KGHM Polska Miedz SA
WSE:KGH
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KGHM Polska Miedz SA
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Good morning, ladies and gentlemen. Welcome to the press conference of KGHM Polska Miedz S.A., during which we will present the results for the Q1 2024. The result is going to be presented by the Board of KGHM Polska Miedz S.A., Andrzej Szydlo, President of the Board of KGHM Polska Miedz S.A.; Mr. Miroslaw Laskowski, Vice President of the Board for Production; and Mr. Zbigniew Bryja, Vice President of the Board for Development of KGHM Polska Miedz S.A. We also have Janusz Krystosiak with us, Investor Relations Department Director that in the second part of our meeting will take the floor and will tell us -- will give us -- we will deal with the Q&A session. [Operator Instructions].
So now I would like to ask the members of the Board to take the floor. First, Mr. Andrzej Szydlo.
Good morning, ladies and gentlemen. This time, I'm welcoming you on our own turf because the previous conference took place in Warsaw quite recently. So we are dealing with quite a lot of meetings, but it's not only in terms of the results meetings, but also the Board's activities. We would like to present you with the summary of Q1 2024 and comment on it. And we will try to do it quickly enough to give enough time for potential questions and answers, of course.
So Q1 2024 can be called calm, in which the company implemented all the tasks according to the plan. In terms of macroeconomic environment, we had slightly weaker, 5% less weaker in terms of copper prices compared to Q1 '23 and quite marked weaker USD/PLN exchange rate that then contributed to the lower copper price by 14% and silver price lower by 6% in PLN.
In terms of operating results per President, Laskowski will mention that broader in terms of production. But in general, production in KGHM Polska Miedz S.A. was higher than -- by 2%, then production of metallic silver and gold, respectively, minus 17.3% and minus 35%.
Let me just comment on that briefly. In terms of silver, it is a result of -- well, the so-called KLD furnace renovation, this is the only place when we can obtain that metal. And in January, we had a stopover of KALDO furnace by 15, 16 days. The furnace is being stopped for regular renovations every 6 to 8 months. And because the stopover happened also in Q4 2022, so quite distant in the past than by the end of 2022. So we entered to '23 with quite a big amount of slag that contributed to a big production at the beginning of the amount of reduction in the first quarter 2023. And then the stopover in January '24 made for slightly less production or operating results.
So that doesn't look very nicely, minus 17.3% quarter-to-quarter. But this is a normal cycle. This is the consequence of the maintenance stopovers. And that, of course, contributed to the production of gold. And then in terms of CapEx, will be discussed broader by President, Bryja, but it's plus 2%. So higher CapEx execution compares to Q1 '20 -- according to the plan, apologies. So plus 2%, minus 13% decrease in revenues, and that is directly related to the USD/PLM exchange rate and slightly lower copper price. As of now, the copper prices are significantly higher than the budgets assumed, but that's the average. The average of 2024 compared to '23 was slightly lower by 5% in U.S. dollars and 14% in terms of what is safe amount of debt. This is the indicator measured as net debt to adjusted EBITDA, 1.5%.
Next slide, please. Here, I'm presenting the results, both in terms of KGHM Polska Miedz S.A. consolidated KGHM Group. I will focus on the group. So revenues PLN 8.315 billion; adjusted EBITDA PLN 1.5 billion and profit for the period PLN 424 billion. And just remember, just to remind you, it's PLN 146 billion for Q1 '23.
And then in terms of the -- sorry, in terms of the expenses by nature, I would say, these conditions were slightly more favorable in terms of costs. So by 12% we lowered Q1 quarter-on-quarter in terms of foreign inputs, 24 other materials, mainly energy and gas due to the more stable prices compared to the kind of craziness that happened last year and then analogously to copper prices. Also our tax charge is lower due to some mines by 25%, 5.3% lower cost of work. And in general, expenses by nature were 12% lower quarter on quarter.
So these are the financial results and consolidated SaaS perspective, KGHM Group. So a comparison of Q1 '23 to '24 the main influence here would be the exchange differences in terms of PLN 336 million, next result PLN 424 million consolidated profit in Q1 higher than in '23.
And now I would like the President, Laskowski to take over.
I have to apologize for my voice. I think I've come down with some allergies, but I hope that I will be able to stay with you for this dozens of minutes. So key performance indicators, the paid copper, almost 180 kilo tonnes comparable to the quarter -- Q1 in '23. And then in particular destinations, KGHM Polska Miedz S.A. 146,000, Sierra Gorda 17 and KGHM International Limited 16,000.
And then in terms of other metals, silver was particularly described by the President, Szydlo. We mainly produced the silver in KGHM Polska Miedz S.A. and this quarter result in Capital Group was at the level of 316 tonnes than noble metals, TPMs, 41,000 and then molybdenum production at the level of 600,000 tonnes of pounds. This is the only parameter that has not been up to the estimations due to the budget, I will discuss it in detail with discussing the results of Sierra Gorda mine.
Production results here in our Polish locations or extraction at the level of 8 million tonnes. This is the dry weight, so identical results compared to Q1 '23, with higher metal content, both silver and copper that contributed in production of copper in concentrate. So over 100,000 tonnes of electrolytic copper comparable to the previous year, 146,000 and lower production of metallic silver on the level of 310 tonnes discussed by the President, Szydlo.
Then in terms of production results, in Sierra Gorda according to the estimated budget in the Q1 '24, there were 17,000 tonnes of payable copper; silver production almost 6 tonnes; TPM production 6,500 and molybdenum production depends -- because of the results of Q1 '23, there was a lot of concentration of clay. So we noted 20% of decrease in production.
In terms of KGHM International, the main lever would be here in the Robinson Mine. Almost 100% result more than -- a better result than in Q1 '23. We've already informed you about big problems of the Robinson Mine in the previous year, both in terms of operations and in terms of availability of a high concentration of ore. So that's why we achieved a result of 16,000 payable copper and then silver, TPM and molybdenum in KGHM International are our results, let's say, of the ore that is being processed.
Now President Bryja will take the floor.
Hello. In terms of the capital expenditures and CapEx execution in Q1 '24, execution compared to Q1 '23 is slightly better as it was noted, 2% better quarter-on-quarter. And then in terms of execution compared to the expected results, that was PLN 718 million. That would be PLN 569 million is not fully performed, but that doesn't mean that we gave up on any of the enterprises or purchases. We will just shift it in time. All the services report that the execution of this quarter will be postponed to the second quarter or next quarters.
And then in terms of capital expenditures, that was PLN 652 million. Out of that, PLN 569 million are expenditures on assets and then servicing of external financing at the level of PLN 59 million. Then research and development, we didn't include any work related to that. So that's zero. And then leasing for Q1 PLN 24 million. That gives us PLN 569 million asset items and then costs include -- connected with implementing all this. Q1 was continuation of works related to the previous periods. If you take a look at the left chart here -- pie chart here, as you can see, the brown area gives you the execution of investment in mining area, 82%. So majority of investment is in mining area. Second would be the gray one -- green one, 87%, that would be metallurgy, 13%. So again, that would be also one of the basic areas of our investment. Then the second chart shows you the division by category in which we accounted CapEx expenditures.
And here, we have replacements, development, maintaining mine production and other activities that will be the smallest 2% area. So I would say, 30, 30-something percent. So these activities are aimed at maintaining the machine [perk] and production capabilities. And in terms of development also, preparing the exploration areas for further shafts. And in terms of maintaining, it's about maintaining the capabilities estimated in the production level. So I would say, 1/3 to each of these areas.
Next slide. This gives you the distribution of the directions of our investments. So mining, as I said, the biggest beneficiary in terms of investment and out of PLN 628 million, the biggest fragment would be the deposit access program. All the works related to starting new shaft GG-1, that is deepened and connected with the ventilation network from last year. And then now we are finishing work -- surface work right now and work related to connecting utilities to the shaft. So it's going to be material/excavating. So we are starting the reinforcement right now. Materials are being prepared. So right now, we will prepare outfitting the shaft. It will probably take 1.5 to 2 years.
The GG-2 shaft, Odra and this one right now, we have just completed the geological soil studies. And right now, we're analyzing whether the shaft can be situated there and what kind of housing should be prepared in the geological profile that can be done. So studies are ongoing. And at the same time, we are dealing with some administrative processes carried out to building the main 1,110 kilovolts transformer station.
In terms of Retków shaft, here we are preparing to tender procedures. And then Gaworzyce shaft, the last one that is presented and planned. Right now, we are -- the municipality is currently working on the special developments, changes in the state special development plan. Then another fragment would be outfitting of the mines. And this is, well, a never-ending story. Unfortunately, the mining is an investment that has never been completed. We are just constantly modernizing renovating it. So it's either at the level of ending or starting something. So starting any other part of the deposits excavating new ore requires, for example, extending the conveyor belt in putting air there or taking out the ore from the area. So it's a never-ending story.
Taking into account the stage that KGHM is right now, we're closing to the level of 1,000. So right now, at the level of Polkowice-Sieroszowice mine, the roads are lengthening. So we're constantly lengthening our conveyor belts. It's cheaper than the road transport, of course. So the investment will be kept on a high level. And then cables, pipes, administering cool air. Then next would be also the replacement of machine park. And it's also an never-ending story because year-on-year, we plan to buy 250 machines. And right now, we already built 69 machines that were divided into 3 mines, 15 to Lubin, 14 to Rudna and 40 to Polkowice-Sieroszowice. Right now, this is the biggest mine in terms of development.
So this is a constant fixed position, especially that the company adopted a policy that the machines, especially the transport and conveyor machines work for 5 years. And then we are not starting the general renovation, but we are just exchanging the machine park. And then other positions are smaller, markedly smaller. However, equally important. So mine dewatering, then continuously, we are preparing the work on the high-pressure pumping units. But also in Polkowice-Sieroszowice mine and Rudna mine, then we are developing the piping network between the mines that will enable us dewatering that would be adequate to our needs both on the surface and the possibilities of directing water to the Odra river. Everything starts downstairs, so we need to have a good properly working system. So it's a major position there as well.
And then let's speed things up a bit. And these are the investments related to the, for example, MSR development of storage facilities, modernization of the smelters or refineries. So it's about adjusting to the norms, regulations, EU regulations as well. In terms of exploration, we are currently finishing the works for the [indiscernible] deposits [indiscernible], potassium saline and then we're preparing the drilling in the perspective areas, Retków. And that would be maybe the last position from the bigger ones.
And then development of the Zelazny Most Tailings Storage Facility. We have just completed forming the escarpment on the reservoir on the southern part of sedimentation tank, and we have just finished -- I mean, the hydrocyclone on the waste processing plants, right now, we're also finishing the 950 -- 195 meters of the main reservoir. And then the other areas would be much smaller, and that would be a result of the routine work, I would say, and the continuous of the cycle of the machine. Next slide, please.
So GG-1 shaft, as you can see here, it was included in the ventilation network in June last year. So quarter-on-quarter, as you can see, this is the increase of production of ore in dry weight and copper and silver. So as you can see, there is an increase resulting mainly from the improvement of climate conditions in terms of crew works. Right now, we have 7 units -- mining units, one in Sieroszowice, 6 from Rudna. And we have observed a marked increase of the ore mining. And even in quarter -- if you compare Q4 '23 and Q1 '24, you still see a marked increase in the performance. Of course, it will stabilize eventually, but this is only the effect of introducing ventilation to underground work prolonging the amount of time that is possible to be worked there. We're observing it carefully. So that's why we are caring for other shafts being created there because adding air, adding ventilation would then clearly contribute to the production output.
Thank you very much, gentlemen for all these results, quarterly results. And now we're moving on to the Q&A session. So now it's your time to ask questions. You can do it here on online. And this part will be conducted by Mr. Janusz Krystosiak.
[Operator Instructions] if there are no questions, I will move on to the questions online that are now -- that have been sent to our address.
I have one question. [indiscernible] in the press communication, safety information that there are 11.7 kilometers. And you said it's only 4 kilometers of mining ore. So what's the difference? Why the difference?
Dear editor, I mean, it was about the complete investment from OpEx and CapEx. We combined it because many, many -- I don't have data here, but that's why we have 4 kilometers from the investment plan and 7.4 kilometers were completed from the cost of particular departments. And this is according to the proper classification, what can be a cost and what is the investment, right?
I would like to ask one question in terms of climate policy of the company, please tell us about the situation with the SMR. So will you correct your strategy in the sector or you will change nothing, you will continue the path of your predecessors?
I'll try to answer the question. During the conference in Warsaw, it was the question that was asked for year 2023, actually. And when I read some notes about that. I was a bit surprised, I have to say. But I wasn't actually precisely understood, SMRs, MMRs, it's a very interesting direction to protect energy supplies, broadly speaking for the technological continuity. KGHM seriously thinks about this direction, and it seems to be very attractive. But at the moment, there is no information from the market, no clear information from the suppliers of technologies that in short-term perspective, this technology would be effectively used in KGHM.
This is an attractive idea. We are waiting for the development of the technology. But for sure, when we will be able to think about starting the project, we will go into this direction because we cannot build the base of own generation only on photovoltaics, only on PV or only on wind energy. This is not possible. That's it in brief.
[indiscernible]. One question about the recent increase of copper price to $1000 per ton more compared to what was the price several -- a month ago? What is the prognosis for the company for the following months?
Well, each increase of prices of copper pleases us. We are not the only beneficiary of such increases. I don't want to speculate about the future. At the moment, the copper price seem to be satisfactory.
[indiscernible] I have a question to President, Bryja. You mentioned about exchanging machine park buying 69 new machines. For some time, we've received information about the fact that there is a small problem with the engines that were prepared previously last year, with the engines that are according to the norm Stage 3. I have a question about these 69 machines. Do they have Stage 3 or Stage 5 engines?
I know the topic, I know the problem, but here. We will ask the Vice President of the Board, production, Mr. Miroslaw Laskowski, will answer the question.
Really me? Okay, I can do it. So one of the first topics actually that we had to colloquially speaking, think about when we became appointed in the Management Board was to invest at all the machines that were contracted to KGHM in 2024.
In terms of Page 5 norm. For several weeks, we were analyzing the problem. We also renegotiated agreements with all the producers of the machines that supplied us with the engines below the Stage 5 norm to make as bigger group as possible supplied according to EU Stage 5 regulations requirements. And I think dozens of such machines will be present, but we have a schedule of adopting them. And in the next years, in the following years, all machines in KGHM will be working according to Stage 5 norm.
It doesn't mean that we are not trying to get opinions from scientific institutions about the real homologation of these engines, especially below 1,200 meters of deposits. I wanted to explain -- we want to explain if such engines affect negatively or positively the atmosphere in the mine and consequently into the possibilities of working of the crew, such research will be published in the following months. And then maybe we will deregulate some activities that will allow us get back to the stages that are lower than Stage 5. So we will be able to work on lower norms.
And okay, so there are no online questions to you. Daniel Major, UBS.
Sierra Gorda production dropped to low level since 2019. What was the main reason for that? What was the main driver for that? Are you calm that this objective for 2024 will be met in Sierra Gorda?
Yes, the budget objectives will be achieved except for molybdenum production. This is the information that I already gave you, but the amount of the production, like in each mining is being developed based on the plan and the production is the result of the deposit exploitation of particular geological parameters.
Thank you. Another question, JPMorgan, Anna Antonova.
Are you planning to give us any financial forecast or your guidance for your future results, the practice, which is popular or common among other mining companies?
Well, ladies and gentlemen, according to these rules, we can share our opinions or forecast about the future. But very carefully, because we are not an agency, we are a mining company, and we wouldn't like to give more than strategy or our objective for the future, we wouldn't like to express opinion about the market, we wouldn't like to give opinion about the situation in the future. I don't know if this answer is satisfactory.
Maybe another question online?
[indiscernible] Why it's about the low average selling compared to Sierra Gorda and KGHM International? I'm talking about copper and silver. We analyzed actually that wasn't -- it wasn't really the deviation from the norm. We didn't register the result of increase of average price from mark-to-market mechanism because the increase of the price of raw materials happened in the -- of the copper was increased in the last quarter. So it's close to average. It's little above the average, but we don't register any deviations from the norm in this regard?
It shows us that the situation is quite dynamic, but positively dynamic because the prices are now stable and they have never been like that in the first quarter, and they are stable in the first quarter.
Another question then major, again.
I understand that the new management is reviewing the strategy, is conducting a strategic renewal of business including financial RES or reviewing of international assets. When are you planning to finish this process? Because we talked about RES, but not in terms of financing and I think that this topic was recently discussed during the presentation of annual results. Maybe Mr. President, you would like to add something or to refer to our fresh narrative?
Yesterday, during the management meeting, we discussed it, declarations or maybe the predictions about the finish of the quarter 3 in terms of strategy. Realization are still actual, are still valid.
Do we have any questions from this room to change a bit the dynamics. No questions, okay, so I will look here for another question. Give me, please, one second.
I would like to add that if we want to answer today to any questions, then they will be available on the website in the top, the center of results.
Okay. I have one question in terms of technicality.
It's a good way of conducting things that after conference we had a moment to discuss in the full year, maybe we should continue this tradition because it was great to talk. After the meeting, of course, we are transparent, we are open, but please don't be shy. You can approach us in foyer.
We shouldn't be very -- we are open, and I took a special nose medicine, so I can talk.
Okay. The last question and a recent question. In the energy cost, what was -- the drop of increase was because of the decrease of energy?
A detailed question I don't think we have it in the report such data. So maybe we can only confirm that the optimizing initiatives or the seasonality of work on technological line can be responsible for that. Of course, it's about the rationality of the prices, of the -- let's call it like that. But in KGHM, we also have under constant supervision, our energy consumption, and we plan this consumption. And such purchase, we purchased to optimize the price. Recently, we also did some activities associated with the optimization of the power of our production forces, production possibilities when the cost of our own production would be higher than the price of purchase on the spot, then we would limit the power of our sources to minimize the average price.
Thank you very much, [indiscernible] is asking a question about the stock package -- power on stock packages. Do we think about selling such package of stock?
Of course, we can't give you any in-advance decision on such activity. This is a 10% package. This is our capital investment. And if the investment committee deems it's appropriate to sell these, the stock, then we are obliged according to the common practice to publish that information. So we do not speculate. As of today, there is no decision related to this package. I met [indiscernible] on the conference in Warsaw. He is a very nice man, but the question seems tricky to me. If we answer such questions, well, it wouldn't be a good situation, I guess.
One more question from Bank of America, Alex [indiscernible] asks a question. Your cost per unit at C1 and international has improved significantly. So we can see that the operational efficiency in the Robinson Mine or that's a question actually -- can we assume that the operational efficiency in the Robinson Mine will be on a similar level -- similarly high level in the coming quarters? Or there any other areas of improvements, operational improvements that you foresee in terms of KGHM International activities?
Let me say a bit briefly, yes, there are.
Lukasz Rudnik from Trigon. Do you expect this year any purchases of PV farms taking into account the recent decreases of prices per 1 megawatt hour?
If we assume -- well, again, it's difficult to answer directly to that question. In order to make some purchasing investment, we need to have it in the budget. And well, if there are some opportunities on the market, we don't say no to such acquisition. We wouldn't say no to such acquisition if an opportunity arises.
Thank you very much. I'm looking for another source -- through another source of questions?
Jakub Szkopek from Biuro maklerskie mBanku SA. Question to Mr. Bryja. What is the stage of the excavation works in terms of new deposits of KGHM North to the current ones? Can we talk about any approximate results of starting to excavate these to mine these deposits?
Well, the current mine of deposit development foresees the mining by 2025, 60 in the current mining areas. And then the area north of the current areas, currently excavated areas is the [indiscernible] deposit and Glogów deposit, and [indiscernible] deposit in the first fragments, I would say, closer to Rudna North area. It's a pity that I don't have a map here that would make it a lot easier.
I have my own pointer. I just don't have a map. Can we display it on the map, Oh, yes. In brown, you can see the current excavation areas and to the north, we have [indiscernible] and behind here the river that is -- goes through here. We also have [indiscernible] deposits. Right now, apart from [indiscernible], that is right now in the middle of court proceedings in the Provincial Administrative Court and General and Administrative Court, in which we are in the trial against National Copper Company.
And then the other ones currently already have the concession or we are trying to obtain the excavation concession by 2036 -- starting from 2036. So these are the concessions for prospecting and mining as well. In terms of geology, these deposits are not as uniform as the previous area. So we need to perform a lot of prospecting work here. And it would be too early to talk about years of starting there.
So we are -- for now, we're focusing on excavating and mining up to the level of Odra River and then up in Retków area. And then anything behind or on the other side of the Odra River, well, by 2036, we have the concession to prospect that area. So we still have time.
Thank you very much. There's one more question, analytical question from Morgan Stanley about the cash cost -- C1 costs. In KGHM, [indiscernible] side, Q1 2024 stayed on the increased level, so it was increased compared to Q4 '23. Can we expect some market improvement starting from Q2 2024?
Was the question about C1?
Yes. Yes, the C1 cost.
I think the best answer to that question would be that we don't foresee any major deviations compared to the forecasted budget. So the price would be a factor here. The price of the copper would be a factor here. But then that we will go very deep in the operations of the taxation mechanisms, I think, so we wouldn't be able to give you a direct answer in terms of linear increase or decrease of the C1 cost compared to other aspects.
Thank you very much for that answer. In the meantime, any question from the room?
I wanted to ask why did you change the name of the Retków deposits?
Now the whole Retków–Scinawa deposit, the whole concession area is this, but then there is a fragment that is close to Rudna deposit, deep deposits, industrial deposit that due to the current shafts we have, we can excavate it from the current shafts. So this fragments as a fragment of a bigger deposit would be prospected in the first place to start excavating it in the first place. And then before we even prospect the previous -- the other deposits. So it's not changing the name. It's just taking fragment of the Retków deposit and joining it in a way to the Rudna excavation area.
Thank you very much. I have a last question, online question. And now I will ask for the support of Controlling and International Assets Directors. With the current prices of metals, would KGHM open secure positions for future periods and the increased taxes?
I'm not sure if we are disclosing such forecasts for our plans. No, we don't. I got the answer, so we can't disclose that kind of information.
So that would be it in terms of online questions. This is -- these are all the questions we got to our inbox. If there are any other -- if you would have any other questions after the conference or if we didn't exhaust the topic, your curiosity for the questions you've asked, we will make sure to answer those. And then the full information along the transcript will be published on our website. And that would be it in terms of the Q&A part.
Thank you very much then for participating in the conference. And I would like to thank also the Board members for preparing the results and answering all the questions. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]