KGHM Polska Miedz SA
WSE:KGH
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KGHM Polska Miedz SA
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Ladies and gentlemen, I would like to give you a warm welcome at the conference, which we will present the results originally published yesterday, results concerning the third quarter results of KGHM. My name is Lidia Marcinkowska, together with [ Janusz ] Krystosiak, who is the Head of Investor Relationships. We will chair this meeting today. We welcome those present at the Warsaw Stock Exchange and those who are watching us online. The transmission is available in Polish and English.
Ladies and gentlemen, the results of KGHM's work after 9 months will be presented by Tomasz Zdzikot, who is Vice President for Development; Andrzej Kensbok, who is Vice President for Finance; and Marek Swider, Vice President of the Management Board for Production, who is at the same time, responsible to foreign assets. We will start traditionally with the overall comment of the Management Board on the events of the last quarter, then we will proceed to a Q&A session.
Traditionally, a transcript about today's meeting, including the Q&A session, will be available at our website. That will also include the questions which they need to check details or for the lack of time will not be answered here in the room. The questions can be asked at the e-mail to our Investor Relationship department.
Mr. Tomasz Zdzikot, President of the Management Board.
Good afternoon, ladies and gentlemen. It is my first opportunity to talk to you in this role. So please let -- allow me that before we present the results of KGHM after 3 quarters, I will give you a short introduction.
As Lidia has just said, first of all, I would like to bring to your attention the fact that our Management Board is working in a limited composition. We have double roles. I am responsible for development and acting -- and I'm acting CEO. Marek is also responsible for two areas, including foreign assets. And I would like to start with a message that it is extremely important to us to have the full composition of the Management Board so that each Management Board can be responsible for one area of our operations.
That is something that we believe will happen soon, and that is of highest importance to us. At present, we are focusing our attention above all on budgeting for 2023. It is a great challenge for us, something that we have to do, reconciling cost pressures, that we will talk about later today, and the implementation of an ambitious strategy, completion of our ambitious development plans. So now we are budgeting around those two pillars of activity. And that takes a great part of our attention at the moment.
Then once the Management board is full in its composition, we will proceed to review our strategy. The strategy was announced to you at the beginning of this year. And when I talk about review, I do not mean any final decisions that might have already been taken or that are likely to be taken soon, however, drawing on the experience of those Management Board members, who are now in our company. But we also have hopes that with the new two members of the Management Board, we will be able to make a broader review, including the macroeconomic environment and the security environment in the upcoming months that will be a major task for the Management Board in its full composition.
Also as the President of the Management Board and acting also as Vice President for Development, I would like to say that it is very important to me to have development as one of our priorities. We will pay attention to that. And we will make sure that the key priorities are followed and implemented on schedule and as planned in our strategic perspective.
Within those plans, within our investment projects, I would very much like to focus on core business, copper production, silver production and key projects, both in Polish and in foreign assets, focusing on our core business. So this will be it as regards to a brief introduction. Given it is my first conference, I wanted to have this broader overview.
As for our results, they are good. We have growing revenues, 18% growth compared with the same period 2021. And in my assessment, this is a good result, especially taking into account the left-hand side of this slide, that is our macroeconomic environment. We have major differences in copper quotations and silver quotations. Of course, there is a positive contribution to this result coming from dollar value. And we have our settlements in U.S. dollars. So an exchange rate differences have their contribution. However, we have a positive assessment of the profit.
The same goes for EBITDA. It is slightly lower than in the August period last year, but it is still positive. And the result of the holding company, Polska Miedz, had a positive contribution to the result and the minus comes from our foreign assets. We will revisit this topic later on today.
We are particularly happy about our production results, and Marek will talk you through this. We are satisfied that the production results in Poland are all stable. In Poland, they are growing. The minus is also something that we have already communicated to you. And it was linked to our foreign projects, divestment of the Franke mine and the quality of the deposit that we are now exploiting in Sierra Gorda.
We had a growth in silver production, growing per unit cost, C1. You know perfectly well that this is mainly due to cost pressure, especially in the context of energy prices. I have already briefly mentioned production. Indeed, we are satisfied with it. And we are satisfied with the stability, the stable level of production, 557,000 tonnes-plus on mother company. This is the result which we consider satisfactory.
And about the role of Sierra Gorda, I have already talked a little bit both Mr. Swider and Mr. Kensbok will tell you more about it. And I give the floor over to them right now.
Ladies and gentlemen, as a result, our reduction -- our results on production in paid copper, we can see the split into Poland, Polish assets and foreign assets. In Polish assets year-on-year, we have plus 3,000 tonnes of copper. And this is also a positive contribution to the budget, which we have in our production plans, about 4,200 tonnes.
As for foreign assets, and as Tomasz has already mentioned, I would like to emphasize that we are operating this year in a different phase of deposit exploitation. There is a different content of copper in this deposit. The mass of our output is similar. But if we refer those results to our production plans for this year and our production plans in the budget, the situation is reversed plus 2% and plus about 9,500 tonnes copper in 9 months year-to-date.
As regards to the foreign assets, Sierra Gorda International and KGHM International, we are at plus 13% versus budget. That is about 5,600 tonnes copper in plus in Sierra Gorda and lower content this year. Let me just remind you that last year, the content of copper in Sierra Gorda was 0.51%. This year, it is 0.44%. Sierra Gorda has the current result at 90.6% so that's a very good result. If you tracked these results since the beginning of the year, you will see that this loss of 0.4% is already good compared with much greater losses previously.
As for silver production, 1,022 tonnes, plus 1%. The main assets are Polish ones. We produced 1,000 tonnes of silver. As for foreign assets, 21 tonnes come from Sierra Gorda and 1 tonne from Sudbury Basin. As for TPM, a very positive plus 6%, 132,000 ounces. As for molybdenum production, minus 66%. But let me draw your attention to the fact that this is still 16% above the budgeted target for Sierra Gorda.
Let me move on to Polish assets, plus 0.9%, 23 million tonnes dry mass. This result is higher. But we also had to catch up with the content of copper. Now it is 1.46% compared to the plan. And we managed to make up for the losses coming from copper production and recovery. As for copper production in concentrate, 0.3% below the result year-on-year, also under the budget, the same percentage. But we have to mention that we had a renovation of railway infrastructure that was a factor beyond our control. And as a result, some of the concentrate remained in the ore settlement unit within Polska Miedz.
Electrolytic copper production. And we have our own input and third-party input presented here on the slide. Our own input, 99% of the budget, and third-party input, that is 5% versus the budget. That did result from a different production timelines that we had last year. We had some relocations within the period we are discussing. But slowly, we are reaching our budgeted values. The fourth quarter should turn out very positive. Silver production, plus 1.7%, 1,000 tonnes in Polish assets, a very good result. And the following slides will also present more details of our assets.
Now Mr. Kensbok, who will comment on financial results.
Good afternoon. Indeed, as Tomasz has just said, we have noted a solid and stable period over the first 9 months of this year. And I can say that it's a continuation, where mid-November, it's also solid and stable. I'll be speaking about this in a minute. No threats or extraordinary situations to report at this point.
Now regarding revenues, the first 3 quarters of this year, higher than last year by 18%. This is mostly due to the exchange rate of the Polish zloty and the relative weakening of the zloty vis-a-vis the dollar or strengthening of the dollar. And this is favorable to us. We are taking advantage realistically on a transactional level from this. Also realistically, it is contributing to our profitability. And I will tell you more about this in a minute. Because the pace of weakening the zloty was higher than the inflation rate in Poland. So that is another benefit to us.
And what's worth noting is the positive impact of the increased volume of the sales of basic products in both the copper sales volume in Polska Miedz S.A. as well as the sales of other products, silver, that we've mentioned, but we've got a whole range of other products as well, lead, sulfuric acid and all the other products, have also positively contributed to our outcomes compared to last year. So in the area of trade, we are very satisfied with our outcomes.
A negative impact has been felt by -- from the macroeconomic situation. And that is the prices of copper that have dropped year-on-year. We budgeted this year quite conservatively. We don't share budgeting details with you. But internally, we felt that the forecast that we made was quite realistic as it turned out. We also see that our evaluation of the market, which was volatile and quite weak but had certain pillars of support, nevertheless, gave us the ground to believe that we could steadily continue our activity.
Because the forecast that was predicting a deep recession and a breakdown, on the one hand, are not coming through. Well, of course, we don't know what the future holds. But on the other hand, also the support from the demand for copper as well as the inflation rate, which causes some copper projects to fall out of the market over a certain price and that reverses the demand situation, that also sustains the copper price ultimately.
Another plus side here is the adjustment of revenue for derivatives. And this year, our transactions were settled in the first 3 quarters with slightly on the negative side but definitely less so than last year. So what we sometimes talk about, something can be negative but have a positive impact and vice versa, well, this has actually acted to our benefit. We have a slight negative settlement of our securities transaction but quite positive contrast vis-a-vis last year. It's almost PLN 1 billion. So revenues, I'd say, are safe.
Going on, unit cost, C1, it's growing year-on-year. It's growing unfortunately despite a certain tax relief for extraction that has been applied to certain mines by the treasury this year. But still, undoubtedly, for Polska Miedz, inflation has a role to play, increased energy costs but also steel materials, explosives and labor, third-party services as well. All of that has an impact, a negative impact on us.
And for Polska Miedz, this is a 7% increase year-on-year. So we assume that we're still managing our increase. We are doing that every day. A lot of work is been put into trying to do the magic around inflation and renegotiating contracts so that realistic prices are put in place. And that happens every day.
C1 grew much more significantly for KGHM International and Sierra Gorda. But that's related to a lower volume and a smaller production base to distribute the overheads. And we're assuming this is a temporary situation. And it will be turned around once the extraction starts growing. In Chile, we have also noted energy increases that's quite significant. This is a country that imports 100% of their energy carriers. So that is not a surprise. In the U.S., the energy price increase is a lot lower. There are some inflation pressures there but less so than in Europe and less so than in Chile.
Now regarding our operational performance, and like the President has said, EBITDA is smaller than last year by 10%. But we are happy to see the positive contribution from Polska Miedz. And our operational results here are predictable and strong. Sierra Gorda has noted a significant decrease, which is due to decreased extraction by 12%. And you cannot really make up for that even with increased efficiency.
KGHM International also has a negative contribution year-on-year. But that's partially only related to decreased production and, to a much larger degree, decrease in sales, which is due to ineffectiveness of rail transport in the U.S. We mentioned that already. The U.S.A. is handling a systemic issue of bottlenecks in railway transportation.
Unfortunately, we have felt the tremor. There aren't enough trains. There is not enough rolling stock and not enough capacity in railway transportation. This is a global situation. I do believe it's temporary. Some investment measures have been put in place already in the U.S. So we have a lot of stock that we cannot take out of the U.S. and hence, the negative contribution.
Going to the net result. It's better by 11% year-on-year. And outside the change in revenue offset by the basic call -- costs, we also buy materials at a marketplace. We were able to increase the throughput of third-party input, which is offset by the cost of these third-party inputs. But there are several more points that need a few words of explanation. Involvement in joint ventures, minus PLN 717 million. We reversed the Sierra Gorda write-offs. But we turned them over less than we were able to do last year. We were able to turn around about PLN 1.8 billion and this year, PLN 1.2 billion. So we need to report that it's minus PLN 700 million.
But it's still another brick that we are putting into building the recovery of the value that was lost during the write-offs, where for Sierra Gorda last year was a major year because it was the first one in a sequence when we actually were able to note a positive result. And that made it possible to turn around those write-offs. This year continues the trend but not to such a great extent as before. But PLN 1.2 billion is already also quite significant and satisfactory for us.
Now out of the PLN 3 billion of revenue, we've got PLN 1.33 billion from exchange rate differences. We need to also settle the losses for the overestimation of dollar loans. And that will have an impact of PLN 1.33 billion on a net result. The derivatives instrument is [ PLN 173 million ] in plus. The profit on selling subsidiaries, Interferie and Franke, PLN 120 million, I think, in profit and the sale of in-kind and nonmaterial assets, such as our shares in the Oxide project that was sold to joint venture, Sierra Gorda. And that has had a positive contribution as well. Unfortunately, we have paid a bigger corporate income tax this year because of bigger profitability on the one hand. But on the other hand, because we transferred some of the settlements from previous years, so the sum of our financials is PLN 5.267 billion in plus.
Okay, the financial flows, I have already mentioned that. So those are pretty much the same factors, but they are reflected in our cash flow. We're more or less on the same net operating cash flow that we had in the beginning of this year, that was about PLN 2 billion. We just paid a slightly higher dividend than last year. It was PLN 300 million last year, and it was PLN 600 million this year. But this does not -- has not disrupted our cash flow. We are more or less on the same level.
Now debt. That's also an area that we look at regularly. The net debt-to-EBITDA ratio grew from 0.6 to 0.8. But I remember when it was over 3. As we know, our bank covenants have a limit level of 4 per cap. And we're far from reaching that. That is a very insignificant increase, but it has to do with balancing our cash flows and our cash net position. So our net indebtedness has grown from -- to PLN 4.8 billion. But I would say there are no dangerous areas. And our loan agreements have actually improved this year.
We have increased liquidity with lower financing costs. And for liquidity contracts, more and more banks are offering increased limits. So we are seeing that the banks are seeing -- were seeing that our cash flow is very safe. So the terms for balancing our cash flow are increasingly good for us. And there's quite a lot of resources available, still untapped. And there, to be touched upon, about PLN 8 billion that is safely available at hand in our revolving credit loan agreement. Thank you.
As we have mentioned, Mr. Zdzikot has this double role. So I will ask him also for a short comment on investments and the summary.
Ladies and gentlemen, let me start with a brief summary. I would like to highlight a very good net result. We are indeed happy about it, plus 11% year-on-year and plus PLN 505 million operating result.
Net result, above PLN 5.200 billion, which is a very good result, operating result of PLN 6.945 billion. And I would like to highlight here the positive contribution of [ KGHM ] and Polska Miedz was -- had a positive contribution to this. As for C1 cost, I would say that this is only 13% growth, taking into account cost pressure, which we are facing on a daily basis. So we also see it as a stable development. We are satisfied with our production levels. We maintain stability, also with the growth on the holding company, Polska Miedz, is positive.
If I move on now to investments, you are well familiar with this slide. And the message is also positive. KGHM is a company that has been traditionally high on capital expenditures. Annually, we are above PLN 2 billion. After 3 quarters, we are at 64% of the budget, PLN 1.824 billion. So that is a good performance, taking into account the specifics of the investment process. Normally, the last quarter is the time when projects are finalized. So the overall result is good. And we are on schedule with our key projects and investment programs. And they are not at risk nor is the fulfillment of our CapEx budget.
As I said at the very beginning, we want to focus very much on investment and development. So we prepared for that. And we implemented a very extensive program of increasing, improving our competencies our quality and processes at KGHM. That is dedicated to over 500 employees of our company. And this program is underway right now. We focus on investment. We focus on further improvement of processes and of our staff in this area. That will be one of our key challenges in the upcoming future.
That is it on our part. Thank you very much, gentlemen, for your comments. Now we will move on to questions and answers. Questions are invited from the room. Janusz Krystosiak will chair this session.
Good afternoon, ladies and gentlemen. I have already some questions that were sent to our e-mail address. And we are waiting for questions from those who are present at the Warsaw Stock Exchange.
Mariusz Marszalkowski, BiznesAlert. I have two questions. The first is about investments that you have just mentioned. And there are two questions here. Will KGHM continue to invest in SMRs, the small modular reactors? That was one of the key investment projects of the last months. And the second part of the question, what about those wind farms on the Baltic Sea with the involvement of KGHM? And the second question concerning Sierra Gorda, what is the situation of the company? And what are the prospects of this venture in the future, the context of political situation, the nature of the Chilean government and the plans of for taxes, nationalization and so on?
Let me start. Of course, there's cost pressure that we have already mentioned repeatedly during our today's meeting. In my assessment, it justifies very much involvement of KGHM in energy projects. This is evident, this is justified. Even taking into account the long-term nature of those projects, there -- they will be completed well into the future, especially in the SMR project that you mentioned. It is not really an investment project. We are pursuing it together with our partner, and we will continue this project. We will watch closely the profitability of this project once the first stage is over.
And the involvement of KGHM in the atom project and those renewable energy services, be those offshore projects or the ones related to photovoltaics, all that is justified. And the strategic goal, that we identified in our strategy adopted and published in January, saying that by 2030, we would like to have at least 50% energy from our own sources still holds. During this meeting, we have already mentioned about the impact of cost of energy on our C1. So energy projects are and will continue to be important for us.
As for the project related to nationalization of the mine in Chile, this proposal was not included in the final draft of the constitution and that the draft constitution was rejected. As for taxes, we are secured with guarantees until 2029. Those initial proposals were subsequently mitigated significantly. And they are still under debate. Sierra Gorda participates in those negotiations.
Thank you very much. We have another question in the room?
Robert Maj, IPOPEMA Securities. When we are talking about energy cost, at what price, on average, do you hedge your energy? At what price do you secure your energy for 2023? We have a new Management Board. So could you, gentlemen, tell us what is your view of dividend payment in the future? What the market and the shareholders can expect regarding dividend in 2023?
Answering your second question, we will not change anything in our dividend policy. We will not change it in any way. The rules are clear. We are prepared for that. Decisions will be made at the right time, but we do not have any changes in this regard.
As for energy-related issues, we consider two things, electrical energy and gas. Both elements are of importance to us. As regards electrical energy, the situation has not changed too much since our last conversation 2 months ago. We have secured about 30% of volume of electrical energy for next year. The transactions, spot transactions for next year are priced at unacceptably high levels. And we are -- do not buy energy for next year at those exorbitant prices nor do that other energy-intensive companies.
Our view is that next year, electrical energy will be cheaper than the prices offered right now. This is linked to the situation and developments in the balancing markets. Also, we will soon have a canceling of this commodities market obligation. And there is another factor, it's hard to say the overall impact in the entire energy sector. But our expectation is that the overall effect should be positive, allowing us to have greater capacity for bilateral contracting of electrical energy.
And the change of the formula valued in the balancing market is still uncertain. But again, we think it will have a stabilizing effect. And it will also bring our costs next year closer to the spot levels which we have seen recently or which we are seeing right now. Because we can see a certain offset of supply and demand. And we try to ensure those offsets in the national market. So we assume it will be positive to us. We do not really plan to take advantage of this offsetting market to a large extent. But any entity operating in the market, we are involved in to some extent.
Maybe this share of our use of the offsetting market will increase in the context of the expected prices increases next year. We cannot answer you about the exact price of the -- at which we bought the 30% of energy for next year. But we think in real terms, they are lower than the spot transactions available at the moment. But the situation is quite similar in gas. We secured a smaller share of gas. But those who follow the market know that there have been some decreases, and we benefited from those decreases by concluding some spot transactions for next year.
Now we -- by now, we have secured about 40% of our gas needs. But we are working on a reduction of our gas consumption next year. As a result, the currently estimated 40% may be, in real terms, worth 45% or even more if the actual consumption of gas decreases. So we feel that we are on the safe side in terms of gas costs. And both legislative changes are, in our view, positive for the market and positive for us as a large consumer of electrical energy but also generally beneficial for all participants in the market.
[indiscernible] get cleaner energy. If we are talking about energy, energy from your own production accounts for 11% of your consumption. That is far away from the 50% that you declared in your strategy 2023 -- 2030. Does the Management Board plan to accelerate the path of reaching the target level set out in the strategy? And if so, in what way? Outside building your own photovoltaic farms, are you interested in buying such ready-made installations? Because in the report, it says that you are negotiating a purchase of wind farms.
Ladies and gentlemen, first of all, this was not a coincidence that we've had this goal. I've been with the company for a short time, it was adopted in January. But there is no coincidence that it's put there at 2030. At 2030, we assume that we'll be having at least 50% of our energy from our own production. But that doesn't have to be a linear increase. That's the only thing. It means is that 50% of it will be owned in 2030. There will be different sources, nuclear but also renewables.
Now regarding the renewables, of course, we want to be active in all the areas. Offshore is important to us. And we have demonstrated our activity by submitting the rights requests for permits, photovoltaic also, not just our own construction. But potential acquisition is an option. We're analyzing all the areas.
Can I have a follow-up question?
Let me just supplement what was said now. 11% comes from the fact that we switched off gas and steam units because gas was very expensive. Electricity was cheaper on the market quite simply, globally speaking. But right now, when the -- when we were about [ PLN 500 ], [ PLN 600 ], we've switched them on again. And we're producing power. And our capacity of generating electricity is the equivalent of about 22%, 23% of our use, consumption. This has been historically the case. This is due to very high prices of energy at the end of last year and in the first 3 quarters of this year. But currently, the auto generation is coming back to a much greater extent.
In November, you concluded the first cPPA contract for the purchase of energy from an external photovoltaic farm. Are you going to continue this practice in the months to come and periods to come? Or is it just an experiment that you were just trying to look at it?
Well, an experiment that we are trying -- that we are intending to continue. That is contingent on many factors. You know what it's like on the market. We've got bidders who say, "Well, you have to buy it anyway because you need to meet your targets, your green targets. So we're offering you a price that's higher than the market price." Now well, we will not use such bargains, shall we say. But I understand that the partner did not really put you up against the wall, shall we say, but offered reasonable prices, right?
We will seek partners that can -- are prepared to have a long-term relationship and look further ahead and also appreciate a certain stability of the relationship that we are offered and the security of contracting from KGHM. And I believe those are components that are not to be offered by all of the consumers and suppliers. And this is the suppliers we want. Majority are not like this. But we are seeking, and the market knows about that. And slowly but surely, the offers that are unacceptable will be disappearing. And we are starting to get into talks with suppliers that think like we do.
Projekt Solartechnik, this is a contract you concluded. Are you intending to continue cooperating with this company? They have a portfolio of 2 gigabytes.
I'm afraid this is too much of a detail to be disclosed. Let me just look at our investment relationship manager.
But I understand that this is a company that fulfills the criteria you have listed, reasonable supplier, reasonable prices, et cetera.
I don't believe we should be rating these components and evaluating whether our business partner meets the requirements or not.
Could you say a bit more about the wind project that you are looking at? What power are we looking at? Are those ready to be built or just in paper still, whether there's an auction that has been awarded?
Okay. Well, let me take this. I think at this stage, we should not really go deeper into that due to our negotiating position. We should not be disclosing these details. It's not the time yet.
But we would like to know still whether this is something that already stands or is it just in paper, is it -- and what the power is of these farms.
Let me go back. Our goal is not to have specific deals. Our strategic goal, and therefore, our goal for the years to come, is to increase own energy production. So from our point of view and from the point of view of our strategy, it doesn't really matter whether we acquire that or whether we develop it at the right time. What matters is the profitability and the effectiveness of the process.
Thank you very much. Do we have any further questions in the room? If not, at this stage, let me just take the first question online from our inbox. To President Kensbok, Mr. Pawel Puchalski from Santander is asking whether the assumption of the increase in cost of the mother company in 2023 at just over a 12% year-on-year, is it realistic? And what are the biggest cost challenges for the company for 2023?
Well, let me just start answering this. As we are not doing forecast, it's very difficult to give parameters on cost increase, especially that we are still developing the budgeting process. But as far as challenges are concerned, when we look at the cost dynamic and the cost pressure, I would like to give the floor to Mr. Kensbok.
Right. With reference to this question, I can say that -- well, analysts know us very well. You are also quite aware of the situation and the inflation in this country. So I think the secondary inflation is also something that is very well known, so certain growth expectations that have not yet materialized but are driving the inflation, especially in the area of costs and transaction deal prices as well as the remuneration, wages and labor costs. So this is an area that we are facing, I think, successfully so far.
And it is due to our understanding of the actual inflation components, which is good. And I believe that if it weren't for that -- well, because of that, our negotiation positions are good enough to meet the official cap. Now as regards to which areas we are talking about, to be honest, all of them. Energy has grown significantly this year. We are assuming that it will not be growing quite so much until next year. But it definitely will grow and does our cost component.
Now for the salaries budget, it is regulated by collective agreements. And well, there isn't that much room for flexibility. We are looking at bringing full-time equivalents and staffing our plants. We're looking at this in much detail with Mr. Swider. But we're not going to challenge the provisions of the collective agreements or amend them in any way.
Now in other areas, steel, chemicals, third-party services, we know more or less the market prices of those. Some grow at a higher pace, some at a slower pace. But the increases are notable. And as any business in Poland, we are subject to the pressure of inflation. And we are contracting it just as decidedly as other business, perhaps even more so.
A question from Pawel about dividends. But we have already spoken about our approach to the potential dividend and the recommendation, so we shall wait a slight moment before that happens. And another question from Tomasz Józwiak. At what stage of advancement is the GG-1 shaft at the moment? And have there been any more projects for this deposit?
The GG-1 shaft, we have reached the bottom, 1,351. Last year, we have had the handover of the elements, the components of the shaft.
Reuters. What are the components of the investment tasks of the company for 2023, acquisitions, development of existing assets?
We are currently constructing the budget for 2023. As I said before twice, investments will account for an important part of it. You are quite aware of that because you've seen this in today's conference but also during the conference for the previous quarters and years. There are three basic groups and you cannot change that. So maintenance, reproduction and development, we are growing. We are continuing our discussions as to how these projects will prevail.
1/3 is recovery. The outlays are quite significant. We invest quite a lot. And that's what I want our priority to be. But our work on budget is ongoing. And the work needs to be consistent with the KGHM strategy. And the most important endeavors are, for example, the program of excavating the deposits. That's a very important key program for us for our core business. And this is what I want to focus on. And that is going to be one of our investment axes for the budget.
Thank you. A question from Thomson Reuters. And it has partially been answered by the CEO, the strategy as a document and actions to be taken as review. What can we expect from the strategy review against the macroeconomic and security aspect? What will be the conclusions, decisions or amendments in those areas?
Before I give the floor to our CEO, let me just say that conclusions, decisions and changes, well, it's too early to even talk about them because the Management Board is right now not announcing any changes or updates or a review. But let me just give the floor to our CEO.
We have actually answered the question. But let me just add, if we wanted to change the strategy, we would just announce it. We are talking about changing the Board. And you know quite well, we've spoken about this already today, that the Management Board is not complete yet. It will be complete hopefully, and that is very important to me, as soon as possible. We'll have new members joining responsible for very important areas, development, foreign assets. Those will be Vice Presidents.
So if we were to construct half of the Board, we need to review our strategy. And we will be doing a review of our strategy. And that will respond to the question as to whether or not we need to change it, and if so, to what extent. But we cannot answer that question today. And I cannot give you a response to that question. But once we have the full Board, we will embark on this process. And once we complete it, we will inform you about the outcomes.
Thank you very much. Another question, but I think I also can try to answer. Thomson Reuters, when more or less can we expect the constitution of the full Board?
Of course, these decisions to be made by the Supervisory Board. For us, it's hard to comment on what the Supervisory Board will decide in the right mode after the contests and so on.
And I can see another question from Mr. Lukasz Rudnik. Is the weak production at Robinson a one-off effect? Or can we expect it to recur in the following quarters? I'm looking at Mr. Marek Swider.
I have already mentioned that we are working on the block model of that deposit. Currently, we are planning work for next year. And once we have this plan, we will be able to answer this question because the model of the deposit determine our plans for next year.
Thank you very much. I'm trying to group those questions into broader issues. I can see that we have already addressed most of those things, energy, strategy, costs, composition of the Management Board. And there seemed to be no further questions. Is there anything from the room? Yes, there is a question.
Monika Borkowska, Interia. I would like to ask about economic situation because next year is likely to be a major challenge. You have already signaled that November looks quite well, even though the situation in China is not good at all. What is your view of the prospects for the upcoming quarters and months? Do we indeed have a difficult year ahead of us?
That's a question that a lot of people are asking themselves. And our view is that there is a certain expectation related to greater activity in the economic situation in China. And this increased activity is not something that everybody expected would follow immediately the selection of -- the election of a new ruler of the party. But there are signals of acceleration of credit action, significant acceleration of investments in infrastructure, mainly related to the green transformation in China. That also includes building energy infrastructure. And this supported very much this demand for copper on the part of investment funds.
On the other hand, we can see that the situation in the U.S. and in Europe is unstable. But it is not disastrous in any way. So the announcement of growing interest rates seem to be disappearing, we can see renewed interest in buying foreign assets in international markets. So we are getting mixed messages. We are in talks with major funds. And their view is similar to ours, namely next year is bound to be a difficult year, one that will require hard work and great focus on costs and on securing revenues. While the following years are assessed as good years, when the good business cycle will allow us to get up on this curve. There is a demand for raw materials. There is certain need for economic development in a number of countries. And for sure, this will support demand in the following years.
And if we look closely at the copper sector, we can see that the mining projects, which started a few years go when copper price began to increase, will be implemented in the following years. While other mining projects are likely to be closed down in the following years, there are no -- there is no pipeline of new mining projects. So our assessment is very much in line with what analysts say, the following 5 or 6 years are likely to be years of oversupply and insufficient demand, which should reverse the price trend. I know it is a lengthy answer, but this is how we roughly see it, difficult in the short term, very optimistic in the long term.
Let me add to this. we repeatedly use the word stability. Because it is the key determinant of our functioning stability, stable foundations of our business. Let's remember that we already had prices significantly below $5,000 per tonne and significantly over $10,000 per tonne. We feel the cost pressure. But we monitor the market closely. The growth of C1 cost by 13%, in my opinion, is lower than what could result from macroeconomic situation. We bet very much on stability. We focus on stability, even though the cost pressure is strong. At present, our focus concentrates on preparing the budget for 2023.
If I may ask the question, Mariusz Marszalkowski, BiznesAlert, that's about near future, next year. Next year, your contract for -- in copper cathodes will come to an end. Are you -- to China. Are you in talks with the Chinese partner regarding extension of this agreement? And if so, could you reveal any secrets of that and the details of that?
I'm not sure if we want to discuss the negotiations with our partners. We also look at this contract in terms of the worth of the agreement, its significance. We will inform you in the right way after we have signed any agreement with any specific contractor. We will not comment on this today.
I do not see here any questions from areas we haven't addressed yet. So thank you very much.
I think we will end today's meeting at this point. Thank you very much. Thank you for your questions. The transcript of the questions and answers will be available on our website as well as a transcript of the presentation part of the conference. We will meet next quarter, when we will present the results for the whole 2022. And on a daily basis, we are at your disposal. Thank you very much.