Financial Results of the KGHM Group

The decline in sales revenue of PLN 3 618 million (15.0 per cent) was mainly due to the lower copper sales volumes (lower by 41.9 thousand tonnes) and a decline in metals prices - copper on the London Metal Exchange and silver on the LondonBullion Market.

KGHM S.A. Group key financial data

Source: Management Report on activities of KGHM Polska Miedź S.A.Capital Group in 2014.

The rapid appreciation of the US dollar had the biggest impact on the decrease in copper prices in 2014, in relation to the previous year. Also significant were concerns about the sustainability of economic growth in Europe, the noticeable slowdown of the Chinese economy, and expectations of oversupply of the metal. The main factors that influenced lower silver prices in 2014 include: rapid appreciation of the dollar, the end of quantitative easing (QE) in the US, and inflation remaining below the expectations of the US Federal Reserve System (FED). EBITDAlexicon.png of the Group in 2014 amounted to PLN 5 311 million and was lower than the result from 2013, by PLN 5 952 million (10.8 per cent). The Group’s net profit in 2014 was also lower than the result from 2013, and amounted to PLN 2 451 million, compared to PLN 3 033 million last year (down 19.2 per cent).

Production and cost position (C1 costs) KGHM S.A. Group

Source: Management Report on activities of KGHM Polska Miedź S.A. Group for 2014.

Total payable copperlexicon.png production in the Group’s companies in 2014 amounted to 662.9 thousand tonnes of payable copper and was at the production level reached in 2013 (666.0 thousand tonnes). The share of Parent Entity payable copper production in the Group’s production reached 87 per cent. The average C1 cash cost of copper production incurred by the Group in 2014 amounted to 1.89 USD/lb and was higher than last year by 2.2 per cent (1.85 USD/lb).

The level of C1 cost in 2014 placed the Group between the third and fourth quartiles of the cost curve (according to Wood Mackenzie estimates). The median C1 cost in the industry was similar to the volume recorded in the Group and amounted to 1.79 USD/ lb, mainly due to the large number of small, high-cost copper producers on the market. The global average C1 cost, weighted by payable metal production, amounted to 1.55 USD/lb.

The relatively low USD/PLN exchange rate recorded in the first half of 2014 had a negative impact on the Group’s position on the cost curve.