Jastrzebska Spólka Weglowa S.A. (JSW) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. On behalf of the management Board of JSW, I would like to welcome you cordially to the results conference for Q2 and H1 2020. I would briefly like to characterize the situation in terms of our core parameters. Our coal production in H1 was 6.669 million tons. This volume is lower than H1 2019 by 4.8%. Coke production is 1.554 million tons in comparison to H1 2019, the decline is 8.7%. If we look at prices, we have the biggest decline. The average price of metallurgical coal is PLN 487.78 per ton. This is a decline of 30.4% compared to H1 2019. If we look at the average coke price, the price was PLN 792.98 per ton, which is a decline of 31% versus the first half of 2019. If we look at total coal sales in the first half of the year was 6,900 tons a 6,290 to tons. And so it's a decline of 7.2%. If you look at EBITDA, net of nonrecurring events, we have minus PLN 67.5 million, which is a decline of 105.1% compared to the first half of 2019. The net result is PLN 973.8 million in the red, which is a decline of 277.9% compared to H1 2019. If we look at corridor works, the decline is minimal. It's roughly 0.4%. We managed to deliver some 34,965 running meters of corridor works. I would like to say that I'm a management board member and have been for many years. It's the first time in my career that such a situation -- extraordinary situation has occurred. Q2, where we had the pandemic, which affected particularly JSW. At a certain point in time, we had the largest number of infections across the country. This topic started for us suddenly. You remember our results in Q1 2020, the market, the sales we had, were starting to be very conducive to us. In the first half of March or in the second half of March, we started to have those problems around the 20th, 25th of March, we had to appoint a crisis management team, which was meeting every day, 24/7. It was operating, Saturdays and Sundays, we were preparing to get ready for this problem showing up. I think we took a number of novel measures. Of course, externally, there were some unflattering opinions, but we tried to get ahead of the ball. One of the things was that we changed the working system. We switched from a 4-shift system to a 3-shift system to ensure that the number of people who had direct interactions with one another. And some of those places that are difficult to avoid. So like the shaft, the mine shaft, lifts as well as the shower rooms and all of the other places where our employees have to interact with one another as they do their jobs. We implemented these measures very quickly, and we were able to maintain safety for quite a long time. The first incidence we had was on the 26th of April. And from that point in time, the problem started to accumulate up until yesterday. For you to be aware, we had infections of 4,113 persons, of which more than 4,028 people have already become healthy again. We have 47 people in quarantine. Of course, this exerted an impact. You remember the administrative decisions that 3 Szczyglowice Knurów mine and the Budryk mine, so 3 sections had to be shut down for nearly a month. And of course, this implied certain problems in terms of our extraction and production operations. So this situation means that the shortfall of production is more than 1 million tons, it's 1.046 million tons. And so compared to the original production plans, that's the level of production we lost. If we look at corridor works, we're roughly 6 kilometers below the level we had intended because these events led to problems with external companies, third party companies, and so those companies also had to cease their operations. So the most important thing was the health of our employees, and that's why we worked the way we did. The costs that we incurred to fight the pandemic totaled PLN 72.7 million, including employment costs of PLN 65.8 million. This, above all, was linked to the cost of downtime and some of the other problems that we had with employees. So this is a brief summary of what happened in Q2 linked to the pandemic this was a very dynamic situation. Pniówek was the first mine to be affected, then the section of Zofiówka in Borynia. And so then things started to become more pronounced. Then you have the northern side, Szczyglowice in Knurów and the Budryk mine. So that situation occurred later and it overlapped with the downtime. So generally speaking, in June, that would be more or less in terms of the general overview. And so now I think we could go on to look at our production. So I'll give the floor to my colleague at this time.

Welcome, ladies and gentlemen. What the CEO, Mr. Herenzniak has said, you can see the details of that on this slide. So if you look on a quarter-to-quarter basis, we saw a decrease of 36% in production. So the pandemic started for us on the 23rd of March, that's when our crisis management team was set up, and we started to act. If we compare that to 2019, you can see the decline is roughly 5%, but this shows you how ambitious our production plans were for 2020. So what Mr. Herezniak said, our CEO, and I'd like to emphasize this, the corridor works through the duration of the pandemic. We continue to operate. We're meeting with our directors in the crisis management team. It consists of 17 persons. We're tracking what's happening with respect to the pandemic, and this has a lot of impact on our production. As you know, from a production point of view, when we talk about a mining company like ourselves, we have to think about what's going to happen in the future. So our corridor works have to give us the opportunity in the future. We have to ensure that we have buying phases to mine next year. So the -- we're down by some 34.4% from Q1 to Q2. But if you look at the differences between H1 2019 and H1 2020, the difference is a mere 0.4%. This shows you that we were doing a lot of work, intensive work to do quite a bit. And we were -- despite the demanding situation, we worked very hard. So if you look at the inventory of coal, we have 2.17 million tons. At the previous conference -- earnings conference, we had 1.78 million tons. And at the end of March, we had 2.5 million tons. What I'd like to emphasize, if you look at these numbers, you can really understand and fathom the magnitude of the issue we're talking about, and what Mr. Herezniak said, in May, in June, and in July, we had some 42,000 swab tests. Some of our employees were swabbed twice, some were swabbed 3x so the screening. So we were the only company in the country, the management board made the decision, that all of our employees went through needle testing. So we have a special database, which enables us to check and be well prepared for a second wave. We don't know if the second wave has already appeared or will appear, but we know this is going to be a big challenge for the company. What I can say is that we've done those aminologics tests across all of the employees. So in the 25 years, history of the company, we've never encountered anything like that. In May, we were technically ready in Pniówek. We had 5,000 employees -- in-house employees plus 2,000 external employees. This is a small town. And I think the CEO [ was -- talked ] about that. We regulated everything. We paid all of our contractual liabilities on a timely basis, just like in a swiss watch. So we have we have 5,000 people working there, and we had 180 people keeping it up. So the rest of the -- so we -- the rest of the people were working, and we were sending out the coal in the cars and the train wagons. We'd like to thank all of our partners. We were all united to make sure that continuity would be preserved. It was important to maintain the business continuity. We were pleased, and we are pleased by the situation in coke. Let's move to the next slide. So our cokers who work in the group. They weren't affected by the pandemic situation the way we were. So we were worried in March and April about logistics of the wagons and how they were going to be driving around Europe because you remember the empty streets. So they continue to be transported. So if you look at a quarter-on-quarter basis, we had a decline of 11.7% in coke production from Q1 to Q2, while Q2 was the pandemic peak. So if you look at the differences between H1 2019 and 2020, we're down 8.7%. If we look at the utilization of production capacity in Q1, we were at 90.7%. What I would like to convey to you is that Q1 worked for us very well. We had an additional 356,000 tons of coke production. So we could easily go into the next period and prepare for the situation where we didn't really know what was going to happen with the coke production. So now as we treat everything quite seriously, if we think about the company, all of the procedures are maintained. Our crisis management teams are working in the various companies, another company, and we're trying to cope with this demanding situation we're facing. In terms of production, we're working. We're operating. We'll see what's going to happen. What I would like to emphasize, the continuity of our mines has not been thwarted in any way, shape or form or hindered. So now I understand that we can go on to the market trends and the situation in which we operate, as you know, we open on -- we operate on a global market, the open market, the European market as a producer of highly quality coking coal above all, that's our main product. And so our measures, our activities were affected by what was happening on the European market, above all, but also the global market. So steel production is an important factor. We had an unprecedented decline in steel production in the EU. If you look on a quarter-on-quarter basis, so it was down by nearly 30%. And so this, of course, exerted an impact. So all of the limitations basically hit our coking plants because steel producers were protecting their own coking plants, above all. So this situation was quite dynamic. We're operating on a market where we have long-term contracts, but long-term contracts have to fit within certain bands. These are annual agreements, and deliveries take place at certain times. So you can imagine what happens if all of the offtakers who are steel producers, reduced their production by 30%, and they're trying to utilize the inventories they have in their warehouses. So this was an unprecedented situation. At least in terms of my knowledge, I've been working on this market for decades. So if you look at what's happening in Q1, at least in the initial 2 months, you can say that the situation was growing. So the periodic declines that happened in our industry, this is a cycle of 3 to 5 years, at least in my career, this has happened many times. But it seemed that the decline that had happened at the end of 2019 was gradually being extinguished, that's the way things looked. And so if spot process around $105 and $110 for met coal, at that point, they were around $150. So this decline is very substantial. And the impact was quite strong. If we look at the sales of coke, as the group, we sold more than 1.1 million tons of coke in the first quarter. So everything was looking quite good. It seemed that we were emerging from that crisis situation, which had struck us, to some extent, in the last few months of 2019. Once the epidemic arrived, so we can say this affected not only the European market, but the overseas markets. One of the important overseas market for us is the Indian market. And we had access to that market after the crisis in 2008 as we diversified the coke deliveries to the European market and to the Asian market. And so we believe that some 50% of the coke would be sold to overseas markets as the European market is shrinking. This situation did not so much surprise us. But it was based on factors beyond our control. India, which is a major economic player, they had announced an absolute lockdown. They announced an exceptional state -- extraordinary state of affairs, and that operated in a variety of ways. And so we announced actually a state of force majeure extraordinary state of affairs to defend our interests, but also the interest of our environment. We have to be aware that as JSW, we are an employer that gives the opportunity for many companies also to operate. We're talking about companies that cater to the mining industry. So without us operating well, thinking about the overall market situation, then those other companies would suffer a knock-on impact from our inability to operate. The situation, of course, was quite dynamic. We toiled extensively, looking for other markets, we're able to find other markets. We have Far East markets that we've accessed. So the numbers are on the upward path. So I hope they should be quite stable. I am talking about China, Taiwan, Vietnam. So these markets had the least decline in their steel production. The situation in Europe was quite difficult. 2 industries impacted that. The automotive industry, which was essentially stopped in Q2, and that led to consequences and repercussions because we deliver coal and coke to the steel producers for that industry. And the second element, which you can see in our results, that the biggest decline of hydrocarbons. So the products that come from the operation of coking plants, this decline is unprecedented in my professional career. This is the chemical industry, also processing industry, basically, that industry was stopped as a result situation. This situation was something we couldn't control, and it just hit us from one day to the next. What I would like to tell you here is that the situation seems to be something that we have behind us. Upcoming months will show we're all aware of the potential emergence of a second wave, along with the problems that could arise as a result. So that's why we're quite cautious. So the price declines we've seen are -- were linked at the same time to quantitative reductions. Of course, we had mutual reciprocal obligations between ourselves and our business partners. But unfortunately, the levels of sales were low. So the price followed that. So it's our hope that the situation will change in the near future. As you look at the price indices, we're talking about spot indices. You can see that the spot prices are ranging between $105, $108. And that was the case in Q4. So this implied what was happening on the coke market, especially if we talk about the coking coal market, and if we talk about premium in particular. So we've talked about the coal in our coal yards. If we look at the steam coal, the general situation is relatively clear. We've made the change that we talked about that we're able to get more and more coking coal, and we're reducing the amount of steam coal we produce. This is something that's happening. And so we have major declines in production of steam coal. We can say that the prices in Q2 were more or less flat. We assume that the situation was relatively stable. So things are a little bit more difficult in terms of receipts of supplies. But the level of inventory has remained more or less stable across the quarter in terms of inventories. Then if we look at coke, so the production of coke fell. Initially, this was linked to some COVID-related problems. So we only had a few cases -- a handful of cases of infections with COVID in our coking plants. And so this is something as a result of the actions we've taken, but also a fortuitous event. So at the end of the first half of the year, we have utilization of the capacity above 90%. That means that the coal we produce meets the needs of our coking plants and we continue to utilize it on an ongoing basis. And so the situation is perpetuating. So we're optimistic about that. As I said, the main problem we saw or a major problem is the receipt of hydrocarbon prices are low, but also the offtake has been reduced, at least in the recent period of the first half of the year. And I think that would be more or less it from my side. Now we can go on to investments. So if we move on to the next slide. We in the company, frequently emphasized, we remember the fact that there's a lot of seasonality, that's part of the genetics of our operations. In 2015, 2016, we had some very strong cuts, reductions caused by the market situation. We weren't planning that much then. Now having in mind, well, nobody had anticipated the pandemic, nobody knew that this was going to hit us, as the CEO, Mr. Herezniak said, so we had price cuts, and it was difficult to imagine that COVID would be -- would visit upon us. So this is a global factor that we have to have in mind. So we manage investments on a project base. We look at our strategic investments very closely. And as you'll note, on a quarter-on-quarter basis, looking at Q2 of 2020, we had PLN 421 million invested. So you remember, 2019 was a record-breaking investment year, so more than PLN 2 billion. So these are investments that are environment feels, we've stimulated the service market around us, and we're working with our partners on a partnership basis. They very much see the situation in which we're operating. So our discussions are merits based. So if you look at the comparison between H1 2020 and H1 2019, you see an increase on an accrual basis of 6.3%. If you look at this on a cash basis, we're up 9%. That's at the group level. We believe a company like ours, with the strategy we would like to follow and the vision for the company, we have to cooperate with the market, with external players and we're very pleased that we continue to follow this cooperation. If we look at the capital expenditures in JSW, this is the most important. This is the key partner that actually drives the entirety of everything. So we had an increase of 3.3% on an accrual basis. What's important and we'd like to summarize and punctuate, we have the investments in corridor works. So this is something that will create and drive the future. We want to continue doing that. So we have 5.1 ratio of work in March and April, we were at 5.0. So we are clearly determined to follow this path. And this is what we've been doing. I'm pleased that CEO, Herezniak said, that we have investment growth in coke. We've always emphasized, and we can see very clearly, what does it mean to have JSW coke on our site. What does it mean to have your own cokers who understand this, who work with us and who are pushing the company forward. As we look at sales, as Mr. Herezniak said, coke is driving directions, and we want to work with them. This is part of our determination to modernize coking battery number 4. I want to absolutely emphasize this, there is no alternative for this investment. As the same is true of building the power block in Radlin. So it is very important for us. Generally speaking, our investments in coal generation and methane, we are tending to these investments, and we want to finish them on an on-time, long-term basis. You sometimes ask about some details that's not actually on the slide. If we look at the strategic investments on the various mines, on top of what we have in the strategy, which gives you a general information. So in Borynia, we are at 7 3 -- 7.3% advancement. So we're 52.7% in the Zofiówka section. If we look at Bzie Debina, this is a strategic investment. Many of you asked questions about what's happening there. I'm pleased by your questions, the progress is 20.8% in that investment. And again, here, we're very strongly determined as in the coking investments to perform that. At Budryk, we've emphasized this for many years. So building the 1,090 meter level, where we were 99.8% complete there. If we look at the washing plant, we're at 96%. So you can say that from a technological point of view, this plant has been completed, and we can see that based on the flexibility of our production in Budryk, so we're doing a watch plant in Szczyglowice. So we're continuing to work on that. If we look at the 1,050 meter level in Knurów, we're around 2.5%. What's important, the pearl in our crown in Pniówek in our production, if we're thinking about the extension of the 1,000 meter level and then deepening 2 shafts, 2 and 3, we believe that we're at 20.8%, that's our estimate, of progress. In Pawlowice 1, we're nearly 23%. These are investments, which are the most important to us from the point of view of what we should do, and despite the demanding situation. Let me emphasize this once again, JSW hasn't encountered anything like what we've seen recently, where we had to do nearly 50,000 tests and with such a high percentage of the staff infected. Well, we can say, we're sometimes discussing, we have positive results. We're now -- we're starting to become experts in medicine and epidemiology, I'm not sure if we can really say that, but we have quite a bit of experience here. What I would like to tell you, and I would like this to resound far and wide, we had to draw conclusions. We treat this threat like every other threat or hazard that our employees have to handle. So we've undertaken some efforts. We're changing some procedures. So our owner is quite interested in what we're doing also research units. So we have methane, fire risk, we have rock outbursts, water, so we'll have this threat now of the pandemic. So this is not something that we've encountered in the past. And there's a big imprint impact on our production profile. This is something we have to acknowledge. Upcoming quarters will show how we've managed with that. So thank you very much. So ladies and gentlemen, we've heard a lot about the declines of prices of coking coal and coke. So price declines of some 30% of our 2 major products, and this means that we had lower sales revenues. So in Q1 2020, we had nearly PLN 2 billion in sales of our core products, whereas, in Q2, we were down by nearly PLN 500 million compared to Q1 2020. If we compare H1 2020 to H1 2019, we're down by PLN 1.9 billion. And this is because of lower coal sales, it was some PLN 740 million, and the declines of coke, and some PLN 500 million. And as Mr. Herezniak said, we had lower sales of hydrocarbons of -- down by PLN 43 million, perhaps that's not a major amount for a company like ours. But this painfully affected us and our results. So that means that we had a historically low level of EBITDA. So coronavirus and the situation transpiring across Europe still affected us strongly. So we had minus PLN 576.3 million without nonrecurring events. So we had nearly PLN 1.2 billion in the previous year. So if you look at our capital expenditures, we had -- so our net working capital is now negative. This is not something we're proud of. But we can -- you've heard why we continue to perform our investments. We have lower sales revenues. So we've extracted some money from -- withdrawn some money from the investment fund, and that was the purpose of having that fund to ensure that we don't have to impede our investments. And that means that we'll have an easier path to catch up on sales revenue when things turn around. So we can say that the result is much worse than in Q1, which wasn't as strongly negative down at PLN 973.8 million at the end of H1 2020. So our market is a seasonal market. It will rebuild and we'll have an improvement in subsequent quarters. So the situation that occurred was linked to the decline of coal production sales. So steam coal. But if you look at prices, this was something that was positive on the cost side. But if you look at our energy, we can say that we had a poor winter, and the there's lower energy utilization. So we had a 5% decline or 4.5% decline in coal sales volume. If we look at the volume of coke, we had the 1.1 million tons sold in Q1, which is a record-breaking level. We weren't able to achieve that same level in Q2. So we redirected our sales to a couple of other Far East markets. Even so, we weren't able to fill in all of the holes, so there was a decline here. Other things that affected our operating results, well, the production results, well, all of this was caused because of what's happening in Budryk, Knurów-Szczyglowice also what happened in Pniówek. Some of the costs we couldn't incur and couldn't capitalize them. So they had a negative impact. We had a positive situation on the FX side of the market. And then we had the down revenues. So I think it's worth saying a little bit more. We've had Jastrzebie-Zdrój, we had a loss, which is a result of the impairment loss, we did an impairment test, some PLN 400 million. So as we look at the change of market conditions and COVID, that we decided that we had to revalue the recoverable value of The Jastrzebie-Zdrój mine. This is because of the reporting standards, which we follow as well as our accounting policy. And this was checked by our auditor, another PLN 70 million with the cost of downtime and the personal protection means of employees. And so these were nonrecurring costs that had an impact on our results. If we look at the various operating segments, so we saw a big decline in revenue on the coal segment. So this was a major change, nearly PLN 700 million. The coke segment had a volume change but the result wasn't so much deteriorated. If you look at the entire segment, then you had some change in consolidations. Well, you can say that the -- what happened on inventories didn't really affect our results very much. So I think it's worthwhile to emphasize what's happening on the cost side. Part of our success is having lower cost. It's not something that depends on us. We use fewer materials because we produced less. We've met with our business partners to ensure that our business partners understood that we need to negotiate some of the conditions of supplies as well as pricing conditions. And so we had a large number of these meetings, as you've heard, most of the companies decided to meet with us, and they were sympathetic to our costs because we're all working in the same sector. We're on the same boat, and some of the companies were quite understanding. And they helped us lower the costs of material usage, while we had higher depreciation and amortization. That's because we did a lot more corridors works, so we had a higher depreciation and amortization and IFRS 6 had an impact on the D&A costs. We paid out the cash award to employees in the first half. And so that had an impact on our results. So we have 1,200 people more that are in the company that is building the shaft, so our costs -- employee benefits are higher. One of the big successes was reducing the costs for methane drainage. Whenever we see a monopolistic position amongst some of our service providers, we try to take over some of the services. And I think in upcoming quarters, if we think about this element of our business, we hope to be able to take that over. So I do want to recur -- return to the situation linked to COVID to talk about the impacters, drivers. So if we look at our liquidity position, so we've spent PLN 1 billion in the first half of the year. So we decided to withdraw PLN 1.1 billion. We have a little bit more than PLN 700 million in the fund at the end of the first half of the year. And so the liquidity position means that we have a deterioration in our liquidation ratio, so current and quick ratios. And all of this is caused by our assessment of COVID and the pandemic. But if you look at our capital expenditures. In the future, we want to align our CapEx to our liquidity. I think that's more or less it in terms of our business results, and we'd like to move on now to the Q&A session.

So I'll read the first of 5 questions that we have from Mr. Pawel Puchaiski from Santander Brokerage House. Are you considering taking over a coking coal mine from PGG?

No.

Please remind me of the covenant levels you have linked to your debt, what is the minimum level of cash in your balance sheet? And are there any restrictions on the utilization of funds in that front? What would happen if you violate your covenants?

The same question was posed by Andrzej [indiscernible] from the PBB Brokerages. Let me talk about the covenants first. As a matter of standard, if you look at our syndicate loan, we're not different from other major groups on WIG20. I think they're identical to the ones we see in other institutions. What we've talked about in our financial statements, we have an information covenant. We have to publicize the fact that a portion of our EBITDA through JSW is lower [ than 85% of the overall group's EBITDA. And that means we have to notify the financial institutions financing us. ] We have to have an additional charter. And so JSW COGS is an additional short term, and we're in a dialogue with the financial institutions in order to come to a conclusion on that, so either to modify it, those covenants were not -- if we think about the restrictions linked to the utilization of the funds and the closed-end investment fund. What is worth mentioning, the purpose of this fund is to be able to follow and continue performing our investments and to cover the obligations of the liabilities of the company. So we'll utilize that when we want to, if we believe that the CapEx is necessary or if there is a liability that we're not going to be able to cover with the cash we have on hand.

Thank you very much. Now we have question #3. Is the operation of the mines in Q3 moving ahead at full steam? Do you want to revise your full year production plan? At the beginning of the year, you talked about 15 million tons.

As you remember, from our plans, we wanted to mine more than 16.5 million tonnes. And so the loss in extraction because of Q2, this is a difference of 1 million ton. And so you can see the threat quite easily. Of course, the operation of Q3 is something we'll discuss after the quarter comes to an end. Right now, it'd be very difficult to assess that we're in the middle of the quarter. I'm a miner, so I prefer to be cautious. Oftentimes, events occur that we have no impact upon. And that's more or less where I would leave this question, we're going to do everything to make sure that we can make up for that 1 million tons that's missing. I think we could add, as Mr. Herezniak has said, at all of the meetings, we have an annual target. That's why we continue to work to meet our annual targets.

The next question. Are you negotiating between JSW and the trade unions about reducing salaries or freezing bonuses and other similar things? What does it mean to have a reduced risk of working with mines in the future? When can we expect any type of [ dismissals or things ] our relations with the trade unions are very good?

Q2 wasn't a typical quarter for everybody, also for the trade unions, the social partner. So people encountered thousands of problems. So telephones, telephone calls with psychologists because we had 15,000 talks were held with employees, employees we're experiencing difficulties. You have to be aware that this was an unprecedented scale. At the same time, especially in Q2, we were meeting once a week with the trade unions. We were sharing opinions. We also asked our partners at the trade unions, what are the feelings, what are the signals from employees. We were monitoring this on a weekly basis, and we were trying to adjust [ our actions to incorporate their expectations. These activities were difficult but necessary. And in my opinion, they produced real benefit. ] As you recall, in Q1, we were talking about pay raises. So the pay rises in other companies were quite big, 6%. Our trade unions wanted to have 6% to 8%. After the pandemic outbreak, at the end of March, all talks of that type were suspended until the situation is explicated, and to understand what's happening with JSW. And this is how I would comment things. These talks are underway almost all the time. It's obvious that we're trying to make some savings. But as my colleague said, we have an annual target. And the annual period will tell us what's -- we've been able to do.

And the last question from Pawel Puchalski, which parts of this strategy, extraction costs or others, where do you see the greatest risk for your targets?

Perhaps I'll start. The future is the most subject to risk. We have some knowledge about the epidemic, but our knowledge is incomplete, and we can imagine what we hear in the media, a possible second wave. This is a threat to risk. We have to be aware, perhaps it will affect all of Europe and some of our offtakers outside of Europe, and this is something that we don't have knowledge about and we have no impact over -- control over. The other thing is extraction. We talked about that in the previous item. We're going to want to catch up on the production shortfall. And we want to prepare for better periods in the future.

And the next 2 questions we've received from Mr. Jakub Szkopek from the mBank Brokerage House. When should you anticipate information about PFR, granting a loan to you or not? What is the probability of you receiving it? And this question was also posed by a gentleman from the Trigon Brokerage House.

Perhaps I'll try to respond to this question. If we think about the time when this loan would be granted, we have more infections in Italy and Spain. When we think about strategy and the level of mining production, our employees are infected, but we don't call them sick people because it hasn't affected their physical condition. We're worried, however, by -- we're pleased by that situation, but we're worried by a second possible lockdown. And PFR is doing analysis and due diligence of our application. It's very difficult for us to respond to the question, when might the funds be awarded to us? There's a lot of awareness in PFR. The Polish Development Fund, that we need the money. And our market has greatly been affected by coronavirus and that's why the anti-shield crisis -- Anti-Crisis Shield was created. So if you think about headcount, our exports and the role we play in the region, I'm thinking here about the entire Central and Eastern European region because we deliver products across the region. We see the impact, as Mr. Herezniak says many times in our talks, that we see a level of underinvestment. So coking coal production in Europe could fall. And this is something that would put us in a positive context in the future. So we'd like to get the funds in the fall of this year. But not everything depends on us. Perhaps I would add to what Radek -- Radoslaw said, let me add a piece of important information as a company. We are a stabilizer of the economic conditions here in Silesia. We are the employer, the buyer of services and materials from hundreds of companies. So this is something that's quite important for our position to be stable. We're aware of our social importance in the region because it's important for us to survive this difficult time, and this is, I think, an important argument.

The second question from Jakub. Could you give some information of the PLN 1.75 billion? What percentage of that will be in as a loan? And what percentage of it could be forgiven? When would you have to give it back to be converted into equity?

In terms of the first portion of the part, in what form, will this be provided, the entire amount we've asked for, applied for, when we analyze the rules and regulations of PFR, the entire amount would be in the form of a loan. We don't assume that it could be converted into equity. And if we look at the return period, it's up to 4 years. If we think about debt forgiveness, this is something that will be discussed between ourselves and the Polish development fund. And this is part of the due diligence effort that will respond to these questions.

Now we have another 3 questions from Ukash [indiscernible] from Trigon Brokerage House. The first question, what is the status of critical raw materials? When will the European commission publish that? And what's the probability that coking coal will continue to be on that list?

Perhaps I'll start at the end, as a management team, we believe that it's highly probable that it will continue to be on the list of critical resources of raw materials. It seems to us that we've done everything that we could. We've approached all of the important people in Brussels as well as in our country. We have support expressed by many, many people, and also our international partners have lent support. We've asked them for that support, and they've endorsed our request. I'm thinking about EUROFER, and so they've expressed that support through that. I think we're going to be on that list. On the technical side, we've met all of the perquisites, on the technical side, to be there, but it's a matter of the decision of the European Commission. Originally, the publication or the announcement was to be made in March, it was deferred as a result of the extraordinary situation. Based on what we know right now, the list should be published in September.

The second question, when does the management intend to revise or update the strategy, having in mind the planned volume of production, having in mind what European steel mills have stated that they're going to convert from blast furnaces into electric furnaces?

It's very difficult to respond to that. I'm an engineer. And converting a blast furnace, somehow, into an electric mill. That means you have to build a totally new steel mill, different process, different cost elements. The cheapest process to produce steel today is a blast furnace process, and we know that all of these new technologies. So the attempt to replace coking coal with hydrogen. This is all experimental. This is semi-technical. But all of this implies a very high level of cost. And I think that's response to the question. So huge amounts of money would have to be spent to convert. Europe has to produce steel, even if you want to have windmills, simple, you need to have steel. But as I look at this situation, the market situation, if you look at the sales of our product, so coking coal and coke, if you look at the quantities, had there not been the pandemic, which is beyond anyone's control, it seems to me that the market is able to buy all of our production. As a person who's been involved in the sales of coking coal and coke, had the situation been a normal and not a pandemic situation, we would be able to sell the vast majority of our products amongst the steel producers in Europe. Of course, we did make some shifts. We're selling coke on overseas markets. We continue to work on updating the strategy. The application we submitted to PFR is a matter of updating the volumes. And it's a clear signal coming from the -- from our forecast of what's going to happen on the market. So our clients are international partners, which also have to revise their strategies. So we think that the rebound will be bigger, and this will be visible as price movements transpire. So it's our profound hope, as the CFO said, the Polish Development Fund is quite important to us. This is a key thing. The pandemic has affected us greatly and has left a major footprint on our operations. We are people who are basically very close to the ground, and we're part of the program for Silesia. We have to be aware of that. We don't want to change our strategy. We have a good strategy. But right now, we need some support.

And then question number three, the impairment loss for the newly built mine, does this is supply also to old assets?

We decided to merge the Zdrój mine, which is a newly built mine with mine that's been around for a long time. But this impairment loss applies both to the older mine, Jastrzebie as well as the Bzie Debina mine.

Now we have a question from Mr. Robert My from the [indiscernible] Securities Brokerage House . The PLN 74 million in Q2 2020 as a result of pandemic, this is a nonrecurring event. What was the money spent on? Why will the situation not occur again in Q3?

I talked about that cost in part. We believe it's a nonrecurring cost because we covered the costs of absenteeism, downtime and the personal protection means and the medical tests. We did multiple disinfection runs in the shared parts of the mines. As Mr. Dyczko and Mr. Herezniak said, we took a number of efforts to protect our employees against getting infected with coronavirus. We don't anticipate that, in Q3, that we'll have to take -- incur those type of expenditures. We're learning to deal with and modify those events that can lead to infections. We don't anticipate that we'll have to incur those costs in Q3. Nearly PLN 60 million, as Mr. Herezniak said, that's the downtime, the quarantine-related payments. But the situation on the market has changed. In March, you couldn't buy gloves or masks or horrific prices were being demanded for them. Now the market has stabilized. There are no P2 masks because they're just not present on the market. So the prices have fallen from PLN 35 to PLN 5. Most of these topics, we're starting to do [indiscernible], which are preparing a disinfect, we want to utilize it to disinfect rooms. We have to get some certificates and other efforts have to be taken activities. So Mr. Heredzniak mentioned, business continuity, the plans that we have and if approved, everything has been set up in such a way that we don't see any opportunity for something really astonishing us at least in Q3 because nobody knows what's going to happen in the future. Yesterday, Jastrzebie was in the red zone. Today, we're in the green zone. So the -- as Mr. Zalozinksi, our CFO, said, we don't anticipate that we'll have to incur those kind of money's costs in the future.

Then Mr. Rafal Wiatr from Banca [indiscernible] Brokerage House. What sort of savings can you generate in the upcoming quarters in staff costs and nonstaff costs? Are those levels -- can they be maintained in upcoming quarters?

Some of the costs, as I mentioned, the reduction was not so much due to our efforts, but this was because of lower production. We're in deep shaft mines. We're not able to do open shaft mining compared to some of our -- or in contrast to some of our minors competitors on other continents. There are a number of factors which means that our costs are high. Of course, in our market, we see that there is seasonality and sometimes we're in troughs. And so we want to make sure that we're able to move through them. And we talk with our business partners to reduce costs. The other thing is that we buy higher quantities of goods to get lower unit prices, and we also participate intenders to ensure that we don't have shortages of materials in our mines. And we're also trying to ensure that we don't have to have as many people working for us, that HR component can be less because, of course, we have a high percentage of employee benefits in our cost base. So the number of people who are below ground has an impact on safety. So we're trying to reduce that number of people. So there's a lot of work to be done by our production support department and the procurement department to ensure that we spend as little as possible on the purchase of materials and services.

Second question, what level of CapEx should we anticipate in the upcoming quarters?

We're not going to talk about the future. Especially since it's really blurry or fuzzy. During the next conference we hold to show you the next results, I hope that we'll be able to say that our application or applications with the Polish Development Fund have been approved. We need that money to ensure that we don't have to stop certain investment processes. These are crucial investments for us and for the overall region. And this is the most important thing. What we want to do is we want to continue doing our preparatory works, this is what will enable us to benefit when the situation improves. So that's why we want to maintain that level of preparation works. We have to have 25, 26 longwalls ready for subsequent periods.

Ladies and gentlemen, we have an additional question, which has showed up. It pertains to the commercial position of the company. The first question, you wrote in your press release that you're selling more on the overseas market because coke demand has fallen. What markets do you have in mind? Are these onetime shipments? Are they long-term contracts?

I think I mentioned this previously, what we did during the previous conference. So our shipments to overseas markets outside of Europe were -- it's going to be roughly 50% of our coke sales. And that's something that is happening. We operate on a hybrid fashion. That's what happens on the spot market. Sometimes there are single transactions, but we also have long-term contracts. And one market is becoming or will be becoming important to us, the Chinese market in the upcoming months. We want to negotiate. This is a future situation, it's hard for me to say how it will end. But as a company, we prefer to have long-term contracts, which stabilizes the situation concerning our offtake for coking coal and coke. In terms of the detailed information. These things are in progress. It's hard for me to talk about price as we command or the tonnages these are commercial secrets.

Thank you very much. The next question is also about the press release published by the company. Which long-term contracts were curtailed?

I've talked about that previously, our long-term contracts we have with our major offtakers, our customers, both for coal and coke. Well, those contracts are still in place, but then we have the execution contracts, which are annual contracts. They have certain corridors or ranges, in which they're performed. We haven't seen any curtailment of deliveries. But for a short period of time, there was a reduction in offtake, and this is something that was written as something that's a possibility in our long-term contracts.

And now there's a question about the modernization of your Budryk and Knurów-Szczyglowice wash plants. Has that been completed? What's the mix of coal production?

I think I mentioned that when I presented the slide, we can say that technologically speaking, the work is at the final stage. In Budryk, it's 98%, it's 90% at Knurów, 95% at Szczyglowice. That's the progress. Well, the technical approval process is something that takes some time. We'd like to complete that process by the end of the year. If you look at the mix, we're testing these solutions. It's a shame that we have COVID. We wanted to take a trip to show you Budryk. Basically, at Knurów-Szczyglowice, we'd like to have the mix in such a way that we'll have more than 80% as coking coal. Well, we're very pleased to see that we can actually control this mix. We're selling the type of coal that customers want to buy. In Budryk, 60% of that we're able to achieve. So on average, on a year-on-year basis, we can say that we're up to some 79%, whereas last year, the mix was 69%. So we've improved the coking coal output by 10 percentage points. Over the pandemic -- or during the pandemic, we've continued to run this work our companies -- our mines were generally closed for external companies, but we continue to do these investments. And I want to thank people for that. And so we're somewhere between 90%, 95% progress. That's the progress we have.

Then the next question. Are there any talks with Mittal or any other major buyers of coking coal and coke about renegotiation contracts -- renegotiation of contracts?

It's a normal thing to have price negotiations. We have formulas written in our contracts. That's a normal thing. And in this sense, we can say the negotiations take place in every month, every quarter. And that's quite normal. In terms of the principles of these contracts, there are no such talks, and with respect to no contract, [ are we ] involved in those type of renegotiations to revise the overall principles. So I understand that we've responded to all of the questions that have been posed. So we'd like to thank you very much for your attention, and I hope that the next conference will find us in better spirits. The results are just the results we've presented to you. So I think that we've been able to [indiscernible] the epidemic situation. It's very important for us. We're drawing conclusions. We're finishing up the work on the procedures, which will make it easier for us to live in our mines, having in mind, the experience we've gained and gleaned from this experience. And so here, the situation should improve. There is some very strong variables. We're not sure what's going to happen with the epidemiological side of things, that's something that we flagged many times in conversations with everyone, not just in our company. But in other places, we're doing everything we can to catch up and to fill the gap in production profile that we had. So thank you very much for your attention, and we look forward to seeing you in the future. [Statements in English on this transcript were spoken by an interpreter present on the live call.]