KGHM Polska Miedź (KGHPF) Q2 2014 Results - Earnings Call Transcript

Aug.16.14 | About: KGHM Polska (KGHPF)

KGHM Polska Miedź Group (OTC:KGHPF) Q2 2014 Earnings Conference Call August 14, 2014 6:00 AM ET


Anna Osadczuk – IR

Jaroslaw Romanowski – EVP & CFO

Marcin Chmielewski – EVP, Corporate & International Affairs


Andrzej Knigawka – ING Securities

Michał Potyra – UBS

Rafał Wiatr – Citibank

Anna Osadczuk

Good afternoon ladies and gentlemen. My name is Anna Osadczuk, I’m very happy to see you during our results meeting, results after the first six months of this year. Today we have the first Deputy President Włodzimierz Kicińsk with us, Deputy President Corporation, Economic Analysis and Monitoring (indiscernible) and another new Director of Investor Relations, some of you had a chance to talk to Mr. Andrzej Krzyszczak and after the conference you will have another chance to talk to him. Ladies and gentlemen each result meeting has been started with a movie made by drones over Sierra Gorda. Today will be no different but it will be one of the last movies because our mine is already completed nearly 100% completed but I would like to say that President Jarosław Romanowski has just came back from Chile and he has really good, latest news and he will talk about it today.

Jarosław Romanowski

Welcome ladies and gentlemen as usual we’re presenting you a movie showing Sierra Gorda prestriping has been already nearly completed, 192 million tonnes have been removed now we’re stock piling so far ore, 700,000 tonnes already. Here the crushing facility, this is the building, it is fully operational, completed here in this stock piling facility. We have over 200,000 tonnes of ore that has been primarily crushed, it is stock piled in the building here you can see the conveyors that are fully operational. They deliver crushed ore to the secondary and territory crushing to the crushed ore stockpiling facility.

From there it is transported to the ball mills, we have three ball mills, two of them are fully operational. These are the biggest ball mills in the world with the capacity of 5300 tonnes per hour. Here the water for floatation, this tank is already completed. Tailings here before the waste is removed and nearly 80% of our water is reprocessed. Here you can see the first results of the tailings, tailings facility. It is functioning and the biggest swimming pool in the area of 700,000 tonne capacity tank, it is also fully operational now.

As the Madam Director said this is one of the last movies that has been done by drones. It was done in July, the next movies, new movies will be done from at the Sierra Gorda mine because as you know in July we had a technical launching of the mine and we have produced the first concentrate, copper concentrate. However we will talk about Sierra Gorda and the latest news connected with our main project it will be delivered, news will be delivered by colleague.

Marcin Chmielewski

Thank you ladies and gentlemen. We have only good news today. Apart from the results that we have already published yesterday we saw some good positive comments. July was really important for us because we started producing concentrate and Sierra Gorda is one of the fastest mining projects in the world. Normally it takes nearly 20 years from -- since the first research is done and then the mine starts working. Here it took only 10 years, old gold production is 220,000 tonnes of copper yearly, 25 million pounds of molybdenum which makes us a key player on the molybdenum market because we will have 10% share in the molybdenum market. We will also produce gold 64,000 ounces yearly. This will be our production and another good news is the fact that on the 4th August we received a final decision made by the Supreme Court of Chile and it was favorable for us. We will be delivering our copper to Antofagasta port.

Our terminal is currently being constructed, there are no threats here. We have been asked quite often what would happen if the court gives the negative decision but we had alternative solutions but this harbor is the cheapest solution for us and we will be delivering our concentrate from Sierra Gorda there. Well concerning the pictures they were presented during the movie, here we can see the most important buildings. They are one of the most the biggest around the world, ball mills for example. The ball mills has the capacity of processing 5000 tonnes per hour while in Poland our ball mills are processing 150 tonnes per hour so you can imagine how it is. We transport the seawater from the ocean through the pipeline 146 kilometers long. It takes six hours to reach the tank which is as it was already said the biggest swimming pool on the desert.

During the completion process, during the construction we discovered additional potentials that led us say that it will be more profitable. The project will be more profitable than the amount of ore in the area that we bought it's 1.400 million tonnes it will enable us to prolong the life of the mine and the whole project is more profitable because it is one of the best lighten [ph] areas around the world because it is located on the desert, we’re planning to build photovoltaic farms in two stages, 20 megawatts and then 30 megawatts which will enable us to decrease the cost of purchase of the electricity. However we’re buying the electricity in Chile from the biggest operator, Chilean Operator. They built a special coal plant to produce electricity for us, however due to this photovoltaic farm we will be able to decrease the cost of electricity consumption and now my colleague will present more information.

Jaroslaw Romanowski

Since the very beginning we have been talking about additional potentials in Sierra Gorda and as Mr. Chmielewski said we enhanced the industrial resources in Sierra Gorda and it happened due through the angle gradient of the pit. It will enable us to improve the ratio or to the waste and it will also prolong the lifecycle of the mine. We have to remember that at the moment the only documented open pit that we talk about and we will be mining it, it is Catabela [ph] deposit we have been emphasizing that around the existing and designed mine there is a potential of discovering additional deposits. At the moment we’re continuing our exploration campaign and preliminary results of this combined are very promising. Therefore we’re very optimistic and optimistically believe that it will be possible to process in the same processing plant that we will construct, we will be able to process other pits which will be constructed in this area.

Another potential which is the processing of oxide ore now we’re working on in the feasibility study, you’ve seen the first cathodes that have been produced from the oxide ore in model of pricing it is treated as a waste however it gives us additional potential to produce copper. At the moment we’re working on the samples semi-industrial samples that initially confirm our test results. However during the fourth quarter we plan to have the feasibility study completed and together with our markets Sumitomo Metal Mining and Sumitomo Corporation we will be deciding when exactly to complete go with the project but this is an additional potential for higher production in Sierra Gorda.

Now moving on to what has been already mentioned by Mr. Chmielewski, what you’ve heard seen in our information concerning new loan contracts signed by KGHM with bank consortium and the Europe investment bank. This is an element of a new strategy for financing strategic investment development investments, we wanted to enhance our control of the finances of the whole group and to-date that is in different places in KGHM. International should be consolidated on the level of the mother company and such change will result in the situation that within the next few years we will have some savings and our financial costs will be lower and as President Wirth has already mentioned that during an interview it will be around 250 million. So this is an amount that is good for KGHM because also we have to remember that this savings were really received considerably easy. So the contracts amounts to $2.5 billion for five years and it can be prolonged for another two years. It will be spent for the strategic goals of the group and financing the debt of the KGHM International because the cost of maintaining this debt for the group is higher abroad than when the loan is managed on the group level.

Under this structure we will have long term contract with Europe Investment Bank, this contract has been concluded for 12 years and it amounts to 2 billion. However we will be able -- we plan to use seven tranches to spread it onto seven tranches. Of course those contracts will not be used right away and of course the level of use of those contracts will depend on the macroeconomic situation prices of copper, silver, gold we have those lines available for us and once we have such need we will use them to complete our strategic development investments that are presented on another slide, most of them are located in Poland. Here we’re talking about Głogów Głęboki deposit making it available modernization of the Legnica copper plant and also the (indiscernible) waste processing facility, it is necessary for the production here in Poland to be continued.

Of course our portfolio includes development projects that are on different stages of completion, President Chmielewski will talk more about that and I’m talking about Ajax in Canada or the second phase of Sierra Gorda project. However we wanted the Sierra Gorda financing to be based on the external project finance. The costs because we have Japanese banks present in our consortium so the cost are lower than the cost available in Poland so this structure will be maintained. We will be working with our Japanese partners to maintain this financing model for Sierra Gorda in the future.

Now I would like President Chmielewski to give you additional information concerning individual projects starting with (indiscernible).

Marcin Chmielewski

Iron bridge, three important projects for the growth of value of our company and I will show you what we will be spending our money from the credit on (indiscernible) is one of the biggest construction site of that type in Poland. It was built in 1977 to work until 2010, 2015 maximally. If the management board fail to start development construction then we would have to stop production in Poland. So thanks to the agreement with local communes, we were able to develop the quarter the South quarter by another 500 hectares and the production will be maintained until 237. From the point of view of our company in Poland this is a key investment, it is worth emphasizing that the tailings will not be stored as a fluid but it will be thickened as a paste. This is a very modern world solution. Another important project is Victoria project, it is located in Canada and it has been one of the most interesting discoveries, a lot of nickel, gold, and other minerals. So the cost of exploration copper exploration are nearly negative. So we won this project to be launched as soon as possible in order to be able to mine the natural resources, the rich natural resources that we have there.

We have two companies that specialize in building mines, in Poland it is Pebeka and DMC in Canada. They will cooperate in constructing the shaft, the whole infrastructure has been already gathered. In 2019 we want to start the first production minimum CapEx according to the feasibility study was $500 million. We will see but part of our resource, our money will be spent in launching the deposit. Another interesting project in Poland is Głogów Głęboki-Przemysłowy, the Deep Głogów. At the beginning of April we tried to start 2200 meters level very difficult conditions of 35 Celsius degrees down there.

Today the technology allows us to use this deposit we’re building a shaft that will be 1340 meters deep, this is one of the deepest shafts in the world it will be launched in 2019 but from the point of view reach copper deposits exploration of that they are located below 1200 meters. It is a very good challenge for us. These are the projects, that main projects, however some of the money coming from the credits will be from the loans will be spent on exploration, on research, we need to have documented resources, the exploration resources so the research works are continued here. You can see a map showing you where our research is going on in May and January this year we obtained research concessions in vice (indiscernible) in Poland, another area is near (indiscernible).

Here on the map we can see Pustka [ph] Bay, here we informed you that we want to receive, obtained a concession for potassium salts exploration it is continued now however the research showed that under the salts there are some deposits of copper containing copper. And that’s all concerning the information how we’re going to spend the financial resources that we’re able to receive will be spent.

Jaroslaw Romanowski

Thank you. As usually we will start with the macroeconomic perspective before we move on to results. We know that the macroeconomic situation is really important for KGHM in terms of generated revenues. Concerning general perspective GDP growth, industrial production growth, we agree with the publication of the international monetary fund so it is expected that the situation will be improved in main economies of the world, in China or in the U.S. So GDP estimated for 2015 will be 4% and it will help higher demand for copper.

At the beginning of the year it was said that the China will slow down quicker than the prognosis but it turned out that it was a very pessimistic approach. At the beginning of the year I told you that Chinese government has got enough instruments to stimulate the economic growth in China and during our previous presentation we told you that those instruments were used by the Chinese government and they succeeded because GDP growth is about 7.5% and from our perspective as a copper producer this is a very good information because China is a bigger recipient of our copper. Other macroeconomic events I believe you’re following the ratios, the economic ratios factors, indicators, here we can talk about positive signals that reach our country.

Of course we still have the risk connected with geopolitical situation in the Middle-East but it influences the price of our currency that is weaker versus the U.S. dollar recently but it does not influence the economic growth and the higher economic growth around the world, in the U.S. especially has been translated into the more relaxed monetary policy especially in the U.S. However it is happening gradually so still the inflow of money too in the market is maintained and so the economic growth is maintained.

It is a very positive information for us. The copper market itself, prices of copper from the very low level in March went up to reach the levels of the beginning of the year. So they grew by nearly 10% more than $7000 per tonne of copper now is the price and the perspectives on the market are really good. First of all it is influenced by a better situation in the key economies of the world and a smaller production from a newly started, newly launched mines and here you can see the examples of the project (indiscernible) and other projects and it is translated reflected to by the drop of the provisions of the metal stockpiles that is on three main institutions of the world. Also in the warehouses which is really difficult to monitor the amount of stock piles reserves, how this registered provisions have been a decreased as far as we know and now we can be more optimistic concerning the second half of 2014 and in particular into 2015.

Some interesting news that you will surely be seeing in the next few days, we have the change of the way of establishing the price for silver. It will be launched tomorrow, the new format, the new mechanism will be launched tomorrow. It will be announced by a common platform of Thomson Reuter and CLM. It will be London silver price platform. It will be based on the auctions with the algorithm without the participation of the banks. So, 140 years of history is ending today.

This is a very interesting information for you but also for the ministry of finance which will use this benchmark to establish to calculate the mineral exploration tax.

This change is being done very smoothly, it was consulted with the biggest players including KGHM, because we’re silver producer, big silver producer and we will have a proper referential listing rate.

Now moving on to financial results, I would like to start with the information that despite better perspectives that we have being forecasting for the next few months or years. The first half of 2014 was worse in terms of silver and copper prices and also foreign exchange rate as compared to 2013.

The lower prices of copper is 8%, and in terms of silver it was dropped from $26 to $20 per ounce and we were surprised by a stronger position of Polish złoty versus dollar in the first half of 2014 despite that we had this Ukrainian conflict.

The market is reacting a bit slower at the moment, the Polish złoty is weaker than the dollar, the position is weaker concerning the results of the group the drop of metal prices in particular, the silver prices influenced our economic results of the group both in finances we had lower EBITDA by nearly 28% unit costs C1, as well as equivalent copper production you know that we calculate the units cost based on the silver and copper prices. So if the prices are lower the cost is automatically growing.

Speaking of equivalent copper production we’re dealing with a 6% drop but this is just an effect of calculating according to the prices of silver on another slide I will comment on the production and despite the fact that the copper grade in our ore is lower. We were able to maintain a constant rate on the same level. A positive news is the fact that the all parameters, economic parameters improved in the second quarter as compared to the first quarter of 2014 so we can see the optimism through the results of the second quarter.

Now the production copper, mining copper production as I’ve already said we have an increase of our ore extraction, we extracted over 15.7 million tonnes of the dry weight, we were working in the more difficult conditions. The grades dropped from 158 to 155, the production was maintained practically on the level of 2013, it was 216,000 tonnes. Now the flotation recovery was better after six months and it was 18.16%. It is more than we have planned. So we not only have more tonnes produced but we also have better recovery rate which means that the technological progress is really doing well in KGHM.

Now back to the silver here, we have growth as compared to the previous year by 11% and here you have already asked us several times concerning the volume of production in 2014 in total. I can say just to give you a guidance we estimate that the production will be exceeded as compared to our plans estimations that we presented in March concerning copper it will be 4000 or 5000 tonnes more comparing to the plan but concerning to the silver we believe that we will be better by 55,000 tonnes but it is a result of a higher silver grade in the ore extraction. At the moment it is 44.6 gram per tonne. We have purchased materials, we have higher silver grade as well. It will help us to achieve planned goals, results at the end of the year.

Now analyzing the revenues during the first half of 2013 than really we had some decrease but it is a result of two factors, firstly we had lower copper and silver prices as compared to 2013 comparable period which resulted, which cost our revenues to be lower by 19% than they were 7.720 billion but this lower sale that we’re presenting to you, it is a periodical factor that will be leveled during the year the production will be higher, we rebilled our reserves, provisions, so we believe the production and sale in the second half of 2014 will be working positively and another slide shows you the things that we’re proud of. This is another quarter that we’re able to maintain our costs under control, costs by nature mineral extraction tax dropped by 1% from 3.971 billion down to 3.913 billion. This is a very positive trend and we believe that we will be able to maintain those costs under control by the end of the year.

It is mainly due to lower electricity prices but also lower consumption thanks to in one of our cost savings programs we have electricity project, we try to decrease the consumption of electricity.

Now once we have a look at unit production costs, own material production cost they were 6% lower than the previous year. The cash cost of electrolytic copper production C1 was $1.79 pound but we have to remember that $0.54 out of this amount is the mineral extraction tax but if we calculate those costs basing on the assumptions or prices in 2014 concerning silver and gold the effect would be even better, the cost of production of the cathodes also taking unit production of concentrate costs are better by 5% – 6%. Here we can see good, positive trends. So the growth of cost was caused by the factors that are out of our control.

Now concerning the instruments derivatives and hedging policy, then in the first half of 2014 we did not conclude any new hedged transactions for copper and silver prices, 160 million were the positive result for the company so the deferred value of derivatives at the end of June 2014 was 292 million.

We have already said during the first quarter that we closed our positions on the foreign currencies during the period when it was stronger. We have decided that the hedged transaction worked already so we decided to close our positions at the moment when the złoty was stronger than now. The closed positions will influence the level of the accomplished revenues.

In the second quarter we had PLN72 million revenues, in the second half of this year this effect will be PLN 132 million, so it's over PLN200 million in 2014 and another PLN90 million in 2015. Net result changed as compared to the first half of 2013 the net result was decreased from PLN1.725 billion to PLN1.119 billion and this result was both the market consensus as compared to what was announced by PAP. Some people were even more pessimist about the results of KGHM but I believe in the nearest future they will change their mind and we have some basis to say that we have higher production, our cost are under control and we have better economic situation.

What was the cause of this result? Change of price. Nearly 900 million of negative impact, foreign exchange rate as well but we also had a lower sales in the first half of 2014 we promise as I’ve already said that we want to improve it by the end of the year and this result will not be very important on the yearly basis.

We had a lower mineral extraction tax lower tax, income tax and the lower prices of purchased materials. Our plan until the end of 2014 they are still valid but in the middle of the year we can say that they exceed our expectations. We have not announced our budget but I told you in March that what is a market consensus may be treated as a good benchmark for six months period as you can see we’re above market expectations, our results are above market expectations and at the end of the year we hope to be able to surprise you positively again.

Few words about KGHM international you will remember that in the first quarter we had a series crisis in the Robinson mine. We told you why the production was slower, we were all surprised by the production level but in the second quarter we can already see in all our mines including Robinson mine a significant improvement in terms of the production volume as compared to the previous quarter, we also have a lower nickel production due to this stoppage in the McCreedy mine but we’re still working on how to process the nickel, how to explore and produce and process the nickel -- we have magnesium oxides here that are not accepted and so we have to work on the nickel production to be continued in this mine. We have those good market prices.

Concerning the equivalent production in the second quarter we had a higher production growth of production as compared to the first quarter, it is also a very positive factor and shows that our actions have been really successful. C1 cost was decreased significantly in the second quarter, it was $2.03 per pound in KGHM International. It is all due to a significant improvement in Robinson mine.

Now speaking about macroeconomic situation and the fact that we sold less in the first half of the year as compared to the level in KGHM International we had a drop of sale from 586 to 326 and EBITDA dropped from 145 level to 55 level. Here the EBITDA has been mainly generated during the second quarter of 2014, here we’re showing you the slide illustrates maybe the information is not clear for everyone, two levels of EBITDA, 97 and 50. 97, this is the EBITDA that includes the interests for the loan for Sierra Gorda paid to KGHM and our consolidated reports show this amount but the EBITDA calculated including this volume was 50 in the first half of the year and we focus more on this amount because it is a result of the operational functioning of KGHM International mines.

Now speaking about Morrison mine, we have improved results in the second quarter of 2014. We have higher copper grade, it grew from 6.72 to 7.7 as compared to the first quarter of 2014. We also have a very good plan for the second half of 2014. This plan relates back winning [ph] which concerns the mine, shafts and drifts besides it influence the number of new fronts opened in the mine. So in the second half of 2014 it also will be positive, that’s what we believe. Concerning Robinson we have improvement due to the fact that we started to blend ores from different pits, you remember that the main reason for the drop, decrease of production was a lower grade in content in Kimbley pit now we’re blending ores with Loftus [ph] pit. It positively influences our recovery and copper grade in our ore extraction as well as the final product of Robinson mine and therefore we believe that as long as. Well the losses in the first quarter of 2014 were really high but the next quarter’s will not be very surprising and Robinson will be able to work according to expectations. But concerning the North-East pit, we expect a significant improvement in 2015 and 2016.

Now summarizing main priorities, strategic priorities for KGHM for a short term and long term concerning the most important projects the build the value of the company well they remain unchanged. We want to have the production capacity of the Phase I in Sierra Gorda mine. It will be a test of how soon the ramp up period in Sierra Gorda can be accomplished. We want to have a target production in 2015. We are working on optimizing costs in Sierra Gorda mine, you remember that the cost will be significantly influenced the price of molybdenum and it is still favorable for us, it is higher than expected. We’re focusing on ensuring a stable cash flow, high cash flows and in the nearest months we will be presenting you value creation program not only in KGHM but also in the whole group, we’re stabilizing the level of employment and as we have said KGHM wants to develop, wants to be perceived as a developing company growing company but also the company that is willing to share the profit with the shareholders, so the level of this year’s dividend we hope that also due to our efforts that cared about the cash flow in the company is also very positive and good as it was already said, Deep Głogów exploration in the region and Victoria they are also very important projects for us, developing global organization. Maybe we don’t talk about it as much but it is also important, it is not only global financing but also other global functions, purchases, sale or HR function as well as investor relations function.

Here we hope we won't be talking about KGHM Polska Miedź and KGHM International but we will cover all those functions globally in a consolidated way and I hope that starting as of next year was Sierra Gorda starts full operation then we will talk about our results on a global level.

Further improvement of competences in order to be competitive, we need to have good documented industrial resources per one tonne, we need to have three resources, three tonnes of resources. Another competitive advantage in our company are good, well-educated, qualified people. We focus on that. We’re also functioning in other management cultures. We will continue with the programs. We’re open for new qualified, maybe not qualified but educated students to join KGHM and we want them to participate in our support programs such as talent and other programs that we run and so they can gain their experience in our group.

So I believe that all those priorities that we’re running now we’re accomplishing will help us to build the value for our shareholders and it will contribute for KGHM to be perceived as a company friendly to the local surroundings, to the surroundings that KGHM works in and also environmental friendly company. Thank you very much.

Anna Osadczuk

Thank you so much. Now your favorite part of course I would like you to present yourself, introduce yourself before you ask the question.

Question-and-Answer Session

Andrzej Knigawka – ING Securities

I’ve a question concerning CapEx, fixed assets 40% after two quarters, do you maintain the yearly prognosis for this CapEx? And the second question can we talk about planned CapEx for the second phase of Sierra Gorda?

Jaroslaw Romanowski

The first question, as in the previous year’s you’ve noticed that the usage of the planned CapEx during the year is not spread evenly across the quarters. We maintain our plan for CapEx it will not be changed this year well simply in the second half of the year. We will have more outlays connected with a higher, with more investments. Phase 2, we’re working under joint venture Sierra Gorda to work out a final recommendation concerning Phase 2, we have appointed a special team under the project and I believe that this -- that the information that we have from Phase 1 and the ramp-up period will be used for the decision when in what form Phase 2 is run.

Of course our assumption that has not changed so far is the fact that Phase 2 will be launched and the production will be increased to 220,000 tonne from Catabela [ph] pit of a daily production which will give us 220,000 tonnes of copper concentrate yearly production but we know that we still have more work to do in order to prepare and present the recommendation to the owners of the project. I don’t think that any even estimated CapEx values can be provided to you by the end of the year because we’re still working, the works continued.

We need to remember about the environmental conditions. We have learned our lessons already during the concentrate transport. However, it turned out that everything is correct just as we estimated, assumed but documenting Phase 2 we need to focus on debt in order to avoid any limit and risks also concerned with relating to the environmental permits. So the works are now going on and now I think we will be focusing on more the most effective way to launch a mine for 110,000 of a daily output and after analyzing the results connected with the launch ramp up of this phase, we will be able to prepare the recommendation for Phase 2.

Michał Potyra – UBS

My question concerns Afton- Ajax’s project. It has not been included in the presentation maybe some current information concerning the project.

Jaroslaw Romanowski

I believe that Afton- Ajax’s the progress of works, the number of slides in our presentation is limited. We told you that once we have more information concerning the project itself modified project location of mine and environmental permits, we will tell you about it. Within the past few months the project has accelerated. We have an organizational action located in Kimbley’s pit. We’re preparing new model for pricing of the project. Today we have a meeting KGHM Board Meeting. I will participate in that meeting. We will present you with additional info concerning that project, in the next result for the next third quarter we will have more to say about it but it is not that we try to hide any negative information if we don’t show you the slide.

We told you that we changed the idea for the location of the processing plant and we need more environmental permits and for that we have improved our relations with local environment, with local communities since the last time we talked about the progress of works we were able to put in order the issues connected with the ownership of land. So during our next presentation I believe we will be able to give you more detailed information concerning the future of the project.

In each of these scopes we have more -- in this project we have more challenges than in Chile of course.

Anna Osadczuk

I understand there are no further questions. We’re very transparent and everything is clear.

Unidentified Analyst

My name is untypical, since the very beginning of the conference your faces are very sad, there is no much joy among you. Why is that so? Are you tired?

Jaroslaw Romanowski

Maybe I can explain myself. Well flying from Chile takes 27 hours so I apologize because I’m a little bit tired. But we can still smile which I’m demonstrating it to you but yes in fact it has been a very busy period despite the fact that it's a holiday period in Poland and in Chile. We try to positively surprise you and therefore enhance our tiredness.

Marcin Chmielewski

Well I’m not an expert in this area but if I hear that normally it takes 20 years to start copper production, why? Well I will explain you. First you have to make the research drills, testing drills to look for copper. Once you have confirmed information that there is something underground then you have a more tight net of drills and it takes 20 years and here in our case it was 10 years since the moment we have this covered and documented because first we have some exploration phase, you look for the resources and before the decision is taken whether it is profitable to start mining you’ve to go through a very complicated research and you’ve to do many, many testing drills and each drill is several 100,000s or millions. Here take a look at the shale gas in Poland. We don’t even know how much it is and there are some drills already, so maybe you didn’t understand me correctly. So you’re not spending 20 years on building the mine, constructing but it takes 15 or 20 years since the first testing drills.

But it is still impressive because once you start in 20 years, different people complete the project. Well in the mining industry we’re talking about the average amount of years is 30 years. We’re looking for new deposits for the company to work in 15 years. Now talking about the football team, well I smiled already, maybe I will explain it to you later on during the coffee break. Well we can’t really talk about the results of our football players. The management board can’t talk about it.

Well in Poland we all are expert in football but--

Anna Osadczuk

I believe this is not the question and the answer for this moment of time.

Rafał Wiatr – Citibank

Two or three questions, the first one concerning the one off events concerning the second quarter, were there any one-off events? Second question, 48 million EBITDA in KGHM International, this is a clear EBITDA 48 million, yes, okay. Can you Mr. President Wirth had said that the debt ceiling level will be in 2017, if so how does it relate to the thinking about the Phase 2?

Jaroslaw Romanowski

Concerning the first quarter, well we didn’t really have a significant one-off events that should be signaled here and the results that was better than expected was worked out by exceeding the production plan and with lower level of costs. So, it didn’t really happen as a one-off event. As you’ve noticed the level of EBITDA in the second quarter was 48 million, this is an operational clear EBITDA for KGHM international but on a consolidated level we added -- the loan -- Sierra Gorda loan, it is with interest therefore we talk about a higher level of EBITDA. But we always present you the clear operational level of EBITDA. Concerning the level of debt of the company of course we have a very conservative assumptions on silver and copper prices that we have, this level with the completion of the projects that we have presented to you would be the highest around 2017 concerning Phase 2 only.

I say that this project is treated individually, Sierra Gorda is a joint venture that is financed. It is strongly supported by the Japanese banks and I believe that together with our partners we will discuss how to support Phase 2 financing whereby we have already assumed in feasibility study that Phase 2 will be financed by revenues coming from Phase 1 and we maintain our assumption.

If it is necessary to increase the involvement of sponsors in this scope it will be discussed after recommendation is worked out, recommendation concerning Phase 2 is ready. So these are these assumptions, we don’t have any new assumptions. I think that Sierra Gorda I’m not as pessimist as the market and I hope that you will agree with me in the nearest future concerning molybdenum and copper prices and I think that Sierra Gorda will be a mine that will be able to fund increased production in the future years because Phase 2 will not be started today or in 2014 or in 2015. Now I relate to your question what is our short term perspective on the level of a mine one or two years, it is an extremely short period.

Anna Osadczuk

I understand that there are no further questions. Thank you so much. Now I would like to invite you for a coffee break. Thank you.

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