Kghm Polska Miedz S.a. · GPW:KGH
Kghm Polska Miedz — Investor Day (February 2019)
72 slides from Kghm Polska Miedz's investor day presentation, Feb 14, 2019
Slide 1: Analyst Day
Layers of possibilities Analyst Day Lubin, 12-14 February 2019
Slide 2: Cautionary Statement
Cautionary Statement This presentation was prepared by KGHM Polska Miedź S.A. (KGHM). The presentation is strictly of an informational nature and should not be construed as containing investment advice. The users of this presentation are solely responsible for their own analysis and assessment of th
Slide 3: Opening of Analyst Day
Layers of possibilities Opening of Analyst Day Marcin Chludziński President of the Management Board KGHM Polska Miedź S.A.
Slide 4: KGHM Polska Miedź – A Proud History of Mining and Metallurgy
KGHM Polska Miedź – A Proud History of Mining and Metallurgy Discovery of the copper deposit brought As a result of M&A activities, capped about a fundamental change in the by the acquisition of Quadra FNX, region’s economy thanks to the growth KGHM became a truly global copper of KGHM Polska Miedź
Slide 5: The KGHM Group today – a global metals producer on three continents
The KGHM Group today – a global metals producer on three continents focused on copper and silver, with other value-added minerals Poland (Head Office) Mines (Cu, Ag, TPM, other): -ZG Lubin mine Canada (Ontario) -ZG Rudna mine Morrison* -ZG Polkowice- (Cu, Ni, TPM) Sieroszowice mine McCreedy West Met
Slide 6: Strategy of KGHM for the years 2019-2023
Strategy of KGHM for the years 2019-2023
Slide 7: Strategic development directions of the KGHM Group
Strategic development directions of the KGHM Group ELASTICITY/FLEXIBILITY INDUSTRY 4.0 #1 Higher • Higher ore processing by Sierra Gorda DIGITALISATION (130 kt Cu ore throughput) production • Continued high level in Poland (450 kt Cu) ELECTROMOBILITY #2 Energy • 50% of consumption provided by intern
Slide 8: Production
Layers of possibilities Production Radosław Stach Vice President of the Management Board (Production)
Slide 9: New areas in copper metallurgy
Layers of possibilities New areas in copper metallurgy
Slide 10: Convertor slag
Technology used by the Głogów I smelter until September 2016 Binding Copper agent concentrate Copper concentrate Off-gas dedusting drier Gases, after dedusting, to Sulphuric Acid Plant Shaft furnaces Coke Copper Binding concentrate Slag agent mixing 0.3% Cu warehouse warehouse Cathode Convertor slag
Slide 11: Start-up of flash furnace technology at the Głogów I smelter
Start-up of flash furnace technology at the Głogów I smelter Shutdown and key events SHUTDOWN OF GŁOGÓW I START-UP OF GŁOGÓW I 28 September 16 July 2016 15 August 2016 2016 1 October 2016 15 October 2016 Final production of Start-up of new Lighting of gas Lighting of gas Re-commencement of raw coppe
Slide 12: Technology used by the Głogów I smelter from September 2016
Technology used by the Głogów I smelter from September 2016 Copper concentrates Buffering Process off-gas (SO2) to unit Waste Heat Sulfuric Acid Plant Boiler EF auxiliary Concentrate Off-gas materials Steam dedusting Dryer Dryer Post Combustion Unloading and Blending Plant Flash Furnace Discard slag
Slide 13: Głogów I – copper concentrate roasting installation
Głogów I – copper concentrate roasting installation Copper Concentrate Buffering Waste Heat Process off-gas (SO2) to Electric furnace auxiliary Unloading and concentrates Steam unit Boiler Sulfuric Acid Plant materials dryer Blending Plant Dryer Off-gas dedusting CONCENTRATE ROASTER PRAŻALNIK Off-ga
Slide 14: Głogów I – copper concentrate roasting installation (cont.)
Głogów I – copper concentrate roasting installation (cont.) The copper concentrate roasting installation is aimed at eliminating organic carbon and sulphur from concentrates in order to reduce the calorific value of the material charged to the flash furnace of Głogów I and thereby increase the effic
Slide 15: Głogów I – copper concentrate roasting installation (cont.)
Głogów I – copper concentrate roasting installation (cont.) The roaster utilizes fluidised bed technology, which means that heated material, in appropriately small fractions, creates a layer (thickness of approx. 1.5m) under which air is blown. This creates a fluid with suspended solids, in which th
Slide 16: HM Legnica metallurgical plant – RCR furnace technology
HM Legnica metallurgical plant – RCR furnace technology Lubin concentrate Rudna concentrate Imported concentrate (Las Bambas) Copper scrap alloys, bronze, brass Scrap Scrap For Granulated Cu Shaft Concentrates furnaces Converters Scrap . Matte Cu RCR Piecfurnace WTR Charge Briquettes prep. Odpady HW
Slide 17: HM Legnica - Revolving Casting–Refining furnace (RCR)
HM Legnica - Revolving Casting–Refining furnace (RCR) RCR – This is a tank-type, revolving furnace with a casting element (air, oxygen, gas) and a refining element, with a dedusting and ventilation sequence as well as loading and casting (carousel). Casting and fire refining capacity up to 100 kt/ye
Slide 18: Primary parts of the RCR furnace installation
Primary parts of the RCR furnace installation RCR furnace Casting machine Charging equipment Installation for the cooling, cleaning and dedusting of process gases 18
Slide 19: Metallurgy in KGHM is dedicated to the processing of own concentrates
Metallurgy in KGHM is dedicated to the processing of own concentrates … … but other copper-bearing materials can also be efficiently processed Cedynia Wire Rod Wire Rod Plant HMG Continuous copper casting OFE rod Products HML section Głogów I HML Smelter • Cathode copper Billets and Refinery Cathode
Slide 20: Production targets
Production targets Execute the production plan for 2019 as follows: Electrolytic copper 559 thousand tonnes Metallic silver 1 341 tonnes Pursuant to the strategy for the years 2019 – 2023: Maintain cost-effective domestic and international production. 35% of metallurgical production to the year 2030
Slide 21: Significant Investments in the years 2019-2026
Significant Investments in the years 2019-2026 Development-type investments Commissioning of the copper concentrate roasting installation at HMG I in 2019. Construction of an installation to produce scorodite (an ecologically neutral waste product of arsenic), realisation after 2022 – presently at t
Slide 22: Program to Restrict Arsenic Emissions - BAT As
Program to Restrict Arsenic Emissions - BAT As Program goal: to adapt metallurgical infrastructure to existing EU legal requirements, with Program execution in the years 2018-2022 (status: under analysis). Development of the Concentrates Warehouse. Modernisation of the Deduster of Anodes Unit II. Re
Slide 23: Summation – Metallurgy in KGHM
Summation – Metallurgy in KGHM KGHM efficiently processes its own concentrates along with supplementation by imported concentrates and other copper-bearing materials. Planned average annual metallurgical production in the period 2019-2023: 540 thousand tonnes. KGHM is intensifying the processing of
Slide 24: Thank you for your attention
go KGHM POLSKA MIEDZ THANK YOU FOR YOUR ATTENTION
Slide 25: Energy
Layers of possibilities Energy Adam Bugajczuk Vice President of the Management Board (Development)
Slide 26: Energy flows – energy review 2017
Energy flows – energy review 2017 Electricity HMC SUPPORT MINES SMELTERS HEAVY HEATING COKE 2 674 482 575 kWh FUEL TAILINGS DIVISION CONCENTRATORS DIESEL HEATING ELECTRICITY ENERGY (HEAT) 5 743 GWh Structure of Energy use in KGHM SUPPORT NATURAL GAS MINING PRODUCTION OF FINISHED PRODUCTS CONCENTRATO
Slide 27: Structure of electricity procurement 2018
Strukture of electricity procurement 2018 19% 53% 2% 26% kontrakty contracts SPOT zakup RB Purchases własne zródła wytwórcze Own generation on the balancing market 27
Slide 28: Prices, prices… (electricity and CO2 price charts)
Prices, Ceny,prices… ceny… BASE_Y-18 1Rok andi 2dwa lataprior years przedto dostawą delivery zł190.00 zł185.00 zł180.00 zł175.00 zł170.00 zł165.00 zł160.00 zł155.00 zł150.00 2016-01-07 00:00 2016-02-07 00:00 2016-03-07 00:00 2016-04-07 00:00 2016-05-07 00:00 2016-06-07 00:00 2016-07-07 00:00 2016-08
Slide 29: Energy Policy and Energy Management System certificate
Energy Policy and Energy Management Sysytem certificate compliant with PN-EN 50001 29
Slide 30: Energy Savings Program and Energy Management System
Energy Savings Program and Energy Management System 31
Slide 31: Power supply security for KGHM – blackout management
Power supply security for KGHM – blackout management In case of a loss of power supply, KGHM is able to independently provide energy supply to ensure the safe evacuation of 4.5 thousand miners to the Surface. As a result of the completion in 2014 and 2015 of projects aimed at enhancing energy securi
Slide 32: Gas-Steam Blocks – a key initiative in electricity and heat generation
Gas-Steam Blocks – a key initiative of KGHM in the electricity and heat generation sector 32
Slide 33: Central energy management visualisation system
Central energy management visualisation system 33
Slide 34: Strategic assumptions with respect to internal generation sources
Strategic assumptions with respect to internal generation sources m m 34
Slide 35: Directions for new power generation installations
Directions for new power generation installations ► another high-efficiency, tri-generation climate control station ► Area free of forest and w/o water – approx. 50 ha ► Surface area utilising solar panels ► Area free of forest and w/o water – approx. 100 ha 35
Slide 36: CAPEX – Main production line investment projects in Poland
CAPEX – Main production line investment projects in Poland Deposit Access Program Development of the The DAP Program includes the Żelazny Most Tailings Storage Facility construction of the GG-1 ventilation shaft designed for transporting material and Based on the permit received in 2016 to develop e
Slide 37: CAPEX structure in 2019
CAPEX structure in 2019 Replacement of equipment 35% Mining 70% Maintaining mine production CAPEX 2019 31% Development Metallurgy 34% 26% Other 4% Infrastructure of the Mining machines Mine infrastructure Tailings Division and Metallurgical infrastructure Other Replacement 27% 18% Concentrators Divi
Slide 38: Thank you for your attention
KGHM POLSKA MIED2Z g THANK YOU FOR YOUR ATTENTION
Slide 39: Sierra Gorda
Layers of possibilities Sierra Gorda Paweł Gruza Vice President of the Management Board (International Assets)
Slide 40: Sierra Gorda
Sierra Gorda Sierra Gorda is an open-pit copper and molybdenum mine located in the Chilean Antofagasta region in the Atacama desert, 60 km from the town of Calama in the north of Chile. Sierra Gorda is a Joint Venture between: KGHM Polska Miedź S.A. – 55% interest, Sumitomo Metal Mining – 31.5% inte
Slide 41: Sierra Gorda – production results
Sierra Gorda – production results Cu Payable Production [kt] -0.1% +13.2% 96.9 97.1 27.5 24.3 12M’18 12M’17 4Q’18 4Q’17 Mo Payable Production [Mlbs] +20.8% -25.1% 35.7 7.2 26.7 6.0 12M’18 12M’17 4Q’18 4Q’17 TPM Payable Production [koz] +20.2% -17.1% 50.9 13.4 42.2 11.1 12M’18 12M’17 4Q’18 4Q’17 Silv
Slide 42: Sierra Gorda – financial results
Sierra Gorda – financial results EBITDA [M USD] +36.6% -16.7% 246.5 89.1 180.4 74.2 9M’18 9M’17 3Q’18 3Q’17 EBIT [M USD] +404.0% -48.5% 47.9 12.3 6.3 9.5 9M’18 9M’17 3Q’18 3Q’17 C1 [USD/lb] C1 cost is the unit cash cost of production of copper payable, taking into account the costs of extraction and
Slide 43: Debottlenecking Program
Debottlenecking Program The primary goal of the Debottlenecking Program is to optimize the use of existing Sierra Gorda infrastructure, make necessary investments and increase the capacity of the processing plant. The program assumes achievement of an average annual daily throughput of 130 ktpd from
Slide 44: Tailings storage facility
Tailings storage facility In recent months Sierra Gorda has been working on ensuring the proper functioning of the tailings storage facility and securing further waste storage capability. Due to the low content of solids in waste and the accumulation of water in the storage facility, a potential ris
Slide 45: Sierra Gorda: long-term challenges
Sierra Gorda: long-term challenges Execution of the Debottlenecking Program, which assumes optimization of the use of existing Sierra Gorda Achieving assumed throughput and stable infrastructure, making necessary investments and increasing the capacity of the processing plant, plant operation An eff
Slide 46: Project Sierra Gorda Oxide
Project Sierra Gorda Oxide Basic information Sierra Gorda oxide ore (open-pit). Type of mine/plant Copper production in the SX-EW plant. The copper ore belongs to Sierra Gorda Ownership (JV Co) 55% KGHM, 45% Sumitomo Main product Copper cathodes Annual copper production ~ 30 ktpa LOM 10 years Curren
Slide 47: Thank you for your attention
go KGHM POLSKA MIEDZ THANK YOU FOR YOUR ATTENTION
Slide 48: Financial presentation
Layers of possibilities Financial presentation Katarzyna Kreczmańska-Gigol Vice President of the Management Board (Finance)
Slide 49: Strategy of the KGHM Polska Miedź S.A. Group
Strategy of the KGHM Polska Miedź S.A. Group 49
Slide 50: Optimisation of net working capital management
Optimisation of net working capital management Initiatives to optimise inventories in cooperation with business units – production, procurement and sales. Optimisation of materials management – through rationalisation and improvement of the efficiency of the INVENTORIES process of materials procurem
Slide 51: Financing strategy: long-term instruments and efficient liquidity and risk management
With respect to financing, the strategy foresees being based in long-term instruments and efficient management of liquidity and risk Ensure long-term financial Financial stability and the development stability of mechanisms supporting further growth Flexibility Efficiency Ecology, safety and sustain
Slide 52: Net debt of the KGHM Group – as at end-September 2018
Net debt of the KGHM Polska Miedź S.A. Group – as at end-September 2018 Borrowing costs (mn PLN) In accordance with the financial strategy adopted by Net Debt / adjusted EBITDA KGHM Polska Miedź S.A., the basic currency in which 107 116 Borrowing fees and debt is incurred is the USD (natural hedging
Slide 53: Expenses by nature in KGHM Polska Miedź S.A.
Expenses by nature in KGHM Polska Miedź S.A. Structure of expenses by nature External services 22% Other taxes, charges and Expenses by nature costs Minerals extraction tax 4% 13% (mn PLN) External services Depreciation 10 100 12% /amortisation 9% Minerals extraction tax 1 297 recognised in expenses
Slide 54: Group liquidity stable and safe after the first 3 quarters of 2018
Group liquidity stable and safe after the first 3 quarters of 2018 Total unit cost of electrolytic copper production from own 17,4 ≤19.1 concentrate of (k PLN/t) KGHM Polska Miedź S.A.* Investments of Capital expenditures (mn PLN) 1232 2670 KGHM Polska Equity investments (mn PLN)** 277 657 Miedź S.A
Slide 55: Risk management: Copper market and macroeconomic assumptions
Risk management Copper market and macroeconomic assumptions
Slide 56: January 2019 IMF forecasts’ revision
January 2019 IMF forecasts’ revision Poland Canada Eurozone 2017: 4.6% 2018E: 2.1% 2018E: 1.8% 2018F: 4.4% +0.3 pp. 2019F: 1.9% -0.1 pp. 2019F: 1.6% -0.3 pp. 2019F: 3.5% 0.0 pp. 2020F: 1.9% +0.1 pp. 2020F: 1.7% 0.0 pp. World 2018E: 3.7% 2019F: 3.5% -0.2 pp. 2020F: 3.6% -0.1 pp. USA 2018E: 2.9% China
Slide 57: Main factors affecting the copper price
Main factors affecting the copper price Bloomberg Commodity Index Dollar Index vs Bloomberg Commodity Index BBG Comdty BBG Precious metals BBG Agricultural BBG Industrial metals BBG Energy 250 250 40 BCOM (lhs) DXY (rhs) 200 200 60 150 150 80 100 100 100 50 50 0 120 0 Source: KGHM Polska Miedź, Bloo
Slide 58: Macroeconomic environment
Macroeconomic environment PMI CLI PMI range over last 3 years Average (last 3 years) Latest PMI manufacturing (SA) USA Eurozone Top 5 Asia China Japan 65.0 102 62.5 102 60.0 101 57.5 101 55.0 100 52.5 100 50.0 99 47.5 99 45.0 OECD Leading Indicators CLI (Amplitude Adjusted, SA) 98 DMs EMs Eurozone U
Slide 59: Key market risk factors for KGHM
Key market risk factors for KGHM 35 000 12 000 USD/t Copper price in PLN PLN/t Copper price 30 000 10 000 25 000 8 000 20 000 6 000 15 000 4 000 10 000 2 000 5 000 0 0 Source: KGHM Polska Miedź, Bloomberg Source: KGHM Polska Miedź, Bloomberg 60 USD/troz 4.5 Silver price USD/PLN 50 4.0 40 3.5 3.0 30
Slide 60: Copper mining and potential mining projects
Copper mining and potential mining projects 40 000 Base Case Production Capability Probable Projects Possible projects Primary Demand 35 000 30 000 25 000 11 mln mt Kt 20 000 15 000 10 000 5 000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 203
Slide 61: The deficit on the refined copper market is not always reflected in the price
The deficit on the refined copper market is not always reflected in the metal price level… 1 200 Market balance (lhs) Market balance forecasts (lhs) Copper price (rhs) 10 000 1 000 9 000 800 8 000 600 7 000 400 6 000 USD/t Kt 200 5 000 0 4 000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2
Slide 62: …as well as the red metal’s stocks level
…as well as the red metal’s stocks level LME COMEX SHFE Copper price [USD/t] (rhs) 1 000 12 000 Kt 900 10 000 800 700 8 000 600 USD/t 500 6 000 400 4 000 300 200 2 000 100 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Reuters, KGHM Polska Miedź 62
Slide 63: Review of copper price market forecasts
Review of copper price market forecasts Market forecast range Market median 9 000 8 615 8 500 8 000 7 750 7 496 7 500 7 250 7 496 7 550 7 000 USD/t 7 000 7 000 7 083 6 500 6 553 6 631 6 393 6 400 6 000 6 166 6 106 5 500 5 000 2019 2020 2021 2022 LT Source: KGHM Polska Miedź, Market reports Cu 2019 2
Slide 64: Market Risk Management
64 KGHM POLSKA MIEDZ Market Risk Management rol ntification ¥— ~~ cost @scopom = iwi retention avoidance gi | S Ke context O}__ usiness S prioritization O management opportunity treatments DlAN impact : j ® knowledge c ie! 3 a 3 8 a standard project evaluation assessment
Slide 65: KGHM implements all market risk management targets in compliance with the approved policy
KGHM implements all market risk management targets in compliance with the approved policy KGHM’s market risk policy objectives: limitation of volatility of pre-tax earnings, Increasing probability that the budget assumptions are met (with consideration for current assumptions regarding macroeconomic
Slide 66: Sensitivity analysis based on at-Risk measures for key risk assets
Well established sensitivity analysis based on at-Risk measures allows for the classification on each of the key risk assets in the KGHM Group Key risk assets sensitivity in KGHM Group (based on Earnings-at-Risk report) Cu Mo Ni Ag Au Pb USD Earnings at risk Cu Pt Pd Oil USD Ag Key market risk EUR C
Slide 67: Market risk management main themes
Market risk management main themes Very high volatility of commodities prices and exchange rates Significant sensitivity of KGHM’s net income on changes in macroeconomic environment Commodity markets are cyclical Annual revenues are denominated in USD while cost are in PLN Relatively high position i
Slide 68: Investors accept mining companies’ exposure to market risk but not bankruptcy risk
Investors accept mining companies’ exposure to market risk but not bankruptcy risk Metals mining production cost curve – copper market Position on the cost curve determines approach to market risk management. The lower the production cost the more volatility a mine/company can accept. Potential mine
Slide 69: The way mining companies manage strategic risk is very diverse
The way how mining companies manage strategic risk is very diverse Active hedging Opportunistic No hedging approach hedging approach BHP Billiton X Rio Tinto X Codelco X Vale X Glencore Xstrata X AngloAmerica X Freeport McMoRan X Norilsk Nickel X Boliden X Antofagasta X First Quantum X Kazakhmys X T
Slide 70: We follow some simple rules when trading derivatives
We follow some simple rules when trading derivatives KISS = „Keep it simple, stupid” Plain vanilla instruments Simple option structures: Collar, Seagull, Put Spread With price participation No exotic instruments Mid-to-long term horizon Transparency – the company’s position in derivatives is shown i
Slide 71: Accrued result on derivatives as at 30 September 2018
The accrued result on derivatives achieved by KGHM Polska Miedź S.A. as at 30 September 2018 amounted to PLN 50 million Market risk management – hedged positions on the copper market and the USD/PLN (as at 30 September 2018) Copper Result on derivatives In tonnes In the first 9 months of 2018, KGHM
Slide 72: Thank you for your attention
THANK YOU FOR YOUR ATTENTION Investor Relations kghm.com/en/investors ir@kghm.com +48 76 74 78 280