KGHM POLSKA MIEDŹ S.A.
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Review of financial position

On 27 March 2012, the Supervisory Board of KGHM Polska Miedź S.A. approved the Budget for 2012. The bases for development of the Budget were the results for 2011 and the assumptions of individual operating plans. The basic assumptions of the Budget for 2012 are presented in the following table.

 

Assumptions of Company’s Budget for 2012

 

 

Execution
2011

Budget 2012
Sales PLN million 20 097 19 418
Profit for the period PLN million 11 335 3 804
Average annual copper price USD/t 8 811 8 000
Average annual silver price USD/troz 35.12 30,00
Exchange rate USD/PLN 2.96 3,09
Unit cost of electrolytic copper production from own concentrate PLN/t 10 299 15 729
Electrolytic copper production '000 t 571.0 562,0
of which from purchased copper-bearing materials '000 t 124.6 147,3
Silver production t 1 260 1 098
Capital expenditure PLN million 1 514 2 100
Equity investments* PLN million 640 10 671

* 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.

These tax liabilities are due to the coming into force, on 18 April 2012, of the minerals extraction tax, resulting in a substantial tax liability for KGHM Polska Miedź S.A. Assuming that the Budget for 2012 will be achieved, the amount of this tax due for this year (from the date the law came into force) will amount to PLN 1.3 billion.

The mineral extraction tax is calculated from the amount of copper and silver contained in produced concentrate, and will be accounted for under manufacturing costs. This tax is not deductible, and therefore does not decrease the taxable base for CIT.

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