Economic performance of the KGHM Polska Miedź Group
Production
In 2021, copper production by the Group was higher by 6%, or by 44.6 thousand tonnes compared to 2020. The increase was in respect of all 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 copper production by Sierra Gorda SCM was due to higher copper content in ore, higher recovery and higher ore processing.
The higher production of copper by KGHM Polska Miedź S.A. in 2021 was due to an increase in production from
purchased copper-bearing materials as a result of higher availability of the production line
6
%
In 2021, copper production by the Group was higher
The increase in copper production by 4.8 thousand tonnes in the segment KGHM INTERNATIONAL LTD. was due to higher production by the Robinson mine by 6.2 thousand tonnes. Lower production was recorded by the Sudbury Basin and by the Franke mine.
Detailed information on production results may be found in the sections dedicated to individual segments. The Group’s production is shown below
Production in the group
| 2021 | 2020 | Change (%) | IVQ’21 | IIIQ’21 | IIQ’21 | IQ’21 | |
|---|---|---|---|---|---|---|---|
| Payable copper (kt) | |||||||
| Group | 753.7 | 709.1 | 6.3% | 179.8 | 193.2 | 195.2 | 185.5 |
| KGHM Polska Miedź S.A. | 577.6 | 560.4 | 3.1% | 137.5 | 146.9 | 146.8 | 146.4 |
| KGHM INTERNATIONAL LTD. | 71.7 | 66.9 | 7.2% | 16.3 | 19.1 | 20.1 | 16.2 |
| Sierra Gorda S.C.M.* | 104.4 | 81.8 | 27.6% | 26.0 | 27.2 | 28.3 | 22.9 |
| TPM (koz t) | |||||||
| Group | 163.5 | 194.3 | -15.9% | 39.3 | 45.5 | 43.3 | 35.4 |
| KGHM Polska Miedź S.A. | 81.3 | 96.8 | -16.0% | 19.9 | 23.3 | 21.5 | 16.6 |
| KGHM INTERNATIONAL LTD. | 51.3 | 66.1 | -22.4% | 11.4 | 13.6 | 14.1 | 12.2 |
| Sierra Gorda S.C.M.* | 30.9 | 31.4 | -1.6% | 8.0 | 8.6 | 7.7 | 6.6 |
| Silver (t) | |||||||
| Group | 1,366.1 | 1,352.2 | 1.0% | 358.5 | 331.4 | 369.2 | 307.0 |
| KGHM Polska Miedź S.A. | 1,332.2 | 1,322.9 | 0.7% | 349.6 | 323.2 | 360.8 | 298.6 |
| KGHM INTERNATIONAL LTD. | 2.0 | 1.7 | 17.6% | 0.4 | 0.4 | 0.6 | 0.6 |
| Sierra Gorda S.C.M.* | 31.9 | 27.6 | 15.6% | 8.5 | 7.8 | 7.8 | 7.8 |
| Molybdenum (mn lbs) | |||||||
| Group | 8.4 | 9.4 | -10.6% | 1.2 | 2.5 | 2.7 | 2.0 |
| KGHM Polska Miedź S.A. | – | – | – | – | – | – | – |
| KGHM INTERNATIONAL LTD. | 0.2 | 0.4 | -50.0% | 0.0 | 0.1 | 0.0 | 0.1 |
| Sierra Gorda S.C.M.* | 8.2 | 9.0 | -8.9% | 1.2 | 2.4 | 2.7 | 1.9 |
*55% share of the Group
Structure of consolidated sales revenue
The geographic and product structure of the consolidated sales revenue of the Group is presented in the following charts. In accordance with the adopted principle of consolidation by the equity method, sales revenue do not include revenues of the segment Sierra Gorda S.C.M. Detailed information on segment sales is presented in the sections devoted to the results of individual segments.
C1 cost of producing payable copper in the Group
Unit costs by Group segments are presented in the table below. Detailed descriptions of individual items are presented in the sections devoted to individual segments.
C1 cost of producing payable copper in the Group (USD/LB)
| 2021 | 2020 | Change (%) | IVQ’21 | IIIQ’21 | IIQ’21 | IQ’21 | |
| Group | 1.96 | 1.59 | +23.3 | 2.00 | 2.03 | 1.96 | 1.82 |
|
KGHM Polska Miedź S.A. |
2.26 | 1.62 | +39.5 | 2.32 | 2.48 | 2.30 | 1.93 |
|
KGHM INTERNATIONAL LTD. |
2.01 | 1.91 | +5.2 | 2.27 | 1.67 | 1.83 | 2.32 |
|
Sierra Gorda S.C.M. |
0.78 | 1.19 | (34.5) | 0.69 | 0.71 | 0.81 | 0.93 |
Financial results
Statement of profit or loss
Financial results of the Group (in PLN million)
| 2021 | 2020 | Change (%) | IVQ’21 | IIIQ’21 | IIQ’21 | IQ’21 | |
| Revenues from contracts with customers | 29,803 | 23,632 | +26.1 | 8,068 | 7,229 | 7,761 | 6,745 |
| Cost of sales, selling costs and administrative expenses | (25,093) | (20,471) | +22.6 | (7,229) | (6,164) | (6,397) | (5,303) |
| Profit on sales | 4,710 | 3,161 | +49.0 | 839 | 1,065 | 1,364 | 1,442 |
| Profit or loss on involvement in a joint venture |
2,874 | 247 | ×11.6 | 897 | 128 | 1,752 | 97 |
| Other operating income and (costs) | 711 | (624) | × | 80 | 448 | (442) | 625 |
| Finance income / (costs) | (471) | (28) | ×16.8 | (97) | (165) | 93 | (302) |
| Profit before income tax | 7,824 | 2,756 | ×2.8 | 1,719 | 1,476 | 2,767 | 1,862 |
| Income tax | (1,669) | (959) | +74.0 | (326) | (437) | (409) | (497) |
| Profit for the period | 6,155 | 1,797 | ×3.4 | 1,393 | 1,039 | 2,358 | 1,365 |
| Adjusted EBITDA* | 10,327 | 6,623 | +55.9 | 2,597 | 2,417 | 2,705 | 2,608 |
*Adjusted EBITDA = profit on sales + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets recognised in cost of sales, selling costs and administrative expenses) according to part 2 of the consolidated financial statements – together with Sierra Gorda S.C.M.
Main factors impacting the change in profit or loss of the Group
| Item | Impact on change of profit or loss (in PLN million) | Description |
| Revenues from contracts with customers | +6,171 | An increase in revenues mainly due to revenues from sales of copper +PLN 5,519 million, silver +PLN 524 million, with lower revenues from sales of gold, -PLN 202 million. Detailed reasons for the changes in revenues in the segments KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. are described in parts 7 and 8 of this report |
| Cost of sales, selling costs and administrative expenses | (4,622) | An increase in cost of sales, selling costs and administrative expenses due to:
|
| Profit or loss on involvement in a joint venture | +2,627 | An increase in the result on involvement in a joint venture, from PLN 247 million to PLN 2,874 million, comprised of:
|
| Other operating income and (costs) | +1,335 | An increase in the result on other operating activities, from -PLN 624 million to PLN 711 million, mainly comprised of:
|
| Finance income / (costs) | (443) | A decrease in the result on finance income and costs, from -PLN 28 million to PLN 471 million, mainly comprised of:
|
| Income tax | (710) | An increase in income tax mainly due to:
|
Cash flows
Cash flow of the Group (in PLN million)
| 2021 | 2020 | Change (%) | IVQ’21 | IIIQ’21 | IIQ’21 | IQ’21 | |
| Profit before income tax | 7,824 | 2,756 | ×2.8 | 1,719 | 1,476 | 2,767 | 1,862 |
| Exclusions of income and costs, total | (51) | 2,395 | × | (50) | 211 | (537) | 325 |
| Income tax paid | (740) | (667) | +10.9 | (171) | (179) | (190) | (200) |
| Changes in working capital | (2,767) | 1 172 | × | 102 | (1,159) | (650) | (1,060) |
| Net cash generated from operating activities | 4,266 | 5,656 | (24.6) | 1,600 | 349 | 1,390 | 927 |
| Expenditures on property, plant and equipment and intangible assets |
(3,890) | (3,457) | +12.5 | (1,287) | (940) | (849) | (814) |
| Repayment of loans granted to a joint venture |
1,259 | – | × | 1,259 | – | – | – |
| Acquisition of newly–issued shares of a joint venture |
– | (207) | × | – | – | – | – |
| Other cash flow from investing activities |
105 | 3 | ×35.0 | 8 | 1 | (4) | 100 |
|
Net cash generated from investing activities |
(2,526) | (3,661) | (31.0) | (20) | (939) | (853) | (714) |
| Proceeds from / repayments of borrowings |
(1,720) | (266) | ×6.5 | (120) | (74) | (447) | (1,079) |
| Interest paid | (94) | (177) | (46.9) | (14) | (16) | (23) | (41) |
| Dividends paid to shareholders of the Parent Entity |
(300) | – | × | (300) | – | ||
| Other cash flow from financing activities |
(86) | (105) | (18.1) | (20) | (1) | (56) | (9) |
|
Net cash used in financing activities |
(2,200) | (548) | ×4.0 | (154) | (91) | (826) | (1,129) |
| NET CASH FLOW | (460) | 1,447 | × | 1,426 | (681) | (289) | (916) |
| Exchange differences | (158) | 59 | × | (90) | (19) | (9) | (40) |
| Cash and cash equivalents at beginning of the period | 2,522 | 1,016 | ×2.5 | 568 | 1,268 | 1,566 | 2,522 |
| Cash and cash equivalents at end of the period | 1,904 | 2,522 | (24.5) | 1,904 | 568 | 1,268 | 1,566 |
Net cash generated from operating activities in 2021 amounted to +PLN 4,266 million and was comprised of profit before income tax of +PLN 7,824 million, increased mainly by adjusted depreciation/amortisation in the amount of PLN 2,123 million, the reclassification of other comprehensive income to profit or loss due to the realisation of hedging derivatives in the amount of +PLN 2,030 million and a change in other receivables and liabilities other than working capital of +PLN 610 million.
The decrease in cash generated from operating activities in 2021 was mainly due to the change in working capital of PLN 2,767 million, an adjustment of gains due to the reversal of allowances for impairment of loans granted to a joint venture of -PLN 2,380 million, a change in assets and liabilities due to derivatives of -PLN 1,921 million, an adjustment of interest on loans granted to a joint venture of -PLN 494 million, income tax paid of PLN 740 million and exchange differences of -PLN 446 million.
Net cash used in investing activities in 2021 amounted to -PLN 2,526 million and mainly comprised expenditures on property, plant and equipment and intangible assets in the amount of PLN 3,890 million and income from repayment of loans granted to a joint venture, PLN 1,259 million.
Net cash used in financing activities in 2021 amounted to -PLN 2,200 million and mainly comprised the balance of proceeds from and repayments of borrowings, -PLN 1,720 million, the dividends paid to shareholders of the Parent Entity in the amount of PLN 300 million and interest paid in the amount of PLN 94 million. After reflecting exchange differences on cash and cash equivalents, cash and cash equivalents decreased by PLN 618 million and at the end of 2021 amounted to PLN 1,904 million
Assets
Consolidated assets (in PLN million)
| 31.12.2021 | 31.12.2020 | Change (%) | 30.09.2021 | 30.06.2021 | 31.03.2021 | |
| Property, plant and equipment and intangible assets | 26,723 | 25,598 | +4.4 | 26,322 | 25,766 | 25,812 |
| Joint ventures – loans granted | 7,867 | 6,069 | +29.6 | 8,521 | 7,992 | 6,508 |
| Financial instruments | 1,728 | 2,026 | (14.7) | 1,835 | 1,830 | 1,845 |
| Deferred tax assets | 185 | 193 | (4.1) | 218 | 216 | 332 |
| Other non-financial assets | 161 | 161 | – | 167 | 165 | 144 |
| Non-current assets | 36,664 | 34,047 | +7.7 | 37,063 | 35,969 | 34,641 |
| Inventories | 6,337 | 4,459 | +42.1 | 6,106 | 5,794 | 5,485 |
| Trade receivables | 1,009 | 834 | +21.0 | 1,115 | 881 | 958 |
| Tax assets | 364 | 295 | +23.4 | 254 | 235 | 404 |
| Derivatives | 254 | 210 | +21.0 | 333 | 294 | 216 |
| Joint ventures – loans granted | 447 | – | × | – | – | – |
| Other financial assets | 172 | 210 | (18.1) | 148 | 96 | 320 |
| Other non-financial assets | 162 | 142 | +14.1 | 227 | 251 | 222 |
| Cash and cash equivalents | 1,884 | 2,522 | (25.3) | 457 | 1,189 | 1,566 |
| Assets held for sale (disposal group) | 734 | 61 | ×12.0 | 443 | 346 | – |
| Current assets | 11,363 | 8,733 | +30.1 | 9,083 | 9,086 | 9,171 |
| TOTAL ASSETS | 48,027 | 42,780 | +12.3 | 46,146 | 45,055 | 43,812 |
At the end of 2021, total assets in the consolidated statement of financial position amounted to PLN 48,027 million and were higher as compared to 31 December 2020 by PLN 5,247 million.
Non-current assets as at 31 December 2021 amounted to PLN 36,664 million and were higher by PLN 2,617 million compared to the end of 2020. The increase in non-current assets was mainly with respect to loans granted to joint ventures by PLN 1,798 million and property, plant and equipment and intangible assets by PLN 1,125 million. Compared to 2020 mainly financial instruments were lower by PLN 298 million.
Current assets increased by PLN 2,630 million, mainly due to inventories by PLN 1,878 million, assets held for sale by PLN 673 million and loans granted to a joint venture by PLN 447 million alongside a decrease in cash and cash equivalents by PLN 638 million
Equity and liabilities
Consolidated equity and liabilities (in PLN million)
| 31.12.2021 | 31.12.2020 | Change (%) | 30.09.2021 | 30.06.2021 | 31.03.2021 | |
| Share capital | 2,000 | 2,000 | – | 2,000 | 2k000 | 2,000 |
| Other reserves from measurement of financial instruments | (1,705) | (1,430) | +19.2 | (1,452) | (2,076) | (2,189) |
| Accumulated other comprehensive income other than from measurement of financial instruments | 2,219 | 1,728 | +28.4 | 1,817 | 1,755 | 1,550 |
| Retained earnings | 24,532 | 18,694 | +31.2 | 23,138 | 22,101 | 20,042 |
| Equity attributable to shareholders of the Parent Entity | 27,046 | 20,992 | +28.8 | 25,503 | 23,780 | 21,403 |
| Equity attributable to non-controlling intere | 92 | 89 | +3.4 | 90 | 87 | 88 |
| Equity | 27,138 | 21,081 | +28.7 | 25,593 | 23,867 | 21,491 |
| Borrowings, leases and debt securities | 5,409 | 6,928 | (21.9) | 5,554 | 5,505 | 6,106 |
| Derivatives | 1,134 | 1,006 | +12.7 | 975 | 1,156 | 1,253 |
| Employee benefits liabilities | 2,306 | 3,016 | (23.5) | 2,884 | 2,942 | 3,048 |
| Provisions for decommissioning costs of mines and other facilities | 1,242 | 1,849 | (32.8) | 1,601 | 1,566 | 1,838 |
| Deferred tax liabilities | 643 | 442 | +45.5 | 595 | 374 | 381 |
| Other liabilities | 617 | 551 | +12.0 | 635 | 605 | 558 |
| Non-current liabilities | 11,351 | 13,792 | (17.7) | 12,244 | 12,148 | 13,184 |
| Borrowings, leases and debt securities | 455 | 407 | +11.8 | 462 | 428 | 441 |
| Derivatives | 889 | 688 | +29.2 | 787 | 1,163 | 1,265 |
| Trade and similar payables | 2,974 | 3,593 | (17.2) | 2,414 | 3,023 | 3,379 |
| Employee benefits liabilities | 1,437 | 1,313 | +9.4 | 1,303 | 1,397 | 1,384 |
| Tax liabilities | 1,453 | 537 | ×2.7 | 1,285 | 1,135 | 1,086 |
| Provisions for liabilities and other charges | 207 | 162 | +27.8 | 189 | 179 | 189 |
| Other liabilities | 1,661 | 1,202 | +38.2 | 1,445 | 1,304 | 1,393 |
| Liabilities associated with disposal group | 462 | 5 | ×92.4 | 424 | 411 | – |
| Current liabilities | 9,538 | 7,907 | +20.6 | 8,309 | 9,040 | 9,137 |
| Non-current and current liabilities | 20,889 | 21,699 | (3.7) | 20,553 | 21,188 | 22,321 |
| TOTAL EQUITY AND LIABILITIES | 48,027 | 42,780 | +12.3 | 46,146 | 45,055 | 43,812 |
Equity as at the end of 2021 amounted to PLN 27,138 million and was higher by PLN 6,057 million than at the end of 2020, mainly due to an increase in retained earnings by PLN 5,838 million.
Non-current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2021 amounted to PLN 11,351 million and were lower by PLN 2,441 million compared to the end of 2020, mainly due to a decrease in the value of borrowings, leases and debt securities by PLN 1,519 million, employee benefits liabilities by PLN 710 million and provisions for decommissioning costs of mines and other facilities by PLN 607 million.
Current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2021 amounted to PLN 9,538 million and were higher by PLN 1,631 million compared to the end of 2020, mainly due to an increase in tax liabilities by PLN 916 million, liabilities associated with disposal group by PLN 457 million and other liabilities by PLN 459 million. The main decrease in current liabilities was in respect of trade and similar payables by PLN 619 million
Contingent assets and liabilities due to guarantees granted
As at 31 December 2021, the Group held contingent assets in the amount of PLN 508 million, which mainly related to the securities of proper execution of agreements in the amount of PLN 325 million and promissory notes receivables in the amount of PLN 134 million.
As at 31 December 2021, the Group held liabilities due to guarantees and letters of credit granted in the amount of PLN 849 million and promissory notes payables in the amount of PLN 173 million. The most important items are liabilities of the Parent Entity aimed at securing liabilities:
- Sierra Gorda S.C.M. – a corporate guarantee in the amount of PLN 670 million securing the repayment of
a long-term bank loan, - other entities, including the Parent Entity:
- a guarantee in the amount of PLN 124 million securing the proper execution of future environmental obligations of the Parent Entity to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility,
- guarantees and letters of credit in the total amount of PLN 39 million securing the proper execution of agreements entered into by the Parent Entity and companies in the Group
2021 targets versus achievements and targets for 2022
KGHM Polska Miedź S.A. does not publish forecasts of financial results. However, in regulatory filings dated 28 January 2021 and 14 January 2022 the Company published its main Budget assumptions respectively for 2021 and 2022, which are presented in the table below:
2021 targets versus achievements and targets for 2022
| Execution 2021 | Budget 2021 | Execution (%) | Budget 2022 | Change (%) | ||
| KGHM Polska Miedź S.A. | ||||||
| Production of copper in concentrate | kt | 391,3 | 390,0 | 100,3 | 392,0 | +0,2 |
| Production of silver in concentrate | t | 1 303 | 1 200 | 108,6 | 1 280 | (1,8) |
| Electrolytic copper production, including: | kt | 577,6 | 573,0 | 100,8 | 585,0 | +1,3 |
| from own concentrate | kt | 381,4 | 385,0 | 99,1 | 394,0 | +3,3 |
| Metallic silver production | t | 1 332 | 1 197 | 111,3 | 1 222 | (8,3) |
| Copper products sales volume | kt | 561,5 | 566,3 | 99,2 | 583,0 | +3,8 |
| Silver products sales volume | t | 1 249 | 1 165 | 107,2 | 1 278 | +2,3 |
| Total unit cost of electrolytic copper production from own concentrate | PLN/t | 22 210 | 20 248 | 109,7 | 26 455 | +19,1 |
| Capital expenditures on property, plant and equipment* | mn PLN | 2 404 | 2 853 | 84,3 | 2 835 | +17,9 |
| Other expenditures, including loans** | mn PLN | 58 | 306 | 19,0 | 202 | ×3,5 |
| KGHM INTERNATIONAL LTD. | ||||||
| Payable copper production | kt | 71,7 | 73,9 | 97,0 | 54,1 | (24,5) |
| TPM production | koz t | 51,3 | 53,7 | 95,5 | 53,1 | +3,5 |
| Sierra Gorda (55%) | ||||||
| Payable copper production | kt | 104,4 | 98,9 | 105,6 | 90,8 | (13,0) |
| Molybdenum production | mn lbs | 8,2 | 6,7 | 122,4 | 2,9 | (64,6) |
*excluding costs of borrowing, leases per IFRS 16 unrelated to an investment project as well as expenditures on development work - uncompleted, the budget for 2021 contains a reserve of PLN 100 million
**acquisition of shares and investment certificates of subsidiaries and loans granted to them
**acquisition of shares and investment certificates of subsidiaries and loans granted to them
In 2021, production of electrolytic copper by the Company was 4.6 thousand tonnes of copper (+1%) higher than the target in the 2021 Budget, with lower production from own concentrate by 3.6 thousand tonnes and higher production from purchased metal-bearing materials by 8.2 thousand tonnes. Silver production was higher by 135 t (+11%). As a result, sales of silver were higher than planned (+84 t, or 7%). Copper sales were however lower than the target in the Budget by 4.8 thousand tonnes (-1%) due to a change in the schedule of deliveries.
Production of payable copper and precious metals by KGHM INTERNATIONAL LTD. was lower than assumed in the Budget respectively by 2.2 thousand tonnes (-3%) and 2.4 thousand troy ounces (-4%) mainly due to lower quality ore.
Sierra Gorda ended 2021 with payable copper production which was 5.5 thousand tonnes (+6%) higher than planned in the Budget, due to higher copper content in ore and higher recovery.
The total unit cost of electrolytic copper production from own concentrate in KGHM Polska Miedź S.A. was higher than planned by 10%, mainly due to a higher minerals extraction tax charge. The unit cost of copper production excluding this tax was lower than planned, despite lower copper production from own concentrate and higher prices of materials and technological fuels.
Capital expenditures on property, plant and equipment by KGHM Polska Miedź S.A. in 2021 (excluding costs of borrowing, leases per IFRS 16 unrelated to an investment project and expenditures on uncompleted development work) were PLN 449 million (-16%) lower than planned, including PLN 100 million of unutilised reserves.
Other expenditures were also lower by PLN 248 million, mainly due to the lack of a loan granted to finance the international projects (Victoria and SG Oxide) advanced using the resources of KGHM INTERNATIONAL LTD. and to the lack of an increase in share capital for PMT LK and Pol-Miedź Trans, due to postponements in the schedule.
Production – lower copper production by the Group in 2022 by 24.0 thousand tonnes (-3%) compared to the amount recorded in 2021, of which from:
- KGHM Polska Miedź S.A. +7.4 thousand tonnes (+1%), with higher production from own concentrate by 12.6 thousand tonnes,
- KGHM INTERNATIONAL LTD. -17.6 thousand tonnes (-25%) – mainly lower copper production by Robinson (lower copper content in ore and lower recovery) and the sale of the assets of Franke,
- Sierra Gorda -13.6 thousand tonnes (-13%) – the main reason for the lower production is operating in regions with lower metal content. At the same time an increase in the amount of ore processed by 2% is expected.
Sales of KGHM Polska Miedź S.A. – as a result of higher production and lower inventories of finished products, it is expected that copper sales will be higher by 21.5 thousand tonnes (+4%).
Total unit cost of electrolytic copper production from own concentrate (KGHM Polska Miedź S.A.) will increase by 19% due to the adopted assumptions regarding higher prices of materials and technological fuels as well as energy-relatedfactors.
Investments (excluding costs of borrowing, leases per IFRS 16 unrelated to an investment project and expenditures on uncompleted development work) – an increase in capital expenditures on property, plant and equipment in KGHM Polska Miedź S.A. by PLN 431 million (+18%) due to an increase in the scope of mining machinery purchases compared to 2021, higher prices and reflecting in the investment portfolio the development of underground dewatering systems in the mining divisions securing the increased inflow of water in the mines, as well as deliveries/work and services expected to be advanced during the technological shutdown of the main production line of the Głogów II Copper Smelter and Refinery.