*The Group has a 55% equity stake.

Mining production

The major companies from the Group involved in the mining industry make up three basic reporting segments each of which is subject to a separate assessment by the managing authorities. They include: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M.

We are one of the world’s leaders in the metallurgic industry. The production capacity of our copper smelters in the Lower Silesia region is 570 thousand tons of electrolytic copper and 1,300 tons of silver per year.

Major reporting segments of the KGHM Polska Miedź Group

From among the remaining companies which do not belong to the core segments, several main groups of companies may be distinguished:

• companies supporting the main technological line of KGHM Polska Miedź S.A.,
• closed mutual funds and portfolio companies,
• companies  fulfilling important roles in performing the CSR policy,
• special purpose vehicles in the holding structure,
• companies earmarked for restructuring and divestment

Metallurgy

Our smelters produce electrolytic copper from own concentrates or purchased copper-bearing materials (copper concentrates, copper scrap, blister copper).

The Legnica Smelter follows a multi-stage process whose main stages are as follows:

• preparation of concentrate for smelting,
• reductive smelting in a shaft furnace to the form of copper stone,
• refreshing in converters to convertor copper with the content of approx. 98.5% of Cu,
• fire refining in an anode furnace to anode form with the content of 99.2% of Cu,
• electrorefining – the final product is electrolytic copper in the form of cathodes with the content of 99.99% of Cu.

Głogów Smelter uses a single-stage technology of processing concentrate in f ash furnaces, based on a license from the Finnish company Outokumpu. The concentrate dried to moisture content 0.3% of H2O is smelted in a fash furnace into blister copper with the content of approx. 98.6% Cu, which is fire refined in anode furnaces. On the other hand, suspension slag, containing about 14% of copper is directed to decopperization in an electric furnace, and the obtained alloy CuPbFe is taken to converters, from which copper also goes to refining in anode furnaces. The anodes obtained in the process of fire refining are subjected to the process of electrorefining whose final product is electrolytic copper in the form of cathodes with the content of 99.99% of Cu.

 About 45% of the electrolytic copper produced by KGHM smelters is processed in the rolling mill of the Cedynia Smelter Branch, where copper wire rod is produced using the method of continuous dipping, casting and rolling, OFE rod and low-alloy OFE copper with the addition of silver based in the UPCAST technology. Sludge left over in the electrorefining processes in the KGHM smelters contain precious metals and serves as raw material for producing ref ned silver, gold, platinum-palladium concentrate and selenium. On the other hand, the electrolyte withdrawn from circulation after decolourization is directed to the production of raw nickel sulfate.

 Lead-bearing dust and sludge generated from dust removal from technological gases of all the smelters are smelted with decopperized converter slag from the suspension line to the form of raw lead with the content of 99.3% of Pb. Raw lead is subjected to the refining process at the Legnica Smelter, as a result of which the final product is obtained – ref ned lead with the content of 99.85% of Pb.

Smelters KGHM:

Głogów Smelter	Legnica Smelter	Cedynia Smelter –     Rolling Mill
In our smelters and refineries, we use various types of solutions for technological processes:
In Głogów Smelter, copper is smelted based on the cutting-edge technology of single-stage suspension smelting – the first of its kind in the world. The smelter also includes Precious Metals Division producing silver and gold	The Legnica Smelter produces copper in the form of cathodes using the traditional technology of shaft furnace in the process of electrorefining	The Cedynia Smelter is, on the other hand, a copper rolling mill, processing electrolytic copper produced in the above two smelters. The process involves modern installations for the production of wire rod using the Contirod method, without the use of billet, as well as the production of the Upcast wire rod.

Metallurgy

We systematically build our position as a global company and as one of the leading silver and copper producers worldwide. We are the sole producer of rhenium and ammonium perrhenate from our own resources in Europe. We would like to join the group of largest multiple raw materials producers in the world. Our Polish deposits are estimated at approx. 17.5 million tons of metal in usable resources of copper and will enable us to maintain the exploitation of copper ore at the current level for the next 40–50 years.

According to assessments, the largest global copper resources are in the following countries:

One of the areas which build our position in the global market is the share of the global market of copper concentrates. Companies from the KGHM Group participate in the market mainly by selling concentrate of Sierra Gorda from Chile and Robinson from the US. At the same time, KGHM purchases copper concentrates with appropriate properties on the market to make it possible to use the production capacities of the smelters in Poland more effectively

KGHM Group companies produced in total 531 million thousand tons of copper concentrate, which is approx. 3.3 percent of the estimated global production in 2017.

Copper concentrate is a product generated while processing copper ores which usually has a relatively low metal content and is not fit to be used directly in the metallurgical process. The copper content in the concentrate is in most cases between 20 and 40 percent, which makes it possible to process it further in copper smelters. Delivery costs of products with lower copper content in practice eliminate them from the global market trade. 

The major actors of the concentrate market are copper mines which deliver the product to the market and copper smelters for which the concentrates are raw materials to produce copper and by-products of the processing (including mainly precious metals). The total global copper production in Cu concentrates in 2017 is estimated (according to CRU) at 16.1 million tons.

The geographical structure of Cu concentrate production in 2017

Źródło: CRU, KGHM Polska Miedź S.A.

The geographical structure of copper blister production from Cu concentrates in 2017

Source: CRU, KGHM Polska Miedź S.A.

Cu concentrates require processing to the form of refined copper, which involves incurring processing costs and incomplete recovery of metals at each stage of the production process. Therefore, the transaction price should include a number of discounts from the prices listed by stock exchanges for refined copper. The benchmark of discounts (regarding treatment charge and refining charge, TC/RC) on the market is determined in negotiation by the major concentrate producers (Freeport McMoRan, Antofagasta, BHP Billiton) and its recipients (mainly Chinese and Japanese metallurgical plants).

Efficient resource utilization

Optimal use of resources is one of the overarching goals of the daily operations of our plants. Initiatives to improve the efficiency of resource management in mining and metallurgical plants translate not only into real savings but also into improved production output. The 2017 increase in efficiency was possible, among others, thanks to the extension of the scope of exploitation within the “Głogów Głęboki-Przemysłowy” Mining Area. 

Thanks to the work of our experts, we have managed to improve the deposit selection technology, to improve the efficiency of extraction while increasing occupational safety. Important elements of those works included the adaptation of the geometry of exploitation systems to local geological and mining conditions, appropriate waste rock management within the fields of exploitation and the launch of a new G-51 extraction unit at the Polkowice-Sieroszowice Mine. In the field of ore enrichment, we have adjusted the production capacity of individual Ore Enrichment Plant Areas to the quantity and quality of the spoil delivered. The production of concentrates in the quantity and quality necessary for the optimal use of production capacity of the free parts of the smelters was maintained.

We also continued the Pyrometallurgy Modernization Program. Assembly and start-up works were completed. In 2017 as-built documentation was completed and taken over along with documents for obtaining occupancy permits. The works are pending completion with relevant authorities and occupancy permits are pending issuance. Also, the Metallurgy Development Program is continued. Construction and assembly works are continued within the key technological hubs as part of the investment tasks of the program, i.e. the construction of the HM Głogów II Smelter Steam Dryer and the Installation for roasting copper concentrate. In the Głogów I Smelter, the implementation of projects adjusting the technical infrastructure for the change of metallurgical technology and the increase of copper yields in the basic production sequence of the flash furnace is in progress

Initiatives to improve the efficiency of resource management in mining and metallurgical plants of KGHM Polska Miedź S.A.

• increasing the efficiency of resource utilization (3D deposit modelling),
• increasing the extraction and production of copper concentrate,
• optimization of mining machinery management,
• implementation of the energy-saving program,
• employment level optimization.

Development of the Resource Base in a global perspective

Access to geological resources is for us an element of securing exploitation opportunities, first of all in areas adjacent to the areas where mining takes place. We conduct geological work on documented copper ore deposits and activities related to obtaining a license for the exploration and appraisal of new deposits. The mining industry knows two ways of acquiring new geological resources. The first one is to acquire new resources through activities on the M&A market and related acquisitions of mining entities that have assets with economically attractive geological resources.

Criteria for the assessment of new resource projects

The second way to increase the resource base is to carry out exploration work in areas where the company has the appropriate concessions to carry out exploration and appraisal work. In the case of this method of expanding the resource base, it should be noted that each of the significant mining producers performs a series of exploratory works, i.e. exploration and geological appraisal. They are carried out in three basic areas:

• greenfield exploration – prospecting new deposits;
• brownfield exploration – appraisal of resources which have been partially surveyed and documented;
• in-mine and near-mine exploration – appraisal of areas adjacent to the currently exploited assets in order to extend the exploitation period.

At KGHM Polska Miedź S.A., in accordance with our Business Strategy, we strive to expand our resource base and product portfolio. We are developing many prospective mining and exploration projects. Eventually, they will reduce copper production costs and increase the company’s competitiveness, as well as strengthen KGHM’s position as a global multi-source leader, producing copper, silver, molybdenum, nickel, lead, gold, platinum, palladium, rhenium and selenium. The most important investments developed by KGHM outside of Poland are:

• Ajax in Canada, which was the first foreign deposit bought by KGHM,
• Victoria - a project developed in the Canadian Sudbury Basin, called the world capital of nickel In 2017, as part of the project activities, the project team continued its work related to securing the existing infrastructure and project area. In addition, in 2017 work continued on developing the optimal path of project implementation.

The most important mining project that we conduct in Poland is ensuring the availability of new copper ore resources from the Głogów Głęboki-Przemysłowy deposit, which will allow us to maintain the current level of domestic extraction for several dozen years to come.