In 2020 the Company continued to implement the “Strategy of KGHM Polska Miedź S.A. for the years 2019-2023” which was approved by the KGHM Polska Miedź S.A. Supervisory Board on 19 December 2018.
The Strategy is based on four strategic development directions: elasticity (flexibility), efficiency, environment and e-industry (the so-called 4Es), resulting from global market trends. This is presented comprehensively in the chart below:
Strategic directions of KGHM Polska Miedź S.A.
During the reporting period, policy regarding the development directions of the Group was continued. Further actions were also taken aimed at adapting the Group’s organisational functioning model to the business model of KGHM Polska Miedź S.A. and the market environment. In terms of the domestic companies, development policy was also aimed at cooperation between the Group’s entities and at eliminating overlapping areas of competence in terms of individual entities.
To implement the KGHM Polska Miedź S.A. Strategy for 2019-2023, a number of reorganisation measures was undertaken in the area of the Group’s international companies. The actions were aimed at integrating KGHM INTERNATIONAL LTD. in Canada with the Company’s activity in Poland and transferring some of the KGHM INTERNATIONAL LTD.’s business functions to Poland. These efforts are continued, mainly in respect to the development of consistent internal regulations, procedures and standardised solutions in the individual areas of the Company’s activity. Also, internal actions were undertaken to devise further growth scenarios for the respective international assets in the Company’s portfolio.
Advancement of the strategy in 2020
When updating KGHM’s strategy for 2019-23, we thoroughly identified trends as well as possible economic turmoil, even though we could not predict the impact of the pandemic on the global economy. We achieve our goals because we boldly and consistently implement the assumptions contained int he document: day after day, month after month. We plan to maintain a high level of production and increase employee safety, while – at the same time – striving towards green energy. KGHM is a global giant, we are the leader in many areas, we are the first to implement new solutions and technologies.
President of KGHM Polska Miedź S.A.
Implementing the Strategy the Company aimed to maintain a stable production level from domestic and international assets and a cost level guaranteeing financial safety, while ensuring safe working conditions and minimizing the burden on the environment and surroundings, in line with the sustainable development concept. In 2020 work was conducted on a new approach to Strategy monitoring through the prism of Strategic Programs which will be successively implemented in the periods to come.
Below is presented information about the key activities taken in individual strategic areas in 2020:
Increase the KGHM Group’s efficiency and flexibility in terms of its Polish and international assets
Selected effectiveness measures
Level of metallurgical production from purchased copper-bearing materials, including scrap, to 2030
An increase in the share of highly processed copper products in the Group’s total sales by the end of 2030
Amount by which the needs of KGHM Polska Miedź for electricity from its own sources of energy generation and renewable energy sources will be satisfied by the end of 2030
The Deposit Access Program was continued.
The GG-1 shaft sinking has reached the depth of 1,231.2 meters. Conceptual and planning work on the construction of the Gaworzyce Shaft and the GG-2 “Odra” Shaft is under way.
3 kilometres of tunnelling were excavated in the Rudna and Polkowice-Sieroszowice Mining Areas.
The work on Development of the Żelazny Most Tailings Storage Facility was continued:
The total progress of the construction of the Southern Quarter with the sludge, water and electricity infrastructure is 88% (as at 31 December 2020).
The total progress of the construction of the Tailings Segregation and Compacting Station, Stage 1, is 78% (as at 31 December 2020).
A level of 35% of external inputs into production was achieved (as at 31 December 2020).
The exploration projects regarding prospecting and exploration of copper ore deposits were executed according to the concessions.
In the Głogów and Retków-Ścinawa concession area, geological work was continued – two prospecting and exploration drillholes were made.
Geological work was conducted and the Synklina Grodziecka concession amendment process was under way; the Konrad concession was amended.
The concession-related proceedings are underway before the Minister of Climate and Environment. The Company awaits re-examination of the Bytom-Odrzański and Kulów-Luboszyce concessions and the issuance of the concession decisions.
The exploration projects regarding prospecting and exploration of the remaining deposits were executed according to the concessions.
The prospecting and exploration work in the Puck Region were continued – another drillhole was made.
As part of the concession work in the Nowe Miasteczko area, geological work was continued, as part of which geophysical studies were carried out.
Development projects in foreign assets were continued:
Victoria Project – exploration work continued to increase the knowledge of mineral resources in the project and measures were taken to maintain good relations with the project’s key stakeholders.
Sierra Gorda Oxide – supplementary work was continued in order to prepare for the next phase of engineering work and further development of the project. Currently, most of the oxide ore resources planned for processing have been mined and deposited near the location of the future copper leaching and recovery plant (SX-EW).
KGHM’s demand for energy was satisfied from own resources in the range of 22.42% of total consumption. For more information on this topic see the section on energy from in-house sources and RES in section 5.2.
Maintain cost-effective Polish and international production
Selected effectiveness measures
Level of production in Poland of mined Cu in ore with an annual C1 cost not higher than 3800 USD/t in the years 2019-2023
Average yearly metallurgical production in the years 2019- 2030
Minimum yearly average of daily ore processing in Sierra Gorda from 2020
Despite the epidemiological situation caused by the COVID-19 pandemic, the operations in local and foreign assets were continued without major disruptions.
Mining production in Poland stood at 442 thousand tonnes of extracted Cu ore, at the cost of C1 1.62 USD/lb.
Production of Cu payable abroad stood at:
Sierra Gorda: 81.8 thousand tonnes (for the 55% stake)
Robinson: 47.4 thousand tonnes
Carlota: 5 thousand tonnes
Franke: 12.5 thousand tonnes
Sudbury Basin: 2.1 thousand tonnes
Metallurgical production amounted to 560 thousand tonnes.
The average annualised daily ore processing in Sierra Gorda amounted to 124 thousand tonnes (capacity in the range of 130 thousand tonnes was reached in Q4 2020).
The Metallurgy Development Program was settled and closed.
Execution of projects aimed at automation of the production lines of the Company’s Mining Divisions, as part of the KGHM 4.0 program in the Industry was continued.
5 energy efficiency audits were carried out for projects with significant energy saving potential.
The Company’s Energy Management System (EMS) was adapted to the new standard PN-EN ISO 50001:2018-09 and a certificate issued by an authorised entity (UDT Cert) was obtained.
Work on increasing electricity production from our own sources, including RES, was conducted:
Construction of the Photovoltaic Power Plant with the capacity of 5 MW in the Obora Sandpit.
Construction of the photovoltaic power plant complex HMG I-III.
KGHM Group’s efficiency through innovation
Selected effectiveness measures
Increase expenditures on innovation and R&D work to the level of 1% of KGHM Polska Miedź S.A.’s revenues in 2023
Ensure that all of the innovation projects are realised, pursuant to the rules of a coherent model of innovation management and research and development work (R&D) in the KGHM Group, in the years 2019-2023
Level of funds for R&D and innovation in the years 2019-2023 to meet the challenges faced by KGHM Polska Miedź in the Core Business
R&D projects with the total value exceeding PLN 180 million were pursued as part of the CuBR venture co-financed by the National Centre for Research and Development. Overall, 25 projects were launched in four editions of the competition.
Currently, 15 projects are pursued.
8 projects were completed.
2 projects were halted since it was impossible to implement the research results.
The Implementation Doctorates Program was continued for 38 doctoral students (Company’s employees) from two editions of the program.
A prototype of a battery-powered Self-Propelled Transport Vehicle (SWT) is being constructed.
Initiatives concerned with testing battery electric self-propelled mining machines are implemented.
The project of building a self-driving robot for measuring copper content at the working faces in the mines was launched as part of the project to robotise production and auxiliary processes.
Projects subsidised under KIC Raw Materials:
The execution of the subsidised research projects was continued.
A subsidy for “The Reflux Flotation Cell Technology RFC” project concerning intensification of the recovery of grains of useful minerals was obtained.
Projects subsidised under the Horizon 2020 Program:
Continued the execution of the subsidised project.
Launched the “Development of monitoring systems for buildings” project, in which the Group intends to test machine learning and artificial intelligence in the systems monitoring the condition of the Żelazny Most Tailings Storage Facility.
Obtained a subsidy of EUR 753 thousand for the execution of the project entitled “Smart management of mining production 2” to develop and implement innovative solutions aimed at improving the efficiency and safety of works in underground mining processes using state-of-the-art technologies.
Obtained protection for the “KGHM” word trademark notified in the international procedure in the territory of: the USA, Switzerland, Ukraine, Japan, India and Turkey. Proceedings regarding protection of the “KGHM” word trademark in China are under way.
Registered the “KGHM” figurative trademark with the Canadian Intellectual Property Office.
The protection of the “KGHM” figurative trademark in the European Union was extended.
Filed applications for patents for 3 inventions.
The patent procedures for 5 inventions are pending in the Patent Office of the Republic of Poland.
More than 70 new invention projects were acquired as part of the Invention Market 2020 in KGHM Polska Miedź S.A.
Ensure long-term financial stability and the development of mechanisms supporting further development
Selected effectiveness measures
Basing of the KGHM Group’s financing on long-term instruments
Shorter cash conversion cycle
Efficient management of market and credit risk by the Group
The Company consistently continued activities aimed at basing the Group’s financing structure on long-term instruments.
The tenor of the unsecured revolving syndicate loan in the amount of USD 1,500 million was extended by one year. The current maturity falls on 19 December 2025.
The financial needs of Group companies were satisfied using intra-group cash transfers based on the cash pooling tool, long-term owner loans, and long-tenor bonds.
Actions aimed at shortening the receivables recovery period and extending the liabilities payment period were continued. At the end of Q4 2020, the balance of trade payables handed over for debt factoring was PLN 1,263 million and the utilisation of receivables factoring was PLN 2,237 million.
To effectively manage the Group’s market and credit risk, hedging strategies in the copper, silver and FX market were implemented.
In the copper market future sales revenues were hedged for 2021-2023 for the nominal volume of 402 thousand tonnes, while in the silver market sales revenues were hedged for 2021-2023 for the nominal volume of 24.6 million ounces. In addition, in 2020, option structures were implemented to hedge against the USD/PLN exchange rate fluctuations in 2022-2023 for the total nominal value of USD 720 million.
In addition, in 2020, the Company managed its opened hedging position, restructuring option structures in the copper and FX market.
Implement systemic solutions aimed at increasing the KGHM Group’s value
Selected effectiveness measures
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Ensure financial stability of Group companies in Poland on the basis of their own activities
Increase in the efficiency of support functions as a result of centralisation and digitalisation of key back-office processes by 2023
Minimum level of achievement of key strategic targets and of the yearly goals assigned to them, in each of the years the strategy is in force
The execution of the KGHM 4.0 Program was continued in three key areas:
Industry area (industrial production)
The full scope of the “Localisation system of people and machinery in underground mines” project was completed.
Broadband data transmission was ensured on the mining front in all mines.
The CMMS system (computerised maintenance management system) was successfully launched in selected Divisions. The implementation of the system in all KGHM Polska Miedź S.A. Divisions was started.
ICT (Information and Communication Technology) area
The CRM system was implemented – as part of the project, full integration of the systems using the corporate integration platform (data bus) was carried out, end user training was completed.
The “Production Planning and Settlement Process Optimisation” project was completed – production planning, monitoring and settlement processes were improved at all stages of the core production business.
uSearch was implemented – tool improving the search and acquisition of information in the KGHM Group and 10 tools (based on the Case Manager platform) were developed to support back-office processes and process digitalisation.
Supporting Projects area
Work is under way to develop a commercial contract repository system.
The SAP Ariba platform for tender proceedings was implemented.
The work on the Support Process Efficiency Strategic Program was started:
12 support areas in the organisation were selected.
A team was appointed and initiatives improving the efficiency of the processes in the respective areas were identified for execution.
Execution work in some of the selected support areas was started (e.g. simplifications and unification of selected processes were introduced, traditional document circulation was replaced with electronic circulation etc.).
People and the environment
Growth based on the idea of sustainable development and safety as well as enhancing the Group’s image of social responsibility
Selected effectiveness measures
Minimum level of annual improvement of LTIFR (Polish assets) and TRiR (International assets)
Level of commitment and satisfaction of the KGHM Group’s employees based on measures defined during implementation, by 2023
The Company strived to lower the LTIFR and TRIR accident ratios by no less than 20% by 2023 relative to the figures recorded in 2018.
The total number of accidents at work dropped by 28.7% from 299 injuries in 2019 to 213 in 2020.
The LTIFR ratio in KGHM stood at 7.31 in relation to 10.30 in 2019.
The consolidated TRIR stood at 0.52 compared to 0.77 in 2019.
The Program to Improve Occupational Health and Safety in KGHM Polska Miedź S.A. was continued.
The implementation of the new OSH standard ISO 45001:2018 was completed in the Company’s Divisions.
The “Occupational Safety Leader Golden Card” Certificate was obtained for 2021-2022.
Rules of conduct in the conditions of the COVID-19 pandemic were promoted.
A uniform card for assessment of external risk associated with the COVID-19 pandemic was implemented.
A broad range of measures were implemented to mitigate the hazards resulting from the COVID-19 pandemic.
The program to adapt the Company’s technological installations to the requirements of BAT Conclusions for the non-ferrous metals industry and to restrict emissions of arsenic (BATAs) was continued.
In the Głogów Copper Smelter and Legnica Copper Smelter, 14 projects were being executed and the following projects were completed in 2020:
An installation to eliminate arsenic-bearing dust from concentrate drier gases was constructed and commissioned (Legnica Copper Smelter).
An installation to eliminate arsenic-bearing dust from the anode casting machine was constructed and commissioned (Legnica Copper Smelter).
A de-leaded slag transportation installation was constructed and commissioned (Głogów Copper Smelter).
Construction of bypass pipelines for gases from flash furnaces was completed (Głogów Copper Smelter).
Warehouse and storage area for lead-bearing materials was constructed (Głogów Copper Smelter).