KGHM Polska Miedz SA (WAR:KGHM)

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Marcin Nowak

KGHM Polska Miedź S.A.

KGHM Polska Miedź S.A. is the 9th-largest producer of copper and the 3rd-largest producer of silver in the world. The electrolytic copper of KGHM is registered by the London Metal Exchange (LME) as „Grade A", while its silver – in the form of bars – are registered under the KGHM HG brand, and hold a "Good Delivery" certificate, issued by the London Bullion Market Association (in 1995) and by the Dubai Multi Commodities Centre (in 2006). Other products of KGHM include gold, lead, sulphuric acid and rock salt.

KGHM is one of the largest Polish exporters, the largest employer in Lower Silesia, and a significant part of the WIG20 index. The year 2007 saw record results in the production of electrolytic copper – 532 974 t – and of metallic silver – 1 215 t, and above all a record profit – nearly PLN 3.8 billion and a future promising steady growth and an increase in the value of the Company.

KGHM Polska Miedź S.A. owns shares in 21 entities, operating in various production and service-related areas. The value of the Company is significantly impacted by its telecom assets.

History of Company

After the Second World War, in 1951, two copper mines "Lena" and "Konrad" were restarted after their dewatering, and the repair and installation of necessary equipment. In the same year construction of the "Legnica" copper smelter and refinery was begun, in order to process copper concentrate for the "Lena" and "Konrad" mines. The beginning of the state enterprise Copper Mining and Smelting Industrial Complex (KGHM) and development of the Polish copper industry in the current form dates back to the 1950s and should be associated with the discovery of the large copper deposit in the Lubin and Polkowice region by a team of geologists under the supervision of engineer Jan Wyżykowski. In order to exploit the newly discovered deposit the Minister of Heavy Industry formed (by a decree dated 28 December 1959) the state company "Lubin mine under construction". The company was entered in the state enterprises register in the Finance Ministry in section A under no 582. The Minister of Heavy Industry by its decree from 5 April 1961 changed the company name to the "Copper Mining and Smelting Industrial Complex under construction", and by a decree dated 30 December 1968 the same minister established the final name of the company - "Copper Mining and Smelting Industrial Complex".

KGHM was a multi plant company, and included mines, smelters and refineries, and many other auxiliary and service plants. There were two ways of forming the plants belonging to KGHM:

• by combining separate state enterprises having legal form and separate property by specific ministerial decrees
• by separating mobile assets and property from the existing structure of the enterprise by ministerial decree or by order of the General Director of KGHM.

In the years 1960-1991 the following companies were the part of the Copper Mining and Smelting Industrial Complex:

• The "Lubin mine under construction" formed by a decree of the Minister of Heavy Industry dated 28 December 1959 (upon completion of construction the name was changed to the "Lubin mine");
• The "Polkowice mine under construction" formed by an order of the General Director of KGHM dated 3 April 1963 (upon completion of construction the name was changed to the "Polkowice mine");
• The Independent Investment Execution Division formed by an order of the General Director of KGHM dated 17 May 1966 (the name was changed by order of the General Director of KGHM dated 19 December 1974 into the Mining Plant);
• The "Głogów smelter and refinery under construction" formed by an order of the General Director of KGHM dated 7 February 1967 (upon completion of construction the name was changed to "Głogów" smelter and refinery);
  • The Research Laboratory formed by a decree of the Minister of Heavy Industry dated 14 February 1967;
  • The Transport Division, formed by an order of the General Director of KGHM dated 30 December 1967;
  • The "Lena" mine, included by a decree of the Minister of Heavy Industry dated 30 December 1968;
  • the "Konrad" mine, included by a decree of the Minister of Heavy Industry dated 30 December 1968;
  • the "Rudna mine under construction", formed by an order of the General Director of KGHM dated 16 September 1969 (upon completion of construction the name was changed to the "Rudna mine");
  • the "Legnica" Smelter and Refinery, included by a decree of the Minister of Heavy Industry dated 25 June 1970;
  • The Mechanical Plant "Legmet", included by a decree of the Minister of Heavy Industry dated 25 June 1970;
  • The "Cuprum" Copper Research and Design Laboratory, included by a decree of the Minister of Heavy Industry dated 25 June 1970;
  • The Repair and Assembly Plant, formed by a decree of the Minister of Heavy Industry dated 16 April 1971;
  • The Central Repair Plant, formed by an order of the General Director of KGHM dated 1 January 1974 (the name was changed by an order of the General Director of KGHM dated 18 January 1976 into the Machinery Repair Plant);
  • the "Sieroszowice mine under construction" formed by an order of the General Director of KGHM dated 27 December 1974 (upon completion of construction the name was changed to the "Sieroszowice mine");
  • the “Cedynia” Wire Rod Plant under construction, formed by an order of the General Director of KGHM dated 4 March 1975 (upon completion of construction the name was changed to the "Cedynia" Wire Rod Plant)
  • The Supply Division, formed by an order of the General Director of KGHM dated 30 April 1981;
  • The Ore Mines Construction Company, included by a decree of the Minister of Metallurgy and Heavy Industry dated 28 December 1982;
  • The Metallurgical Construction and Assembly Company, included by a decree of the Minister of Metallurgy and Heavy Industry dated 28 December 1982;
  • The Copper Wound Wire Factory "Elpena", included by a decree of the Minister of Metallurgy and Heavy Industry dated 20 October 1987.

KGHM declared the level of 25 % of the target level of ore extraction for a given mine as being the moment at which the said mine was considered as having attained full production. Consequently, the mines of KGHM are considered to have commenced mining activity in the following years: the Lubin mine in 1968; the Polkowice mine in 1968; the Rudna mine in 1974; and the Sieroszowice mine 1986.

1973 saw the beginning of the closure of the Lena mine, due to depletion of the ore supply. The ore reserves of the Konrad mine were finally exhausted in 1987. In January 1996 the Polkowice-Sieroszowice mine division was formed by joining the two mines Polkowice and Sieroszowice.

From the state enterprise was established until 9 August 1976, supervision over KGHM was carried out by the Ministery of Heavy Industry, and then by the Minister of Metallurgy, which was later transformed into the Ministery of Metallurgy and Heavy Industry.

By a notary act dated 9 September 1991, the state owned company Copper Mining and Smelting Industrial Complex was transformed into the state-owned, joint stock company KGHM Polska Miedź S.A. On 12 September 1991 the company was entered into the commercial register by the Regional Court in Legnica under the number RHB 621. On the same day the Court issued decision number V Ns-Rej PP- 250/91-PP-111, based on which the Copper Mining and Smelting Industrial Complex was removed from the list of state enterprises, and a multi-divisional company was created. As a result of actions taken by the Company aimed at restructuring and diversifying the activities of the Company, some divisions were tranformed into subsidiaries of KGHM.

The KGHM Polska Miedź S.A. Group is composed of around thirty entities. Most of these were formed by the restructurisation of KGHM – which are still related to the core business of the Company. KGHM also owns equity shares in companies involved in diverse activities: the health services (MCZ S.A. – 100 % of the shares); tourism (Interferie S.A. - 100% of the shares); telecoms (Telefonia Dialog S.A. – 10 %; Polkomtel S.A. – 26 % of the shares).

Since July 1997 the shares of the company have been listed on the Warsaw Stock Exchange, while its GDRs (Global Depositary Receipts) have been listed on the London Stock Exchange. KGHM Polska Miedź S.A. has adopted corporate governance principles and has adapted the internal regulations of the Company to the Code of Best Practice. The goal of the management of KGHM remains to ensure that the interests of the shareholders and of all other stakeholders in the Company are protected and respected in a spirit of trust, clarity and openness in the operation of the Company.

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