A responsible business
Polish copper giant is concerned with more than profits
Increasing global demand for copper and other precious metals opens up a wide range of development opportunities for KGHM Polska Miedź S.A. This will not be a case of development at all costs: the interests of people and the environment will come first. Changes in management begun in 2018 have allowed planned financial targets to be exceeded, enabled higher production and given better asset management. The challenge is to implement all of the ambitious strategic goals adopted in 2018, set out in Prime Minister Mateusz Morawiecki's ‘Strategy for Responsible Development’.
A global champion
KGHM Polska Miedź S.A. is an innovative global organisation running technologically advanced exploration, extraction and smelting. It began in 1957 with the discovery of one of the world’s largest deposits of polymetallic ores in south-western Poland. Now present in Europe, South America, North America and Asia, the group comprises the parent entity, KGHM Polska Miedź S.A., and dozens of subsidiaries. There are 34,000 staff employed globally – people who believe that what they do is important to the world. Listed on the Warsaw Stock Exchange, the firm is included in its WIG, WIG20, WIG30 and WIG-GÓRNICTWO indices. It has long been part of the RESPECT Index, confirming that the highest standards of social responsibility are applied.
23 million tons of copper
The company holds eighth position globally for mineable copper reserves: almost 23 million tons of metal, enough to produce electrolytic copper for another 50 years at least – and technological progress will probably allow extraction from deposits so far considered unreachable or unprofitable. KGHM produces about 700,000 tons of copper, its signature product, and 1,200 tons of silver a year, making it a world leader. It also produces smaller amounts of gold as well as platinum, nickel, lead, molybdenum and rhenium. A complex organisation needs common values – security, cooperation, results-orientation, responsibility and boldness. For over 60 years these have provided the bearings, defining the direction of development and mode of operations in the international market.
Think globally, act locally
‘We are a global company, but we operate locally. KGHM’s heart is Zagłębie Miedziowe (the Copper Basin) and our prime concern is for its sustainable development’ says Marcin Chludziński, head of KGHM Polska Miedź S.A.’s management board. Overall, the firm generated a net profit of PLN 2 billion in 2018, while the EBITDA of the Group was almost PLN 5 billion. In local terms, as well as thousands of jobs, large revenues also generate taxes for local-authority budgets. The firm also funds a number of local investments and cultural and social projects.
Respect for the environment
The company invests hundreds of millions of euro each year in development. The general principle is to do business prospecting to restoration’: operations must do the least possible harm to the environment – from preparatory works, through the plant's operation, to the winding up stage.
A wider world
In 2018, marked price fluctuations on the exhanges hindered producers' planning and day-to-day management. ‘The market was unstable last year’ but, says Marcin Chludziński, ‘we already see a stabilisation of copper prices on world markets. Despite the rapid development of the Polish economy, KGHM is a global company and we must take a broader perspective. Eighty per cent of production goes abroad and the price of copper depends not only on a stable and growing economy, but also on politics, including the inter-relations of world powers,’.
Results better than planned
Despite a sometimes unfavourable macroeconomic environment, the Group achieved better-than-expected financial and production results in 2018. Revenues totalled PLN 20.5 billion – up 0.8 per cent 2017. EBIDTA indicators for both Polska Miedź and the entire Group also exceeded expectations. Production of electrolytic copper reached 634,000 tons (1.6 per cent more than planned), while at 1,200 tons, silver production was 2 per cent above expectations. At the same time, KGHM looks to increasing efficiency in all strategic areas. ‘We focus on maintaining cost discipline, stabilising production, constantly monitoring our assets in Poland and abroad, and have begun the process of reducing KGHM’s debt,’ says Chludziński.
Sierra Gorda: production is growing
Sierra Gorda is certainly a challenge for KGHM's management. Some experts and politicians suggested getting rid of Chilean assets, a proverbial Albatross around the company's neck. ‘We are focusing on the optimization of foreign assets, so that by applying greater discipline, we have a greater production of copper’. Marcin Chludziński also argues that ‘We are only at the beginning of the improvement process, but it gives hope for better results.’ The priority is to bring Sierra Gorda to full production: ore extraction is expected to increase to 140,000 tons annually from 2021.
Thinking about the future
The Management Board focuses on creating a basis for the Group's sustainable development – thus long-term contracts were signed with partners such China Minmetals, to be supplied with products worth up to USD 4 billion. Work is also underway to launch new copper-ore production at Głogów-Głęboki-Przemysłowy, allowing extraction of ore from seams below 1,350 metres, while new areas for prospecting and extraction such as Bytom Odrzański and Kulów-Luboszyce are being considered.
KGHM Polska Miedź sets itself ambitious goals in the new strategy for 2019-2023. KGHM's strategy encapsulates this in the four pillars of development: flexibility, efficiency, ecology, and e-industry. The company is also focusing on the development of its energy assets – it wants to ensure half the energy consumed comes from its own or associated sources and a large part from renewable sources. Marcin Chludziński refuses to rely on 'luck and good copper prices' and wants the company to grow under virtually any conditions. 'It is easy', he adds 'to invest when a firm has excess liquidity and the prices of products are soaring. It is harder to work on historical challenges, such as foreign assets and delays in implementing cost discipline’. In the first months of 2019, the new strategy has resulted in growing production and improving financial performance.