Integrated Report of KGHM Polska Miedź S.A.
and the KGHM Polska Miedź S.A. Group
for 2020

Investments

GRI[ ]

A rationale and responsible investment program
Capital expenditures by KGHM Polska Miedź S.A. in 2020

2 480 mn PLN

CAPEX execution in 2020

2 222 mn PLN

CAPEX target for 2020

Selected development projects

CAPEX execution 2020

Development of Żelazny Most TSF – PLN 389 mn

Southern Quarter

88% of physical work completed

Tailings Segregation and Thickening Station

78% of physical work completed

 

Deposit Access Program – PLN 484

  • 40.3 km of tunneling were excavated
  •  GG-1 shaft reached a depth of 1 231.2m
  • GG-2 „Odra” shaft – commercial terms set for the purchase of terrain to build the shaft
  • Gaworzyce shaft – based on the spatial plan, the site for the shaft was confirmed

Program to adapt the technological installations to BAT Conclusions - PLN 161 mn

Głogów plant

Construction and start-up of the following completed:

  1. an installation for the transport of de-leaded slag for processing in the flash furnace
  2. bypass gases pipelines from the flash furnaces to the sulphuric acid plant,
  3.  a warehouse and storage area for lead-bearing materials to eliminate fugitive dust emissions
Legnica plant HM Legnica

Construction and start-up of the following completed:

  1. Legnica plant an installation to eliminate arsenic-bearing dusts from concentrate drier gases and from above the anode casting machine
  • Purchase of machines, incl. 26 – Lubin mine, 62 – Polkowice-Sieroszowice mine, 73–Rudna mine
  • 2020/2019 > 161/220
  • Main installations and equipment of the deduster process line built (exchangers, reactors, bag filters, chimneys, ventilators, separators)
  • Final assembly of installations and equipment underway
  • F-1 press filter renovated in Rudna Concentrator with operational testing commenced
  • In H1 2020 final handover completed and operation commenced by the facility for non-hazardous waste and neutral waste and with a separate area for hazardous waste (code 19 08 13*).
  • Construction/assembly underway (building roof and sides),
  • Outfitting of the pumphouse underway,
  • Reinforced concrete parts of the DW04 water filtration unit completed,
  • Rainwater catches and effluents elements built
  • Assembly of new roof undercarriage, 11 of 16 steps
  • Work underway on tankhouse walls (disassembly of old tiles, cleaning/ painting, assembly of new windows and sidewall tiling)

Pro-ecological investments

KGHM Group

186 mn PLN

spent in 2020 by KGHM on proecological investments*

including more than PLN 43 million on construction of an installation to eliminate aresenic and mercury from gases at the Solinox installation in the Legnica Smelter/ Refinery under the BATAs Program

Capital expenditures

  • 203-1

Capital Expenditures of KGHM Polska Miedź S.A.

In 2020, capital expenditures on property, plant, and equipment amounted to PLN 2,476 million, and was similar to that in the previous year. The total capital expenditures, including the expenditures incurred on uncompleted development work, amounted to PLN 2,480 million.

2020 2019 Change (%) IVQ’20 IIIQ’20 IIQ’20 IQ’20
Mining 1,649 1,683 (2.0) 550 412 380 307
Metallurgy 732 660 +10.9 239 218 191 84
Other activities 32 74 (56.8) 18 1 10 3
Development work – uncompleted 4 6 (33.3) 3 1
Leases per IFRS 16 63 58 +8.6 7 7 42 7
Total 2,480 2,481 (0.0) 817 637 624 401
including costs of external financing 116 135 (14.1) 16 32 31 37

Investment activities comprised replacement, maintenance and development projects:

Are aiming to maintain production equipment in an undeteriorated condition, represent 31% of the total expenditures incurred.

Deposit Access Program

Are aiming to maintain mining production at a level defined in the approved Production Plan (expansion of infrastructure according to the progress of mining works) make up 35% of the total expenditures incurred.

 

Are aiming to increase production volume of the core production line, implement technical and technological activities optimizing utilisation of the existing infrastructure, maintain production costs and adapt the company’s operations to changes in standards, laws and regulations (adaptation and environmental projects) represent 34% of the total expenditures incurred.

Detailed information on the progress of key investment projects may be found in the section on the implementation of the Strategy in 2020.

Capital expenditure of KGHM INTERNATIONAL LTD. (in USD million)

2020 2019 Change (%) IVQ’20 IIIQ’20 IIQ’20 IQ’20
Victoria Project 7 4 +75.0 3 1 2 1
Sierra Gorda Oxide project 1 2 (50.0) 1
Removal of superlayer and other 145 164 (11.6) 39 35 24 47
Total 153 170 (10.0) 43 36 26 48
Cash flows to Sierra Gorda S.C.M – increase of capital 52 113 (54.0) 52

Capital expenditure of KGHM INTERNATIONAL LTD. (PLN million)

2020 2019 Change (%) IVQ’20 IIIQ’20 IIQ’20 IQ’20
Victoria Project 27 15 +80.0 11 4 8 4
Sierra Gorda Oxide project 4 8 (50.0) 4
Removal of superlayer and other 566 631 (10.3) 151 131 96 188
Total 597 654 (8.7) 166 135 104 192
Cash flows to Sierra Gorda S.C.M – increase of capital 204 433 (52.9) (2) (4) 210

Capital expenditures of the KGHM INTERNATIONAL LTD. segment in 2020 amounted to USD 153 million, which represents a decrease by USD 17 million (-10%), compared to 2019.

Circa 75% of the expenditure was in the Robinson mine. They covered, among others, works related to removal of the superlayer and replacement of a part of machinery.

Project Victoria received USD 7 million (to, among others, continue exploration works aiming to increase the scope of deposit appraisal and start work connected to the preparation and securing of selected elements of the infrastructure). The Sierra Gorda Oxide project received USD 1 million.

The financing of the Sierra Gorda mine (in the form of a capital increase) in 2020 amounted to USD 52 million (in relation to the 55% share controlled by the KGHM Polska Miedź S.A. Group).

Capital expenditure on Sierra Gorda S.C.M.

In 2020, expenditures on property, plant and equipment, and intangible assets, included in the cash flow statement of Sierra Gorda S.C.M., amounted to USD 253 million, the majority of which, i.e. USD 166 million (66%) was expenditure on removal of the superlayer to access further parts of the deposit, and the remaining amount was incurred on development and replacement of property, plant and equipment.

Capital expenditure on Sierra Gorda S.C.M.

unit 2020 2019 Change (%) IVQ’20 IIIQ’20 IIQ’20 IQ’20
Expenditure on property, plant and equipment USD million 253 298 (15.1) 79 58 48 68
Expenditure on property, plant and equipment – segment (55% share) PLN million 544 629 (13.5) 168 120 106 150

A decrease of capital expenditure (denominated in USD) by 15% was related to the capitalised costs of removal of the superlayer, as a result of a smaller scope of the works and lower unit cost. Other capital expenditures grew, primarily as a result of investments to increase ore processing capacities.

In 2020, proceeds from operating activities were almost twice as high as capital expenditure. In view of the uncertainty caused by the spread of the COVID-19 pandemic in the first months of the year, Sierra Gorda received Owners’ financing of USD 95 million (USD 205 million in 2019). In the course of the year, Sierra Gorda also took out loans, including USD 200 million granted by Bank Gospodarstwa Krajowego.

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