Letter from the President to stakeholders

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  • 102-14

Dear Stakeholders,

I would like to start our summation of the year 2021 in an atypical way, by quoting a renowned researcher into management processes, Peter Drucker: ”The best way to predict the future is to create it.” Recent years have presented us with challenges on a scale not yet seen in the global economy, while the tragic events in Ukraine have once more upturned the order of our world. Despite years marked by a pandemic and recent days beneath the pall of the dramatic war on our eastern border, we have never surrendered to pessimistic visions and forecasts about the global economy and the mining sector. We have aclear strategy which we are effectively advancing, even in these turbulent times. Day by day we are creating a stable future for our employees, value for our shareholders, a plan for future Polish generations. We are supplying materials which are vital for the global economy. We are continually emphasising that the future is made of copper!

In 2021 KGHM celebrated its 60th jubilee as a company. We recalled the Company’s pioneers and the most important events in the history of the copper giant, unswervingly looking towards the future, and above all concentrating on our daily work and enhancing the efficiency of our company’s actions. An ambitious climate policy, the strategic treatment of energy transformation and very good production and financial results, mean that we have written new pages in KGHM’s history, of which we can be proud. It is with genuine satisfaction that I hereby present you with the results of the Company and of the KGHM Polska Miedź Group for 2021.

In the past year we continued to work under the pressure of the COVID-19 pandemic and the need to ensure the safety of our employees. These actions, however, took on a different form. The world shook off its initial surprise and adapted to the new conditions. The mass distribution of vaccines and the gradual easing of restrictions gave
investors cause for optimism. Stock markets indices rose, commodities too, and copper reached an historic high. The highest copper price on the LME in 2021 of 10 724.50 USD/t was recorded on 10 May, and marked an all-time high. This, combined with our strategic vision, effective management and honest labour, enabled KGHM to end the year with excellent operating and financial results, at historic, as-yet-unseen levels. And all of this with outstanding, record-low work safety ratios and ambitious investment plans.

The impressive data, backed by the numbers, is thanks to the efforts of our employees and the effectiveness of the 4E Strategy implemented by the Management Board: Elasticity/flexibility, Efficiency, Ecology and E-Industry are the pillars on which, in the demanding times of the pandemic, we were able to find support in and which enabled us to triumph over many potential threats. Similarly as during the first year of the pandemic, in 2021 neither in KGHM Polska Miedź S.A. nor in any of the Group’s international mines were there any production shutdowns whose direct cause was attributable to the pandemic.

Ahead of us are further challenges and goals, the realisation of which we neither wish to nor are able to wait for, and which require of us substantial outlays: in work and in financial resources. In 2021 we adopted an ambitious climate policy, openly declaring the Company’s intention to achieve climate neutrality by 2050. By 2030 we will reduce total Scope 1 and Scope 2 emissions by 30% compared to emissions in 2020. One of the paths to achieving these goals is the development of our own zero-emissions and low-emissions sources of energy. We included this in the Strategy of the KGHM Polska Miedź S.A. Group to the year 2030 with an outlook to 2040, which was approved by the Company’s Supervisory Board on 14 January 2022. To the proven 4Es we added a fifth, key element – Energy.

the planned achievement of climate neutrality

Our ambition is to effectively increase the share of renewable energy sources and to generate our own to cover our energy needs. We possess our own lowemissions generating sources fired by natural gas. We are developing RES projects, including photovoltaic power plants on land belonging to KGHM, and are engaged in numerous due diligence processes and the evaluation of assets available for sale.

We joined a sector agreement to develop off-shore wind power. Our goal is to diversify energy sources and we are reaching out for watershed solutions. We are involved in establishing the Lower Silesia Hydrogen Valley, seeing
the potential to utilise hydrogen, among others in our metallurgical plants.

One of the key projects which will bring the Company closer to achievement of energy independence is the implementation of Small Modular Reactor (SMR) technology. In 2021 we commenced discussions with a supplier of this technology, the company NuScale Power, and in February 2022 we signed an agreement on the start of work to implement this technology in Poland. We are planning to build the first power plant by 2029. This watershed project to generate energy, which is 100% free of carbon dioxide emissions, will also improve the Company’s cost efficiency.

In 2021 we recorded an increase in copper production by the Group of 6.3%, or by 44.6 thousand tonnes compared to 2020. The increase was by all of the Group’s segments, in particular Sierra Gorda SCM (+22.6 thousand tonnes on a 55% basis) and KGHM Polska Miedź S.A. (+17.2 thousand tonnes). The increase in production and sales volumes, combined with a good price, led to a more-than 26% increase in Group revenues, which amounted to PLN 29.8 billion.

In 2021 the KGHM Polska Miedź S.A. Group was fully capable of meeting its obligations in respect of its borrowings, and we reduced the Group’s debt ratio to a historically low level of 0.6 (net debt/adjusted EBITDA), while its net assets rose compared to 2020 by PLN 6.1 billion, reaching at the end of 2021 the level of PLN 27.1 billion.

Adjusted EBITDA of the KGHM Polska Miedź S.A. Group in 2021 was the highest in history at PLN 10.3 billion. We ended the past year with a record consolidated profit for the period, which rose by 242.5% and amounted to PLN 6.2 billion. The separate profit for the period of KGHM rose by 190.6% and amounted to PLN 5.2 billion

PLN billion
PLN billion
PLN billion
consolidated profit
for the period
PLN billion
separate profit
for the period

The successes which we are presenting to you today are the result of managerial effectiveness and honest work by our employees, whom I wish to thank in particular. Our companies in Poland and abroad as well as our divisions carried out strategic goals and built the results of the entire KGHM Group. Our international assets achieved record results, and for the first time Sierra Gorda began to repay its liabilities towards the owners. Moreover, North American assets repaid most of their liabilities towards KGHM. Nearly 28% of the increase in copper production by this mine is the effect of higher copper content in ore, higher recovery and higher ore processing, but also consistent changes in the way the mine is managed. The increase in revenues by nearly 78% combined with optimisation of costs enabled the achievement, for the 55% interest held by KGHM Polska Miedź S.A., of an operating profit of PLN 3.2 billion (an increase of nearly 2.5-times). The excellent financial condition enabled this investment in Chile, for the first time in its history, to return cash to the Parent Entity, and profit for 2021 amounted to PLN 3.2 billion.

In Poland we continued strategic investments, including the sinking of the GG-1 shaft under the Deposit Access Program, and geological work in the „Retków-Ścinawa” concession. In November 2021, 7 months ahead of schedule, we completed construction of the Southern Quarter, an element of the Żelazny Most Tailings Storage Facility. Thanks to the largest investment by KGHM Polska Miedź S.A. since 2018, the Żelazny Most Tailings Storage Facility is now the largest, and at the same time the most monitored, facility of its type in Europe, as well as one of the largest in the world. This is a key element in the copper production process.

We are investing in metallurgy: in the Cedynia Wire Rod Plant we are working on building a second Upcast line for the production of oxygen-free CuOFE copper, while the Strategic Program called Hybrid Legnica Smelter and Refinery is our response to expectations connected with the recycling of copper and the Circular Economy concept.

I always emphasise the particular care with which KGHM deals with the question of the safety of our employees. In 2021 we continued to pursue the Employee Safety Improvement Program „Think About Consequences”, utilising innovative technology in accordance with the updated Strategy. The high OHS standards applied by the Company (confirmed by the ISO 45001:2018 certificate), applies to both the Company’s employees as well as to companies engaged in contractual services on the grounds of KGHM Polska Miedź S.A. Thanks to the commitment and responsibility of all employees, in 2021 we recorded a record-low LTIFRKGHM (Lost Time Injury Frequency Rate KGHM) ratio. The ratio was recorded at 5.63, or a decrease by 23% compared to 2020 and 70% lower compared to the level recorded in 2010. In 2021, despite the exceptionally difficult conditions imposed by the pandemic, KGHM INTERNATIONAL LTD. recorded its best result in history in terms of occupational health and safety.

In the past year we engaged in numerous activities: preventative, communicatory and procedural, aimed at mitigating the impact of the pandemic and reducing possibilities for the spread of the disease. We organised mobile vaccination points, which were freely available both to employees and their families, as well as any other willing people. We also demonstrated our support by helping to equip the health services and through the efforts of volunteers. We adapted our CSR programs to the current situation and to the most severe social problems, engaging in improving psychological health and counteracting depression. We are also continuing our pro-family projects and those involving organisational culture. In the difficult circumstances of 2021 we celebrated our 60th jubilee, emphasising that „the future is made of copper”. We thanke our stakeholders and I would herein like to repeat our thanks.

This year’s July will mark a quarter-century since the stock market debut of the copper giant KGHM Polska Miedź S.A. This was a significant event not only for the Company itself, but also for the Polish capital market. Today, after nearly 25 years, we can say with pride that KGHM remains one of the driving forces powering the Warsaw Stock Exchange. Today the shares of KGHM comprise an important component of market indices such as the WIG, WIG20, and WIG30, as well as being a component company of the FTSE4Good Index Series of the London Stock Exchange, which serves as proof of recognition of our activities aimed at enhancing ESG value.

I would like to express my thanks to our shareholders and clients for your trust. To our local communities my sincerest gratitude for being good neighbours and for our mutual efforts to develop the regions in which we operate.

Ahead of us is another year full of challenges. At this moment, although we do not yet know all of the consequences of the war in Ukraine, I am convinced that the experience and resources which we possess will enable us to deal with the changes in the global economy. Copper and the resources which we produce enable the creation of future technologies, and I am firmly convinced that the bright future awaits us.

On behalf of the Management Board of KGHM Polska Miedź S.A. I hereby present you with the Annual Report of the Company and of the KGHM Polska Miedź Group for 2021.

At the same time I invite you to review our data and non-financial indicators, whose reporting is especially important to us, along with the attached Non-financial report for the year 2021.


Marcin Chludziński
President of the Management Board
KGHM Polska Miedź S.A.

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