Kghm Polska Miedz S.a. · GPW:KGH

Kghm Polska Miedz — Investor Presentation (September 2019)

67 slides from Kghm Polska Miedz's investor presentation, September 2019

  1. Slide 1: Layers of possibilities – KGHM Group Investor Presentation

    Layers of possibilities KGHM Group Investor Presentation September 2019

  2. 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

  3. Slide 3: Agenda

    Agenda 1. Key information about 2. The KGHM Group 3. Production and financial the KGHM Group vs the sector results of the KGHM Group – annual data 4. Production and financial 5. Advancement of 6. Summation, results of the KGHM Group – the Group’s Strategy Q&A quarterly data 2

  4. Slide 4: Key information about the KGHM Group

    Key information about the KGHM Group

  5. Slide 5: KGHM Group in brief

    KGHM Group in brief One of the world’s largest A diversified portfolio of assets 634 thousand tonnes producers of copper and silver at various stages of development of payable copper production by with nearly 60 years of experience located in mining-friendly the KGHM Group in 2018 in mining and meta

  6. Slide 6: KGHM: a top ten copper producer and a leading Polish exporter

    KGHM: a top ten copper producer and a leading Polish exporter The Group has a global reach and plays a significant role on the global copper and silver markets Eighth Cu Third Ag largest largest copper silver producer producer Other KGHM Group products:  Molybdenum  Platinum  Copper  Lead  Rhen

  7. Slide 7: Core production assets in Poland – stable output and earnings

    Core production assets in Poland – stable output and earnings Underground mines, fully integrated production Lubin Mine Legnica Smelter and Refinery 27 years LOM LME grade A-registered cathodes 2018 production stats: Capacity of ~120 kt electrolytic Cu/year 1)  Cu production (payable): 70 kt  Othe

  8. Slide 8: Key international assets

    Key international assets Existing operations and growth potential from projects Producing assets Potential growth projects Sierra Gorda (55% stake), Chile Sierra Gorda Oxide, Chile 25 years LOM 2018 production stats: 10 years LOM  Open-pit mine  Cu production  The project aims at processing the o

  9. Slide 9: Sierra Gorda

    Sierra Gorda Sierra Gorda is an open pit copper and molybdenum mine located in Chile’s Antofagasta region in the Atacama desert. Sierra Gorda is a Joint Venture of:  KGHM Polska Miedź S.A. – 55% share  Sumitomo Metal Mining – 31.5% share  Sumitomo Corporation – 13.5% share Schedule of Sierra Gord

  10. Slide 10: Shareholder structure of KGHM Polska Miedź S.A.

    Shareholder structure of KGHM Polska Miedź S.A. Ownership structure Geographical ownership structure No. of Percentage Share in Shareholder shares/ of share total number votes capital of votes 13.1% Polish State Treasury 63,589,900 31.79% 31.79% Nationale-Nederlanden OFE 10,104,354 5.05% 5.05% 2.2%

  11. Slide 11: Share price performance

    Share price performance Basic quotes Strong correlation with copper and silver [change in %] kghm KGHM Ag Cu WSE debut 10th July 1997 GPW ticker KGH 2014 2015 2016 2017 2018 2019 Bloomberg/Reuters ticker 20 KGH PW / KGH.WA 0 Share price [PLN] 78.32 -20 Capitalization [bn PLN] 15.66 -40 No. of shares

  12. Slide 12: Committed to solid corporate governance

    Committed to solid corporate governance Independent directors on the board KGHM’s Corporate Governance is guided by international standards and follows best practices:  All members of KGHM’s Supervisory Board are appointed by Independent Directors 3 the General Shareholders Meeting Other Directors

  13. Slide 13: Transparent Group structure

    Transparent Group structure General Shareholders Meeting Supervisory Board Management Board KGHM Polska Miedź S.A. (Lubin, Poland) (Listed on Warsaw Stock Exchange since 1997) KGHM International Ltd. Production Development Group of subsidiaries (Vancouver, Canada) Development divisions projects Oper

  14. Slide 14: A proud history of mining and metallurgy

    A proud history of mining and metallurgy Discovery of the copper deposit brought about a fundamental change in the region’s economy thanks to the growth of KGHM Polska Miedź S.A. As a result of M&A activities, capped by the acquisition of Quadra FNX, KGHM became a truly global copper producer aimed

  15. Slide 15: Stable production outlook for KGHM

    Stable production outlook for KGHM Production of electrolytic copper and metallic silver [Data for KGHM Polska Miedź S.A.] Metallic silver 800 [t] 1 500 600 1 000 400 Electrolytic copper 500 200 [kt] 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 F

  16. Slide 16: The KGHM Group vs the sector

    The KGHM Group vs the sector

  17. Slide 17: Macroeconomic environment

    Macroeconomic environment Commodity and currency prices A stronger USD offset weaker copper prices in USD/t A significant decrease in copper prices in H1 2019 Price (USD/t) Annual av. (USD/t)  The price of copper fell (–11% yoy) compared to the corresponding prior- Price (PLN/t) Annual av. (PLN/t)

  18. Slide 18: Macroeconomic environment

    Macroeconomic environment Trade war the main source of uncertainty in the global economy Will the trade war become a political instrument in the upcoming Despite escalation of the trade war the trade deficit elections? between the USA and China remains enormous Okres Tradewojny handlowej war period

  19. Slide 19: By 2030 the demand for copper is forecasted to be higher by over 20%

    By 2030 the demand for copper is forecasted to be higher by over 20% Industries related to electromobility and renewable energy sources will be a crucial element in higher demand, with supply under pressure Forecasted copper consumption (2018-2030) [kt]  Stable growth of demand for copper is expect

  20. Slide 20: Copper consumption by geographical region and industry sector

    Copper consumption by geographical region and industry sector 2018-2030 Copper consumption by geographical region Copper consumption by industry sector [Mt] [Mt] 36.1 36.1 4.3 +3.2% 3.6 +1.3% 29.5 2.4 +1.2% 29.5 4.9 +3.2% 2.9 3.1 5.7 +0.7% 1.2 3.4 8.5 +1.5% 5.3 8.3 +3.2% 7.1 5.7 8.8 +1.6% 3.7 13.6 1

  21. Slide 21: Mining production (1)

    Mining production (1) Despite a clear increase in investment expenditures, analysts still anticipate a deficit in the market Many years of underinvestment will affect supply In recent years, mining companies have developed less in the coming years capital-intensive projects [kt] 23 000 5.0 5.0% 185

  22. Slide 22: Mining production (2)

    Mining production (2) Despite a clear increase in investment expenditures, analysts still anticipate a deficit in the market CRU anticipates a nearly 12.5% increase in costs this year The increase in supply will remain limited, which will be affected by a slight increase in scrap use [mn t] 3 000 A

  23. Slide 23: Copper market balance

    Copper market balance The balance expected to turn into deficit in the medium term, with a potentially larger gap in 5-10 years Copper mining and potential mining projects Copper market balance [kt] Możliwe Possibleprojekty projects Prawdopodobne projekty Base case production capability Potwierdzona

  24. Slide 24: The deficit on the refined copper market is not always reflected in the metal price level

    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 6 000 200 5 000 0 4 000 2009 2003 2004 2005 2006 2007 2008 2010 2011 2012 2013 2014 2015

  25. Slide 25: …or in the red metal’s stocks level

    …or in the red metal’s stocks level LME COMEX SHFE Copper price [USD/t] (rhs) [kt] [USD/t] 1 000 12 000 900 10 000 800 700 8 000 600 500 6 000 400 4 000 300 200 2 000 100 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 24 Source: Reuters, KGHM Polska Miedź

  26. Slide 26: KGHM among the biggest copper and silver producers

    KGHM among the biggest copper and silver producers Mined Copper production 2018 1) Silver production 2018 2) 1 771 1 807 1 440 1 086 1 344 1 054 3) 1 105 815 892 787 674 771 567 762 521 613 498 610 476 [kt] 538 [kmt] 1) Copper Market Outlook, CRU, April 2019 2) World Silver Survey 2019 25 3) KGHM re

  27. Slide 27: Production and financial results of the KGHM Group – annual data

    Production and financial results of the KGHM Group 5 years data

  28. Slide 28: Key production data – 5 years

    Key production data – 5 years KGHM Polska Miedź S.A. Ore extraction Production of copper Production of Metallic silver [mn t dry weight] in concentrate electrolytic copper production [kt] [kt] [t] 577 574 536 1 283 426 424 522 502 1 256 1 191 1 218 1 189 421 419 31.0 31.6 32.0 31.2 30.3 401 2014 201

  29. Slide 29: Key production data – 4 years (since production start)

    Key production data – 4 years (since production start) Sierra Gorda1) Payable copper production Silver production [kt] [t] 7.7 14.1 14.0 14.5 53.4 53.3 2015 2016 2017 2018 51.5 TPM2) production [koz t] 22.9 74 23.2 12.8 25.2 2015 2016 2017 2018 Molybdenum production [mn lbs] 19.7 6.2 12.2 14.7 2015

  30. Slide 30: Key production data – 5 years

    Key production data – 5 years KGHM International Payable copper production Silver production [kt] [t] 1.9 1.6 1.6 1.6 1.7 2014 2015 2016 2017 2018 98 TPM production 86 90 [koz t] 81 79 70.1 95.3 92.1 67.7 74 2014 2015 2016 2017 2018 Molybdenum production [mn lbs] 1.0 0.8 0.7 0.7 0.6 2014 2015 2016 2

  31. Slide 31: Sales revenue and net profit – 5 years

    Sales revenue and net profit – 5 years KGHM Group Revenues Net profit2) [mn PLN] [mn PLN] 20 492 20 008 20 358 20 526 2 451 19 156 1 658 1 525 1 202 1 225 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2) Net profit of 2015 and 2016 excluding impact of impairment of non-current assets, loans and

  32. Slide 32: EBITDA and EBITDA margin – 5 years

    EBITDA and EBITDA margin – 5 years KGHM Group EBITDA by segments 1) EBITDA margin [mn PLN] [%] KGHM Polska Miedź S.A. KGHM INTERNATIONAL 26 Sierra Gorda (55%) Others 24 23 23 22 5 753 4 890 4 710 4 972 4 666 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 31 1) Sum of segments; adjusted EBITDA = E

  33. Slide 33: Basic items of the consolidated financial statements

    Basic items of the consolidated financial statements KGHM Group KGHM Group – consolidated data 2014 2015 2016 2017 2018 Sales revenue [mn PLN] 20 492 20 008 19 156 20 358 20 526 Profit/(loss) for the period [mn PLN] 2 451 -5 009 -4 449 1 525 1 658 Total assets [mn PLN] 40 374 36 764 33 442 34 122 37

  34. Slide 34: Production and financial results of the KGHM Group – H1 2019

    Production and financial results of the KGHM Group H1 2019

  35. Slide 35: Summation of the first half of 2019 in the KGHM Group

    Summation of the first half of 2019 in the KGHM Group Main events and factors affecting the results of the Group Production Stable production in accordance with targets Revenues 19% higher revenues to PLN 11 228 million1) Costs Lower C1 cost EBITDA Higher EBITDA by 6.5% to PLN 2 732 million First is

  36. Slide 36: Metals production

    Metals production KGHM Group  Production of electrolytic Silver production Payable copper production +19% +47% copper exceeded the target set [kt] [t] for KGHM Polska Miedź S.A. due 485 713 to improved availability of 352 production equipment 295 29  Lower production by KGHM 36 H1 2018 H1 2019 25

  37. Slide 37: Production results

    Production results KGHM Polska Miedź S.A. Ore extraction Production of copper Electrolytic copper Metallic silver [mn t dry weight] –1.3% H/H in concentrate [kt] –2.3% H/H production [kt] +26% H/H production [t] +47% H/H 287 15.3 15.1 205 200 From 228 purchased 705 79 metal-bearing Silver materials

  38. Slide 38: Change in inventories

    Change in inventories KGHM Polska Miedź S.A. Inventories of copper in concentrate at the smelters –6% Q2/Q1 amount of Cu [t]  The level of inventories of copper in concentrate until now was due to the 47 193 36 606 34 248 three-month maintenance shutdown at the Głogów II Copper Smelter and Refinery

  39. Slide 39: Production results – Sierra Gorda

    Production results Sierra Gorda1) Payable copper production Silver production [kt] +19% H/H [t] +12% H/H 6.3 7.1 3.1 3.5  Higher extraction 29 by the Sierra Gorda 25 Q2 2018 Q2 2019 H1 2018 H1 2019 mine led to higher 14 TPM production2) copper, silver and gold 13 +55% H/H [koz t] production 9.3 14.

  40. Slide 40: Production results – KGHM International

    Production results KGHM INTERNATIONAL Payable copper production Silver production [kt] -16% H/H [t] +60% H/H  The silver production target was exceeded in 1.13 0.71 the Sudbury Basin due to 0.40 0.46 a change in the region 43 being mined (different 36 Q2 2018 Q2 2019 H1 2018 H1 2019 nature of the d

  41. Slide 41: Group sales revenue

    Group sales revenue H1 2019 Revenues from contracts with customers +19% H/H Revenues from contracts with [mn PLN] customers [mn PLN] 11 228 +1 672 +857 +209 9 423 11 228 -933 9 423 983 1 414 936 1 298 Revenues Change in sales Change in prices Change in Other Revenues H1 2018 volumes of basic of basi

  42. Slide 42: Sales revenue

    Sales revenue KGHM Polska Miedź S.A. In H1 2019 revenues from sales were higher by PLN 1 642 million (+23%) Sales revenue +23% H/H compared to the first half of 2018 due to: [mn PLN]  higher sales volumes (copper by 22% and silver by 45%), and  a more favourable USD/PLN exchange rate 8 831 683 alo

  43. Slide 43: C1 unit cost

    C1* unit cost1) KGHM Group C1 – KGHM Polska Miedź S.A. C1 – Group [USD/lb] -5% H/H  The decrease in C1 cost in KGHM [USD/lb] 1.90 1.81 including the minerals Polska Miedź S.A. versus the extraction 0.59 0.54 tax corresponding period of 2018 -3% H/H 1.31 1.27 was mainly due to a weakening of the PLN

  44. Slide 44: Expenses by nature

    Expenses by nature KGHM Polska Miedź S.A.  Expenses by nature were higher by PLN 670 million (10%) mainly due to higher consumption of purchased metal-bearing materials by PLN 511 Expenses by nature million (a higher volume of purchased metal-bearing materials used by [mn PLN] +10% H/H 22 thousand

  45. Slide 45: Operating results

    Operating results KGHM Group Change in adjusted EBITDA Adjusted EBITDA +7% H/H [mn PLN] [mn PLN] 2 732 2 565 128 +219 +16 2 732 152 2 565 349 333 -44 -24 336 380 1 700 1 919 H1 2018 KGHM KGHM Sierra Other H1 2019 Polska Miedź S.A. INTERNATIONAL Gorda H1 2018 1H 2019  The increase in EBITDA of the G

  46. Slide 46: Financial results

    Financial results KGHM Group 970 mn PLN Profit for the period + 59% H/H [mn PLN] consolidated net profit in H1 2019 The increase in net profit by the Group by PLN 359 million (+59%) was mainly due to: +1 805  improvement in the operating result  a lower loss on involvement in joint ventures accoun

  47. Slide 47: EBITDA and profit for the period

    EBITDA and profit for the period KGHM Polska Miedź S.A. Higher standalone Adjusted EBITDA Profit for the period EBITDA and profit for [mn PLN] [mn PLN] the period +13% H/H 1 919 +24% H/H 1 700  EBITDA higher by 13% than 1 227 in H1 2018 due to a higher 987 volume of copper sold (higher revenues) 

  48. Slide 48: Cash flow

    Cash flow KGHM Group [mn PLN] +2 000 +307 +1 452 -145 1 106 957 -1 623 -107 -131 -1 604 Cash as at 1 Jan Profit/(loss) Change in working Other net cash Acquisition of Proceeds from the Proceeds from / Interest paid and Other Cash as at 30 June 2019 before income tax capital from operating property,

  49. Slide 49: Net debt of the KGHM Group

    Net debt of the KGHM Group As at the end of Q2 2019 Net debt / adjusted EBITDA Impact of change in Main factors affecting interest-bearing debt in H1 2019 IFRS 161) 1.7 (Increases in debt) 1.6 1.8 0.2  Cash expenditures on property, plant and equipment (PLN 1 604 million) 1.6  The minerals extract

  50. Slide 50: Bond issue program

    Bond issue program Parameters of the first issue Allocation by investor type Issuer KGHM Polska Miedź S.A. 5-year bonds (series A) 10-year bonds (series B) Bond type unsecured senior notes Issue program up to PLN 4 billion 6% 1% Total value of issue PLN 2 billion 25% 15% Issue type non-public offer

  51. Slide 51: A consistent and rational investment program

    A consistent and rational investment program H1 2019 Cash expenditures by the KGHM Group in H1 2019 Capital expenditures of KGHM Polska Miedź S.A. +35% H/H [mn PLN] KGHM Polska Miedź S.A. 1 312 1 020 mn PLN2) 754 mn PLN in H1 2019 in H1 2018 KGHM INTERNATIONAL 312 294 Sierra Gorda Capital expenditur

  52. Slide 52: Market risk management

    Market risk management Hedged positions on the copper market and the USD/PLN (as at 30 June 2019) Hedged position – as at 31 December 2018 Copper Hedged position implemented in H1 2019 The fair value of derivatives in KGHM Polska [tonnes] Miedź S.A. as at 30 June 2019 amounted to 18 000 PLN 507 mill

  53. Slide 53: Sensitivity of results to metal prices and the FX rate

    Sensitivity of results to metal prices and the FX rate The economic results of KGHM Polska Miedź S.A. are highly sensitive to changes in metals prices and the FX rate1) Copper price Cu price decrease by 100 USD/t Cu price increase by 100 USD/t = approx. PLN 68 million lower net profit = approx. PLN

  54. Slide 54: Safety

    Safety Our priority LTIFR ratio in KGHM Polska Miedź S.A. 18.6 15.4 12.1 12.9 12.7 11.1 10.4 10.2 10.4 10.3 9.2 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2018 H1 2019 In the first half of 2019 the LTIFR1) ratio was impacted by a large number of injuries sustained due to natural causes which oc

  55. Slide 55: Minerals Extraction Tax

    Minerals Extraction Tax Key information The Act dated 12 April 2019 on changing the act on the minerals –15% extraction tax was signed by the President of the Republic of Poland and came into force on 1 July 2019 decrease in the amount of The updated act assumes the minerals extraction tax gave us a

  56. Slide 56: Minerals Extraction Tax – new formula

    Minerals Extraction Tax – new formula The tax is based on the amount of copper and silver contained in concentrate For copper: For silver: The monthly tax is a multiple of the amount of copper If the average silver price exceeds PLN 1200/kilogram, the produced times the following formulas: per-kilog

  57. Slide 57: Advancement of the KGHM Group’s strategy

    Advancement of the KGHM Group’s strategy

  58. Slide 58: 4 strategic directions for KGHM’s development

    4 strategic Pokłady directions for KGHM’s development możliwości The review of the Strategy of KGHM Polska Miedź S.A. for 2019-2013 # 4E ELASTICITY, EFFICIENCY FLEXIBILITY ECOLOGY, SAFETY AND SUSTAINABLE E-INDUSTRY DEVELOPMENT 57

  59. Slide 59: Strategic priorities

    Strategicmożliwości Pokłady priorities #1 Higher #2 Energy #3 International assets 2.0 #4 Long-term production independence financial strategy #5 Ecosystem #6 Technologies #7 New quality innovation of the future Safety and for KGHM development 58

  60. Slide 60: Strategy in practice: selected key operating initiatives (1)

    Strategy możliwości Pokłady in practice Selected key operating initiatives (1) 59

  61. Slide 61: Strategy in practice: selected key operating initiatives (2)

    Strategy możliwości Pokłady in practice Selected key operating initiatives (2) 60

  62. Slide 62: Strategy in practice: selected key operating initiatives (3)

    Strategy możliwości Pokłady in practice Selected key operating initiatives (3) 61

  63. Slide 63: Consistent advancement of the strategy in H1 2019

    Consistent advancement of the strategy in H1 2019 Key areas #4E Adaptation of the operating  Rational management of the Company’s resources Flexibility  Optimisation of metallurgical production model for the KGHM Group  Exploration projects in Poland to market conditions  Optimisation of the int

  64. Slide 64: Summary

    Summary

  65. Slide 65: Challenges facing KGHM Polska Miedź S.A.

    Challenges facing KGHM Polska Miedź S.A. In the period 2019 - 2023 Production  Adapt currently-applied mining technology to potentially-difficult working conditions  Maintain domestic production at the current level – gain access to new areas of the mines  Improve operational efficiency  Improve

  66. Slide 66: Reasons to invest in KGHM

    Reasons to invest in KGHM A leading player on the copper and silver market in terms of mine A diversified portfolio of assets at PLN 21.5 bn paid out output and size of documented various stages of development to as dividend to shareholders resources, in mining-friendly guarantee continued operation

  67. Slide 67: Thank you

    Download KGHM IR mobile app! Thank you Follow us on: Investor Relations Departament kghm.com/en/investors ir@kghm.com +48 76 74 78 280

KGHM Polska Miedź — Investor Presentation (September 2019) on 6ix