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

Ladies and gentlemen, thank you very much for your patience. Even such innovative companies as KGHM sometimes have to face technical challenges. But we're ready to start right now. Welcome to our conference focused on the results of KGHM Group for the first half of the year. Welcome to the trading flow of the Warsaw Stock Exchange, and welcome to all those who are following us online. The effects of KGHM works in the 6 months of the year will be commented by Marcin Chludzinski, President of the Management Board; and Andrzej Kensbok, Vice President of the Management Board for Finance; and Adam Bugajczuk, Vice President of the Management Board for Development. For health reasons, Mr. Marek Swider had to be absent today. He is also Vice President of the Management Board responsible for foreign assets. Of course, we will comment on this area for you. But if you have a particular detailed questions, just to make sure that we're able to answer you in detail. We will simply take a note of your questions and answer questions in writing as soon as possible. But hopefully we'll be able to handle all your questions. We will start traditionally with the Management Board's comments on the events of the last 6 months. Then we will proceed to a Q&A session. And any questions from chat that will not fit into our today's session will be published on our website, including the transcript of the whole conference. You can ask your questions at the email address of our Investor Relationship department. I give the floor to Marcin Chludzinski, CEO of KGHM.

Ladies and gentlemen, I would like to give you a warm welcome on this scorching hot day in August. Last time, we met on the occasion of presentation of our annual results. Back then, I told you that we believed and we were convinced that the long-term trend related to demand for copper in the context of urbanization increasing population worldwide, digital technologies, green energy and so on is a growing trend and that is favorable to copper. But I also told you then about the economic reality in macro and tactical dimension can not only surprise us, but it can also behave in a nonlinear fashion, which does not mean that it change the global trend, but it stays within the global trend. We can see based on the results of the first 6 months of the year that the situation is quite good in terms of EBITDA. Here, we were able to maintain the result compared with the previous year. The same goes for EBIT. In fact it is better 12% up from last year, PLN 4.180 billion after the first 6 months of 2022. Why am I saying that what we faced in the first 6 months affected the situation. Well, for sure, you have noticed the situation in China that zero-COVID policy resulted in slightly lower industrial output, but also lower Chinese exports. Also, if you look at the cost situation, this is something that has to be mentioned. With regard to electrical energy prices and fuel prices from pure set of gas plus variously interpreted symptoms of a certain economic slowdown or at least some question marks that appear around the world. So if you look at the cost factors that are dependent on the geopolitical situation and the situation on commodities market, and I mean the gas or coal primarily. All those things affect our results. But at the same time, this result is satisfying and very good given the circumstances. In view of the macroeconomic situation, we also taken into account the possibility that the macroeconomic situation in China after political elections that will take place in the near future as well as stimulation policy of China and other countries may lead to export levels being maintained at the same levels or maybe certain trends will reverse. This is something that we are considering as a possibility. However, we are very prudent. In general, we have been very prudent about managing this company for the last 4 years. It [ turns a ] great optimism, we are getting ready for more pessimistic circumstances if these come at all. At the same time, we monitor closely the developments around the world, which does not change the global trend, a long-term trend related to copper, silver commodities, raw minerals, raw elements. This trend continues all the time and does not change. In a moment, we will present financial and production results. And I must say that I feel we are sailing those waters as flexibly and as cleverly if we can, doing our best, given the circumstances. And let me remind you that the recent period has been probably the most dynamic in terms of volatility, trade [ was ] very low prices of commodities during COVID, and at the beginning of COVID then throughout the pandemic, difficult work conditions, then another crisis and some question marks brought about by the conflict in Ukraine. Disturbed supply chains first during the pandemic and then at the beginning of the Ukraine and Russian conflict. So we can say that this macroeconomic, global geopolitical economic roller coaster is something that we have produced to. But at the same time, it requires extreme alertness on our part. So the results we are presenting to you today have to be considered in this context. And I will give over now to Andrzej Kensbok.

Good afternoon, ladies and gentlemen. I will represent both finance and production today and foreign assets as well. Of course, I will do my best to answer your questions and present as many details as possible. But if any issues come up that I'm unable to address, obviously we will prepare our responses as soon as possible. Production in the first 6 months of the year has been good, stable. We completed all our production plans regarding KGHM Polska Miedz and KGHM International. As regard to Sierra Gorda, we had a certain decline in production, especially in the second quarter, but I will dwell on it in a sec. As regards sales of paid copper that is on schedule. And the first semester sales of the silver is slightly ahead of the plan, which reflects slightly better production without silver. Maybe I will tell you more about Sierra Gorda in a moment. First production of metals paid copper. Here, production is basically in line with the results of last year with only 1% year-on-year difference, and that is a composition of 2 factors. One is a slightly greater than planned production of copper in Poland , both in output processing and smeltering and slightly lower production at our Robinson mine in the U.S. and other mines. Let me just remind you, our budget did not include output from Franke mine. So it is not reflected in the results. But semester-to-semester comparison, although last year, Franke output was included; this year, it is not -- it is slightly higher due to -- thanks to good performance of the Robinson mine. As for Sierra Gorda, I have a special slide dedicated to that. So maybe that will be a good illustration to story about that. Production of silver is over the plan, and that results from higher content of silver in the ore. Our output and production of silver is planned conservatively, bearing in mind that we do not optimize our output in terms of content of silver in ore. We optimize output in terms of content of copper. Silver is a derivative of this approach. So silver output depends on what is actually the composition of the deposits that are primarily focused on copper and high content of copper. In our metals, we are also about the plant KGHM International, Robinson contributes very much to this also a high content of precious metals in the ore and higher recovery, which is good news. Basically, Robinson and its production of precious metals is on par with production of precious metals in Poland. Now results of Polska Miedz, we have a slight overrun on output which means that our mines worked correctly, our processing plants concentration also worked correctly. There was high availability of copper in all production electrolytic copper was higher than in the first semester last year, but this was achieved mainly thanks to processing of third-party input to a lesser extent due to processing of our own input and there are 2 factors that contribute to this. The first being that we had planned the increase in third-party input, we brought scrap material and that went smoothly. [ Plans ] were completed including some allowances for weather problems and turbulent weather at the beginning of the year in Poland and worldwide. And the second factor was a lower usage of our own input. We are still analyzing the situation. But in fact, we built up stock of concentrates for Glogow II copper line. And that is why we processed greater amount of third-party input in other plants. And the second element was that we had a stock of anodes. We maintained a high stock of anode in connection with the refurbishment of Glogow II line. And the stock of anodes was also made using third-party raw materials. Now if we look at the structure of those anodes, and we can see that our stock is 50-50 composed of our own and third-party materials. Till the end of the year, this structure is likely to improve both in terms of input of furnaces and the consumption of anodes in the galvanic processes. We think that by the end of year, we will have made up for any differences from the budget. And by the end of the year, we will be in line with the budget. Profitability of our own raw materials is higher than profitability of third-party input processing. This is also linked to the situation worldwide. Third-party scrap was more difficult to obtain. There was a higher competition in terms of scrap metal around the world. And on top of that, there is an industry and high prices. High prices also contributed to higher increase in purchasing of scrap metals. Now prices decreased and also the availability of scrap metals decreased. We can say that companies that are trading in scrap metal will probably wait for some time, but not for too long. These temporary changes, they do not have any material impact on annual results. [indiscernible] silver production is slightly higher due to better mining capacity. Now production results. Sierra Gorda, You Can see a decrease vis-a-vis the first semester of last year, and there's a few factors that come into play. The first one was that we had planned smaller output this year because we knew that Sierra Gorda was going to exploit pushbacks with low copper content. And the second reason for that, which had not been planned, but became reality, was that the head grade, the copper content and the currently mined pushback is slightly lower than what we had assumed in our budget. This is a deviation that's consistent with geological standards that have been adopted for such mines. But unfortunately, this is a deteriorating trend. This contrast with the fact that last year, we were able to mine higher copper content pushback than what has been assumed in geological evaluations. So we've got the effect of the contract and the more complex outcome of a lower grade in the mining areas. The second factor that came into play, especially at the end of quarter 2, was some lengthy renovation works of the crushing machine in Sierra Gorda. It has already been initiated, it works and also there was a malfunction on the conveyor and the motors have been reinforced in Sierra Gorda in general has turned around from that little mishap. However, the output has been slightly impacted. So to sum up, this was a temporary situation. The grade will be high once we get the new pushbacks running, but the transition period due to malfunction and renovation has been completed now. And we've spoken to the management and see that both July and August performance is high and better and we are getting some updates that the plant is making an effort to make up for some of the performance losses in the second half of this year. We could say that the performance in July and the preliminary performance results in August actually confirm that this is happening. KGHM International has slightly improved its outputs year-by-year, especially due to the good performance of the Robinson mine, and we should especially draw your attention to the fact that there's more TPM, so gold, platinum, palladium and there is a higher output of these metals, which is especially significant for KGHM International and general performance. And the good news that we already mentioned last year and early this year, we're repatriating assets. We are repaying subsequent tranches of loans. We have repaid PLN 193 million, that's about PLN 110 million from Sierra Gorda and about PLN 80 million from KGHM International. We are currently preparing the cash flow forecast, and we're looking at whether we can make further payments before the end of this year. So we're watching this. And whenever it is possible not to keep cash abroad, we will be repaying those loans in order to decrease the level of indebtedness. Now going directly to our financials. The revenues of the Capital Group are higher by 24%. That is semester by semester. And that's -- there's a few factors. First is increase of the sales volume of the basic metals of PLN 535 million plus, and I wanted to emphasize at this point that we quite often mentioned that the important thing for us is for KGHM to have stable output and to be predictable and reliable and secure so that there are no interruptions, reductions or some other serious disruptions in the continuity, and we have managed to avoid any of those. We are stable in terms of production. We are predictable. We are able to comprehend our output and our sales volume and the situation of our clients, which is very important against the background of what our President has said. There is a slowdown in China, indeed, but we are not really feeling that our orders for cathodes in China are growing as planned. In Europe, we are observing a trend whereby certain customers are slowing down or suspending the reception of copper, but others are trying to get more of the material. So there is a mix on the market. You can clearly see some sectors where we have favorable conditions, but there are others in which the current situation causes a certain slowdown. What we are observing is that these phenomenon neutralize one another. And as a whole, they do not impact our capacity to sell and to generate revenues at [ KGHM ]. We are talking to banks, customers and institutions that have a good feel of the market in order to have the insight and to be aware of any potential risks even if the recession was materialize. Other than the forecast, it has not really so far, luckily, but we want to be able to make sure whether this might cause a decrease in demand for copper. So far, there's no such thing has been seen or can be forecast as a sudden event until the end of this year. Another factor is a change in ratings. It was higher this year than in the first semester of last year. These things never last forever. We had a reminder of that in July and August and also a more favorable currency exchange rate. However, that's a mixed message for the economy as such, but the zloty became weaker versus the dollar and euro earlier this year. And in our case, it has been good news because our sales are 90% in dollars -- denominated in dollars. So we had PLN 1.8 billion increase in sales. Another is the adjustment for derivatives. And another historical moment, you can recall last year, we settled the derivatives at minus PLN 2 billion, more or less year, and this year, we still have the negative balance, but at a much lower level. So semester-on-semester, we can see the positive impact of a smaller negative settlement of all of these transactions. Now these are the key factors that have impacted our revenues. Going further, C1, the costs have increased. Per capital group is plus 16%. And going further into detail in KGHM Polska Miedz, this increase has been 13%. Most of that are increased material costs and energy prices in total, and that is the first factor in KGHM International, this has -- the level has been maintained, but we are seeing a significant percentage increase in Sierra Gorda, which was the leader for lowest C1 costs. They have grown by $0.87 -- from $0.87 to $1.38, that is a 59% increase. And mostly costs -- just overhead operational costs but mostly the cost of energy have contributed into that. Electricity has increased by 84% year-by-year. And even though some savings have remained in terms of consumption, the price paid for energy was the main contributor. And the second one was diesel. And the price of that in Chile grew by 58% year-on-year. Other Materials also increased in terms of prices by 40%. So Chile was struck in terms of price increases for [ explosives ]. And another factor is a slightly -- a significantly lower participation of molybdenum in the extraction and mining business, and that contributes to the increase of C1 costs. So we can see some long-lasting factors and some of those that are more volatile, we are working very hard to impact some of these factors. For example, we're trying to procure new electricity supply contracts. This might trigger savings in the future. Also, we are aware that in subsequent years, the contribution of molybdenum will increase, and we will be able to retrieve the C1 cost of more about -- more or less $1 per pound. The operational results remain unchanged semester-on-semester, PLN 5.309 billion in the first semester of this year. The main positive contributor is Polska Miedz. Both the increase of revenues and a better currency exchange rate, higher sales volume and lower negative adjustment of costs due to security transactions and increase cost have still caused an increase -- an overall increase in EBITDA. The case is similar for KGHM International. Sierra Gorda, however has been a negative contributor. It's minus PLN 324 million semester-on-semester in Polish Zloty. Slightly different factors have come into play. One of those clearly is the decrease in price at the end of quarter 2 as well as an increase in costs. But the second important factor was one that I had mentioned early that is the decrease in sales volume by 9%. And that is the equivalent of about PLN 100 million. And there's a third factor that's often overlooked, but I did want to mention it, is the valuation of mark-to-market transaction. We sometimes mention the MTM mechanism but its contribution is usually negligible. This time, however, at the closure of the first semester, its contribution occurred to be quite significant. There are 2 reasons for that. First one being that Sierra Gorda while creating its financial policy 10 years ago had concluded or included solutions whereby mark-to-markets were part of revenues and costs on the core activities, whereas in Polska Miedz, this is included into other costs and revenues. So it does not form part of the EBITDA calculation. Therefore, this remains our operational results more volatile in Chile, but not in Poland. And the second reason for that is indeed, the mark-to-market calculated for Chile is a lot larger than the Poland because the volume of those transactions is a lot bigger. Chile, in fact, trades almost exquisitely with China on 3 months or sometimes even 4 months deals. So the volume of unsettled transactions is a lot higher. In Polska Miedz, we will have all the transactions, all the deals paid and settled within the quarter. And only very small number of those that are then calculated in the MTM mechanism. Another factor is the slide in prices back in June. So out of $10,000, it dropped to about $8,200 and towards the end of June, and that was the price. In fact, that was adopted because it is the closing of the last day of the month that issues the price. So as the concurrence of these factors, our estimated impact is about PLN 100 million, PLN 120 million perhaps on overall EBITDA. This is something that's going to flatten out in the subsequent months once these transactions are actually realistically paid. So far, we never paid attention to that because the price trends were slow and it's the price differences or change is slow, it doesn't really impact that much. But if there are surges that are sudden and that could become more of an issue. And this is also a matter of contrast. In the first part of last year, we saw an increase in those transactions that were not closed, those deals that were not closed were then settled positively and contributed to the first semester of last year. So again, by contrast, we can see the comparison is quite different. Anything else about EBITDA. In the first half of this year, we also had a reserve for increase in remuneration linked to the better financial performance and creating this reserve also caused the decrease of the expected EBITDA profit in the first half of this year. And moving on to financial results. Net financial results. We can say that historically, the highest net result has been recorded, but this is not very good news yet. We are conservative. We show you our activities that are focused not on maximizing the results but on ensuring a stable and predictable functioning of the company. But we can say the key factors -- key drivers include a change in revenues, combined with change in costs. The change in cost is greater utilization of third-party input and cost by type -- higher cost by type. We also have those increases in cost by type into areas, materials and energy. Cost of materials grew twice as much as cost of energy. Cost of materials now have a major impact: steel, explosives, tires, all other elements that are used to produce our products. After the outbreak of the war in Ukraine, all the prices of materials skyrocketed and cost of materials grew much more than cost of energy. The cost of energy also grew. I think that was PLN 330 million or PLN 350 million semester-to-semester. But we are trying to counteract it wherever possible. This year is pretty well provided for in terms of electrical energy. But in terms of gas, we focus on saving gas consumption. We've already mentioned that we had discontinued production of heat in Polkowice. Our obligation to provide heating for the municipalities through coal powered heat plant. We do not use our WTR furnace in Legnica. That is our second biggest place of consumption of natural gas. This is how we reduce our natural gas consumption this year from the plant [indiscernible] terawatt hours of gas consumption. We are going to reduce that below 2, maybe between 1.7, 1.8. So we focus on saving not so much on price as on consumption. Unfortunately, this saving and consumption has some limits. We are bound by a contractor that contains a take-or-pay clause. So we cannot discontinue our gas consumption at all. But we reduce this consumption as much as was possible. Another second important factor related to joint ventures of minus PLN 744 million. This is good news because it means that we reversed write-offs on our foreign assets, both in foreign and post assets at PLN [ 1.8 ] million. We had a reversal at a lower absolute value than last year. So if we make a year-on-year comparison in absolute terms, that is negative. However, the good news behind is that even in the current macroeconomic situation and with the current forecast of output and production, we can, and that is actually confirmed by the audit results, we can [ release 2 of the ] value on shares in our investment vehicles. And this is reflected in the results of this year. Positive impact of Forex. So in copper, that helped. We used the exchange rate of the last day of the first half year -- half of the year. And here, we recorded a profit. There was also a profit on selling a subsidiary, Franke and Interferie Medical SPA, these were sold generating a positive impact, especially with regard to the sale of Franke mine. We recorded a positive impact of exchange rates, but that was not a book impact. It was cash impact. We simply got money transfer at a better exchange rate to use a colloquial way of describing it. As regards to cash flows. There is one important point that I would like to discuss with you, change in working capital. That is minus PLN 1.3 billion. This is the consolidated impact of increase in inventories, PLN 6.5 billion was an increase in those, and that is particularly linked to production materials. I mentioned before that we intentionally increased the inventories of our raw materials. So we wanted to avoid any downtime caused by the war in the Ukraine. So this increase helped us stabilize the functioning of our plants. There was no downtime where we wouldn't be able to produce because of some failures or downtime in harbors or problems in supplies. Now we can see that the war is protracted, but the supplies are stabilizing. Markets found alternative sourcing. We also reviewed very intensely our purchases under contracts for purchases of materials and services. Special task force was established by decision of the Management Board, and this team will review any discrepancies on consumption. All issues at clauses included in the contract in the light of the war in Ukraine, but also the task force will also look at possible ways of normalizing the situation. Another growth was in prefabricates. Here, we intentionally increased the inventories of anode material for Glogow II. We, at the same time, maintained production of electrolytic copper, and that required a greater input of anodes. Also in cathodes, there was an increase in Cedynia smelter. Cedynia is now operating on a nonstop basis. The demand for rolling material is very significant. So here, we also built up a stock of cathode copper. We had an increase in receivables and payables from trade, but they offset to some extent. This is linked to increases in prices of copper and other materials that we buy. And also an expansion in terms of payment for both the materials we buy and the ones that we sell. So those factors basically offset each other. Debt of the group. Here, there is not much to say. We keep debt in norm. We have not done any major repayment, we have not taken out any major debt. So the activities we've conducted were basically irregular things related to servicing debt to be on the safe side. In terms of loan agreements, we also took some efforts to reduce our cost of financing. We do not use at all or we use only to a very small extent factoring, and we do so only when it is linked to payments with respect to such prominent customers of China in metal. We avoid using factoring to a point cost of financing. That is it as regards my presentation. I'm available to answer your questions Mr. Bugajczuk, could you please comment on our investments.

Good afternoon ladies and gentlemen. As regards our investments, I have positive and very good news because PLN 1.299 million is better than last year with similar CapEx which is excellent news given that the circumstances were difficult, especially at the beginning after the outbreak of war. Individual major investments, a program of making deposits available in GG-1, we are finalizing drilling, and we will be getting ready to exploit the shaft. We are now after the preliminary arrangements with [indiscernible] municipality so GG-2 Odra, the first drills will be made still this year. Work is progressing just as well as regards pumping station. Here, we get the momentum. And as of today, no key investment is at risk in terms of time, schedule and tasks. We completed the next stage with regard BAT Conclusions far more will be implemented this year and one more investment will be left for the following year, which will leave us with all tasks completed. As regards, waste disposal and utilize and recycling but here everything is moving on schedule. I would also like to return to the slide in which we showed you the development of [indiscernible]. The slight minus results from the fact that in the first semester we had to go through a layer of stone. Hence, this lower grade. But in terms of output, the numbers are comparable. And the pace of work is as we had assumed. Thank you.

Ladies and gentlemen, to sum up, as I said, we in the last quite intense 4 years, we've been on this geopolitical and political roller coaster, but we managed to stay on track. And we have been able to show very good financial results at a difficult time. Maybe a short comment on the energy transformation project. After the announcement related to nuclear energy, we made one step forward, quite specific step forward. And namely, we submitted documents for impact assessment to the National [ Atom ] Agency. And this is the first step before location efforts and seeking construction permit. You can see what is happening in the commodities market. Nuclear energy is basically the only logical response -- comprehensive response to the need of heavy industry in Europe. So we are taking this road and we are going in this direction. Also, a change to regulations regarding to wind farm locations and issues regarding distances. There is one more thing that unlocks our potential projects. We have sites where we can have such projects. So while certain issues had to be put aside for regulatory results for some time, now can be resumed. And this is good news because that opens new paths forward. We are also in the process of decisions regarding licenses on offshore projects on the Baltic Sea. The main cost challenge will be answered by seeking strategic solutions to the scheme. These are projects that will not last 1 year. Nuclear energy is something that requires 10 -- 5 years. We're talking about stages of construction. But offshore, that is a shorter time that and the construction of large nuclear units. So that gives us greater flexibility to the entire energy system in Poland linked to this potential large nuclear power unit, which is very much needed. We already in the second half of this year. We are monitoring developments worldwide. We are not attached to short-term trends. We believe, long-term ones. And we do our best to operate flexibly in the macroeconomic reality, whatever it brings. I would like to take this opportunity to extend my thanks to Adam Bugajczuk, Vice President for the investment process and for purchasing policy in both areas. We managed to see a significant acceleration in the projects. There are also changes in the policies that will allow us to be more flexible in our part. Thank you very much Adam. At the end of August, Adam leaves the company as a Management Board member. Thank you very much, and I wish you all the best. Thank you very much

Thank you for the comment regarding the performance. Now a question-and-answer session moderated by Janusz Krystosiak, the Investor Relations Head. Now I'd like to be excused Mr. Chludzinski, our President, will have to go to other commitments -- to fulfill other commitments, but we will remain with you the rest of us in order to take as many questions as possible. This is quite a busy time. We've got a lot of projects happening. Janusz, over to you please.

Thank you. Good afternoon, ladies and gentlemen. Let me start the question from Bank of America. Bank of America, Mr. Jason Ferla. Could you review the current situation on contracting energy for future years. Spot prices the multiplication of the levels in the year 2021. I believe this is a question to Mr. Kensbok. Ladies and gentlemen, early this year, we made some changes -- administrative changes. We merged the area of securing prices of electricity, gas and ETFs with the risk department that deals with securing the metal and currency prices. So we have a comprehensive attitude to all our performance here. We've got a team that has been appointed to analyze the energy situation on markets and stock exchanges in Europe, and this team takes decisions. They have weekly analytical exercises and decision-making cycles. So we can see that the spot prices indeed are definitely a lot higher than they were. Last time, God only knows, how this will develop in the future, especially in the gas sector for electricity. Well, there are no really factors that could forecast the decrease of prices. So the team has, therefore, decided to have a rolling security for the price over next year and for a long time now 5 of these already purchased for 2023. We're are procuring new assets to secure the price increase. And we are observing the development of prices and we are also taking a look of how secure our electricity supply is. Now for gas prices and the factors that can impact the price, there are more of them here. Europe is starting to -- we create supply sources, once limitations, shall we say, have been introduced, not embargo on Russian gas. We've got new sources coming up and view projects for pipelines of ports. And also French and German stock is filling up slowly. We're of the opinion that these were the main factors contributing to the sudden increase of gas prices as well as a malfunction in one of the American LNG exporting ports. All of these are now about to be terminated and if there's an increase in the gas supply in Europe, then we are hopeful that the current spot price will not maintain its high price much longer, but will start to drop slightly. We have secured next year in a manner of speaking, but the main factor for us is being able to flexibly react in terms of consumption levels. And this is where we view some of the potential reaction. But on the other hand, let me clearly say that we have a robust supply of contracting coal, but also stock. So our company that produces municipal heating has enough coal which is necessary to provide heating this season. And we have secured contracts and continuous supplies. So the equivalence of coal per gas is a possibility for us, but we're looking at also excluding gas consumption in Glogow and our plant that is an open issue still. We are still negotiating take-or-pay with BSE and we're yet to see the outcome of this. We have secured ETFs for year and the next. We're [indiscernible] a lot of changes there. Some of the deals have been completed this year. So we have secured our right to CO2 emissions, and we are using them. Now if you allow me before I give the floor over to people in the room. Let me just read a few points around the turnover capital. There are some questions here from Mr. Dan Major asks about working capital. And I will now give the floor over to Mr. Andrzej Kensbok and relay the question. KGHM continue to increase its working capital in 2002 even though the renovation of the smeltering plant was completed, it was over PLN 4 billion over the last 18 months. Are you expecting complete turnover? What can we expect in the second half of 2022? This was a question from UBS. There are a few other questions relating to working capital that are similar. Over to you, sir. Yes, we do want to turn this trend whether it is possible to totally do it. And I cannot declare it fully, but technologically, we will be using the stock of anodes. The renovation works were completed in July. Then there's commissioning, et cetera. So we could say that at the end of June, it was not yet completed. It was in progress, and the production was carried out using up the stock, but we will be turning around this trend in terms of material stock. The war is still going on, but supply chains are becoming more predictable as we speak. So we may afford to work with a lot consumption of material stock. Are there any questions in the room? Pawel Puchalski from Santander. I have heard the questions that were asked before. Let me ask you about more details. There was a question concerning hedging. In the simplest terms, what is the percentage of electricity that you have hedged for next year? And what are the prices? It's a situation that undergo changes, but the price is fixed of between 25% to 30% of electricity volume. Some of that was fixed last year, some early this year and some is in rolling over deals. The second question relating to gas. You said that you have suspended gas-based production and have started producing heating using coal. You have stock of coal, you said. How much of it, how long can you secure, I'm not talking about the contracted. This can be at any price. But for how long can you use the stock that you have if you do not get any more supplies. I cannot tell you quite precisely that the stock that we have will be sufficient for this heating season -- central heating season, but I have to check that. That is sufficient. And now my own questions, please. I understand that you are maintaining the budgets of keeping. And I'm not talking about volumes this time, but are you also upholding the cost 26,500? I don't think there was an adjustment in the report for the semester. So I would like to know what you think about the cost of 26.5, which was quoted in January for this year. We are upholding the budget. We are not preparing a new budget, but the total cost this year is higher. So the price factor is still coming to play, and there is the issue of the Zloty exchange rate, which offsets the cost. So those 2 factors are of course things that we are looking at. But no decision has been made so far to prepare a new budget. All right. Now a question regarding cash flow in quarter 2, we've had questions regarding working capital, but also tax, quite a lot of tax was paid then. And I want to make sure whether this was tax that was paid for in the past or was it a current tax, which is going to be offset with the tax that's a lot lower in the second half of 2022. So is it an actual state and now we're calculating the tax again or... I'm looking at our Chief Accountant, but let me try and be as precise as I can. Yes, this is the tax on our profit from last year. And we are preparing a current reserve for our tax on profit from this year. So the cash out was due to paying the corporate income tax for last year. You have also created a provision for -- you have a high net profit. So there's a provision for bonuses for employees. I understand that all stakeholders will be equally treated. And as we sit and look at each other you can commit next year, you will be offering 30% cash out from the net profit as a dividend, right? Well, we have no changes to our collective contracts. So it's quite well known. And we uphold our dividend policy. I do apologize, but I am required to attend my subsequent meeting. The rest of the Board remains available here during the session and after the conference. Many thanks, and see you next time. [indiscernible] FM Radio. Could you comment on the outcomes of the control saying that from salty water from the Glogow plant ended up in the Oder river. Let me take this question. This a matter of fact does not relate to our production. It's related to CSR. Ladies and gentlemen, the controls, the inspections are carried out in many ways. This was a very general one, not too much data. Let me just quote a few facts. Our water discharge any of that take place in Glogow, which is over 100 kilometers upstream vis-a-vis OÅ‚awa where the contamination was detected. That's fact #1. And we cannot pump water downstream regardless of how innovative we are. Another fact, this July and August -- from the 1st of July to the 10th of August, we've had very small water discharge. In July, this was 12% of the level of last year. And in August, also, it was negligible, a lot smaller discharge than the maximum in our water license. We uphold all the environmental norms. And literally every water discharge on a daily basis is tested at the point of discharge and 500 meters upstream -- I'm sorry, downstream. So it is impossible for us to address these allegations of the parliamentarian, but they are misleading. [indiscernible]. I have 2 questions. One regards what was said a year ago, signals we send then that KGHM intended to divest its foreign assets. Is anything still going on in this respect? And the second question concerns mining tax. At some point, information that may be in connection with the planned investments, including energy transformation, something positive could happen here to the benefit of KGHM, of course. Has anything happened here? As regards to tax, mineral tax -- tax on minerals decreased significantly this year. And I have to make a proviso. It is on some minerals, not on copper. Sometimes it is just called copper tax, and this is not the right name for it because it only is imposed on the certain elements. And that is a question that should be asked to the Minister in the context of a new budget for the upcoming year that will also be discussed. Lower tax on extraction of some elements, which had a positive impact on KGHM cash flow and would facilitate our energy transformation. I think this argument is appealing to a lot of people, but we do not know whether it will be reflected in the budget next year. But we, of course, try to keep bringing up this point. Please remind me your first question, foreign assets. Okay. So we sold Franke mine. This was effectively completed. The transaction was rather complicated, but it was concluded successfully. We still have a group of assets, group of mines in Sudbury Basin. These are now being reclassified as assets for sale. As the legacy system of ownership and corporate structure is extremely complicated in terms of who owns who were certain legacy issues [indiscernible]. There are some elements linked to the purchases that KGHM made in connection with Quadra. Once this ownership structure is clear enough, we will have a small group of small mines in Sudbury Basin, and these will be put up for sale. The market doesn't want to consider each small mining company separately, and it's more convenient to have a comprehensive view of a group of similar players. This might be of interest to major mining players located nearby. We also informed the public of the initiation of divesting Carlota mine. But this process ended without any binding bids being submitted by prospective buyers. So we are now considering whether we should re-run this process and whether the situation changed substantially enough to justify a new effort to try and divest Carlota. And in Poland, we sold our hotel assets. We do not have much to do with the hotel industry. Specialized entities are much better to estimate the market potential, better invest and better manage such assets operationally. So we decided to sell those assets. Thank you. Daniel Czyzewski of Energetyka24.com. I had a question to Mr. Kensbok about ETS. With what advance does KGHM buy emission rights. And until when you ready with that. I will ask my colleagues to prepare a specific answer to this question. I will forward it to you. But just briefly, our key transactions related to ETS purchases were completed last year and they cover this year and the next year. This year, we had some adjustment smaller transactions taking advantage of a reduction [ ETS ] prices. Now we are monitoring the developments, including the political dialogue regarding ETS -- monitoring whether any speculation in this market would be admissible and potential impact it might have on ETS prices. We, as energy-intensive company, we had an allocation of the 3 ETSs, which we are also using. But I will provide you with a precise answer how many and at what prices we will provide that after this conference. And of course, all answers that have been given today will be posted on our website alongside the transcript of the conference. And a quick question in the meantime, one that was asked online from Morgan Stanley. In this set of questions, I can see that we have already covered taxes on some minerals and exposure to gas. And there was a question about nuclear reactor. As regards to the CapEx budget of $1.5 million to $2 million for nuclear reactors. When do you expect -- you will start spending significant amount? And are you planning to finance that with your own funds? Or are you seeking potential JVs? We answered this question repeatedly. This year, we are only spending money on early works, above all preparation of the document that has to be submitted to the National Agency for Nuclear Energy. This is a very extensive detailed document and its preparation is expensive and time consuming. So this is what we are focusing on above all. The next steps are envisaged in the nuclear energy along. Once we have this document, we will be able to start thinking about funding. It is premature to discuss this right now. But we have already engaged in a dialogue with financial institutions, with advisers, with market regulators in Poland. In a few weeks, we will have the first meeting of initiative group that will discuss the most efficient ways of funding small nuclear energy plants in Poland in the context of funding of such projects in Europe, and we will focus on the risk element in this, our appetite for risk, possibilities of obtaining funding, guarantees from the state treasury and so on. This dialogue is only beginning right now, but we are approaching it with due diligence. We first of all want to benchmark ourselves to other countries and other companies. But also, we want to understand the appetite for funding nuclear energy and financial institutions, and we want to understand the approach of regulators and financial institutions. Most -- well, actually, all major themes recurring on the questions have been discussed, energy, working capital, energy mixed, hedging, these have already been discussed. I do not see any new questions. So online, there is a question here in the room. Please introduce yourself. [indiscernible]. I have a question about KGHM International. What is the share of international in the output of the whole group? And a question about Sierra Gorda. Is the output in Sierra Gorda profitable? What is the net result, revenues and prospects for the upcoming quarters there. Let me display once again the slide with the results of the International segment. Let's start with production. KGHM International output accounts for about 10% of the total output of the group. Sierra Gorda is positive with positive cash flow as well. In the past, profitability of Sierra Gorda was negative. It was unprofitable in the past. But we made major investments under our debottlenecking program, increasing daily and annual throughput capacity after obtaining the parameters assumed debottlenecking project Sierra Gorda became profitable. And this profitability continues now, although it is lower than expected due to some operating and nonoperating factors. But still, overall, this entity is profitable and promising. Valuation of a 45% stake and readiness to buy this by an Australian group was proved to that. They concluded this transaction and are our new partner in the JV. We have General Director for foreign assets in the room, [indiscernible] and there are directors of individual areas within production division in Poland. We have the person responsible for nuclear energy as well as colleagues from finance. So if we have been unable to fully answer your questions or you need some more explanation, please feel free to ask us, and there are no new questions. Let me remind you that the transcript of this conference, including questions and answers maybe with some extra questions because sometimes the questions are asked also after the conference will be posted on our website as soon as we are ready and we will try to answer your questions in detail as many as we can. Thank you very much for today. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]