Q4 2020 Earnings Conference Call KGHM Polska Miedz S.A. (OTC:KGHPF) March 25, 2021 8:00 AM ET

Participants from the Business

President and Chief Executive Officer Marcin Chludzinski

Katarzyna Kreczmanska-Gigol is the Finance Vice President of the Management Board.

Vice President of the Management Board for Development, Adam Bugajczuk

Pawel Gruza is the Vice President of the International Assets Management Board.

Radoslaw Stach is the Vice President of the Production Management Board.

Head of Investor Relations, Janusz Krystosiak

Participants in the Conference Call

Representative of an Unidentified Company

KGHM Polska Miedz’s management board announced its new plan for 2019-2023 in December. This is a reaction to the shifting macroeconomic climate and geopolitical scenario, both of which have a significant impact on the mining sector. We devised four strategic growth paths after analysing significant trends throughout the world: flexibility, ecology, and e-industry, which we are putting into reality and achieving success due to the cooperation of our management and staff. Thanks to the beginning of our new fairness or deposit exploitation programme. In Sierra Gorda, we are able to sustain current production levels. We were the first ones to achieve favourable outcomes. By 2026, half of the energy demand in KGHM will be met by our own resources, including renewables, as Poland pursues a policy of developing our own energy supplies.

We’ve already built our first solar plant, and we’re focusing on efficiency and financial outcomes in other countries. Our mine, Sierra Gorda, is now producing better results and is more efficient as a consequence of the changes. We’re on our way to accomplishing those goals. We also generated a net profit of almost PLN2.5 billion owing to digitalization, enhanced administration, and production support; our result and growth – thanks to increased external finance – was PLN2 billion. We put in place a research and development management approach. The e-industry has now become a focus. We were able to complete our KGHM 4.0 curriculum. That includes security and logistics, among other important areas. As a consequence, production will be managed consistently, including data management. We put in place initiatives for our staff, such as workflow and internship recruiting. Our approach is guided by the lofty goals of long-term growth and security, as well as increased social responsibility.

In Poland and internationally, we dramatically enhanced security indices. We took part in a number of social activities to help our neighbours, families, children, and older citizens. Our approach has not altered as a result of COVID-19. Humans are still at the centre of it all. Then we give back to our communities. And Nitroerg, a subsidiary of our organisation, began producing disinfectants, which we were able to provide to all those in need. As a result, we are adaptable, efficient, and environmentally conscious. Because of our plan. We have been successful in growing the e-industry and propelling the economy forward.

Marcin Chludzinski, CEO of KGHM Polska Miedz (KGHPF), on Q4 2022 Results - Earnings Call Transcript

Representative of an Unidentified Company

Ladies and gentlemen, we are once again gathering for a conference on KGHM Company and Group financial results. This is not a face-to-face encounter. We use video conferencing. This is the second time I’ve done this. Even if our annual results were discussed without the presence of the audience, we have no doubt that, in the interests of our stakeholders and all workers, we must choose this option over transmission as a form of communication. We opted not to postpone the publishing deadline, and we are proud to say that our annual reports for the financial supervisory committee were delivered in a new format. And that was a successful submission even here in the studio, where we established the appropriate process, including security for all event attendees.

We will reveal the results for the fourth quarter of 2020, as well as the whole year 2020, today. Our management board, which includes Marcin Chludzinski, President of the Management Board; Professor Katarzyna Kreczmanska-Gigol, Vice President of the Management Board for Finances; Mr. Adam Bugajczuk, Vice President of the Management Board for Development; Pawel Gruza, Vice President of the Management Board for International Assets; and Radoslaw Stach, Vice President of the Management Board for Production, will comment on the results of our efforts.

We’ll begin with remarks from our management board on last year’s events, as is customary. After that, we’ll have a Q&A session. If there are any questions that we won’t be able to broadcast today, I’ll let you know right immediately. You can find them all on our website, along with a complete transcript. I’d also want to welcome you to ask typical inquiries. You are aware of our e-mail address.

Let us begin our meeting, ladies and gentlemen. President of the Management Board, Mr. Marcin Chludzinski. You have the whole floor to yourself.

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Marcin Chludzinski

Do you recall March 2020, ladies and gentlemen? It wasn’t that long ago; in fact, it was just a year ago. When people stored, there were empty shelves and stores, as well as signals that had never been seen by the younger generation. Do you recall looking for even a single pair of protective gloves or paying excessive disinfection prices? There had been reports of a weird virus in Wuhan, China, for a few months, but no one realised that we were facing the worst catastrophe of the contemporary world, a pandemic that would halt the globe’s functioning. Nobody was prepared for it, neither Poland nor the rest of the globe; all crisis management plans were inadequate, and none of them anticipated such a tragedy. Overnight, office buildings and health clinics became amputees. Within the framework of the safe return home initiative, a large number of Poles have returned to Poland.

Nobody can predict what will occur in the future. Nobody makes long-term predictions, and well-known experts remain silent. Some businesses in our field have likewise drastically downsized or ceased operations. Our actions are dominated by two themes: staff security and production security. In Poland, the launch route of company today functions in a remote fashion, with individuals working from home, but we cannot enable miners to work from home. It is technically impossible, and each day of production and sales counts. In this circumstance, we are dealing with a severe lack of knowledge and must manage risk in a volatile and unpredictable environment. The safety and security of our personnel is a top concern for us. We are the ones who make the risky choices. Thermal visual temperature readings were originally implemented by us.

Marcin Chludzinski, CEO of KGHM Polska Miedz (KGHPF), on Q4 2022 Results - Earnings Call Transcript

We also established our new hygienic processes at Nitroerg, which were subsequently used in other factories. Most importantly, we assure our employees that we will make every effort to maintain their employment. Copper prices are falling to all-time lows, which haven’t been seen in a decade. Maintaining such prices for an extended period of time would result in output falling below the breakeven point. The pace of travel is slower. We are experiencing delivery delays. We’re attempting to deal with declining copper prices, logistical issues, and delivery issues while the government considers how to deal with remote schooling, which was introduced unexpectedly.

So, how should we proceed in this situation? To begin with, our effective approach, we anticipated in 2018 that the period of global stability was coming to an end, and that we were in for a roller coaster ride ahead of us, with unexpected events and a business climate. And in the market, our answer to those concerns was to assume a high level of flexibility in adapting to new situations and a higher level of business flexibility, which has shown to be highly beneficial in defeating the virus. We have a record-high degree of security and provide employment for tens of thousands of people. Second, we utilise all efficient communication methods, particularly for contact with our staff.

We understand how difficult it is to reach the sanitary information line. That is why we have an information line that is open 24 hours a day, seven days a week. We replied to our miners’ and their families’ scepticism. We explain our protocols to them and the importance of following them. Intranet, extranet, a special short message, text, a special TV, and a business newspaper are all used. We educate and inform them. We fight the spread of bogus news. We offer mobile billboards for when posters are no longer effective. When we couldn’t meet with our managers face to face, we developed daily – weekly newsletters for them with the problems that our workers were most concerned about. And in this message, we make every attempt to be thorough, honest, and explicit to the extent that the near-total uncertainty of the future enables us to do so.

Second, or third, we significantly increased the security of our staff. We have been providing precautionary measures to our folks from the beginning of the epidemic. We clean our facilities and machinery on a regular basis. We provide a number of tiny yet important projects. To allow for a staggered presence of individuals, we have a shift to work and offices. We have steely fears about this and the mining culture’s DNA. We have a code of ethics that requires us to do rescue missions. Even the hardest miners in conditions of urgency and peril lose their normal control in this scenario. However, we have activities taking place throughout the organisation in Poland. We provided 20,000 litres of disinfectants in March, the most difficult month of the year. In Lower Silesia, we set up makeshift hospitals. We have a centre for COVID patients in our – centre of months. As a result, we contribute money to health clinics via our foundation. We furnished hospitals and health facilities with protective equipment not long ago, when there were widespread shortages of even basic gadgets in hospitals.

We look after our family as well as our neighbours. Our volunteers cooked meals and assisted folks with their shopping. We know that these activities may improve the overall health of a social group. We arranged for psychiatric help for the most vulnerable people. We estimated that 120 phone consultations every week would be about normal, but that was the amount of calls within an hour. We take steps to lessen the effect of any potential depression. We provide psychological and emotional support to people who are utterly worn out by the circumstance. According to some estimates, one of the pandemic’s repercussions would be post-traumatic stress disorder, which might impact up to 70% of the population.

The year 2020 will be remembered as a watershed moment in history. In both the EU and the rest of the globe, GDP has plummeted. The virus affected important worldwide economies, causing worrisome levels of hospital occupancy and precariousness. There are just a few businesses. We maintain our factories operating without a single day of downtime, resulting in a total output of 907 million tonnes of copper for the group, which was not accomplished by chance. Our crisis management, unity, sensible judgments, quick reaction, and trust have all contributed to this. After a year, in March 2020, I am pleased to inform that this has worked and continues to work, with A or A plus grades and a record EBITDA of PLN6.600 billion in 2020. The Capital Group had a net profit of PLN1.79 billion. The leverage dropped from 1.5 percent to 0.9 percent, while cash flow surged by about PLN1.5 billion.

Krystosiak, Janusz

Thank you very much. Thank you, Mr. President, for making this observation. Now it’s your turn, Radoslaw Stach, to tell us about our production’s performance.

Stach, Radoslaw

Respectfully, ladies and gentlemen, While I move on to discuss The Capital Group’s production performance, a very – a very good level of Southern 709,000 tonnes of copper and the extremely robust performance in the Sierra Gorda mine, which increased output versus 2019 silver production, precious metals, and molybdenum both domestically and internationally, will be discussed in later slides.

Before I go into detail on domestic production and improvements in mines, smelters, and our units, I’d want to emphasise the importance of safety. Our company’s major issue for 2020 is safety, and the results are impressive: 20 percent greater safety in place as a consequence of initiatives and cultural change activities. And all of our employees deserve recognition. The golden charter of a safe employer has been awarded to us, demonstrating that we are progressing in the correct manner and making us proud to go forward. Our production performance and domestic units, copper and electrolytical copper and silver, have been constant, with no peaks and troughs, implying that we will weather the storms in 2020 with regard to silver output, which was 1,400 tonnes in 2019. That was a new high. We sought to extend it till 2020 at the time. Silver, on the other hand, is a performance-related or output-related metal, meaning it is directly proportional to the quantity of ore mined.

Now, we’ve started a series of efficiency initiatives to increase the efficiency of our equipment and machinery while also lowering our costs. I’d like to call attention to one of the initiatives that helped us increase output last year: a supply chain project that included three processes: resource planning, supplier procurement, and inventory management. We could see the outcomes when we carried out the programme in the fourth quarter of 2020, since the integration, digitalization, and automation of these procedures resulted in massive cost reductions in real time. Overall, despite the difficult year highlighted by the president, as well as the fragile market price-wise and elsewhere, our production has maintained its high levels. And we owe it all to great management decisions and the dedication of our whole team. Thank you so much for everything.

Pawel Gruza, Vice President, is now in charge of international assets. Please accept my apologies, Pawel Gruza.

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Gruza, Pawel

Indeed, pleasant morning or afternoon. Gentlemen and ladies, 2020, whether it would be remembered as a pandemic year, a pandemic without borders, or a hard pandemic status in our jurisdictions outside of Poland, was certainly concerning. However, as a consequence of the efforts made in Poland, we were able to ensure the continuity of our company, which was a key concern, as well as the safety and discipline of our employees. These were the two terms we might use to define our activities in Chile and North America.

Unfortunately, some of the safety precautions used by our rivals in other mines did not work. There were instances of outage and halting operations. These problems did not arise as we steadily refined Sierra Gorda operations, which was a low-cost optimization endeavour. We were able to obtain a fairly stable manufacturing performance, as seen on this slide. And it’s because they speak for themselves. In reality, the quality of the KGHM INTERNATIONAL experienced greater setbacks as a consequence of the – all the metal content in the extracted rock and reduced yields. Lower production had not been planned for 2020.

Marcin Chludzinski, CEO of KGHM Polska Miedz (KGHPF), on Q4 2022 Results - Earnings Call Transcript

I’d want to talk about the financial performance of our overseas assets to round out the picture. We saw a significant possibility of dropping prices in the first half of the year, perhaps even the first quarter. We started a variety of cost-cutting initiatives on both the OpEx and CapEx sides. We also looked at our headcount and staffing structure to see where we might save expenditures. We reorganized KGHM Overseas as well, and the financial performance of our international assets is very favorable, contributing significantly to the group’s overall prosperity. Thank you so much for everything.

We’ve now moved on to the money side of things. Let’s hear more from Professor Katarzyna Kreczmanska-Gigol, the group’s VP-Finance.

Katarzyna Kreczmanska-Gigol

Respectfully, ladies and gentlemen, Mr. Chludzinski has previously said that we have been preparing to welcome new trends in the global economy since 2018. And we had been expecting events that may lead to bad market performance, reduced capital performance, or recession; in reality, the long-running bull market could be challenged. However, we had not expected the catastrophe to be caused by what we now refer to as a worldwide pandemic. In our financial portfolio, though, we did make preparations for a rainy day.

Indeed, the three years of work we put in to ensure that our financial performance remained consistent paid off handsomely in 2020, as contract revenue increased by 4% over 2019. And 2019 has been a fantastic year. That is something I would want to stress. In truth, 2020 was a tumultuous year in which no one knew what would happen the following day. Our financial performance, particularly in terms of contract revenue, has improved by PLN 909 million. The unit cost performance was also better this year, despite the fact that it was a difficult year. As a result, the C1 cost was reduced by 6% to 1.9. The greater cost of the copper tax, as well as the mining and mineral extraction tax, has already been factored in.

So, if it hadn’t been for the tax charge, the cost performance would have been considerably better. Furthermore, the C1 cost of KGHM Polska Miedz SA, the parent firm, was lowered by 7% in comparison to 2019. Sierra Gorda’s cost decreased by 16 percent, while KGHM International’s cost increased and was the highest in the category, although this was due to reduced copper sales volumes, which were somewhat offset by greater income from related metals sales.

Let’s take a look at EBITDA, which is a key metric for analysts and is equally important to us. EBITDA is up 27% over the previous year. The parental firm, KGHM Polska Miedz SA, has a greater EBITDA of PLN 839 million. Sierra Gorda’s is PLN 686 million higher. Other company divisions have smaller EBITDA, however these divisions contain enterprises that were susceptible. And they were severely impacted by the pandemic, and we had a reduced EBITDA in KGHMI as a consequence of decreased sales volumes and the termination of the DMC contract in the United Kingdom, as I previously said.

In terms of our net result, ladies and gentlemen, it was 26% higher in 2020. I’d like to call your attention to the fact that our group’s net result was primarily influenced by changes in revenues, which increased by PLN 909 million. We also performed well in collaborative ventures.

I always want to point out that in terms of expenses by kind, we had greater costs per type, which were PLN 47 million more. However, this was mostly owing to increased salary. As a result of our social commitment agreements, which we adhere to despite changing circumstances, we have seen a rise in income. Copper tax was raised by PLN 105 million, and depreciation was increased. These were external variables that we couldn’t control.

However, in terms of other operations, we noticed a decrease of PLN 429 million in third-party services. And this, ladies and gentlemen, is the outcome of deliberate action on our part. This has previously been discussed, but first and foremost, we maintained cost discipline throughout the organisation despite the challenging position. When it comes to cash flows, you’ll see that the impact of last year is highly good if you look at our cash flow statement.

I’d also want to call your attention to one issue that has changed in terms of working capital. This is the result of our actions, which began with the announcement of our new approach. We said at the time that we would release cash flows as a result of the actions we were taking. And they included large-scale deployment of factoring that – of that group.

That is an indication that we are proud of at KGHM Polska Miedz: net debt-to-EBITDA 0.9. That is a remarkable performance, particularly when we consider that it was 1.5 at the end of 2019. Please consider net debt as well. It fell by over PLN 1 billion. Thank you so much for everything.

Representative of an Unidentified Company

Thank you very much, professor, for giving the financial figures in such depth. Now I’d like to introduce Adam Bugajczuk, Vice President for Growth, who will provide us with information on KGHM’s development and investment.

Adam Bugajczuk is a politician from Poland.

Ladies and gentlemen, before I get into the specifics of our development and investment outcomes. I’d like to point out that my area kept up with the rest of the firm, as a consequence of which we were able to complete all investments, both monetarily and substantively, contributing to the company’s excellent outcomes. My colleagues have previously shared this information. We spent 2.48 billion zlotys. And, in terms of analysis, the allocation of this expenditure as our main development investment was extremely proportional when there were little disparities. Of course, the Iron Bridge container expansion has been extended.

I’d want to provide you some information on where we are in the process. The investment in the segregation station, which is part of the facility’s expansion, is already completed in 88 percent of the way. In terms of deposit availability, we’ve reached 78 percent. The GG-1 shaft was deepened to almost 1,300 metres, and we prepared more than 40 kilometres of corridor for mining activity. And, despite the difficulties we’ve had with water, we’re making progress. In GG-2, we are also making progress; we were able to agree on the financial terms and circumstances of this investment. And now we’re moving on with administrative work for BAT findings and environmental activities; PLN 161 million was spent on this last year, and we were able to finish all of our important investments in both Glogów and Legnica.

Now I’d like to talk about the depletion of our Glogów deposits quickly. We’ve always spoken about it, and you can see for yourself that all of the main indicators are now greater than they were in past years. In terms of our other big investments, they are important, but not as dramatic as the Iron Bridge construction or mine exploitation preparation. We were able to purchase a few presses, a pump station, and [indiscernible], all of which are part of the Iron Bridge programme, as well as the building of a waste station and the renovation of the Glogów factory. Mining investments cost PLN 168 million this year. BAT findings and other aspects connected to ecological activities were linked to PLN 161 million, as demonstrated in detail in the graph in the materials.

Certain investments in renewable energy sources have already been accomplished. At the Legnica Copper Mine, we built the first portable type farm. We are now working on further investments that will help us reach our goal of producing 50% of our energy from renewable sources. This is a goal we’ve been working toward for a long time, and as you can see from our presentation, we’ll be able to complete those duties.

Marcin Chludzinski, CEO of KGHM Polska Miedz (KGHPF), on Q4 2022 Results - Earnings Call Transcript

Representative of an Unidentified Company

Thank you so much for everything. Thank you for sharing the specifics of our investments with us. Ladies and gentlemen, we’ve presented you with our production financial results, as well as the progress of our foreign assets and investments. Now I’d like to ask President Chludzinski for a quick rundown of our accomplishments.

Marcin Chludzinski

Ladies and gentlemen, we have just been through a very trying time. It was a difficult year. It was a difficult time in our company’s history. By the way, our firm is celebrating its 60th anniversary this year, which is a respectable age; despite the fact that we are not quite elderly, we are vibrant and energetic. And we must remember that the epidemic is still ongoing, posing a health concern. We’re also dealing with the pandemic’s consequences on our business.

Our crisis response teams are adapting their processes and modes of operation to the changing scenario. However, it is worth noting that the management board’s time of office is also coming to an end. A new term of office for the management board will begin on April 15th. And I’d like to show you some big numbers that illustrate what happened in the last two years and a lot of activities in various dimensions, such as cost savings, process efficiency, logistics, and all those projects, hundreds of projects, and thousands of people who worked on those individual themes. We began in 2018 and will conclude our term of office in the mid-second quarter of 2021, with EBITDA of PLN 4.7 billion. We are already at over PLN 6 billion in sales, with revenues accounting for 15% and volumes accounting for 30%. Despite increasing output, we now have a 12 percent decline in cost C1, which is a very critical indicator for us. This cost is driven by a higher tax. Net debt-to-EBITDA, which was a difficult ratio to improve and a lot of energy was put into it, also the exchange rate of the US dollar is important, but a 44 percent change for the better, that is to reduce this ratio from 1.6 to 0.9, is a very significant change.

Copper production, which is our everyday activity, is something we’re attempting to stabilise, but aside from that, over the last two years, or two and a half years to be accurate, we’ve gone up by 12% from 634 tonnes to 750 tonnes. Thousands of individuals are striving to achieve such goals. I can say this with complete honesty. This is a major win for the firm as a whole.

KGHM, the management of the board, and I would like to express our gratitude to the management board for their efforts. We’ve come a long way; we’re still a long way from our ultimate goals, but we’ve covered a lot of territory. I’d want to thank Katar Gigol-Kreczmanska for being here with us because of her professional plants, and I hope she will continue to work for KGHM at the conclusion of this term. But I’d want to express my gratitude to her for her contribution to our success. You made a significant contribution to our success.

And, ladies and gentlemen, we can’t declare that everything is within our control for the things that are yet ahead of us. Apart from the pandemic, we face the ESG issue, which involves determining the effect of ESG on our long-term operations. This year, we are beginning anew and developing a complete plan to evaluate the impact of ESG on our long-term activities. We will also conduct a review of the plan to see what has to be modified or rethought, as well as the impact of global changes.

Our approach has flexibility built in, but now is the moment to examine it and take a closer look at it. There are also capital expenditures, which are constantly required. Investments are constantly required to keep manufacturing going. Copper’s prospects are excellent because macroeconomic fundamentals are in excellent shape. And, as we expect, demand will increase rather than decrease.

As a result, we want to spend as much as possible in order to get as much copper and silver as feasible. Other business projects and the pipeline will allow us to continue our production. We’re particularly interested in the biocidal properties of copper or silver. There’s a lot of work to be done here. We’re on the lookout for opportunities, and we want to take advantage of them as we go ahead.

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Representative of an Unidentified Company

Thank you so much for everything. Now we must honour our Professor – Madam Professor and express our heartfelt gratitude for her outstanding achievement, which is a rare gesture at a financial performance conference. You’ll accept that while we deliver our financial results, we’re also commemorating the ten-year anniversary of one of our management boards. It will be released on April 17th.

This isn’t the end of the conference, however. We’ll have a Q&A conducted by Janusz Krystosiak, KGHM’s Head of Investor Relations; you may email your questions to er@kghm.com. Because the time slot is restricted, we won’t be able to accept and answer all questions; nevertheless, we’ll put both the questions and answers on our websites as soon as possible.

So, Janusz Krystosiak, Head of Investor Relations, now it’s your turn.

Session of Questions and Answers

Janusz Krystosiak (A)

Thank you very much. Hello and good afternoon. We have a lot of questions, and they’re coming in right now. And I’m attempting to group them under common headings. As a result, I will not read them all. So let’s get started. This is a question regarding Sierra Gorda, my Sierra Gorda. What are your future intentions for KGHM’s Sierra Gorda investments? Are you still contemplating divesting this asset, and what is the progress of the process, if applicable? So, let’s turn it over to our colleague in charge of overseas assets.

Gruza, Pawel

Sierra Gorda is now a strategic asset for KGHM, and we have no plans to sell our stake in the project. We’ve been focused and will continue to concentrate on what brings us the greatest results. We’re concentrating on and improving our manufacturing processes, and it looks that we still have considerable headroom with relatively minimal capital expenditures. As a result, this will be a highly cost-effective optimization.

Krystosiak, Janusz

[indiscernible] Green-news.pl has posed a question. How far has the photovoltaic project progressed? What is the capacity that KGHM intends to introduce before the end of the year?

Large solar projects need significant upfront expenditures in the foundation, as well as spatial design and zoning. We’ll be launching several of our initiatives with a higher capacity volume than we did last year when we debuted our Legnica project. We’re still in the process of collecting concessions and land. As a consequence, the ultimate outcomes will reflect how effectively we –how successfully we –have ended those conversations. At the end of 2020, clean energy will have a net debt to EBITDA ratio of 0.9, down from 1.5 at the end of the previous year. Is it your intention to keep lowering this ratio?

Marcin Chludzinski

One of our main goals in terms of financial security is to reduce our debt. We want our debts to remain stable at a manageable level. Are we going to have a reduced debt level? To put it another way, let me say it this way. The debt ratio is influenced by both the amount of debt and the amount of EBITDA. 0.9 is a fantastic score. We also want to stay below 2.0.

Krystosiak, Janusz

Thank you very much. [indiscernible] is once again inquiring about KGHM’s budget, especially CapEx. The management intends to invest PLN 2.9 billion in Polish operations and PLN 0.3 billion in overseas initiatives to assist Polish operations. Can you give us some examples of the largest CapEx projects you expect to complete this year?

Marcin Chludzinski

Let me begin with a little introduction. Then I’ll turn it over to Adam. Sierra Gorda is operating well worldwide because it is improving its expenses and output as part of our concept, which is to strengthen our access to mining operations and mining capacity. As a result, we’re expanding on current assets in order to extract as much value as feasible. As a result, if I may add, capital expenditures are not so large. As a result, we do not intend to expand investment in new assets since we want to continue extracting greater value from current assets.

Adam Bugajczuk

Yes, absolutely. We’re concentrating on initiatives that improve the technological process. Of course, the deposit access programme will continue, with a rise in the number of square metres of our tunnels and shafts, as well as the air conditioning and conditioning station. So this is going to be a historic initiative [indiscernible], and the environmental and bad conclusions-related expenditures will continue as they have for a number of years as part of our plan. And this is a reflection of our efforts to adjust our manufacturing performance to market possibilities and requirements.

Krystosiak, Janusz

Mr. Jakub Szkopek of MBank inquires regarding production in Gboki Gógów and Deep Gógów in 2020. Can this output be raised or will it – can it be projected to expand in 2021 and at what rate?

Marcin Chludzinski

Deep Gogów is clearly about the future of KGHM, and we’ve spoken about it at prior conferences, indicating that we’d want to keep increasing outputs and that we’re keeping an eye on the deposit. I’m not going to put a figure on the growth rate. We shall, however, enhance the evacuation of all cracks from the site.

Krystosiak, Janusz

And Jakub has a new question for you. In 2020, the group’s energy consumption increased by 8%, but dry goods output decreased, indicating that the operation was energy heavy. How will you intend to maintain the energy efficiency ratio or energy intensity ratio?

Marcin Chludzinski

We are now devoted to researching technologies and techniques that reduce energy usage or consumption. And I’d have to go into the nitty-gritty of the procedures in my new job since energy is heavily reliant on processes. By the way, we’re not just talking about mining; we’re also talking about processing and downstream activity. As a result, I believe this result is excellent, and the certificate we have obligates us to continue reducing our energy consumption. By the way, I’d like to point out that we’ve launched and commissioned major investment projects that are, in fact, electricity-intensive. Indeed, all of the replacement projects have assisted us in reducing energy, energy use, or energy efficiency – increasing energy efficiency by about 10%, which is a trend we intend to continue.

Now for a safety concern. I won’t name the author, because although the epidemic is causing restrictions, this has resulted in increased safety standards. Is this due to the pandemic or to some previous management efforts? I feel that safety is vital, and we have always pledged to do all we can to ensure it. So it’s not only during a pandemic that safety is a priority for us. We wanted to reduce accidents and raise safety standards. So, could you kindly remark on this? Yes. We’ve started a variety of activities, including the strategic programme, and we’re considering the repercussions or effects. And we aim to concentrate on a different component of safety each year. I disagree that safety has improved as a result of the pandemic and pandemic-related processes; in reality, we began our safety agenda in 2018 and continued in 2019 and 2020.

So, I’d draw a relationship between pandemic limits and safety, noting that these are two distinct issues that, at the end of the day, sum up. And, unsurprisingly, the pandemic-related steps enhanced our health. There’s no question about it, but our recent hard work has paid off in terms of performance and a 30 percent year-over-year improvement rate.

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Krystosiak, Janusz

[Indiscernible] Plus is a radio station. A question for President Adam Bugajczuk: While current copper prices are encouraging, the COVID situation remains precarious, as it was in 2020. So, will your investments be at danger or can you – are photovoltaic projects in the works?

Adam Bugajczuk

Of course, there is a lot of uncertainty, but in 2020, we will have completed all of the major financial and technical investments. This year, there’s no reason why we can’t repeat our success. And although this is an ambitious budget, we are dependable and strong. As a result, I think that all aspects of the plan, including solar farms, will be realised.

Krystosiak, Janusz

In fact, there are several questions in this thread that I have. Dividends, dividends, dividends, dividends, dividends, dividends, dividends

Adam Bugajczuk

One of the questions actually depicts a scenario for a down payment – down dividend payment for 2021, if not for 2020. I’m happy because – but I’d want to hear from President. This has been a common topic of discussion in our financial performance meetings, and we haven’t been paying dividends. This question has now become clear to me. It’s a genuine one. Now that the statutory time for announcing is approaching, we’ll use that time to make this decision as immediate as possible. KGHM will experience a further drop in the C1 cost [indiscernible].

Marcin Chludzinski, CEO of KGHM Polska Miedz (KGHPF), on Q4 2022 Results - Earnings Call Transcript

Representative of an Unidentified Company

I can claim that this cost C1 metric is something we regularly monitor and consider. We can demonstrate that this expense is decreasing. Of course, it must be noted that it is not entirely within our control; for example, it is largely driven by assaults, but we are attempting to keep it as low as possible.

I believe an inquiry concerning a low beam 24 will be sent to me. The representative of investor relations is still in doubt. What has caused the current drop in stock prices? The question was brief, but the response should be as well. However, I’d want to state that we are attempting to assist you in your comprehension of business. We’re attempting to grow the business and its worth, as well as the company’s value. I only want to bring your attention to the volatile climate in which we operate in the raw materials capital market. The stock market has been volatile in recent weeks, and the commodities market has its own set of circumstances. Currency behaviour has also played a role.

Changes in commodity exchange prices have a significant impact on copper prices. And, according to recent comments and analyses, the reason for the week’s unusual variability is primarily due to the pandemic’s extended lockdowns and uncertainty about when they will be lifted or extended. As a result, the pandemic’s uncertainty drives commodity prices, including our primary commodity, copper. We’ve witnessed a strengthening of the dollar in recent days, which has had an impact on commodity prices. Again, as a result of recent developments, we’ve seen significant ups and downs in asset valuations, paradoxically also in the context of declining profitability. There is a great deal of variation.

As a result, I am unable to provide you with a direct response. Let me add something to Janusz’s remarks. Indeed, this is what has been going on recently in stock exchanges in New York and Europe, and we must monitor those developments, but it is also worth noting that last year, and this conference is about last year, our stock value increased and had quotations of over 200 percent. As a result, our bar is currently set very high.

Pawel Puchalski, Santander, has a question. And it’s possible I’ll be able to combine it with another question from the same person. The acceleration of defects connected to the launch of the Victoria mine in foreign assets, followed by the overall situation with assets and KGHM International.

We’re putting money into Victoria. Some of those investments were made as a result of our obligation to follow environmental regulations. And some of them are resolved as a result of our desire to learn more about this deposit in order to better investigate it. And I believe that’s all there is to it in terms of Victoria and other assets. As with any company in our industry, we have a procedure in place and a way of thinking about our foreign assets. We assess our assets and classify them as strategic or non-strategic, and then take appropriate action.

Another question from Pawel Puchalski: why doesn’t KGHM engage in offshore wind projects, which would significantly alter the company’s energy consumption and CO2 emissions profile, as well as for offshore programmes, KGHM doesn’t have to participate in everything that is going on around it? Those investments have piqued the interest of a number of businesses. We face more immediate challenges in the field of energy, which are also linked to the philosophy that we adopted, namely that connecting green energy sources directly to our recipients, that is, our mining plants, would be the best and most efficient for us in terms of economic efficiency of our investments. This is the most cost-effective option. This is where we are concentrating our efforts.

Thank you so much for everything. Respectfully, ladies and gentlemen, When I look at other questions, I notice that the majority of the threads have already been a mansion. If you have any questions that we have not addressed, we will respond as soon as possible and post the answers on our website. Thank you so much for everything.

Marcin Chludzinski

Ladies and gentlemen, we could speak about KGHM for hours upon hours. This is our job and our passion, but we’ve been on the air for nearly an hour. As a result, we don’t want to put too much strain on your patience. Thank you so much for your time and consideration, as well as for all of your inquiries. On behalf of the whole management board, I’d want to express our gratitude. And I’d like to welcome you to the next conference, which will be held next quarter. Thank you so much for everything. Goodbye.