KGHM Polska Miedz SA
WSE:KGH
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KGHM Polska Miedz SA
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Ladies and gentlemen, it's 1:00 p.m. sharp. Let me welcome everyone to the conference on the results of KGHM Group for quarter 1, 2023. Let me welcome representatives of banks, investors, the capital markets and journalists here in this room, as well as our representatives of our company.
We have Tomasz Zdzikot, President of the Board of KGHM; Marek Swider, Vice President for Production; Mateusz Wodejko, Vice President for Finance; Miroslaw Kidon, Vice President for Foreign Assets, who is -- and Vice President for Development; Marek Pietrzak, Vice President for Corporate Affairs; and Janusz Krystosiak, who would be very active when we will have questions from analysts, from capital markets and journalists. And my name is Piotr Checinski, and I'm a Director of the Corporate Communications department and I will be moderating this conference.
Let me give the floor to Tomasz Zdzikot, who will open today's conference. The floor is yours.
Thank you. Ladies and gentlemen, let me welcome you to our conference on results in Lubin, all gathered here and also those listening to us online. We're going to discuss the results for quarter 1 2023.
These are robust results, sound performance that we can assess positively, and we achieved this performance in a difficult macroeconomic landscape. And we can discuss that briefly today.
And this financial performance will be compared with quarter 1 2022. But these are hardly comparable because of the macroeconomic situation. The war beyond our Eastern border resulted in a lot of chaos and turbulence.
So this has affected our performance. But again, it's robust and provides appropriate foundations for investments going forward, and we're going to discuss them briefly today.
So this is only an introduction from me, and my colleagues are going to elaborate on these topics later. So again, very briefly about our performance.
So we achieved a higher revenue in quarter 1 2023 compared with the 2022. So it's almost PLN 9.6 billion in revenue, 7% up year-on-year compared with 2022. So this translated into nearly PLN 1.9 billion EBITDA and PLN 164 million net profit.
And so the last 2 figures are lower year-on-year. But quite obvious high where the military conflict waging beyond our Eastern border, which began in the first quarter of last year, which hence continued affecting -- to affect our performance.
And on the one hand, we have seen a lot of cost pressure. So we've seen rising expenses across the board really, which is beyond our control with energy prices as well as labor, which is also on the increase.
So more expensive services and high inflation because of Russia's aggression against Ukraine and higher corporate tax compared with last year. And it's increased and affected our results for quarter 1.
However, these results have been positive. So the costs are under control and the situation is under control, and the performance we've achieved is really sound and as expected by the market. So this slide shows you what I have touched upon.
So it's not only about the costs. It's also about the prices for our main product lines. So in the top left corner, average copper prices were 11% lower compared with quarter 1 last year. So it's a lot to have a difference, and you're going to see it in the following slides. So $1,000 per tonne is the difference and the price is lower. And for silver, minus 6% year-on-year.
What also contributed to our results was the dollar exchange rate. So this has somewhat compensated for the change, but there were also a decrease at our main production lines, and these resulted mainly from the market situation in China.
So our revenues are up by 7%. So nearly PLN 9.6 billion is on revenue for quarter 1. We're satisfied with our domestic production. And as Mr. Swider is going to discuss with you, copper concentrate has increased by 0.5%, 2.6% is an increase in dry mass output.
So we're really happy to see the production of silver going up in the whole group and also in KGHM company. So we ranked as the largest global silver mine, and these increases show that our objectives have been right and they are not threatened and will be delivered across the group.
We've also talked about our investment projects. And the left-hand side of the slide,shows that we are true to our word. So we can see the increase in spending. And it's also a tough time in actual growth of our assets. So it's been more dynamic higher growth.
So our investment has been our priority. So these turbulent macroeconomic times are the right moment to invest to provide foundations to pave the way for our business going forward. The situation of our company has been stable and secure, as demonstrated by the debt ratio, 0.9%. That's the debt to EBITDA ratio, and we can really be satisfied.
Now very briefly about the macroeconomic situation. We're at the bottom of the slide. You see the absolute values -- absolute prices. And so the prices dropped by $1,000 compared with 2022. Silver down,molybdenum higher, but high -- the share of molybdenum in our production is really low and not enough to compensate for the changes. And also the dollar exchange rate has had a positive effect on these figures year-to-year.
So well, we believe that there's going to be positive prospects for changes in copper prices based on turbulence on the market. As we can see nowadays, copper prices are below the average compared with 2022, and we see record high stocks on the Shanghai Exchange and this maybe because the growth of the Chinese market has been lower than expected by analysts after the loosening of the COVID regime restrictions in that country, but we believe these to be -- turbulent changes to be transitional only with a highly positive outlook for the future with our targets, and we believe that the microeconomic situation is going to contribute positively to our results.
Let me give the floor over to Mr. Swider.
Good afternoon, ladies and gentlemen. As for the production of metal, 196,000 across the group, and you see the breakdown to Polish and foreign assets. And because of my role, I will discuss the domestic assets of our company.
So first, the output mining, 96 million tonnes, 1.48, 2.6% positive figure quarter-to-quarter. So in quarter 1 this year, all of our Polish mining assets, that's our deepest Rudna mine, Lubin mine and Polkowice-Sieroszow mine, all of them achieved an extra output for that contributed to our budget.
Copper in concentrate, 100.5, 22.6% grade, so 0.5% up quarter-to-quarter. Another parameter is electrolytic copper, 149,000 tonnes and 99,000 tonnes from our own concentrate, so 2% up quarter-to-quarter.
And altogether, comparing these quarters, it was minus 1.3%. But because of the production calendar, the calendar is different in this quarter-on-quarter this year compared with 2022.
And also we have a number of investment project works in Glogów at our smelter facility. Silver, 375,000 tonnes, 50.2 gram per tonne was the content. And it's 10.3% up year-on-year. Thank you.
Thank you, President. So we are going to discuss our foreign production assets now. And now over to Miroslaw Kidon.
Ladies and gentlemen, I'm going to discuss our performance abroad. Let me begin this discussion by our flagship project in Sierra Gorda.
As Tomasz has mentioned, we are very happy with our results. And although you can see a 9% drop in copper production at Sierra Gorda year-to-year, this is not really reflecting how our mine is operating in Chile.
The result is very good because the copper grade is below 11%, but with better performance, higher efficiency and throughput, we achieved a result which is down by 9% only.
Sierra Gorda has become our flagship project, and we're still continuing to improve our performance and value of the company. And we're going to mine -- moly deposits in Section 4 and also increasing stripping in order to blend moly together with copper there.
So as for molybdenum, it's lower because of the type of the deposit and the content of moly in the deposit. So it's in line with our 5-year long plans. This has been highly positive.
So the forecast is materializing. So well, the mine has been very effective in its operations. So it's 60% yield for moly. And when I started in Sierra Gorda back in 2016 or 2017, it was 25% or 30%.
But if we compare the moly content back then, which was 1,200 PPM and now it's above 10 -- above 100, which is 10x lower. So well, this recovery rate is really extraordinary. So you have 10 kilos of gold in 1 cubic meter and then only 1 gram compared with, well, another -- the same quantity of waste rock. It's very difficult to extract that 1 gram of gold. So this is the difference.
And you see the content or the grade, head grade and the actual yield or recovery. So we've increased the efficiency of multiline, and we also installed a bypass to bypass the rock, which has no moly so that we use our condensing machine with a common concentrate upstream moly production. And this is what we achieved at Sierra Gorda. And because of that, we have been able to achieve the world record high recovery rates formally.
So in Sierra Gorda, we're considering to expand the mine to step up production and achieve higher profits and build better value for Sierra Gorda.
So we're working intensely to explore the deposits and also prospectively to increase the number of minerals that we will have in the deposit available in our operating plan for the mine.
And at the same time, we're increasing the throughput at our facility, working strongly on the concept to increase the throughput to have better efficiency of the line.
So we are thinking about building the fourth line. So this is being analyzed. And NPV is being calculated working with our partners from Australia, which may be highly beneficial to our project as a whole.
As for the Robinson mine, well, this is where we actually have seen a situation where there have been serious problems because of the weather. These problems started in quarter 3 2022. So the [indiscernible] was not delivered. The budget was not delivered. It was 10% below the plan.
And this translated to the consumption of the stock that was to be used to add to the concentrate prior to enrichment and the weather was very cold and a lot of snow form, heavy snow form, and transportation was blocked. Out of 10 trucks, 3 were used only, 3 out of 10. So the transport efficiency dropped, our asset efficiency overall dropped down to 30% only.
So we analyzed the situation. And my capacity as the new Vice President for Foreign Assets, I reported this to my Board. And we decided that Robinson mine requires a wide-scale optimization [indiscernible]. So we decided to buy 240 tonne Komatsu trucks, 6 of them in 2023.
And in 2024, another 5 Komatsu trucks are going to be bought. And we were trying to rent 5, 230-tonne Komatsu trucks. And we're talking to Komatsu and Caterpillar. So we'll have 3 new, 100-tonne trucks. And we're also talking about a marked contract for servicing by Komatsu or Caterpillar with guaranteed availability.
And so these talks are underway. And we're also setting up a team like in Sierra Gorda, and the team is going to analyze bottlenecks and come up with an optimization project and also provide a new throughput target.
And we've also started operations to increase the range of minerals that we're mining or using.
Okay. Let me say one more thing I am pretty proud of. We are all proud of it as the Board. In Sierra Gorda, we started a new concentrator, our third one by Autotech, 80 meters in diameter. And we also have a new filtration press that increases our process capabilities in Sierra Gorda and gives us a new potential.
With our fourth line in the perspective, a fourth line would significantly increase our throughput at Sierra Gorda. So this could translate into a significant increase in the value of the mine and an additional NPV calculated on that basis. So that's it for KGHM Chile and KGHM International. Thank you very much, Mr. President. Now Mateusz Wodejko, Vice President for Finance.
Good afternoon, ladies and gentlemen. As my colleagues have already mentioned, we are enthusiastic, very enthusiastic about our production results, and we are quite optimistic, quite enthusiastic about our financial performance.
Importantly, one thing that we're not showing in the presentation that there's our budgetary assumptions. As we prepare the budget for this year, we were aware of the challenges that Mr. President mentioned.
So volatile commodity prices and foreign exchange rates, especially on the dollar. And we were aware that our operating costs, cost by type will remain rather high.
So as compared to our assumptions, the first quarter was quite good in terms of finance as well. As Mr. President Kidon has just described, there is a negative contribution from KGHM International, especially the Robinson mine.
But this is a combination of multiple factors, both on the revenue side and the cost side and some accounting operations as well and some economic events, which had a bearing on the performance of Robinson in the first quarter.
I will give you some details later on. But in principle, I want to show you that this is the first quarter, that only the first quarter looks like this, and the next quarters for KGHM International will be positive. There are many risks out, but we are hopeful about the situation. So let's take a look at the details.
So the revenues of the capital group, plus 7% and then 7% and contracts with customers, 640, plus the change of volume of basic commodities and the largest contribution came from KGHM Poland.
Changes in commodity prices, very high copper prices in the first quarter of 2022, nearly $10,000 per tonne and less than $9,000 in the first quarter of this year. So as a result, we are down by 876 million on that account.
Foreign exchange rates in the first quarter of this year, zloty to dollar, 4.39, 4.13, last year. So we are up by PLN 568 million, and we have additional revenues on our derivative instruments plus PLN 281 million. That was PLN 65 million in the first quarter last year -- sorry, minus PLN 261 million in the first quarter last year.
The share of revenues from contracts with clients in total revenues in the first quarter of 2022. As you can see, that was PLN 7.555 billion, and this was roughly 84% of total revenues. And in the first quarter of this year, PLN 8.370 billion, so up to 87% of total revenues of our group.
Now let's look at our costs. C1 cost for the capital group up by 37%. For KGHM Poland, the increase was 28%. And to some extent, it reflected the mining tax in the first quarter last year. We enjoyed a 30% relief on the tax rate. We didn't have this relief this year. So we paid another PLN 224 million of tax.
The other cost component of C1. Well, we had growing energy prices and technology or process material prices also went up. So materials we use in our mining and smelting operations, and those materials are mostly based on energy. They are energy-intensive.
Also, labor costs went up. I will discuss this later on when I speak about the typical cost of KGHM Poland. There are some extraordinary events. So high level of mining benefits paid to our retired employees and current employees. So in this quarter, this benefit was higher than the year before.
For KGHM International, you can see the increase is twofold, twice as much. $5 per pound. $1.4 is a revaluation of our provisions and reserves. We also have another approach to the cost of removing overburden. We capitalized those costs before, whereas last year, we added them to our general cost.
Also, our production went down. So with certain fixed costs, the total level went up to $5 per pound. In Sierra Gorda, we have C1 going up by 10%. But we are aware that the inflation was actually far higher and Sierra Gorda has been doing quite well with inflation pressure.
When it comes to our operating performance, first, our updated EBITDA in the first quarter of 2022. Our benchmark, there was a record high quarter with very high copper and silver prices back then and a relatively high dollar to zloty exchange rate.
Obviously, if you look at 2022 as a whole, there was a lot of volatility. The first quarter of '22 had very high commodity prices on the one hand. On the other hand, inflation pressure was still lower. So the first quarter was very good. Then the second quarter was a bit less and so on and so forth in the third and fourth quarter.
So here, our benchmark was pretty high. But if we compare the first quarter of '23 to the last quarter of 2022, then the results are quite comparable. So our EBITDA down by PLN 564 million. That's mostly due to the growing costs.
KGHM International, minus PLN 398 million. As I said, this is a combination of multiple factors. Sierra Gorda, PLN 271 million less than last year. As President Kidon explained, we had lower yield of copper in the ore. We saw that this began in the second half of the last year. That's purely technological development in Sierra Gorda.
When it comes to adjusted EBITDA, the share of the Polish operations KGHM Poland is growing, has been growing for many years. 61.4% last year, in the first quarter last year. Now in this quarter, over 72%.
So in the first quarter of 2023, the Polish division had a very strong contribution to the group's performance. Let me elaborate on something I mentioned with the previous slide, namely the growth of EBITDA.
So a reduction of EBITDA down by 40% for the group, 29% for Poland, 33% for Sierra Gorda and 110% for KGHM International. So this may somehow blur the performance for the first quarter.
Now our net results. As you can see, we have major differences between the first quarter of last year and this year. Why is that? Well, it's not that the things are dramatically worse now. No, we have a combination of factors. PLN 539 million gross profits of PLN 482 million net profit. And here, we had less sales, down by PLN 139 million.
But we sold more copper, PLN 439 million on that account. Silver, similar, up by PLN 12 million. And gold, a strong contribution in sales, PLN 124 million, primarily operating costs. I mentioned them already. I will mention them a little bit later.
Also, 180 -- or PLN 128 million less, that's extraordinary events. So a reversal of losses on loans to Sierra Gorda, that's PLN 64 million. And PLN 536 million in foreign exchange differences. So this shows you how strongly we were affected by foreign exchange rates, which is technically a purely accounting operation.
So it's not that the operating situation is worse. No, it's all about the difference in foreign exchange. We are happy about a positive result on revaluation of derivatives, and then we sold some intangibles. The results on the profit from intangibles was down by PLN 135 million. And CIT, a positive contribution, plus PLN 260 million.
Now let's look at the cash flows of our capital group. In this quarter, we had more cash by PLN 379 million. And year-on-year, it's also good. Our operating cash flows in the first quarter, PLN 1.460 billion and PLN 1.76 billion in last year. So comparable in the first quarter of '23, we spend much more money on our investments, [ PLN 1.163 billion ]. So more -- much more than last year.
So we invested more heavily, PLN 1.164 billion on fixed assets. And we didn't have one-off events such as we did last year, the Oxide project. Gross profit plus PLN 513 million, plus PLN 936 million, when we exclude revenues and costs.
Our revenue -- sorry, our provisions went up by PLN 279 million. Repayment of loans up by PLN 101 million. But because of the growing value of our cash, the net value of our debt went down. We paid PLN 27 million less in interest.
Now let's talk about our debt, the debt of the capital group. We are quite proud of this, especially because these figures of net debt over adjusted EBITDA is -- the ratio is below 1.
Our debt in zloty is just under PLN 4 billion as compared to over PLN 5 billion 3 months earlier. So the change in net debt, the reduction in net debt is mostly attributable to major investments.
And then we had a tax on mining, a positive change here and operating cash flows excluding operating expenses and tax, again, a positive change here. And foreign exchange rates also a positive contribution here. Now let's talk about the budget. Let's compare these figures to our budget.
So the things I am authorized to comment on. As you can see, the total unit cost of production is below our budget, which is good. Our investment expenses, so capital expenditure, PLN 557 million versus PLN 3.250 billion for the year. And the other expenses, PLN 387 million (sic) [ PLN 587 million ] as compared to over PLN 2 billion for the year. So we are right on track with our budget. And especially taking into account that's the largest share of investments is in the last quarter.
The PLN 557 million included an increase of share capital of Energetyka company. We will invest into a new heat source in Legnica, and another PLN 400-something million of a loan for international for the Victoria project, where we continue our advanced exploration.
Liquidity of KGHM, as you can see, is very, very safe. Now sales results and production of the group. Copper in concentrate, the content has that where Mr. Swider mentioned 500 tonnes, above the budget, very good. Silver in concentrate, also highly positive compared to the annual budget. Electrolytic copper also highly positive in the context of our annual budget and also from our own concentrate, metallic silver, very sound.
Sales were also high. We sold some of the stock, but for payable silver. We have been building our stock, the production figures of KGHM International, as my colleague has mentioned, as a consequence of the weather and also some technological issues. But since -- well, Robinson has had these problems as well in McCreedy mine at Sudbury Basin have achieved higher results than expected. Both copper and TPM were better than expected.
Sierra Gorda is actually going ahead in line with our expectations, and we expect to deliver on our budget. Now sales revenue for KGHM Polska Miedz. So it's well up by 11% from contracts with our customers. Copper and copper products, silver, similar.
And as for sales here or talking volume here. Well, rod copper and copper wire and other wire products. So PLN 177 million is up by 10%. Silver, minus 2%. So it's a bit lower with that.
Well, revenues were up by PLN 815 million compared with quarter 1 last year. Costs by nature, Polska Miedz. First of all, if you add the costs of external third-party services and higher cost of materials for the process and rising energy prices, the energy price contributed significantly to high cost. That's more than PLN 0.5 billion of the increase.
Mining tax, that's up by PLN 222 million because we no longer enjoy the 30% tax relief, 20 -- 80% of the cost of labor, it's up to PLN 1 billion. So the basic pay has not increased so much, but what's in increase is actually the coal allowance that's higher.
Just to emphasize above the others part of the slide. So in quarter 1, 2023 and quarter 4 last year, so it was at a similar level besides the mining tax. We have no control over it. But costs by nature in quarter 1 2023 are slightly higher than in quarter 4 2022. So these are -- this is a difficult macroeconomic environment, and we're really doing a best to maintain a sound and stable financial position.
Now EBITDA and net profit. So PLN 1.360 billion is lower than in quarter 1 2022, but in quarter 3 and quarter 4 were lower last year. So this is considerably better. So we're happy to see a higher result Quarter 1 in terms of EBITDA has been very positive in Polska Miedz.
And the net profit, which is affected by exchange rates, PLN 462 million, a small loss in quarter 4. And -- but it's been really sound and quite good. So now I'm talking about our net profit on sales was just under PLN 1 billion and pretax profit was also strong.
So what affected the year-on-year change? So higher revenue, PLN 815 million and also higher operating expenses, PLN 1.420 billion change of movements in products and exchange rates or exchange difference is also fair value loss and also a reversal of the loss and also the effects of hedging transactions.
We're happy to see the increase. And now another slide, what affected our consolidated results, that's KGHM International. So what I'm showing here is a completion of our dollar traders, 94 million and now a loss, minus 76 million because of the profit on sales, which was $126 million lower, $47 million was a change in our revenue, lower sales and also a smaller volume that was mined. But most importantly, this was due to lower copper prices.
And it was most intriguing, the cost of [ co-operations ] are higher by PLN 96 million. So most importantly, revaluation of Robinson stock in terms of volume and quantity, that's net realizable value, NRV, a calc for the stock. And in quarter 1, 2022, we capitalize the cost well of pre-stripping.
Now in this quarter, this revaluation was smaller because the initiation of the starting point for mining from another deposited Robinson was postponed, was moved in time, and that's what affected our operating profit.
So well, the change was due to one-off event. So Oxide was sold to Sierra Gorda. So the write-down was reversal of the impairment loss and it was a higher interest by $10 million. And financial expenses were up by $9 million because of our loans, higher value of those loans to KGHM International, mainly for Victoria project. So that's resulted in the net loss of $76 million.
So this is due to a combination of some macroeconomic factors and also our accounting treatment of these items.
Thank you, Mr. President. So we will also discuss our foreign assets later, but let me give the floor to Miroslaw Kidon.
Thank you. As Mateusz has mentioned, the debt ratio has been decreasing and also, our funds are more valuable in our deposits. And we've seen a record high CapEx, PLN 3.2 billion.
We're focusing on replacement projects and development projects, so for the entire production asset side. We have 700 our own machines and 300 rented ones. We would like to replace 245 machines for PLN 450 million. This is not only about replacement. These new machines will be more advanced and more available. So the failure rate of the [indiscernible] will be lower. And with higher availability of our machinery, we will achieve better production results in the future.
So replacement of belt conveyors may not sound so attractive. But this is highly interesting and important to us. Because preventive maintenance is increased with temperature and vibration sensors installed, and we can buy software to predict wear and tear of conveyor belt.
So with all of those development projects, KGHM has been able to push forward, to keep abreast with the major players globally, not to mention dumper electric vehicle is being tested. Electric vehicle is quite a nice idea. It's an idea that originated from our personnel. It's almost fully made of Polish components, and it will hopefully show that our KGHM is not only critical to energy transition in Poland. And globally, you can't really have any transition without copper, can you?
But as Europe's leading producer of copper, we will be supporting these energy transition initiatives such as electric vehicles. Not to mention Deep Glogow, Industrial Glogow, the role of this deposit has been very important in Poland. Well, the share of that deposit has increased 42% output, 44% in copper, 41% silver.
Now let me move to our key projects that we're implementing. At KGHM, we have been developing. And we need new shafts. We need ventilation. We need air for our mining operations and better logistics as well. That's for to transport our personnel and machinery.
GG-1 is our deepest shaft to 1,348 meters deep. It was 61 meters last time to go. This morning, I've heard it's somewhere 50 meters to go. So towards the end of June, we should be able to connect our mine with GG1. So it's going to be 10, it can be meters that are per minute. So this will actually give our mines new breadth, and they are -- and let me also commend our team together with the mining authorities.
We've modernized the lift cage, increasing the air flow from 12 to 18 meters per second. So this is going to increase the shaft efficiency from 30,000 per minute to 45,000 cubic meters per minute, higher efficiency of the shaft versus PLN 1.9 billion project.
And with such measures, we're able to increase our efficiency in terms of the airflow by 50%, and these have been impressive because really, we're also working on GG-2 shaft and the Retków Grebocice side ones as well.
What's also important for us is the Obra de-watering plant -- pumping plant. So we would like to commission the pumping plants on time. So it's not threatened. It's going as planned. It's been tested. So with 6 cubic meters per minute, but finally, it's going to be 24 cubic meters water being pumped out per minute. So also modernizing our what surface water distribution system to improve the cooling and ventilation system for miners to improve the quality of the work, those who work there.
And importantly, also in our tailings pond. We're separating waste and well, it's -- the progress is 96% and also, the first stage of the hydrocyclone has been finished. And as for condensation, the thicker waste is the better and cheaper the outcome is at our tailings pond.
So the beach angle is important. And well, that's our key parameter. The better angle we have at tailings pond, the cheaper the position of tailings. And we've started to thicker -- the waste. That's the right way forward.
And we -- Sierra Gorda have recently commissioned a facility of this type. So they're using flocculent dosing stations and they've had a lot of experience with this, and we're going to share it with -- they're going to share it with us.
And another interesting project there is the application of hydrocyclones for tailing ponds banks, and we have this technology at Robinson. We don't -- we haven't had it at Sierra Gorda. So Sierra Gorda have been watching this closely what we're doing here. Hydrocyclones plus separating to fine grain and large grain. And large grain is used for construction and the fine grain goes up in the water. It's like in the river naturally. So larger stones would go down.
So I mean rather than waiting for 2 years, we can have it with these machines with hydrocyclones in 2 minutes, it's done. So much about what we've been doing to develop and grow.
And let me give the floor over to Mateusz and he'll tell you about the power industry.
Yes. A quick comment, a few quick comments about our power sector because this is very important for us, as you have seen the cost of electricity and the secondary electricity costs have been growing significantly, thus affecting our performance in 2022 and the first quarter of '23.
To mitigate this effect, we have been working on long-term projects. As you can see, we're doing a nuclear SMR project, which by nature is many years of effort. But we're doing all we can to be as efficient as possible.
For nuclear power, one important thing that took place in April, actually, we applied the Ministry of Climate for a decision which, if issued, will secure a site for the plant. So this is a preliminary decision. This is not something that gives us the title to the land, but this is the first step, and we are happy that we already submitted that application.
So the location is defined. And as we spoke at our previous results conference in 2023, our goal is to secure the title, the preliminary permissions for the site, for the location. So this is already in progress. We've done the first. We've taken the first step.
On top of that, we are working hard with other aspects related to our nuclear project, as you may have heard on the media. On Monday, the Board of KGHM hosted at -- the representatives of NuScale, our partner, who is doing the project with us. We had a person from Fluor that's a leading shareholder of NuScale, a major engineering company that is also interested in building our SMR plant.
When NuScale came to see us, we also hosted representatives of the Polish Ministry. We introduced our partner, and we spoke about the conditions and assumptions for the project for this year, the assumptions for the project and its timeline.
We are very happy with the progress of what's been going on with the project. We are right on track. This is many year's project. And so far, so good. And another important area, that's renewables.
In this domain, on the one hand, we are working on our PV funds on either own or leased land. These are relatively small projects, but they are quite important because in this way, we build competence for our renewables team. And we have a concept for more projects like that, [indiscernible] that's both PV and wind.
Another important thing in renewables is acquisitions. We are in the middle of some acquisition processes. It's hard to say whether these will be successful or not, or we don't want to pay above market rates for such projects. But the negotiations are still underway, and we hope that some of them -- some of the negotiations will be successfully completed in 2023. Thank you very much.
Thank you, Mr. President. And now I will ask President Tomasz Zdzikot for a few conclusions.
Yes. Thank you. Let me thank all my colleagues for a comprehensive in-depth presentation. Once again, we are happy with our performance in the first quarter. These are robust results, especially in the context, a challenging context. We've had some macroeconomic challenges the average prices of our main commodities, our main product, and we've had some one-off events, as discussed by my colleagues.
So we are positive about these results, we are happy about our domestic production as President Swider mentioned domestic production compared to our budget and compared to the previous quarter is it's quite promising. So our production plans for this year look very realistic, maybe we'll even out-do the plans, and we are very happy about this.
As for our international assets, President Kidon spoke about this, and we are very positive about Sierra Gorda. This is a good quality asset. It's quite specific. And recently, we visited Chile in the company of Prime Minister, Jacek Sasin. So this is a specific mine with low-grade copper ore. So we need a very high level of efficiency, of productivity or we need to keep improving processes in order to stay profitable. We have a lot of competition to face. And we are we have been doing quite well. And this is 1 of the achievements of Mr. President Kidon, who previously worked as the General Manager of the mine.
And we also spoke with the government about the specific nature of such assets. There were -- the positive results are owed to technologies introduced by the Polish team. And the copper content is below 0.4 whereas the average value for Chile is 0.8. So this is good news. This is good news also in the context of the Robinson plant. President Kidon and Wodejko spoke about the Robinson project. The results from Robinson had a very strong influence on the capital group performance. Indeed, a lot of things going on, a lot of developments that reduced our results, but we already have the know-how. We know how to solve, how to face these challenges, how to solve the problems.
The question of weather, the heavy snow falls is very important, weather anomalies have become commonplace, both in Europe and U.S. and beyond. And Robinson was particularly strongly hit by that. But we will handle this because, as I said, we have what it takes to do it. We have the know-how from Sierra Gorda and other places. We've been concentrating strongly on our developmental investments in many different areas.
As repeatedly mentioned, we care about investments in the -- in our flagship project, so that's mining and smelting. We spoke about GG-1, GG-2, that's our projects underway. We have the hybrid smelting plant in Legnica. So a lot of projects, both Poland and abroad.
President Kidon spoke about the fourth production line in Sierra Gorda. So we have a pipeline of developmental projects underway. We are building our future value because we need to see KGHM's development from a long-term perspective. Mining, smelting, these industries are not a quick-win business. These long-term win businesses, but we are consistent about our strategy.
Obviously, as you have seen in our results, our results are strongly affected by growing cost, growing expenses, mostly due to energy prices to respond to the growing prices and to respond to energy security concerns for KGHM and Poland.
Poland is -- KGHM is Poland's second-largest energy consumer. So our energy security is tantamount to the country's energy security. So that's why Mr. Wodejko about the energy projects we have been doing. And indeed, earlier this week, we were visited by NuScale and Fluor, 2 of our partner companies.
NuScale was the first company to receive certification for its similar technology in the U.S. Right now, it's waiting for certification for 77 megawatts reactors. The existing certification is for 50-megawatt reactor. We have also been talking to the Polish regulators in charge of nuclear energy, where we supplied necessary documents.
Final business decision will reflect an analysis that will take into account the necessary investments, energy prices generated by the SMR. So this is a project we have been involved in for quite some time right now as we have been involved in renewable projects. This is very important for us. It will ensure long-term energy security for the group in a very challenging macroeconomic environment.
We've had some volatility in commodity markets, copper markets, silver markets. We've had volatile foreign exchange rates. But as President Wodejko repeatedly mentioned, we have good reasons to be proud of our results because EBITDA in the first quarter of '23 is actually higher than in the third and fourth quarter of 2022.
So despite a growing cost pressure and despite some significant volatility in commodity markets, we've been doing quite well, and KGHM is navigating safely across the waves stirred by the war in Ukraine. So robust results that guarantee further sustainable growth of the company.
So now we have some time for questions and answers.
Thank you very much, Mr. President. This is where the official part of the presentation ends. And now we will be happy to take your questions, questions from the capital market, bankers, journalists. And now I will give the floor to Director Janusz Krystosiak from the Investor Relations department. Janusz?
Thank you very much. We have quite a lot of questions, and we are very grateful for that. We are happy to take your questions. The presidents here gave us a very detailed overview of our operations, and they addressed some of the things included in the questions we have received.
I've been trying to follow a few devices where we received the questions, and I grouped those questions into clusters to save time. I will concentrate on those questions that concern areas that haven't been mentioned and responses to all the questions will be available online as they always are. And we are also there for you on an ongoing basis.
So if I may, let me begin with financial questions. A question from Morgan Stanley. Cash expenses, C1 cost up by 37% year-on-year. Should we expect a similar inflation level by the end of the year or perhaps lower energy prices will bring in some relief?
Let me put it this way, we don't do forecast. So I can't really give you a satisfactory answer, but energy prices have been falling quarter-on-quarter, which obviously has a positive contribution on our financial performance, which is good for us, but I can't give you any specifics.
Thank you. And a question from UBS. In the last 2 years, KGHM has built roughly PLN 5 billion of current capital, and a small release of that capital in the first quarter was quite encouraging. How much current capital -- working capital can be released in the remaining part of the year?
Again, we're not forecasting here. I'm not in a position to give you that directly. But as you've seen in quarter 1, well, there's been a decline in working capital, lower stock, and we'd like to continue this trend. But it will also depend on how attractive market prices are.
Quarter 1 has been quite positive in this context for cathode, silver, and wire rod, but later stock release will depend on market prices and whether it's attractive for our company or not.
And now we have had 2 questions about production. Pawal Puchalski from Santander has a question. When will the volume be revised for KGHM International? And what would be the scale of such revision?
Let me answer this question. But I can only tell you that -- well, the production volume at Robinson will not be achieved. But well, it's got to be analyzed, and we have to wait and see what happens over the coming months. And it's also related to our negotiations for a better availability of mining machinery with Caterpillar and Komatsu. So as Mateusz has told you, it's too early to forecast.
Thank you. And another question from Pawal [indiscernible]. Is the company planning to have volumes above the budget at the parent company in the following quarters? Or will the quarters be lower in terms of the results. And maybe the budget will be delivered.
If work is well organized and we have appropriate quality and safety, we can achieve these positive robust results domestically. And I don't think we would not be able to deliver on the budget during the coming months. Just to add Well, as a side remark, both company issues is a major part of our operations with positive robust results positive for the future, and we need to thank our managers in both company each responsible for production. Something I said at one of our conferences in the past, and then colleagues from our foreign assets had held it against me.
So I need to also emphasize the role of Sierra Gorda and assets at KGHM International, which have been optimized and they're undertaking measures to improve their operations. [indiscernible] right. So thank you for that.
And we have a question asked about investment spend. When we commented on the CapEx, the EU pointed to the power sector projects, not renew -- only renewables, but also conventional. Could you please tell us more about your CapEx for conventional power projects?
So I may answer those questions. So investment in the power sector is also important for our companies of our group. As Mr. Wodejko mentioned for this company, which the PLN 115 million of capital has been injected into the company.
So a new gas turbine plant is going to be installed to replace a coal-fired plant to bring our generation in line with the EU requirements. What we're also doing here is to embark on our projects with [indiscernible] company. So these are solar parks, 5 have been built. We're planning to add 2 at Glogow and Legnica smelter facilities 1.4 megawatts each. Thank you.
And a question about our project in Chile, Andrzej Rembelski, PKO BP. How have you been working so 32 at Sierra Gorda? Have there been any new ideas to optimize or develop the project?
As for our Park South 32 partners, they are fully involved in Chile in our development plans, and our partners fully agree with our debottlenecking program that we have embarked upon. And the recent tasks that we have been doing there was to change the transition at our gearboxes at our main pumps feeding the hydrocyclones for separation or classification. This is going to be done this year.
They fully support our exploration work to better explore the deposit and increase the availability of our minerals being mined and increase the value of our project overall. They also declared that they are fully on board for our fourth line plans and also the oxides processing facilities. So that's been heavy work from the Australian pond to revise the calculations that have been made by Sierra Gorda.
And our engineers in Poland and I have to tell you that this has been going in the right direction, and we've been very positive about that. And we'll be analyzing everything. And one of our objectives is to achieve the level of 62% solids in waste. So the density of waste is crucial. Cost-wise is also essential for safety and process in terms of storing the waste and handling it. But we have to operate in line with the environmental permits that we been granted within Chile, which specify the filtration level to down water and thickness of waste, which may not exceed 60%.
And this is why we invested in the thickened waste, and it was really critical in order to meet the requirements that were outlined in the environmental permit and also to reduce the CapEx looking forward.
And we also obtained a permit to increase the area of the tailings pond. This way, we can reduce the CapEx by PLN 450 million during the lifetime of the mine. There's a lot of potential which has not been tapped into at Sierra Gorda. But we can do that if we're smart enough and we have the know-how. But our personnel know how to go about it. So we have the second mine in Chile, 1 of the only 2 mines having direct water from the ocean. So we're pumping it, 455 kilometers. We can use ocean water for filtration, and we can achieve up to 84.5% of that level during the lifetime of the mine and hope -- we hope that we can have enough water for higher throughput. There is some potential at the first crushing stage, crushed ore, talk also the belt conveyors there's a lot of potential out there.
We're going to use it and increase the production capacity, et cetera, gold improving our C1 production and winning this competition is 22 -- 32 is fully supportive of Sierra Gorda and the team in this context.
Yes, we are discussing these aspects with our partners from Australia. And well, we have an impression that they are really happy to have a share in the asset, which is a really prospective. And Chile is a global resource of commodities, and there is a lot of potential for study visits to see the state-of-the-art improvements, which have been made as in spite of the low head grade, where it's very effective. And so this is a model mine in terms of the environment. So the important for the Chilean authorities. It's about the ocean water that's been used in renewables. So it's been a highly innovative and creative venture. And there are ideas looking forward to develop those and we will be making such decisions together with our Australian partners. Thank you.
All right. So I don't have any more questions about our business in Chile. But Mr. [indiscernible] asks us about any other metals that can be mined at Sierra Gorda? Can we try to answer that question?
Well, as for Sierra Gorda. Well, we have about both silver and molybdenum and gold. Now talking about our exploration, we can identify 5 more pits, which will be similar to the existing pit that we're using for mining. But these would be silver and moly with the same minerals.
So the pit that is near that the Mexico pit is very similar. So we expect -- we think that this would be one huge super pit. That's what we expect with our geological serveillance. And we're going to see over the next years if we're not wrong on this.
So these have been questions from the Internet. But do we have any questions from journalists in the room? Yes. So we have a question from the floor. Please introduce yourself?
Maciej Wisniewski, Lubin24.info.pl. Question about the introduction of exoskeletons and cooling vests. What is the current status of that project?
Thank you very much. President Swider?
Yes, the exoskeletons have been purchased and introduced. We are in the testing stage right now. The same goes for cooling vests, and the tests have been positive so far.
Thank you. Any other questions from the floor? I can see no questions. I guess we have time for 1 more question.
Jacek Franczak from Business Insider. Mining tax down by PLN 500 million and dividend down by PLN 200 million. I understand we need this money for the SMR project and for more exploratory works around Glogow. Could we specify the source of funding for these CapEx expenses?
Well, our recommendation for dividend is PLN 200 million, but it doesn't necessarily mean that it's down from PLN 600 million to PLN 200 million. The dividend levels have changed over the years. Sometimes there was no dividend at all.
And as specified in the statement of grounds for our recommendation, we need to look at both the current situation and the future situation and the future situation depends on the number of major investments, which are essential, such as investments in our energy project.
And on the other hand, these investments are worth doing because they will build a greater value of the company. As we've heard, it's about exploring new deposits in Poland, and it's also the projects described by the other presidents such as the projects in Chile, which are very interesting for the capital group as a whole and Sierra Gorda in particular.
So is this related to the SMR? Well, not directly. As I said, the SMR is a many years project. And we've had some specific costs about this. But the major spending, the major investments, they are still to come. That's a few years away from now. But we have a few other investments of equally essential importance for the company. Thank you very much.
Robert Maj from IPOPEMA also asks about the dividend. And he says, okay, you mentioned that you will stick to your dividend policy, which actually should -- which would mean that the dividend is higher.
Yes, let me take this. Our dividend policy assumes that defines that the ceiling at the top level, but it also specifies that we need to take into account our future situation, not only the current results of the current condition. And that's exactly what's happening this year.
We can see that it's worth to spend more money on investments. We want to retain that money with our reserve capital because we want to invest this money. This is a point in time. On one hand, the macroeconomic situation is unfavorable. But on the other hand, we have some opportunities or necessary investments, and we need to have the money to finance that. And ideally, we want to invest them with our own capital and debt because in a macroeconomic situation like this, this approach keeps us safe from risks minimizes our risks, and we still can go ahead with our investments.
So all in all, in the long term, this will build more value of the capital group and will be beneficial to the shareholders. Thank you very much. That's it from me.
Questions keep coming in, but answers will be available on our website. Director? Thank you very much for this meeting. I'd like to thank all the representatives of the capital markets, bankers, analysts, everyone who watched the online streaming. And let me thank the representatives of the company and the Board. Thank you very much. The meeting ends now.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]