copper equivalent from our own resources by the year 2020;
  • Share of copper equivalent production from overseas assets – an increase from 17% to 40% in 2020;
  • CAPEX – PLN 27 billion in total capital expenditures, of which around 65% will be allocated for development projects; over half of the capital expenditures will be invested in Poland;
  • EBITDA – expected increase by 2020 of 70% as compared to 2014;
  • C1 cost – planned decrease by 2020 of C1 cash cost of around 10 % as compared to 2014;
  • Net Debt/EBITDA will be maintained at a safe level in the range of 1-2.

 *The Strategy was developed based on the following assumptions:

  • average copper price in the period 2015 – 2020 of 7 600 USD/t (2015 - 6 800 USD/t);
  • average silver and molybdenum prices in the period 2015 – 2020 respectively 21 USD/troz (2015 – 18 USD/troz) and 12 USD/lb (2015 – 12 USD/lb);
  • average assumed exchange rate of the PLN versus the USD in the period 2015 – 2020 of PLN 3 (2015 – 3.30).

The forward-looking targets and financial assumptions in this report do not represent forecasts of financial results under § 5 sec. 1 point 25 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.

 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  (unified text: Journal of Laws 2013.1382)