Ladies and Gentlemen,
The authorities of KGHM Polska Miedź S.A. hereby present the Report for 2016. It shows the condition of the Company in 2016, which was not an easy year and the Supervisory Board was therefore obliged to take certain actions, some of which were rather unusual. However, I can safely confirm that the Company’s authorities successfully met all the challenges, both internal and external, which is really good news given the complex macroeconomic problems faced by the Company.

It should be noted that due to close supervision over the process of optimizing operations, cost discipline and experience in responding to changes in the market, the Company was able to mitigate the adverse effects of unfavorable developments, which occurred in particular on the metals and currency markets. Over a major part of the year, we had reason to believe that the falling prices of metals would have an adverse effect on the Company’s performance. Ultimately, our revenues dropped by only 4%, while metal prices decreased by more than 11%.

The Supervisory Board of KGHM Polska Miedź S.A. worked very hard in the past year. Members of the Supervisory Board were particularly interested in issues relating to the Company’s international projects. I strongly believe that by using the legal instruments available to it, the Supervisory Board achieved the expected results and the Company’s shareholders can already enjoy an improvement in the performance of our operations, in particular Sierra Gorda. However, having evaluated the technical and business assumptions of its key international mining assets, the Company had to recognize impairment of non-current assets, which had a significant effect on the final net financial result. It should be noted that in the absence of impairment write-downs, the financial result would be similar to the result for 2015 (i.e. PLN 1.22 bn), which also affected the Supervisory Board’s decision to recommend the payment of dividend in the amount of PLN 200M.

The Supervisory Board paid a lot of attention to carrying out projects relating to the functioning of the process line in Poland. The completion and launch of the fluidized bed furnace at the Głogów Copper Smelter (a project that took many years to complete) was an important event not only from the perspective of 2016, but also from the perspective of the Company’s entire history, as it gave the Company access to state-of-the art technology. Now the Legnica Copper Smelter also has a goal to pursue – by 2020, a modern furnace will be installed there which will increase the Branch’s production capacity to 160 k tonnes of electrolytic copper a year. The extension of the Żelazny Most Tailings Storage Facility is of strategic importance for the functioning of the Company’s process line. In 2016, the Company obtained a permit for the extension of the main facility. The Supervisory Board is particularly interested in this project and supports the Management Board’s actions aimed at its successful completion.

I would like to emphasize the enormous effort made by the employees and collaborators of KGHM Polska Miedź S.A. in achieving the best possible results in 2016. At the same time, the forces of nature reminded us—in a most severe way—how dangerous the work of miners and metallurgists is. The past year was the most tragic in the history of Polish copper. The Company’s authorities will always remember it and, apart from paying tribute to the memory of the victims and taking care of their families, they will work hard on improving safety at our mines and smelters. The Supervisory Board considers all safety-related issues a priority and will work on them particularly hard in 2017. This approach is also reflected in the Company’s updated Development Strategy for the years 2017–2021 with the outlook until 2040. In addition to economic goals, such as achieving EBITDA at the level of PLN 7 bn in 2021 and maintaining a competitive cost position, the Strategy mentions the safety of production as one of the Company’s three main pillars, along with the Development of Domestic and International Assets and Consistent Organization.

Let me also remind that in the current year we are celebrating two important anniversaries: the 60th anniversary of the discovery of copper deposits and the 20th anniversary of the first listing of KGHM Polska Miedź S.A. on the stock exchange. The discovery of one of the world’s largest copper ore deposits marked the beginning of the long-term development of the Copper Basin and our Company, which is now a national champion. The Company built up its position consistently and on July 10, 1997 it had its first listing on the Warsaw Stock Exchange. Since then, the value of KGHM Polska Miedź S.A. has doubled. Today, KGHM is one of the most liquid companies on the WSE.

A summary of the past year is a good opportunity to thank the Shareholders for placing their trust in the Company despite the difficult macroeconomic situation. It is also an opportunity to thank our Clients for their cooperation over the past year and their many years of loyalty towards KGHM Polska Miedź S.A.

Finally, I would like to wish the Company’s Management Board success in fulfilling its ambitious goals and making good business decisions. I believe that by making good use of the Company’s potential, the Management Board will be able to achieve satisfactory results for the Shareholders.

Yours faithfully,
Dominik Hunek
Chairman of the Supervisory Board