About this Report
This Integrated Report for 2016 contains data and indicators relating to the following companies: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M.
The Report for 2016 has been prepared in accordance with the guidelines of the Global Reporting Initiative (GRI), version GRI4, core option. The KGHM Group reporting process is performed on an annual basis. In 2016, there were no significant changes in the structure, form of ownership, or value chain of the Company. The document has not been subjected to external evaluation.
In accordance with the reporting duties of KGHM Polska Miedź S.A. and the good market practices of mining companies, corporate governance is presented for the Parent Company only.
In accordance with the guidelines of the International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI G4), the work on drafting the Report was divided into three stages:
Stage 1. Identification of business and sustainable development issues relevant for the Company.
Stage 2. Prioritization of identified issues in terms of their importance.
Stage 3. Validation workshop attended by management members.
During the first two stages, documents, publications and press releases concerning the KGHM Group companies and the mining industry were analysed, including competitors’ reports. A chart of KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. stakeholders was created and the expected scope of the Report was determined. Interviews were conducted with management and senior management of the Group.
KGHM Group Stakeholders
Materiality of key issues
2. Resource base development
3. Net Debt/EBITDA compared with competitors
4. Value creation model
5. KGHM vs competitors
6. Production efficiency improvement
7. Capital expenditure projects
8. Securing funds for capital expenditure projects
9. Attempts at reducing operating expenses (C1 cost)
10. Indirect economic impact
11. Ensuring the Company’s financial stability
12. Implementing new technologies
13. Research and development activities
14. Management of corporate social responsibility/ Sustainable development
15. KGHM’s impact on the environment
16. Relationships with local communities
17. Reputational risks associated with KGHM operations
18. Building customer relations
19. Improvements in procurement and selling practices
21. Risk management
22. Corporate governance
23. KGHM priorities in respect of dividend policy
24. Anti-corruption activities
25. Observing human rights
26. Key stakeholders and relationships with them
27. Health and safety at work
28. Management efficiency improvement
29. Human capital quality
30. Training and education
31. Diversity and equal opportunities
32. Trade union relations
33. Environmental protection activities
34. Approach to reducing energy consumption
35. Approach to reducing water consumption
36. Emissions, liquid and solid waste
37. Compliance with regulations
38. Management of materials and their quality
39. Readiness for accidents and environmental hazards
40. Supplier relations management, evaluation of suppliers
The measures taken led to the identification of the key issues for KGHM Polska Miedź S.A. Group, which include:
- the Company’s strategy and business model, taking into account the creation of value and building trust among stakeholders (section 2);
- treating the employees’ safety as a priority (section 3);
- stable financial results and production performance in 2016 (section 5);
- creating value – human capital, intellectual capital, social capital and environmental capital (section 6);
- creating corporate culture with a particular focus on high management standards (section 7).
In addition, in our report we emphasized actions aimed at improving cost efficiency, the highest occupational health and safety and environmental protection standards, as well as our involvement in innovation in the broad sense, concerning both our employees and the technological solutions applied. We identified any significant changes that occurred in the reported period with respect to the size, structure, form of ownership or value chain. We included in the Report entities covered by the consolidated financial statements and we identified significant aspects of the KGHM Group’s social impact.
The final identification of issues relevant to the KGHM Group was performed during the workshop attended by management members, when the final scope of reporting in areas that are important from the point of view of the KGHM Group’s business objectives and sustainable development were determined.
Additional information about approach to data consolidation and aspect boundaries
Approach to data consolidation
G4-EN8 i G4-EN22
KGHM INTERNATIONAL LTD. and KGHM Polska Miedź S.A.: To compare the total volume of water consumed between the companies, data on the volumes of water withdrawn and discharged to the environment by KGHM INTERNATIONAL LTD. and KGHM Polska Miedź S.A. is reported. For KGHM, water consumption includes the total volume of water used from various sources, i.e. surface water, ground water, rainwater, municipal water supplies and sea water, and the total volume of treated and untreated water discharges. It includes the discharges of clean water pumped from a limestone aquifer by the Robinson mine (this water is used by the local municipality). All water used by KGHM Polska Miedź S.A. is drawn from the rock mass.
KGHM INTERNATIONAL LTD.: All plants that were at the production stage in 2016 were included in the calculation of the total volume of water consumed, i.e. the mines: Robinson, Morrison, McCreedy, Podolsky, S.C.M. Franke and Sierra Gorda S.C.M. KGHM Polska Miedź S.A.: All plants that were at the production stage in 2016 were included in the calculation of the total volume of water consumed, i.e. the underground mines: ZG Lubin, ZG Polkowice-Sieroszowice, ZG Rudna; the copper smelters: HM Legnica, HM Głogów I and HM Głogów II; and the wire rod plant: HM Cedynia.
Approach to data consolidation
G4-EN3, G4-EN5, G4-EN15, G4-EN18, G4-EN21
KGHM INTERNATIONAL LTD.: In 2016 the financial consolidation approach was selected. The reported values are therefore consistent with our interest in the assets (KGHM INTERNATIONAL LTD. owns 55% of the shares in the Sierra Gorda mine and the remaining 45% are owned by Sumitomo Metal Mining Co. Ltd. and Sumitomo Corporation). The report presents 100% energy consumption and emissions for all assets over which the Company had operational control.
The emissions were calculated based on actual fuel and material usage in the reporting year and the appropriate emission factor or carbon content mass balance. The emission factors used were provided by Environment Canada. The energy consumption values were developed using fuel usage information and the energy conversion factors*. KGHM INTERNATIONAL LTD. does not currently have a policy in place for contractor energy usage on site. A small percentage of the total emissions may have been associated with contractor work performed on our properties.
KGHM Polska Miedź S.A.: to determine the emissions related to the consumption of electricity purchased centrally by the Company from suppliers other than ENERGETYKA, the weighted average CO2 emission indicator for the purchased energy basket was used. The indicator was determined based on the shares of the individual suppliers in the total amount of energy purchased and CO2 emission indicators published by these suppliers. To determine the emission volumes for energy of unknown origin, the reference emission indicator for the Polish power sector designated by KOBiZE based on the 2008–2011 data was used. Direct emissions of carbon dioxide were established in accordance with Commission Regulation (EU) no 601/2013 of June 21, 2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council (OJ.EU.L.2012.181.30). To determine the process emissions, the mass balance approach was used. Annual emissions of CO2 were determined based on the annual consumption of individual raw materials and the content of carbon in the raw materials consumed. In the case of copper smelters in Poland: Legnica, Głogów I, Głogów II and Legnica, participating in the trading scheme for greenhouse gas emissions, CO2 emissions were determined in accordance with the methodologies set out in the approved emission monitoring plans, based on data collected in the emission monitoring systems. Emissions of other greenhouse gases from technological processes and the combustion of motor fuels were determined in a manner consistent with the requirements of the methodology for determining releases for reporting to the National Pollutant Release and Transfer Register (KRUiTZ), generally in line with the methodology and on the basis of indicators published by the IPCC. For the purpose of annual reporting to the Polish Central Statistical Office (GUS) for 2015 (G-02b, G-03) data obtained from KGHM branches was used.
KGHM INTERNATIONAL LTD.: All plants that were at the production stage in 2016 were included in the calculation of energy consumption, greenhouse gas emissions and other significant emissions. These include the following mines: Carlota, Robinson, Morrison, McCreedy, S.C.M. Franke and Sierra Gorda S.C.M. Although the Ajax project in Canada is not operational, the wind erosion affecting its historical waste storage reservoir was also taken into account in the calculation of the EN21 indicator (NOx, SOx, and other significant air emissions). KGHM Polska Miedź S.A.: All plants that were in the production stage in 2016 were included in the calculations of energy consumption, greenhouse gas emissions and other significant emissions. These include the underground mines: ZG Lubin, ZG Polkowice-Sieroszowice, ZG Rudna; the copper smelters: Legnica, Głogów I and Głogów II; and the wire rod plant: Cedynia.
* Taken from the Energy Statistics Handbook, Appendix A: Conversion Factors, Statistics, Canada, August 2012 http://www.statcan.gc.ca/pub/57-601-x/2012001/appendix-%20appendice1-eng.html