12.14 Subsequent events Approval of the Strategy of the KGHM Polska Miedź S.A. Group to 2030 with an outlook to 2040
On 14 January 2022 the Supervisory Board of the Parent Entity approved the Strategy of the KGHM Polska Miedź S.A. Group to the year 2030 with an outlook to 2040 („the Strategy”) as presented by the Management Board.
The decision to update the Strategy was dictated in particular by:
- macroeconomic changes of strategic importance for the mining sector, in particular those arising from the green transformation,
- the need to clarify the Company’s actions as regards the commencement of decarbonisation and commitments to protect the climate,
- a focus on securing access to the raw materials base for future copper production, but also actions aimed at developing mining capacity in terms of other metals and mineral resources,
- the intensification of actions aimed at the implementation of innovation in the production process,
- the identification of opportunities to gain competitive advantages and to develop the Company in new, promising business areas.
The result of the Company’s work is the Strategy to the year 2030 with an outlook to 2040. The Company’s mission and vision remained unchanged (details are described in Section 5 of the Management Board’s Report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in 2021).
The Strategy of the Group to the year 2030 also includes climate-related goals as respects reducing emissions by KGHM which are consistent with the Climate Policy of KGHM Polska Miedź S.A., being a complementary document to the Strategy.
The updated Strategy does not alter the Company’s current approach to its business activities.
Main assumptions of the Budget for 2022
On 14 January 2022, the Supervisory Board of KGHM Polska Miedź S.A. approved the Budget of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group for 2022 (details are described in Section 6 of the Management Board’s Report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in 2021).
Agreement with trade unions on wages and employee benefits
During wage negotiations with trade unions, which were held from 25 to 27 January 2022, a wage and employee benefits agreement as well an additional protocol to the Collective Labour Agreement were reached and signed. Details were described in section 13.3 of the Management Board’s Report on the Activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group.
Entry into force of the Act on amending the Act on a system of compensations for energy-intensive sectors and sub-sectors
On 9 February 2022, the Act on amending the Act on a system of compensation for energy-intensive sectors and sub-sectors came into force, aimed at modifying the system of compensation pursuant to new European Commission guidelines on certain State aid measures in the context of the system for greenhouse gas emission allowance trading post 2021. As a result, currently the Parent Entity estimates that it will obtain additional compensation in the amount of approximately PLN 312 million in the years 2021-2030 due to the aforementioned regulations.
Repayment of loan granted to the joint venture Sierra Gorda S.C.M.
On 10 February 2022, the Group received from Sierra Gorda S.C.M. a payment on a loan drawn in the amount of PLN 431 million (USD 110 million).
Conclusion of an agreement with the company NuScale on the commencement of work on implementation of advanced, small modular reactors (SMR) in Poland
On 14 February 2022 the Parent Entity signed an agreement with the American company NuScale Power on the commencement of work on implementation of advanced, small modular reactors (SMR) in Poland. Under the concluded agreement, KGHM Polska Miedź S.A. in cooperation with NuScale will implement the SMR technology in Poland. The first power plant will commence operations up to 2029. The construction of small nuclear reactors up to 2029 is directly linked with the Climate Policy of KGHM Polska Miedź S.A. and the new strategic direction of the Company – energy.
Dismissal of a Member of the 11th term Management Board of KGHM Polska Miedź S.A.
On 21 February 2022 the Supervisory Board of the Parent Entity adopted a resolution on dismissal as of 21 February 2022 of Dariusz Świderski, the Vice President (Production) of the 11th term Management Board of KGHM Polska Miedź S.A.
New partner of the KGHM Polska Miedź S.A. Group in the joint venture Sierra Gorda S.C.M.
On 22 February 2022 the transaction was concluded for sale of the 45% share in the company Sierra Gorda S.C.M. by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation to South32, the Australian mining group with its registered head office in Perth. The acquisition price includes the amount of USD 1 400 million, payable on the day the transaction is concluded and USD 500 million, contingent on the fluctuation of copper prices in the years 2022 – 2025. The Group’s new partner is a globally diversified mining and metallurgical company, with its production facilities in Australia, South Africa and South America. The company produces, among others, aluminium, metallurgical coal, manganese, nickel, silver, lead and zinc.
Impact of the war in Ukraine on the Group’s operations
As at the date of approval for publication of these consolidated financial statements, the geopolitical situation associated with the direct aggression of Russia in Ukraine and the implemented system of sanctions does not have a substantial impact on the operations of the KGHM Polska Miedź S.A. Group, while the risk of interruptions to the Group’s operational continuity in this regard continues to be considered as low.
The Group does not engage in direct, significant transactions with entities from Russia, Belarus or Ukraine; such contracts are held by certain intermediaries, mainly traders of wire rod, which could indirectly impact the level of purchases made by such clients.
The possible increase in the near-term in prices of fuels and energy carriers could be a primary factor generating higher basic operating costs of the Group. The availability of resources and materials is currently at a stable level. It cannot however be ruled out that a continuation of this armed conflict over an extended period of time as well as the system of economic sanctions could have a negative impact on suppliers and lead to interruptions in the continuity of materials and services supply chains in the KGHM Group, caused among others by logistical restrictions and availability of materials on international markets, e.g. of steel, fuels and energy.
The level of cathode inventories in exchange warehouses is currently very low, while the sanctions imposed on Russia and on Russian entities may limit the availability of Russian cathodes (produced among others by Norilsk Nickel) on European markets. The potential for changes in supply and high copper prices on metals markets resulting from the aforementioned situation may lead to higher revenues of the KGHM Polska Miedź S.A. Group, but at the same time to higher prices for purchased metal-bearing materials used in production. A similar dependency may occur in the case of a weakening of the PLN versus other currencies (USD and EUR), where the possibility exists for higher revenues, and simultaneously for higher prices for imported materials and resources, for a higher copper tax, or the aforementioned costs of purchased metal-bearing materials. It is impossible to estimate the impact of the aforementioned, potential events on potential profit or loss; the situation is currently continuously monitored, with the simultaneous use of possible mitigating actions.
In terms of the availability of capital and the level of debt, KGHM holds no bank loans drawn from institutions threatened with sanctions.
Financial markets rapidly responded to the outbreak of the conflict in Ukraine. In the first phase, the copper price on the London market and currencies rose in response to the crisis. Within a month, the price of copper achieved the maximum level of 10 730 USD/t (7th March 2022). Currently, the market is visibly calming down and as at 18 March 2022 the copper price was at the level of 10 249 USD/t.
A similar relation occurred in the case of the weakening of the PLN as compared to the other currencies (USD and EUR). The initial appreciation of the USD reached its maximum on 7 March 2022 and amounted to PLN 4.5722, followed by easing to PLN 4.2707 as at 18 March 2022. The euro behaved correspondingly and on 7 March 2022 it reached its maximum of PLN 4.9647, then decreased to PLN 4.7221 as at 18 March 2022.
During that time, the Monetary Policy Council raised interest rates for several times, with the last changes taking place on 8 March 2022, resulting in the interest rates becoming the highest ones since 2014.
In 2021 the process of implementing a comprehensive Business Continuity Management System commenced in the Company, which also enables a more detailed scope of actions to be taken in terms of corporate risk management as regards risks having a catastrophic impact and a small likelihood of occurrence.
Sale of the subsidiaries of the KGHM Polska Miedź S.A. Group
On 21 February 2022, KGHM Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (hereafter: the Fund), with 100% of its Investment Certificates held by KGHM Polska Miedź S.A., sold all of its directly held shares in the company Interferie Medical SPA sp. z o.o. with its head office in Legnica, that is 41 309 shares representing 67.37% of the share capital and the same percent of votes at the shareholders’ meeting, to Polski Holding Hotelowy sp. z o.o. The Fund’s indirect subsidiary – INTERFERIE S.A. – held the remaining 32.63% of the share capital of the company Interferie Medical SPA sp. z o.o.
On 28 February 2022, as a result of the settlement of the call for the sale of shares of INTERFERIE S.A. (hereafter “the company”), announced by Polski Holding Hotelowy sp. z o.o., the portfolio companies of the Fund: Fundusz Hotele 01 Sp. z o.o. S.K.A. and Fundusz Hotele 01 Sp. z o.o sold all of their shares, that is in total 10 152 625 shares, representing 69.71% of the share capital and the same percent of votes at the general meeting.
Due to the above, neither the Parent Entity nor any entities of the Group has any shares in the companies: INTERFERIE S.A. and Interferie Medical SPA sp. z o.o. For both companies the sale price was higher than the value of net assets.
As at 31 December 2021, the financial data of the aforementioned companies were presented in assets held for sale (disposal group) and liabilities related to disposal group in Note 9.8.
Change in the Act on minerals extraction tax
On 10 March 2022 an act dated 24 February 2022 came into force, amending the Act on minerals extraction tax paid by the Parent Entity. As a result of a change in art. 3 of the Act (Act on amending the Act on personal income tax, Act on Vocational and Social Rehabilitation and Employment of Persons with Disabilities and the Act on the minerals extraction tax (Journal of Laws of 2022, item 558), the Legislator introduced an amendment to the formula for calculating the tax rates for copper and silver. The new formula, during a transitional period from 1 January to 30 November 2022, sets the tax rate based on a decrease in the coefficient by 0.25 (this coefficient amounted to 0.85, and after the change amounts to 0.6), which in consequence reduces the monthly tax charge by approx. 30%.
Appointment of a Member of the 11th term Management Board of KGHM Polska Miedź S.A.
On 14 March 2022, the Supervisory Board of KGHM Polska Miedź S.A. appointed Marek Świder as of 15 March 2022 to the Management Board of KGHM Polska Miedź S.A. as a Member of the Management Board of KGHM Polska Miedź S.A., granting him the function of Vice President of the 11th term Management Board (Production) of KGHM Polska Miedź S.A.