KGHM Polska Miedz S.A. (KGH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Andrzej Kisielewicz, and I would like to open the Annual General Meeting of KGHM Polska Miedz S.A. I will be chairing the meeting until the chairperson is elected. Let me welcome shareholders, representatives of the media and representatives of the Supervisory Board, Mr. Czyczerski, Darowski and Szarek; and the Management Board, the complete Board of Mr. Chludzinski, President; and Vice Presidents, Mr. Gruza and Bugajczuk, Swiderski and Kensbok. A warm welcome to you, everyone. Yes, so I have mentioned everyone. So the minutes will be prepared by [ Radoslaw Stach ], notary. And now please put forward candidates for chairperson to chair this general meeting.

My name is Andrzej Leganowicz, a shareholder authorized to attend this meeting. I'm putting forward my candidate chair for Chairman. And if I'm elected, I will take the office of Chairman and moderate and chair the meeting.

Any other candidates? I can't see any. So we have one candidate, Andrzej Leganowicz, to chair the Annual General meeting. And let me ask a gentleman from the program company to give an introduction and instructions on voting using the terminals.

Good morning, ladies and gentlemen. You have a set of 3 tokens. Green, yes, it's in favor; yellow, against -- red, against; and yellow, abstention. So you have to put it to the reader, put the token to the reader to the back of the phone. And then you'll see information that the vote has been cast. If it's open ballot, you see the name and who voted. And for secret ballot, we only have information about who cast the ballot -- who voted. If you have any questions or problems, please let me know. Okay. So everything is clear, let us vote to elect the Chairperson or the Chairman of the Annual General Meeting. Andrzej Leganowicz, this is a secret vote. Please cast your votes now. [Voting]

Okay. So all of you cast your votes. So let me close the vote, and let's see the results of the vote. So in this vote, 120,410,695 votes have been cast. 120,410,695 votes in favor. None, no one voted against, no abstentions. So let me declare that Mr. Andrzej Leganowicz has been elected Chairman of the Annual General Meeting, and let me give the floor over to Mr. Leganowicz now.

Thank you for electing me as Chair. And can I have the attendance list, please? It's here? All right. Thank you. The attendance list has been signed by the Chair of the Annual General Meeting and is available for review -- or to be viewed by shareholders during the meeting. If any one of you would like to see the content of the document or view the list, you can do so until the meeting is closed. And now by electing the Chair, we completed item 2 on the agenda. Item 3 is the declaration of validity of convening the AGM and its capability of passing resolutions. Let me now inform you that today's meeting has been convened in accordance with the applicable Commercial Companies Code provisions and the company's articles of association. And the notice was published on the website of KGHM Polska Miedz S.A. at www.kghm.com on 11th of May 2021 and was maintained to date on that website. The content of that notice is the requirements of Article 422.2 of the Commercial Companies code. And on the same day, 11th of May 2021, the company sent a current report, which includes the content of the notice in accordance with the public offering law and the law on public trading of securities. The number of the report was 16/2021 and Report #17/2021 of 11th of May included proposed resolutions for today's general meeting. The documentation and information materials fulfill the requirements of Article 422.3. And they were placed on the company's website on the date of convening the meeting and have been maintained there to date. None of the shareholders exercised their right on the Article 421.1 and 421.4, the Commercial Companies Code, that is a request to add an item to the agenda of the meeting and put forward proposals for resolutions on the matters included on the agenda before the date of the meeting. The list of those authorized to attend or the authorized attendees has been prepared and is -- and was provided -- was made available on the Article 421.1 of the Commercial Companies Code within the required time limit. And on the paragraph 5 of the Articles of Association, resolutions can be passed if at least 1/4 of the share capital the company is represented at the AGM. And now the attendance is as follows: so we have shareholders present here or by proxy representatives, the number of 585 of shareholders present here this way. The number of shares they have is 120,410,696. The number of votes which can be cast is 120,410,696 votes. The capital represented is 60.205%. So I declare that we have the quorum capable of passing resolutions here. And during today's general meeting, it's not possible to attend using distant communications, and the rules of AGMs do not provide for such remote access possibilities, remote attendance. Votes will only be cast by those attending the meeting here or present here. The meeting has been validly convened and is capable of passing resolutions on matters included on the agenda. Resolutions of the AGM in accordance with Section 26.1 of the company's Articles of Association are passed by a standard majority, ordinary majority of votes. And today's AGM is available as a webcast online. And the transcript will be published after the meeting on the company's website in accordance with the rules included in good practices of companies listed on the Warsaw Stock Exchange. Okay. So we've declared the meeting valid and capable of passing resolutions. And we have representative of the State Treasury. Could we have a 15 minutes break? Okay. Yes. So we'll have a 15 minutes technical break. It's 14 past 11. Let's be back here at half past 11. [Break]

I'm here by resuming the session of AGM. And I'm announcing another break of 15 minutes. So we shall resume at 11:45, at quarter to 12. [Break]

Ladies and gentlemen, it's a quarter to 12, I'm resuming the session of the AGM of KGHM. And this is Item 4, acceptance of the agenda. The agenda was published by the Board. It contains 15 items. Does anybody wish the agenda to be read aloud? So let me assume that all the participants are aware of the agenda is presented. Would anybody present like to make any comments as to the agenda or as to the methods of its implementation? If there are any comments about the agenda, please.

There is a request from the State Treasury, but I'm afraid that without the microphone, I am not able to interpret the motion.

I'd like to address the proxies present at this Annual General meeting. Do you need to consult this decision? The decision that will be performed today, do you need to consult your patrons? Which is item 13, which has been requested to be deleted from the agenda. Do you need consultations with your patrons? Yes. So let's have a 5-minute break or 5 minutes. Please, let's reconvene in 5 minutes at 11:52. And we will have a meeting. We will have a vote on the deletion of item 13 from the agenda, that is adoption of resolutions on changes to the composition of the Supervisory Board of KGHM. After that, we will vote on the updated agenda, excluding the item -- item 13, as just discussed. [Break]

[indiscernible] Annual General meeting of KGHM, we are at item 4, acceptance of the agenda. Please be reminded that there has been a motion to remove item 13 from the agenda. Now we have a proposal of the amendment. The ordinary general meeting of KGHM resolves to remove item 13 from the agenda, that is adoption of resolutions on changes to the composition of the Supervisory Board of KGHM Polska Miedz, thereby items previously numbered as 14 and 15 are now numbered 13 and 14, respectively. And the next paragraph, the resolution comes into force upon its adoption. Does anybody have any comments on this change? If there are no comments, I would like to ask for -- I would like to declare a vote. This is going to be an open vote because this was an official proposal. So please cast your votes. Information for the representatives who have a bigger number of tokens at their disposal, I will wait for all of you to cast your votes. Once you finish, please let me know. [Voting]

Have all the people authorized managed to cast their votes? I hereby close the vote, and I'm kindly asking for the results. The results are as follows: the number of votes cast is 120,410,694. 81,676,170 was for. There were no votes against. And there were 38,734,524 votes abstending, which means that the resolution was passed. The next item is adoption of the resolution on the amended agenda. Here is the proposal of the resolution. This is a resolution, the next number/2021 of the ordinary general meeting of KGHM Polska Miedz S.A. with its registered head office in Lubin dated June 7, 2021, regarding acceptance of the Ordinary General Meeting. The ordinary general meeting resolves the following: item 1. The following agenda is hereby accepted. What follows is the agenda with deleted item 13, and items of 14 and 15 are renumbered as 13 and 14, respectively. Item 3 is the resolution comes into force upon its adoption. Are there any comments as regards the content? I can see no comments. So another open vote. We are voting on the resolution adopting the agenda of the meeting after amendments that have been proposed. [Voting]

Have all the persons authorized managed to cast their votes? I hereby close the vote, and I'm kindly asking for the results to be presented. Altogether 120,410,694 votes were cast. 119,947,433 votes were for. There were 0 votes against. 463,261 votes were abstentions, which means that the resolution was passed. Let us move to the next part of the meeting, which is the review of reports. I'd like to request that items 5 and 6, which talk about the review of annual reports, presented by the management Board of the company, were covered by a joint discussion, discussion in which everybody can comment on the reviews. Before the discussion, the management Board would like to present presentation explaining the main thesis. Mr. Chludzinski will make such a presentation. Does such a procedure of a joint discussion and decision on the -- on the appropriation of profit, can you accept that? So I would like to ask the Chairman to present the report on the results and appropriation of profits.

Ladies and gentlemen, the entire management Board would like to present the most important items of the entire presentation. I would like to say that we are finishing a very unique year, year like no one before, a year in which the management Board of the KGHM had to face challenges of an unprecedented nature. What I'm talking about here is both a highly changeable volatile macroeconomic environment, but also the fact that our continuous operation, our trading and mining operations, our logistic capacity depended on the medical situation and on the health situation, both in Poland and across the world. This is what made this year really unique, and this is why the challenge. Now when we look at the environment, we don't -- we are not so much under its influence. But if you go back several months, you have to realize that we were operating in unprecedented, unexpected conditions. And I can state it with full confidence that in this in this environment which is what was unexpected and very difficult, we did manage and we have fulfilled all our plans. I could say that we did pass a test, and I would also like to say that this test was passed by the entire company, by all the employees, in the -- in mining, in servicing companies, in all the parts of our business. Our operating mode had to be changed. Our employees had to be really committed and really involved to make sure that the company would maintain its operating ability. We would like to say that none of the elements of production was halted. We worked without a break. The exports were continuous, which is also -- can also be seen in the results, especially when compared with other companies in the industry. We are 1 of the 3 companies, which not so much cut down their -- which didn't cut down on their performance, just the opposite. Our performance was even slightly better despite the difficult situation. We are 1 of the 3 companies which had excellent performance despite difficult challenges. All that happened in a very volatile macroeconomic environment. As you can see on the left-hand side, you have prices in 2020 went in March. We were talking about the price of $4,500 per tonne, $4,500 per tonne of copper. No -- there were no forecasts of any rises. However, the second half of the year, or especially the last quarter, revived the market. And the prices reached the level of 2019. Forecasting the future during the coronavirus pandemic was really difficult because the environment was highly unstable, highly uncertain and the forecast concerning the health condition was also -- were also very varied. It was very difficult to forecast the future trends for the business because the medical environment, the medical condition had a direct impact on the economic condition. This was the case throughout the year. The challenge also involved the lack of predictability. It was impossible to predict the number of infections. Well, of course, all our activity is related to uncertainty, but this was especially significant last year. Nevertheless, we managed to achieve our financial goals. EBITDA, PLN 6.6 billion, so this was the biggest EBITDA since the acquisition of foreign assets, generated also to a large extent by our foreign assets, especially by the Sierra Gorda project. The result of the capital group is over PLN 1 billion. All this is related to the fact that the production was maintained and even grew a bit. The production of silver was slightly lower. The cost of C1 was slightly lower, which also had an influence on our result, minus 6.5%. Average price of copper compared to 2019, plus 3%. So we also had increased income by 4%, which allowed us to generate profit of PLN 23.632 million. We lowered our borrowings from 1.5 to 0.9 after many years of difficulties with the level of our borrowings. The loans have been a significant burden for us since our foreign purchases. But the situation has enabled us to reduce our debt, our indebtedness, and this is the path that we want to continue given the situation on the market. As far as production results are concerned, let me give the floor over to Mr. Swiderski.

Good morning, ladies and gentlemen. As for the production results for the last year, paid copper production was 709,000, which is 1.1% higher than last year. As for KGHM Polska Miedz, we have 560,000. Domestically, it's just less than 1% lower year-to-year. And this is related to a lower content of the deposits and reduced supply of copper -- scrap copper. In Sierra Gorda, we have a significant increase by 37% because of the lower -- higher throughput and higher copper grade. What is also significant is the drop for paid copper production in KGHM International, 77,000 -- 67,000 tonnes, 13% down compared with 2019, mainly because of lower production at the Franke mine. And in quarter 1 2019, the Morrison mine was shut down or the operations were shut down there. As for the safety operations, operational safety in 2020, we observed the lowest historical level of accidents ever at KGHM, which is 29% down compared with the previous year at KGHM. And at KGHM International, it was as much as 32% down. We obtained certificate for managing safety, operational safety. And because of the 29% drop in accidents, we received the golden card of health and safety leader. Thank you.

Good morning, ladies and gentlemen. My name is Andrzej Kensbok, and I'd like to present information about the key financial indicators. So as President has mentioned, the EBITDA of the group for 2020 was PLN 6.623 billion, which is PLN 1.394 billion higher compared with 2019. And EBITDA -- unit EBITDA was PLN 4.458 billion. So that increase occurred mainly because of higher revenues that were generated because of improved copper and silver prices in the second half of the year and also higher production and extraction in Chile of concentrate at Sierra Gorda because of higher efficiency of mining, operations, processing, higher technical availability of equipment and machinery and higher content of the ore operated or mined in 2020. As President has mentioned, the debt level was reduced from 1.50 to 0.9. That is the debt-to-EBITDA ratio, because the EBITDA increased itself and also because the debt was repaid -- gradually was being repaid and reduced. We have a stable long-term funding. We have been improving the structure of that financing continuously and it is fully sufficient to carry out our operations and invest. The cost of that financing is also decreasing. And now the financial results in more detail. The net result of the group, PLN 1.797 billion, this is the consolidated result for 2020, from the consolidated figures. And the graph shows you the change from the net profit in 2019 to 2020. The difference is PLN 378 million -- it's PLN 376 million up. So because of higher sales profit on the core operations, core activities of the company, change in revenues from copper, silver and gold, with a drop in sales of services unfortunately, it was a slight drop and across many areas what rose as expected, but at the same time, our spending on outsourced services was reduced. So that was mainly the preparatory work or development work, joint ventures, PLN 295 million, and that is the effect of those. And we also had impairment loss on tangibles and intangibles, which is in contrast to 2019, where the main negative part of PLN 150 million was different in 2019, impairment write-downs or impairment losses at Sudbury in Canada were reversed where there was no reversal of those impairment losses in 2020. That is why we have this negative difference compared with 2020. And similar, foreign exchange differences. In 2019, we recorded foreign exchange gains, net gain. At 1st of December 2020, the zloty to dollar exchange rate was around 3.6. So it resulted in negative foreign exchange differences or losses. Income tax increased as well by PLN 258 million altogether. But our debt was related to a change compared with 2020, where we had a one-off positive event. So altogether, we have to say that in total, we improved the net result by PLN 376 million compared with 2019. Thank you.

Good morning. My name is Adam Bugajczuk, and I have some information about our strategy for climate. So we have been pursuing the goals of circular economy. We've managed to adopt principles of managing waste. And as for scrap metal, we smelt more and more scrap every year. So this makes us more effective in terms of circular economy. So also electromobility, we've been increasing the number of the fleet of electrical vehicles in electrical mining machinery. And we have deployed low-emission vehicles as well and using batteries. As for the sources of energy, we are pursuing a strategy to have 50% of energy used from our own resources, generating units, including renewables. And last year, we opened a PV plant, Legnica mine, 3.1 megawatts of capacity, and working on other projects as well to invest in those renewables. As for the reduction of emissions, we're working to adjust the BAT emissions, BAT practices. The Glogów-Legnica smelter plants, we will finish those projects towards the end of the year. As for environmental protection now, well, this is a very important part of our strategy, with pending up to several hundred million zlotys on various activities for the environment. So all of our investment development and replacement projects fulfill the strictest environmental requirements. And you can also see our main environmental commitments below, and we're working to deliver on those commitments every year successfully. Thank you.

All of this, what we've mentioned, the financial results, operational capabilities and maintaining production, the level of production at that strategic level, that is not an easy task to do given the circumstances, not only the unexpected circumstances, but also the geological conditions of mining, the financing structure, the debt structure, the results of our foreign operations, the streamlining of production capabilities, the optimization work we've done to cut costs, to reduce the cost and make our operations more effective. So this is in line of our resilience strategy which we have been pursuing, and you can see that in the results of our company. We're also working on to prepare in terms of climate, diversified energy sources to supply energy for our production equipment. We're also working on the climate policy of our company to actually provide a more detailed rules in line with the EU legislation. So the strategy works. While it's proved effective also during the pandemic highly volatile times, and in 2020, we were affected significantly by the volatile environment. But in spite of that, we are able to show you the results which were resilient to the volatile environment because of the efforts of all the employees of our company. We have been delivering the goals which we set before the pandemic. So because of all of that, we can recommend dividend payments to you as general meeting of PLN 300 million, which is about PLN 1.5 per share. And we propose to use the rest of the profit of PLN 1.479 billion to be allocated to the company as reserve capital. That is under recommendation of us as the management Board to the general meeting. And that's all from me. Thank you.

Okay. Thank you. So as I declared before, let me open the floor for discussion on items 5 and 6 on the agenda. As an introduction to that, let me say that all documents in items 5 and 6 were placed on the company's website, together the documentation submitted to the attendees of the general meeting. We also have a representative of the company's auditor, [ Catajina Ignaciac ] from PwC, auditors of the company. So would you like to take the floor concerning items 5 and 6 on the agenda? I see no hands and no one is willing to take the floor. So these items 5 and 6 were presented to the Board and dealt with. Item 7 is the report on the representation expenses, legal and marketing expenses and public relations services and social communication services and advisory services associated with management in 2020 and the opinion of the supervisory Board of KGHM Polska Miedz S.A. The document was published together with the documents submitted to the AGM on the company's website well in advance. So I understand that everyone interested could view the document. So my suggestion is to open the floor for anyone who would like to ask questions or comment on the documents. So if you accept this suggestion, if you accept that, let me open the floor for a discussion on the report I mentioned on item 7. All right. So no one wants to take the floor. So the report on the item 7 is declared to be submitted to the Board, to the AGM. Items 8 and 9 now. These items were to review and present reports and evaluations put forward by the supervisory Board to the Annual General Meeting, so items 8, 9 and 10. So my suggestion is to open the floor for a discussion on all of them together, 8, 9 and 10, in connection with the publication by the company of documentation on the website in connection with this Annual General Meeting, it was published or placed on the website well in advance. We can open the floor for a discussion, so attendees could comment on or ask questions about the documents put forward by the supervisory Board. Do you have an objection to my suggestion? If not, then let me inform you that the reports and evaluations mentioned in items 7, 8 and -- 8, 9 and 10 placed on the website, published by the company well in advance, together with the documents submitted to the AGM. Let me open the discussion on items 8, 9 and 10. Would you like to take the floor with any comments on the content of these documents? As I can see, no one wants to take the floor, so I declare that the reports and evaluations mentioned in items 8, 9 and 10 of the agenda have been presented to the Annual General Meeting and reviewed as required by the AGM. Now item 11, adoption of resolutions a, resolution on approval of the financial statements of KGHM Polska Miedz S.A. for 2020. So when reading the resolutions, I just read the first part of each resolution just to streamline the procedure for today. So paragraph 1, the Annual General meeting of KGHM Polska Miedz S.A. approves the financial statements of KGHM Polska Miedz S.A. for the year-ended 31st of December, which includes the statement of profit and loss for the period from 1st of January to 31st of December 2020 showing a profit for the period in the amount of PLN 1.779 billion, to the statement of comprehensive income for the period from 1st of January to 31st of December 2020 with the comprehensive income -- total comprehensive income of PLN 837 million; three, the statement of cash flows showing an increase in net cash and cash equivalents for the period from 1st of January to 31st of December 2020 by PLN 1.545 billion and cash and cash equivalents as at 31st of December 2020 of PLN 2.135 billion for the statement of financial position prepared as at 31st of December 2020, showing total assets and total equity and liabilities of PLN 39 billion for PLN 342 million. 5, the statement of changes in equity showing equity as at 31st of December 2020 of PLN 20.726 billion and an increase in equity in the period from 1st of January to 31st of December 2020 by PLN 837 million. So expanded the [indiscernible] to the financial statements. Section 2, this resolution comes into force upon its adoption. Would you like to make any comments on the proposed text of the resolution? If not, let's vote. So we'll have an open vote on that. So please cast your votes now. [Voting]

Has everybody authorized managed to cast their vote? I hereby close the vote, and I would like to learn the results, please. Please be informed that the total number of votes cast was 120,410,695. The number of votes for, as proposed, 118,469,814; against, 45,712; and abstentions, 1,895,169. I can hereby declare that the resolution is -- was passed in the open vote. In Item B, we should pass the resolution on the approval of the consolidated financial statements of the KGHM. The Ordinary General Meeting of KGHM Polska Miedz approves the consolidated financial statement of the KGHM Polska Miedz for the year ended 31st December 2020, consisting of: number one, the consolidated statement of profit or loss for the period from the 1st January to 31st December 2020 showing a profit for the period in the amount of 1 million -- PLN 1.797 billion; the consolidated statement of comprehensive income for the period from January to -- January 1 to December 31 with a total comprehensive income of PLN 879 million; three, the consolidated statement of cash flows showing an increase in net cash and cash equivalents for the period -- of the 1st of January to 31st December 2020 by PLN 1.447 billion and cash and cash equivalents as at 31st December 2020 of PLN 2.522 billion; number four, the consolidated statement of financial position preferred as at 31st December 2020 showing total assets and total equity and liabilities of PLN 42,780 billion; number five, the consolidated statement of changes in equity showing equity as at 31st December 2020 in the amount of PLN 21,081 billion and an increase in equity for the period from the 1st of January to 31st December 2020, by PLN 879 million; number six, explanatory notes to the consolidated financial statements. Section 2, the resolution comes into force upon its adoption. Are there any comments concerning the proposed resolution? I see no comments from the floor, so I would like to call a vote and open vote. Please cast your votes. [Voting]