Operating results

• Slightly lower production vs 2019:
  • w by KGHM Polska Miedź due to the lower grade and thickness of the mined deposit, as well as due to the restricted supply of copper scrap in the first half of 2020
  • by KGHM INTERNATIONAL due to lower production by the Franke mine (lower quality ore, lower recovery) and the Sudbury Basin (lower extraction from deposits rich in TPM); in Q1 2019 extraction from the Morrison mine was suspended
• Higher copper production by the Sierra Gorda mine due to a higher volume of ore processed, higher recovery and a higher copper grade in ore,
• Lower molybdenum production both by Sierra Gorda (extraction of ore with a lower Mo grade and lower recovery), and by Robinson (extraction of lower-quality ore)

* TPM – Total Precious Metals, comprising gold, platinum and palladium

Full integration of processes in management of the supply chain

*On a 55% basis

In 2020, the main objectives set by the Management Board in terms of production and occupational health and safety were:

• optimal utilisation of the resource base and production capacity of the Company,
• optimisation of Cu content in ore and concentrate.

In 2020, extraction of ore (dry weight) amounted to 29.7 million tonnes, which was 0.2 million tonnes less than in 2019.

The average copper content in extracted ore amounted to 1.49% and was slightly lower than the level achieved in 2019. The content of silver in the ore extracted was at a lower level than in 2019 and amounted to 48.0 g/ton.

As a result, the volume of copper in extracted ore was lower than in 2019 by 7.3 thousand tonnes of Cu, and amounted to 442.0 thousand tonnes. The volume of silver in extracted ore decreased down to 1,423 tonnes.

In 2020, 29.7 million tonnes of ore (dry weight) were processed (0.2 thousand tonnes less than in 2019). The lower amount of ore extracted by the Mining Divisions directly affected the amount of copper in concentrate, which was 392.7 thousand tonnes.

The concentrate production (dry weight) decreased against 2019 by 23.4 thousand tonnes.

The Silver content in concentrate was lower by 2.5% than in 2019.

The production of electrolytic copper fell by 5.2 thousand tonnes, i.e. 0.9%, compared to 2019. The lower production of electrolytic copper was a result of limited supply of copper scrap in H1 2020 which led to underutilisation of production capacities and overhaul downtime in Głogów I Copper Smelter and Refinery. In H2 2020, own concentrate was supplemented with purchased metal-bearing materials in the form of scrap, blister copper and imported concentrate, and the existing technological capacity was effectively used.

The production of other metallurgical products (silver, wire rod, OFE rod) derives from the level of electrolytic copper production and depends on the type of raw material used, and above all on market demand.

In comparison to 2019, the production of metallic gold fell by 215 kg, i.e. by 6.7%, and metallic silver production was lower by 77 tonnes, closing the year at 1,323 tonnes.

The main goals set by the Management Board in terms of production and occupational health and safety for 2021 are a continuation of actions taken in 2020, i.e.:

• optimal utilisation of the resource base and production capacity of the Company,
• optimisation of Cu content in ore and concentrate.

In 2020, the Company recorded a 1-percent increase in sales of copper products, which amounted in total to 561.0 thousand tonnes, compared to 557.0 thousand tonnes in the previous year. In 2020, the sales of copper cathodes increased to 300.7 thousand tonnes, or by 9% compared to 2019. Sales of copper wire rod and OFE rod fell by 3%, amounting to 258.6 thousand tonnes in 2020.

In 2020, the sales of metallic silver amounted to 1,369 tonnes, which represents a 2% fall in comparison to the 2019 volume. In 2020, there were no silver concentrate sales.

Gold sales in 2020 amounted to 100.1 koz t, which represents a slight fall relative to the previous year (-1%).

The total sales revenue of KGHM Polska Miedź S.A. in 2020 was PLN 19,326 million, which represents a 9% growth in comparison to 2019, when the sales revenue was PLN 17,683 million.

Revenues from copper product sales rose by 6% in 2020 and amounted to PLN 14,258 million (compared to PLN 13,474 million in 2019). The change in the sales volume and revenue of the “Other copper products” is related to the suspended production of copper billets in Legnica Copper Smelter. In view of the low profitability of copper billets production and sales, limited sales demand and lack of any possibility of significant costs restructuring, the billets production was discontinued as from 2020. At present, possibilities are examined to use the existing installation for production of other products, in line with market demand.

Revenues from metallic silver sales in 2020 were also higher (+24%) and amounted to PLN 3,453 million compared to PLN 2,789 million in 2019.

Despite the lower volume of metallic gold sales, sales revenues in this regard increased by 27%, or PLN 690 million, compared to PLN 543 million in 2019.

In 2020, KGHM Polska Miedź S.A. earned most of its revenues from domestic sales, which amounted to 23% of total revenues. Amongst the Company’s other customers, the largest came from Germany (16%), China (14%), the United Kingdom (10%) and the Czech Republic (7%).

The figure below presents the geographical breakdown of sales revenues in 2020. Sales revenues also include results from the settlement of hedging instruments.

In 2020, the Company’s cost of sales, selling costs and administrative expenses (cost of products sold, goods and materials sold, as well as selling costs and overheads) amounted to PLN 16,161 million, and was 6% higher as compared to 2019. The Company’s cost of sales, selling costs and administrative expenses were substantially affected by the use of inventories, which translated in to a higher sales volume.

Total expenses by nature in 2020, as compared to 2019, were higher by 3%, mainly due to higher by PLN 196 million consumption of purchased materials (an increase of 5 thousand tonnes and a price higher by 3%), as well as a higher minerals extraction tax (PLN 105 million).

Expenses by nature, excluding external inputs and the minerals extraction tax, amounted to PLN 9,787 million and were higher as compared to the corresponding period of the previous year by PLN 189 million, mainly due to:

• labour costs (PLN +241 million) – due to an increase in remuneration and a higher provision for the annual bonus,

depreciation/amortisation (PLN +66 million) – an increase due to investments completed in prior periods, at lower costs of:

• consumption of materials and energy (-PLN 66 million) – mainly due to lower gas and coke prices, as well as lower consumption volume of technological materials,
• external services (PLN -51 million) – mainly due to lower costs of mine development work and transport services.

The structure of costs by nature in 2020 is presented below. As compared to the previous year, they were at a very similar level.

The Company’s operating costs are decisively impacted by the costs of electrolytic copper production (before deduction of the value of by-products), whose share is about 90%.

Production costs of payable copper concentrate – C1 (USD/lb)

Cost of producing copper in concentrate – C1 (unit cash cost of producing payable copper in concentrate, reflecting costs of ore extraction and processing, transport costs, the minerals extraction tax, administrative costs during the mining stage, and smelter treatment and refining charges (TC/RC), less the value of by-products) was as follows: in 2019, 1.74 USD/lb and in 2020, 1.62 USD/lb, respectively. The cost was impacted by a weakening in the PLN relative to the USD, and higher silver and gold prices, which has an impact on the higher value of by-products.

Pre-precious metals credit unit cost of electrolytic copper production – from own concentrate (PLN/t) 

The pre-precious metals credit unit cost of copper production from own concentrate (unit cost before the deduction of the value of anode slimes containing, among others, silver and gold) is higher than that recorded in 2019by 1,206 PLN/t (5%), alongside a lower production from own concentrate by 5 thousand tonnes of Cu (1.2%). The increase in unit cost was affected mainly by higher costs of labour and depreciation and amortisation. The total unit cost of electrolytic copper production from own concentrate is lower than in 2019 by PLN/t 174 (-1%), due to higher market prices of precious metals, which caused and increase in anode slimes prices.

In 2020, a slight (by 7.5 thousand tonnes, i.e. 1%) increase in the Group’s copper production was noted relative to 2019. The increase is applicable to the Sierra Gorda S.C.M. segment (+22.3 thousand tonnes for the share of 55%), primarily as a result of bigger ore processing and higher CU content. On the other hand, in the KGHM INTERNATIONAL LTD and KGHM Polska Miedź S.A. segments, there was a fall in production by 9.6 thousand and 5.2 thousand tonnes Cu, respectively.

The lower output of KGHM Polska Miedź S.A. was a result of a lower capacity and thickness of the ore seam, as well as the limited supply of copper scrap in H1 2020 and an overhaul downtime in Głogów I Copper Smelter and Refinery.

Lower production in KGHM INTERNATIONAL LTD. was noted in the Sudbury Basin, and Franke, and the Robinson mine.

Detailed information about production results can be found in the chapters devoted to the individual segments. Production results of the Group are given below.

The geographic and product structures of the consolidated sales revenue of the Group are presented in the charts below. In accordance with the adopted principle of consolidation by the equity method, sales revenue do not include revenues of the Sierra Gorda S.C.M. segment. Detailed information about sales by segment can be found in the chapters devoted to the results of individual segments.

Unit costs in the Group’s segments are presented in the table below. Detailed description of the individual items can be found in the chapters devoted to the individual segments.

• The decrease in C1 cost in KGHM Polska Miedź versus 2019 was due to the weakening of the PLN vs the USD and to higher silver and gold prices, meaning a higher valuation of by-products
• The increase in C1 by 10% in KGHM INTERNATIONAL was due to lower copper sales volume which was partially offset by higher revenues from sales of associated metals (+5%)
• The decrease in C1 cost in Sierra Gorda by 16% was due to a higher copper sales volume, lower fuel prices, lower labour costs and lower costs of external services, materials and other costs categories
• The decrease in C1 was achieved alongside a decrease in revenues from sales of associated metals

*C1 cost – cash cost of concentrate production reflecting the minerals extraction tax, plus administrative expenses and smelter treatment and refining charges (TC/RC), less depreciation/amortisation and the value of by-product premiums, calculated for payable copper in concentrate