Kghm Polska Miedz S.a. · GPW:KGH
Kghm Polska Miedz — FY2012 Earnings Presentation
42 slides from Kghm Polska Miedz's earnings presentation, March 2013
Slide 1: Company Results in 2012
Company Results in 2012 (auditing underway) March 2013
Slide 2: Agenda
Agenda Impact of global expansion on increasing the value of KGHM Polska Miedź Good perspectives for KGHM due to continued demand for basic materials Economic results Consolidated financial results KGHM Polska Miedź S.A. KGHM International 1/40
Slide 3: KGHM shares have outperformed their mining peer group due to the Quadra FNX acquisition
Despite the new mining tax, KGHM shares have outperformed their mining peer group due to the Quadra FNX acquisition Total Shareholder Return1 for KGHM shares of 66% 170 since Quadra FNX acquisition, much more than for the Company’s peers +66% 160 150 +39% 140 +32% 130 +9% +5% 120 +3% 110 +3% +1% 100
Slide 4: A higher rate of growth in KGHM's share price versus copper price performance
A higher rate of growth in KGHM’s share price versus copper price performance KGHM Polska Miedź share price dynamics and copper prices in PLN (since 1 January 2010) Quadra FNX acquired 300 KGHM1 250 Reaction to announcement of minerals extraction tax 200 150 Copper (in PLN) 100 50 0 1) Share price o
Slide 5: KGHM effectively rebranded Quadra FNX into KGHM International
KGHM effectively rebranded Quadra FNX into KGHM International Major benefits of Rebranding of Quadra FNX into KGHM International rebranding: Improved global recognition of the KGHM brand Faster integration thanks to image integration of both Sierra Morrison companies Gorda, mine, KGHM Company Chile
Slide 6: Analysts assign 30-40% of KGHM's value to the international business
% Analysts already assign 30-40% of the value of KGHM to the international business, mainly the Sierra Gorda project Assets in Poland Other foreign Sierra Gorda Other assets XX Foreign assets SOTP breakdown per analysts1 Raiffeisen 44 33 16 7 49 Today’s capitalization of (21.02.2013) KGHM indicates:
Slide 7: Numerous achievements in the integration of KGHM International with KGHM Polska Miedź S.A.
Numerous achievements in the integration of KGHM International with KGHM Polska Miedź S.A. A new planning and • A new planning and budgeting system was implemented for KGHMI for 2013, and budgeting system a 5-year plan was agreed with KGHM SA Global procurements • A Global Procurements Program was i
Slide 8: MICON has confirmed: KGHM Polska Miedź S.A. on a global scale
MICON has confirmed: KGHM Polska Miedź S.A. on a global scale Highest standards KGHM applies best available technology and safety standards An independent expert report Report compliant with the global standard NI 43-101 developed in Canada 29 M tonnes of copper metal in ore currently held by KGHM T
Slide 9: Niecka Grodziecka – a rich copper and silver deposit in Lower Silesia
Niecka Grodziecka – a rich copper and silver deposit in Lower Silesia KGHM Polska Miedź S.A. is successfully documenting large copper and silver deposits 1.4% Cu average copper grade in boreholes to date Bolesławiec 50 g/t Ag average silver grade in boreholes to date of copper might be 1.5 Mt reclas
Slide 10: KGHM owns a full portfolio of mining projects around the world
KGHM owns a full portfolio of mining projects around the world Mining projects of KGHM Mines of KGHM to the year 2012 Metallurgical facilities 9/40
Slide 11: KGHM owns a full portfolio of mining projects around the world
KGHM owns a full portfolio of mining projects around the world Mining projects of KGHM Mines of KGHM Canada Greenland Malmbjerg (Mo) today Metallurgical McCreedy (Cu, Ni, TPM1 facilities Morrison (Cu, Ni, TPM) Podolsky (Cu, Ni, TPM) Victoria (Cu, Ni, TPM) Canada Germany Afton-Ajax (Cu, Au) Weisswass
Slide 12: Global economic situation
Global economic situation
Slide 13: Copper demand growth will mainly come from Asian countries
The increase in copper demand over the next several years will mainly come from Asian countries Outlook Increase in copper demand by region Annual change, in kt of copper • Growth of the Chinese 1000 economy will continue to play a 848 key role in shaping the metals 724 800 market, including copper.
Slide 14: Silver is a good hedge against inflation
Silver is a good hedge against inflation Monthly sales of American Eagle coins Outlook M ounces of silver • The specter of inflation has not yet 8 disappeared. If central banks continue their policies of monetary easing, precious 7 metals will be a source of protection against inflation and a weaken
Slide 15: Numerous threats remain to the global economy
There remain numerous threats to the global economy in both the short and medium terms Canada: GDP: 1.74 T USD GDP y/y: 1.3% Q3 GDP 2013F: 1.9% Eurozone: CPI inflation: 0.8% GDP: 13.1 T USD Unemployment: 7.0% GDP y/y : -0.9% Q4 GDP2013F: -0.1% CPI inflation: 2.2% Unemployment : 11.7% China: GDP: 7.3
Slide 16: Consolidated results
Consolidated results
Slide 17: KGHM Polska Miedź S.A. is the main driver of the Group's results
M PLN Share of KGHM Polska Miedź S.A. in KGHM Polska Miedź S.A. is the main driver of the Group’s results consolidated results 1 KGHM Polska Przychody ze sprzedaży Sales 2011 2012 Miedź S.A. +21% Sales Przychody ze sprzedaży 22 107 26 837 20 737 77% 26 837 22 107 Kosztyoperating Basic podstawowej dz
Slide 18: Higher production of copper, precious metals and nickel in the Group
Higher production of copper, precious metals and of a new product – nickel – in the KGHM Polska Miedź Group KGHM Polska Miedź S.A. KGHM International Copper production Silver production Precious metals production1 Nickel production (k t) (t) (k troz) (k t) +18% 676,3 110,5 571,0 571,0 565,8 +1% ×5,5
Slide 19: Economic results of KGHM Polska Miedź S.A.
Economic results of KGHM Polska Miedź S.A.
Slide 20: Metals prices in PLN at a similar level
Metals prices in PLN at a similar level Copper prices Exchange rate Silver prices (USD/t) (USD/PLN) (USD/troz) +10% -10% -11% 3,26 35,12 8 811 2,96 7 950 31,15 2011 2012 2011 2012 2011 2012 Copper prices Silver prices (PLN/t) (PLN/kg) -0,4% -2% A decrease in metals 25 965 25 855 3 335 3 254 prices v
Slide 21: KGHM maintaining stable mine production
KGHM maintaining stable mine production Ore extraction Production of copper in Refined copper production Refined silver production (million tonnes dry weight) concentrate (kt) (t) (kt) -0,9% 571,0 565,8 From +2% purchased 124,6 146,7 materials 29,7 30,2 +0,1% From own 446,4 426,7 427,1 ore 419,1 +1%
Slide 22: Profit is lower mainly due to the sale of the telecom assets in 2011
M PLN Profit is lower mainly due to the sale of the telecom assets in 2011 Result on the sale of Polkomtel S.A. and DIALOG S.A. Change in net result Lower copper price from 8 811 USD/t to 7 950 USD/t and silver from 35.12 USD/troz to 31.15 USD/troz 11 394 Change in the exchange rate from 2.96 USD/PL
Slide 23: The Company improved on its forecast profit for 2012 by +3%
M PLN The Company improved on its forecast profit for 2012 by +3% Forecast Forecast Execution (29 Oct execution 2012 2012) (%) Sales M PLN 20 633 20 737 100.5% Profit for the period M PLN 4 744 4 868 102.6% Refined copper production kt 564.2 565.8 100.3% - incl. from purchased Cu-bearing materials k
Slide 24: Expenses by nature increased by 7%
M PLN Expenses by nature (excluding purchased Cu-bearing materials and taxation) increased by 7% Expenses by nature +26% 13 988 The increase in expenses by nature by 26% was mainly due to the higher value of Minerals extraction tax purchased copper-bearing materials and to introduction of the mine
Slide 25: Total cost of copper production from own concentrates
PLN/t The increase in costs was mainly due to introduction of the minerals extraction tax In comparison to 2011, the total cost of copper production from own concentrates was higher by 42% After deducting the minerals extraction tax, the increase in the total cost of copper production from own c
Slide 26: Cash and cash equivalents in 2012
M PLN Cash and cash equivalents in 2012 Incl. PLN 9 421 M for acquisition of Quadra FNX (currently KGHM International) +4 703 -9 637 12 836 -1 647 28.34 PLN/share, or nearly double that paid in 2011 (14.90 PLN/share) -5 668 -41 +1 040 -878 707 Cash and cash Operating Equity Property, plant Sharehold
Slide 27: Forecast results in the 2013 Budget are lower
Due to macroeconomic conditions and the minerals extraction tax, the forecast results in the 2013 Budget KGHM International are lower Production: copper (93.7 kt) KGHM Polska Miedź S.A. nickel (5 kt) TPM1 Macroeconomic (64 koz) Production cost Production assumptions Unit cost C12 Exchang
Slide 28: Economic results of KGHM International
Economic results of KGHM International
Slide 29: Continuous improvement of KGHM International's financials
mln USD Continuous improvement of KGHM International’s financials 378 • Compared to 2011 358 337 total net revenues 312 increased 25% to Positive trends of $1,385 million in key financials 2012 . • Net revenues increased 39% to $378 million in the last quarter due to 96 90 higher sales volume 80 67
Slide 30: Higher production of copper equivalent in 2012
Higher production of copper equivalent thanks to higher amounts of copper and nickel in 2012 Production of copper equivalent k tonnes +7% 130,6 139,6 2011 2012 Copper production Nickel production TPM [Total Precious Metals] k tonnes +12% k tonnes k ozs +4% -8% 110,5 103 99,0 4,8 95 4,6 2011 2012 201
Slide 31: Higher capital expenditure by KGHM International
Higher capital expenditure by KGHM International CAPEX USD million +26% 733,0 580,0 2012 2013 Capital expenditure in 2012 includes spending on Sierra Gorda in the amount of USD 456 million. In 2013 spending on Sierra Gorda is projected at USD 518 million. 30/40
Slide 32: KGHMI production assets are improving operating results
The production assets of KGHMI are successfully improving their operating results and creating additional value • Copper production 26 % higher than in Q4 2011 – improved mill recovery Robinson mine Nevada, USA • C1 cost lower than in Q4 2011 – $2.00/lb • Value Creation Program implemented – Improve
Slide 33: Sierra Gorda – one of the best performing projects in the World
Sierra Gorda – one of the best performing projects in the World SIERRA GORDA NAJWAŻNIEJSZE OSIĄGNIĘCIA W 2012 ROKU 2012 KEY ACCOMPLISHMENTS • Key contracts have been awarded: Cu Au Mo Concentrate FCAB rail service to port, Seawater pipeline construction, Port Facilities, Electrical transmiss
Slide 34: Sierra Gorda project is underway
The Sierra Gorda project is underway. In 2015 the mine will have the lowest unit production cost of any mine in Chile Sierra Gorda Chief facts The project is gradually reducing its project risks and will be completed in the first half of 2014 Sierra Gorda is one of the most quickly advanced proj
Slide 35: Sierra Gorda will be one of the cheapest copper mines
Sierra Gorda will be one of the cheapest copper mines in terms of operating costs in the world, and the cheapest in Chile Copper production cost curve in 2015 USDc/lb KGHM Poland KGHM Sierra Gorda Other producers Chilean producers 400 350 1st quartile 2nd quartile 3rd quartile 4th quartile 300 250 2
Slide 36: Update of CAPEX budget for Sierra Gorda mine
Update of CAPEX budget for Sierra Gorda mine Budget update Schedule update NAJWAŻNIEJSZE OSIĄGNIĘCIA W 2012 ROKU • Initial CAPEX for project startup will go • Production commissioning will begin in up from $2.9 B to $3.9B (up 35% - before Q2 2014 cost saving measures). • Mainly factors independent f
Slide 37: KGHM can partially offset the impact of inflation in Chile through hedging
KGHM is able to partially offset the impact of inflation in Chile through hedging $, Millions UF, Millions Implications for SG (KGHMI Escalation hedging strategy Basis) ▪ Current hedging strategy is to ▪ Million UFs owned by purchase UF funds, which has SG SCM in November 9.0 several upsides: ▪ Fore
Slide 38: A steeper pit slope may have substantial impact on NPV for Sierra Gorda
Creating additional value: A steeper pit slope may have substantial impact on NPV for the Sierra Gorda project Initial slope: 38° Context Proposed slope: 41° • The current pit slope over the benches varies between 40° and 45° while the slope over the ramp is 38° • Due to the hardness of the rock, in
Slide 39: Creating additional value: other levers for growth
Creating additional value: other levers for growth • Conservative price assumptions have been used in the analysis process Copper prices • Cost increases are generated by elements (e.g. steel and oil prices) which are correlated to other commodities, incl. Copper and Molybdenum • Some of the materia
Slide 40: Intensive efforts on permitting for Afton-Ajax
Intensive efforts on permitting for Afton-Ajax AFTON-AJAX KEY ACCOMPLISHMENTS Cu Au • Successful change of the operator to KGHM International, • Project schedule adjusted to new permitting requirements in British Columbia, • Successful Open House – hundreds of participants, Reserves ~ 503 Mt @ 0.27%
Slide 41: Victoria project key accomplishments in 2012
Victoria project will be the second most important value driver for KGHM International after Sierra Gorda VICTORIA 2012 KEY ACCOMPLISHMENTS Cu Au Pt Ni • 2012 Drilling results confirm the potential to substantially expand project resources • New approach to building the mine in two stages, to reduce
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