In a current report dated 31 January 2011, the Company published its Budget assumptions for 2011 as accepted by the Supervisory Board on the same day. The Budget assumed the achievement in 2011 of revenues from sales in the amount of PLN 16 067 million and profit of PLN 8 345 million.
Along with the improvement in macroeconomic conditions during the year, the Company updated its forecast. The final projection of financial results was published in a current report on 21 December 2011. Basic assumptions, projected results and their realisation are shown in Table 23.
Table 23. Realisation of projected Company financial results for 2011
(31.01.2011) Forecast Forecast update (5.09.2011) Forecast update (22.12.2011) Execution 2011 Realisation of forecast (%) Sales million PLN 16 067 18 934 20 084 20 097 100.1
Profit for the period million PLN 8 345 9 643 11 192 11 335 101.3
Average annual copper price USD/t 8 200 9 000 8 827 8 811 99.8
Average annual silver price USD/troz 25.00 32.00 35.11 35.12 100.0
Exchange rate USD/PLN 2.80 2.80 2.97 2.96 99.7
Electrolytic copper production '000 t 543.0 570.3 570.3 571.0 100.2
- of which from purchased
copper-bearing materials '000 t 111.0 128.0 128.0 124.6 97.3
Silver production t 1 027 1 144 1 144 1 260 110.1
Capital expenditure million PLN 1 892 1 732 1 645 1 514 92.0
Equity investments * million PLN 9 046 10 757 642 640 99.7
* includes purchase of shares and investment certificates, increases of share capital and owner loans and payments to subsidiaries
Due to the continuous updating of the forecast for 2011, the final realisation of financial results was not different from the planned amounts.
basic assumptions of the Budget for 2012 are presented in Table 24:
Table 24. Assumptions of Company’s Budget for 2012
Execution 2011 Budget 2012 Change 2011=100 Sales PLN million 20 097 19 418 96.6
Profit for the period PLN million 11 335 3 804 33.6
Average annual copper price USD/t 8 811 8 000 90.8
Average annual silver price USD/troz 35.12 30.00 85.4
Exchange rate USD/PLN 2.96 3.09 104.4
Unit cost of electrolytic copper production
from own concentrate PLN/t 10 299 15 729 152.7
Electrolytic copper production '000 t 571.0 562.0 98.4
- of which from purchased copper-bearing materials '000 t 124.6 147.3 118.2
Silver production t 1 260 1 098 87.1
Capital expenditure PLN million 1 514 2 100 138.7
Equity investments * PLN million 640 10 671 x 16.7
* Purchase of shares and investment certificates, increases of share capital and owner loans and payments to subsidiaries
The decrease in profit by PLN 7 531 million, i.e. by 66%, is mainly due to: recognition in the result for 2011 of the sales of telecom assets, a change in exchange differences, effects of the introduction of the minerals extraction tax and the deterioration of macroeconomic conditions.
The increase in the cost of electrolytic copper production from own concentrate versus 2011 by 53% is mainly due to the minerals extraction tax. Under comparable conditions, the above cost would be higher by 22%, of which mainly due to lower electrolytic copper production from own concentrate. In 2011, the relatively high level of production from own concentrates was due to the use of concentrate inventory accumulated in prior years due to the maintenance cycle. The volume of copper production in concentrate in KGHM Polska Miedź S.A. remains at a stable level.
The substantial increase in equity investments is due to the purchase in the first quarter of 2012 of Quadra FNX Mining Ltd. shares.
The results of the Company will be substantially impacted by the inclusion in the projection of payment of the minerals extraction tax, beginning from May 2012. Detailed information regarding the on-going legislative process for the introduction of the aforementioned tax is presented below.
Information on the legislative process with respect to the minerals extraction tax
On 14 December 2011, the Finance Minister presented a draft law for the mineral extraction tax (hereafter: Draft Law), which may potentially result in a substantial tax burden for KGHM Polska Miedź S.A. In accordance with laws regulating lobbying during the formation of a law, the Company announced its interest in work on the Draft Law.
On 27 January 2012, the first parliamentary reading was held of the Draft Law, and was subsequently sent for further work by the Committee of Public Finance. On 14 February 2012, the Committee of Public Finance approved the report on the government’s Draft Law for the mineral extraction tax, in which the Committee recommended adoption of the Draft Law as amended by the Committee.
On 2 March 2012, Parliament adopted the aforementioned Law, and on 14 March 2012 the Senate gave its approval without enacting changes. It was then sent to the President for approval. The Law will come into force within 14 days of being announced in the Journal of Laws.
The mineral extraction tax will be calculated from the amount of copper and silver contained in produced concentrate.
Given the macroeconomic conditions in 2011, in particular with respect to average copper prices (8 810.90 USD/t), average silver prices (35.12 USD/troz), the average exchange rate (2.9636 USD/PLN) and production of copper (420 665 t) and silver (1 166 598 kg) contained in concentrate, under the government’s Draft Law together with the amendments adopted by the Parliamentary Committee of Public Finance on 14 February 2012, the amount of the tax in annual terms would amount to PLN 2 488 227 thousand, reducing the current results of the Company.
89 130 thousand. The total value of the above disputed issues does not exceed 10% of the equity of the Company.
The largest proceedings involving the liabilities and receivables of KGHM Polska Miedź S.A. at the end of 2011 concerned the following:
Related liabilities due to:
Royalties for use of invention project no. 1/97/KGHM
Value of amount under dispute: PLN 42 413 thousand. The claim was filed with the Regional Court in Legnica on 26 September 2007 by 14 co-authors of invention project no. 1/97/KGHM. KGHM Polska Miedź S.A. received a summons on 14 January 2008. Each of the plaintiffs in this complaint is demanding royalties equivalent to the given plaintiff’s share in the economic effects achieved for the 8th period of the project's application (calendar year 2006).
The parties responded to the opinions representing further evidence admitted by the Court in this matter and are awaiting a date for a further hearing. Proceedings are in progress.
In the Company’s opinion the royalties being pursued by the Court are undue, as KGHM Polska Miedź S.A. covered the amounts due to the authors of the project resulting from use of an invention project.
Return of costs of protecting against mining damage
Value of amount under dispute: PLN 16 409 thousand. A claim was filed against KGHM Polska Miedź S.A. with the Regional Court in Legnica by the company Prestiż MGC Inwest Sp. z o. o. Sp. k. in August 2009 for payment of the amount of PLN 16 409 thousand due to the return of costs of work to protect against mine damages incurred during construction of the Centrum Handlowo-Usługowe „CUPRUM ARENA” in Lubin. Proceedings are in progress.
In the Company’s opinion the claim is unfounded and should be dismissed.
Royalties for use of invention project no. 2/97KGHM
Value of amount under dispute: PLN 11 760 thousand. A claim was filed with the Regional Court in Legnica by eleven co-authors and two heirs of authors of invention project no. 2/97/KGHM. The plaintiffs are demanding additional compensation due to the use by KGHM Polska Miedź S.A. of a patent from the submitted project no. 2/97/KGHM. Proceedings have been suspended until the case can be heard by the Patent Office of the Republic of Poland for the annulment of patent no. 185036.
In March 2011, the Deciding Board of the Patent Office annulled the invention patent. In December 2011, the authors submitted a cassation appeal against the decision of the Regional Administrative Court to pass the authors' claim for a hearing by the Patent Office on the annulment of the invention patent.
In the Company’s opinion the claim does not deserve to be considered due to the lack of patentability of invention project no. 2/97/KGHM, based on failure to meet the unobviousness requirement.
Related receivables due to:
Return of undue royalties for use of invention project no. 1/97/KGHM
In January 2008 the Company filed a counter claim against 14 project co-authors for payment of undue royalties paid in the amount of PLN 25 195 thousand for use of invention project no. 1/97/KGHM in the 6th
and 7th
periods (calendar years 2004-2005). The court has combined both these matters – the claims of 14 co-authors for the payment of royalties for use of invention project no. 1/97/KGHM in the amount of PLN 42 413 thousand with the claims of the Company for the payment of undue royalties paid for use of invention project no. 1/97/KGHM in the amount of PLN 25 195 thousand, for mutual hearing. Proceedings are in progress.
In the Company’s opinion the payment of royalties to the project’s authors was unfounded.
In July 1997 KGHM Polska Miedź S.A. debuted on the Warsaw Stock Exchange. The shares of the Company are traded on the primary market in a continuous trading system, and are a component of the WIG, WIG20, WIG Surowce indices, as well as the RESPECT Index - an index of socially responsible companies and the WIGdiv index - comprising companies with the highest dividend payout ratios, and which regularly pay dividends to their shareholders.
The Company's share price in 2011 broke its own historic records numerous times. At the close of session on 20 April 2011 the Company's share price was PLN 198.40, and was the highest closing price in 2011, as well as in the Company's market history. The Company's share price returned to the PLN 198 level at the start of July 2011. Thereafter the Company's quotations entered a bearish period. Overall, in 2011 the share price fell by 36.1%, from PLN 173.00 at the closing session of 2010 to PLN 110.60 on the last trading day of 2011. During this period, the Warsaw Stock Exchange WIG index fell by 20.8%, and the WIG20 by 21.9%.