Ladies and gentlemen, I would like to give you a very warm welcome at our conference dedicated to the financial results of the company and group of KGHM for the fourth quarter and the entire 2021. In spite of the difficult time, the war that is being waged and still valid COVID restrictions, we managed to meet here, and I would like to welcome those who were able to join us here. The effects of our work in 2021 will be presented by the management board, Marcin Chludziński, CEO. Adam Bugajczuk, Vice President for Development. Paweł Gruza, Vice President for Foreign Assets. Andrzej Kensbok, Vice President for Finances. Marek Pietrzak, Vice President for Corporate Matters and Marek Świder, Vice President for Production.
We will start traditionally with Management Board's comments on the events of last exceptional year. We will move on to a Q&A session. Those questions asked via chat, which we won't be able to answer today, will be traditionally displayed on our website alongside the transcription of our entire Q&A session. Also, we would like to encourage you to send your questions to our email address. That opens our conference, and I will give the floor to the President, Marcin Chludziński.
Ladies and gentlemen, we often face questions both in our company and in conversations with our partners, "When will the world be again like it was before the pandemic?" Just 20-odd months ago, the situation was very different from what it is like now.
Now, on top of that, there is an additional question, "When the world will be the same as it was before the war in Ukraine? When will we regain our sense of security, and when will we regain in business the ability to make long-term plans? When will we regain stability? When will the world be again as it was 20-odd months ago?" We hear those questions often asked with various frequency, but with hope that someone will provide an optimistic and committed answer. But unfortunately, nothing will be as it was in the past. The world has changed. We, when we talk about our strategic plans, we repeat that the world keeps changing, and we have to get used to this fact.
The only unquestionable certainty in this world is that the future will change. The world is changing. We are deeply convinced about that. The pandemic was a huge test for business. It was also a test of flexibility, ability to adjust to changing reality. KGHM passed this exam with flying colors. The pandemic not only helped us spread our wings, but we also were able to achieve the best financial results in the history of our company. We were able to overcome the difficulties posed by those unstable times. We are praised for agility and flexibility, which is so hard to achieve in a huge company like ours, a huge vessel, a ship braving the waves on a rough sea.
In this constantly changing reality, we managed to cope, and behind that, there is hard work of our experts, excellent communication, huge effort for this work, for the wisdom of decisions taken. The whole team of KGHM deserves enormous thanks. Thank you very much. The numbers speak for themselves. The highest historical value adjusted EBITDA, PLN 10.3 billion. Solid consolidated net results, PLN 6.2 billion. Growth of revenues by over 26% to almost PLN 30 billion, PLN 29.8 billion. Growth in copper production and the group by 6%. Here, it is worth noting that growth was recorded in all our segments. We reduced the debt ratio to historically lowest level since we bought foreign assets. We also have the lowest accident ratios.
We have the historically best results of foreign asset performance. I should mention Sierra Gorda in this context. We all remember how difficult this project is. We have changed our approach to this investment. New strategy, Polish managers, and that is bearing fruit. Excellent financial coordination allowed the reversal of financial flows from the Chilean company to the mother company. No longer is money flowing from Poland to Chile, but the other way around, from Chile to Poland. That was the original purpose of this project and this investment. The key to success is consistent pursuit of our strategy. Back in 2018, we based it on the four pillars, flexibility, ecology, performance, and. This ecology is also something that developed along the way.
Copper production is a time-consuming and energy-intensive process. We feel various kinds of costs related to that, including financial costs linked to energy price increase. Our principal challenge in our business, revenue and debt, is the availability of energy supplies. There is no better approach to clean energy usage than reliance on nuclear energy. That is why KGHM signed an agreement on modular energy generation in Poland. This SMR technology will allow us to both provide clean energy and take care of our costs. We want to use renewable energy sources, including photovoltaics, wind energy, and hydrogen solutions. This is something that can be a supplementary source of energy.
Photovoltaics and wind energy are unfortunately not reliable sources in terms of characteristics of supplies, and we can only use them as supplementary sources of energy. In 2021, we also took the challenge of preparing our response to climate policy that was approved back then. Following Peter Drucker's advice, that the best method of predicting the future is creating the future. How can we predict the future if a war is being waged across our eastern border? No matter how seasoned analyst is able to predict the effects of this war, its economic implications. Where can we look for civilization? Where, as Winston Churchill said, "Let's start changing the world by polishing our own shoes." Let's do our own thing.
Let's do the things that are under our control. We, as management and employees of KGHM, can influence the future shape of copper production. Why future is copper-linked? Why copper provides stability? We are talking about extraction of resources, and our business is one of the most stable, rational, and profitable. Copper is a source resource of the future in the context of energy development. Just yesterday, near Berlin, a new Tesla's factory opened. We know that, on average, each electric car corresponds to about 160 kilos of copper. The demand continues, the price remains at a good level, and that is a good predictor for our development. Let's stick to our own thing.
Let's do what we should do in order to get stability and sense of security. We can also be support for our neighbors and those who need support if we are stable ourselves. However, we cannot forget the conditions under which we function. Geopolitical situation across the world keeps changing. What is our recipe for success in such turbulent times? How can we manage such a huge company in such difficult times? There was this book, Sense and Sensibility. You can be sensible if you analyze each step you take, even the minor decisions, and if you take into consideration the general mood, the needs of people. We can be sensible if we set for ourselves sensible challenges that allow us to develop.
That is how we intend and plan and try to act in those difficult times we are facing. Ladies and gentlemen, on this occasion, I would also like to present two new members of the Management Board who joined us after the last conference, Marek Świder , who is responsible for production results and for production-related matters in mining. Marek Pietrzak, who is responsible for corporate governance. You know other members of the Management Board better because we had a few meetings in the past. Paweł Gruza, Andrzej Kensbok, Adam Bugajczuk do not need much introduction. Thank you very much. That's it as regards introduction. I will give the floor to my other colleagues.
Thank you very much, President. Let's hear more about our production performance and our financial performance from Andrzej Kensbok. Over to you, sir.
Good afternoon, ladies and gentlemen. Today we have an opportunity to share good news with you. Good news about 2021 and how the year closed. First and foremost, we are a production company, so let's hear about output. The level of output in the capital group grew year on year. 2021 closed with 754,000 tons of payable copper, 1,366 tons of silver, and 1,664 ounces of precious metals. Which is an extremely good result, and we are delighted to see the growth in copper production across all segments, in all geographic segments in KGHM International Ltd. at Sierra Gorda. As a proportion of our asset share.
Silver is a strong second to number two position in the world, and we have maintained this as a very important item in our performance journey, affecting our strong financial performance. Now let's look in detail at KGHM Poland as a output results, and may I stress that all the production segments have evenly contributed to the bottom line. This year wasn't an easy one, and was marked by the COVID challenge, the risk of downtime or availability of our people, and with some effects on our safety. That was a year where we faced traditional challenges, geological challenges, sorry, fought against the forces of nature. The output performance was larger than in the preceding year. In the area of ore processing, our result held strong.
Smelting operations gained in power, mainly thanks to third-party charges, scrap and metal purchase procured outside of Poland. By the way, in our quarterly presentations, we saw and we presented how much we will be focused on scrap processing to pursue the idea of a circular economy. I'm sure you will hear more about this from us going forward. We have laid out our groundwork in order to support our scrap metal processing operations. We're still new to this. We have to do a little fine-tuning here and there and adjust it to our smelting operations, and we have to be open to purchasing globally. Now, moving on. Let's look at our financial performance. We have made large strides in sales revenue.
The year closed at nearly PLN 30 billion of revenue. Of course, those who are a stranger to our company, the report doesn't include Sierra Gorda reports because it is not consolidated. The following slides will talk about the overall financial performance, including Sierra Gorda. The increase in sales is a function of change in global prices of metals. The average price of copper grew on a year-on-year basis, which gave us an extra layer of revenues. We also scored revenues from other materials that we sold last year, PLN 517 million of additional sales. Sulfuric acid, lead, rhenium and selenium sales contribute to that result. The factors that diminish our revenue, there were two main ones.
One, slightly lower sales volume, markedly for silver and KGHM International, and a negative clearing of the hedging transactions, and the impact was at PLN 1.6 billion last year. Compared to the preceding year, which ended with a positive balance in hedging, we gained PLN 1.9 billion at that time. Of course, the whole area of hedging policy is evolving. This is a totally new situation now. We had suffered from going concern risks, where prices were dragging along the bottom and the pandemic was flourishing. Today, the price outlook, according to our analysts and the banks that we have been working with appear to show stability in store for us going forward.
We will review our hedging policy and we're still working on it. We started last year. We would love to develop an attitude to risks which will perhaps be more adequate to the environment and the security of our cash flows. These two diminished our revenues, but as a result, we noted 26% growth. C1 grew from 1.59 to 1.96, which mainly is a function of the copper tax, which started in 2021. We paid about PLN 3.5 billion. Last year, it was PLN 700 million more than in 2020. This tax, as you probably know, is included in the C1 cost as it has to be reported.
If we take away the copper tax impact, the cost was under control across the group. With respect to Polska Miedź, we have seen some growth mainly driven by inflationary pressures of energy and inputs and services. This was a year of inflation and I suppose the coming years will not be very much different, so we have to make sure that our costs are held in check and don't grow over inflation. We will have more conversations about those going forward as well. At Sierra Gorda, we didn't have the tax impact. We had a large growth of silver and molybdenum production. And the core business grew. The C1 dropped as we had growth, but mainly through the payments of copper tax.
By the way, the Ministry of Finance decided to change the copper tax assessment formula normally applies for 12 months. Our analysts are telling us that this modification will be advantageous for the company. We will have more financial leeway. Moving on to our operational performance in the capital group. A bird's-eye view on things seems very robust. All business segments have contributed to a very good operating performance. We closed the year with EBITDA at PLN 10.3 billion. Growth was noted in Polska Miedź by PLN 1 billion, KGHM International PLN 300 million, and Sierra Gorda PLN 1.8 billion, PLN 1.3 billion in KGHM International, I'm sorry. All three segments contributed to the robust performance.
Analytically speaking, if we look at our financial performance in the context of our net results, the growth is much stronger, PLN 4.3 billion more than in 2020, PLN 6.150 billion of net result at year-end. Key contributing factors are changes in revenue, a higher revenue, mainly thanks to the increased sales and a higher price of metal and the full utilization of all the opportunities that were offered to us by the macroeconomic environment. Work in progress changed by PLN 2 billion, so that was the delta here. We engaged in a joint venture, PLN 2.6 billion of effect of that. That is mainly related to the reversal of the depreciation of value of a loan that was extended by our companies to and through to Sierra Gorda.
The increase in interest revenue from loans that were key. The two key financial drivers. Negative impact, some of the costs increased. The key driver of that growth was the purchase of third-party material and increased levels of scrap, which affected the cost, obviously, because we are operating on an arm's length basis, so we are driven by market prices. But we would like to create a leverage in our business by processing scrap metal. We would like to see. We will increase the capacity to process scrap metal, and we want more presence in markets where copper is in demand in large volumes. We purchase scrap and concentrate, and on purpose, we produce more copper, basically. There was another negative impact as well.
The corporate income tax, -PLN 700 million on the last but one bar, is a result of our CIT, which is levied progressively. We had to pay a higher tax on our stronger performance as well as some of the costs of inputs, energy. Energy has grown in price, and we have felt it across the country here. Both gas, diesel, electricity, CO2 emissions are affecting that. We have a hedging policy in this area, but you can't hedge everything, can you? There has been some negative impacts. The price of gas quadrupled. You just couldn't escape a higher cost burden. Labor remuneration.
Last year, we increased that item by PLN 400 million, about 10%, and that's related to our collective agreement, and that's related also to our financial performance and the profit that we shared with our employees. More or less, that's our financial performance for last year. May I also speak a little about cash flows, which stood firm at a similar level. We started with PLN 2.5 billion of free cash flow. We ended at about PLN 2 billion, and the positive impact came from profit before tax. A negative driver was related to the fact that we have invested that cash flow into fixed assets, PLN 3.8 billion, roughly. That's CapEx, ongoing and the historical CapEx of previous year.
That was the year where we incorporated Żelazny Most and the northern quarter with the compaction station and the pumping station, et cetera, thickening station rather. It was enrolled in our books, so it had an impact. Secondly, there was a change in stocks. We made an informed decision to increase our stocks, and I mentioned this during our quarter three performance update. This was a decision made at a time of uncertainty, where we thought we should have our business supported in terms of continuity, so we wanted buffers and pads in all the fronts to weather the storms. No storms came, happily, but we wanted to plan our operations in schedule when it comes to maintenance repairs. We have several major overhauls in 2022.
For example, the Głogów II furnace and the Cedynia rolling operation and the silver furnace, Kaldo. A number of major maintenance programs, we have to have buffers. We have to have semi-finished goods and pre-cast materials, et cetera, to be sure to produce refined copper in particular. Indebtedness at historic lows. Debt-to-EBITDA is at 0.6 in 2021. We paid off all the loans that could be paid off without penalties, contractual penalties for that matter. We removed some of the factoring, we saved on financial costs by doing that. The year-end net year-end was at PLN 4 billion of our net debt, which is fully satisfactory for us.
We have open credit facilities. We are very safe as regards access to funds if needed. Those of you who follow our developments know that our consortium loan is not used for the time being. We have longer time of validity of this syndicated loan and the loan from PGK. The financial situation of our company is very stable. Thank you very much for your attention, and hand over to Paweł Gruza, who's responsible for our foreign assets.
Good afternoon, ladies and gentlemen. 2021 was the year which we entered knowing that the macroeconomic environment prices of commodities would be favorable to us.
The precondition for taking advantage of this favorable circumstance was providing excellent production conditions so that we can capitalize on those good conditions in our subsidiaries. In Sierra Gorda, we managed to improve three principal production factors, namely obtaining ore of better quality, obtaining output that was higher than initially assumed and greater amount of ore processed. All those factors allow us to boast now a much higher production of copper and accompanying metals, except maybe for molybdenum that was dependent on availability of resources. We entered the new year also with improved contractual structure that binds us with the previous and new partner.
Sierra Gorda seems in 2021 improved by the financial aspect, legal aspect, and we are optimistic about the next financial year. With regard to KGHM International, here our leading mine, Robinson, obtained better production results mainly due to two factors, better quality ore and better output. Again, we can be proud of having used this opportunity that the business cycle provided that the particular situation of last year gave us. All in all, the situation is that foreign assets are slowly repaying this long-standing trust that we extended to our foreign operations. We have managed to generate financial flows, physical cash that came to Poland last year in impressive values of over $0.5 billion.
We ended the previous financial year with a very positive result, and we are optimistic about this year. As concerns our CapEx, capital expenditures, last year we had expenditures at nominally similar levels to the preceding year, and we stayed on budget, and within the planned schedule in accordance with all the assumptions that we had for 2021. Obviously, we continue our investments in energy assets, in particular, renewable energy sources. That is an extremely important area for us, but that is also something very important to our clients, so that our copper, our products have the lowest possible carbon footprint. Here, of course, we continue our photovoltaic investments. Our major success was to sign preliminary agreements concerning SMRs, small reactors. Thank you very much. That's it from me.
Thank you very much.
Thank you, gentlemen, for your comments. Ladies and gentlemen, now we will move on to the Q&A session. It will be chaired by Janusz Krystosiak, the head of our Investor Relations at KGHM. We will welcome questions from the room, and we will also reply to the questions asked via chat and email. You can ask questions now during the conference, and if we do not manage to answer all questions, after the conference, alongside the transcript of the conference, you will find all the answers on our website. Janusz, over to you.
Thank you very much. Of course, I already have the first questions from our mailbox from the Internet. If there are any questions in the room, please ask them.
Okay, if there are no questions from the room, then I will read out the first question that we received online. That is, WNP portal. Whether there are very bad prospects for tax changes in Chile. In this context, do you consider divesting Chile assets? Is that still covered with a tax protection?
Just one sentence of comment from me, and I will hand over to Paweł. The thing is that, of course, we analyze all factors, both political and economic, that surround any investment we have. As of now, we have not identified any threats that would make us think that tax changes would constrain our profitability.
Of course, a lot of it's happening in Chile in connection with political changes there, and we keep that in mind, but we consider Chile as a strategic long-term investment. That was a very concise and very accurate presentation of the situation. We monitor the situation in Chile as much as we can. We participate in all analytical efforts and debates at expert levels in Chile. We can say that foreign investors tend to treat Chile in a positive way as the place for investing their capital in spite of the threats mentioned in the question. The best proof of that is the success of the sale transaction by our previous partner, Sumitomo, of its stake in Sierra Gorda to South32 from Australia.
This openness of investors to Chile is something that exists.
Thank you very much. I think that might be a question to Paweł Gruza, because that is still about foreign operations. Mr. Robert Maj from IPOPEMA asks for a few words of comment to the oxide project, whether it will be pursued and if so, when?
The oxide project is still in the preparatory stage. We have more and more knowledge about its structure, cost structure, revenue structure, and technical structure as well. However, at present, it will be discussed with our new partner. We need to allow our new partner more time to get acquainted with the project. We also have to take into consideration the changing situation in macroeconomic environment related to this particular form of extraction of copper from ore.
Here, a major role is played by sulfuric acid, and recently, its price, its availability has been quite unstable and variable. We have to reassess the business side of this project together with our new partner. As a target project, we consider it as a valuable asset in our portfolio.
Thank you very much. We have a question from the room. Please introduce yourself first.
Good afternoon. I have three questions. The first is, do you plan to increase output in Poland, and what will happen with new shafts? That's the first question. Agricultural fertilizers market is now undergoing major changes. Fertilizer prices can reach PLN 5,000 per ton.
That is between PLN 7 billion and PLN 35 billion , depending on price. I remember that in Karpacz, you boasted your output in Pomorze. What about this project? The third question, to what extent the potential slowdown in China or imposition of sanctions on China by the Americans can harm you?
As regards to the first theme, that is the planned greater output in Poland, I can only say that the plans which we had in the company in 2018 assumed lower national production. Within three years, we increased that by 30%, compared to the plans, and we continue to increase it against certain geological trends. We use the situation related to greater scale of extraction or more selective approach to deposits.
One of the slides today also showed a 6% production growth year-on-year. Output in Poland increases in the context of our initial strategic long-term projections. We intend to struggle to extract as much copper as we can in Poland. The deposits that we have are of limited scope. As you know, we are applying for two major licenses in Lubuskie voivodeship. Decisions were issued by the chief geologist of the state, and then they were objected to. Now the case is in the administrative court. Once the legal questions have been resolved, we intend to operate those deposits situated in the Lubuskie voivodeship. These deposits are more difficult, yet they offer better prospects for the future in KGHM.
Besides, we continue to monitor what's going on abroad, where safe places are for operations. These are things that are not broadly discussed on a daily basis, but we monitor the world and the places that might be of interest to us. That was the first point. As regards to the shafts, I will hand over to Marek Świder .
As regards the shafts, now we are at the final stage of GG-1. We reorganized this shaft earlier this year. At the beginning, its underground part was handed over from Polkowice-Sierszowice to Rudna. That will significantly improve the performance in the northern region. Yes, in the future, we are going to use that in order to at least maintain the production capacity that we have right now.
Let me just add that as Mr. Marcin Chludziński said last year, we produced 31.6 million tons of wet ore. This year it's 31.8 million tons of wet weight. We said we see a major growth year-over-year. This affects our mining output. Last year, we planned 440,000 tons. This year it's 442,000 tons of copper. As far as the Putski deposit and the opportunity to exploit that, we mentioned this in our strategy. The fertilizers are of high quality, and they have no adverse impact on the environment compared to artificial synthetic fertilizers. We have almost completed our work to explore the deposit, and the results are very promising, so we are building the mining operations strategy at the moment.
In the coming months we will be building a strong business case for that. We will be calculating the business model for that. This is our first project of this type. We normally deal with copper and silver, but we are miners and others do this in the U.K., et cetera, so we are hopeful about that. As far as China is concerned and the sanctions, we are monitoring the developments. We survived a similar situation, 2019 or 2020, I'm not sure. Time is running so fast. The trade war was at its peak and there was sanctions imposed in China. For example, the export of scrap metals to China, very good business opportunity for us, because we started buying metal scrap from the United States at bargain prices.
Some sanctions will call for agility, and we will demonstrate agility. Some sanctions may actually create opportunities. We'll see how it goes. We have no hard claims. Well, we'll have to wait and see about the sanction against Russia, whether Russia will be covered by the copper production sanctions. Russia produces cathode copper exporting to Europe. For us that would be good business opportunity rather than a negative development. It all really depends on how on the detailed scenario under which the sanctions will be rolled out. We are agile and will be moving flexibly.
Thank you.
Hello. I would like to ask about offshore. Can KGHM file a location application in this concession round? And if so, are you in discussions with a partner? And what partner could that be?
Secondly, gentlemen, are you hoping for change in national legislation that relates to onshore wind?
According to our reviewed strategy, we have filed our first application and more applications are in the pipeline. We've done it with a partner, with a French partner. We are now waiting for more applications to be produced, and we will file them at appropriate deadlines and we are moving consistently with our strategic updates.
Onshore?
Oh, definitely. Definitely. We're looking forward to this. We have filed our applications as part of the review of the legislation. We have made our position clear that we would welcome this legal development because that would facilitate the location of onshore farms. We're just waiting for the legislator to produce the legislation.
We're part of the consultation council, so we speak up whenever we can advocate for KGHM interests so that onshore business can be unblocked.
Hello, Tomasz Puziński , Cleaner Energy. You are boasting record profits. How are you going to spend it, if I may ask? I understand you will retain most of it. Let me ask you about your capital expenditures. It seems to be at a similar level as in the previous year, the structure was similar, but you're facing challenges, for example, energy transition challenges. Are we likely to see any major outlays on that purpose? 50% of your own sources in production. Can you hear me now?
Yes.
As far as CapEx is concerned and renewable energy resource plans, we have changed nothing, 50% stands, but that relates to green energy and energy from small modular reactors. We are filing our first safety report to the Polish Nuclear Energy Agency, which is a pre-investment phase document. We are also identifying a training and simulation center, a location for that center in Poland, well, for people, for professionals to get ready and to get acquainted with the technology. Because some of these technologies have not been present in Poland, and if we can't get the people and talent right years ahead of the actual projects, it could be too late. As far as RES is concerned, we may acquire companies.
Talks are underway, but we have to have a business case for that. We can't buy renewable energy source operations at any cost. We will have to wait and see how the business case emerges. As far as the structure of CapEx this year, I can gladly ask Adam Bugajczuk to add to this.
Yes, thank you very much indeed. In the context of 50% of our own sources, we joined the Lower Silesian Hydrogen Valley recently. In hydrogen, we may be seeing some projects and it's easy to take PLN 3.5 billion and spend it, but we have to get it right.
We are very selective when it comes to our own exposure, and we are in advanced talks when it comes to PV operations and possible acquisitions.
Are these projects or are these operating installations both?
As far as hydrogen is concerned, this year, we will run a test co-firing installation in smelting operations. Well, these technologies are deployed for the first time. So we have to put them in the B+R upfront, and if they are promising and if they give us return, we move to the investment phase. The reconnaissance by fire, basically. Sometimes reconnaissance by fire ends badly.
Here we have to and we don't have to experiment too much in wind or PV, but when it comes to hydrogen or carbon capture and sequestration, again, part of our strategy, maybe we may have been sure about the inevitability of green transformation two or three months ago. Now we are discussing the negative dynamics of moving there or getting there. We have to be perhaps not conservative, but prudent about certain lines of development. If I can add to this, one area of our investments is not changed and is not likely to change, and that's circular economy. It's a sustainable trend, and it responds to the deficit of elements and metals in Europe and globally. Recycling have to fill the gaps.
Therefore, we are laying out the groundwork to ensure that we can purchase, process, and monetize copper scrap. We also started a hybrid smelting operation at Legnica. This is the name of a project of restructuring the Legnica smelting operation so that it can take any charge and deal not only with copper and silver, but also deal with other metals. This is what we're working on. We're not spilling the beans as far as our plans are concerned, but we can share something with you as much as we can. Recycling of metals that are not extracted in ore is an intense part of our business.
We include in this the rare earths element. Now, people speak so much about renewables, let me tell you that we are very much looking at how we transport our mined rock underground. We are restructuring conveyor lines. We're building more lines underground. Why do we focus this? Because this is a bottleneck. If we can use more belts, it may be uneconomical for us. Therefore, we are revamping the operation to move away from vehicles as opposed to belts. In the largest mine, we have 18 belt conveyor jobs that we have to complete this year with the result of having a stronger business case.
Are you planning a higher dividend or just the traditional PLN 300 million?
Traditions are important, and they must be cherished. Very conservative, am I not? Each year, we do look at our dividend opportunities, and we will reflect this year as well, and we will be doing this an appropriate time, and we will communicate this to the market at that time. Thank you.
A question from an online user, the Miedź Portal to Mr. Bugajczuk. Deep Industrial Głogów, what is the status of this project? When can we see the location of SMRs, and what are the contributing factors to the decision?
Let me deal with SMRs, and I will hand over to Adam to address the first question. As far as location is concerned, we're now launching a zoning study considering a number of different location.
The site must be compliant. You can't locate a site of this type anywhere in seismic areas or areas which have been heavily mined in the past. Safety and delivery and selling of energy, that's an accessibility of markets for that energy is another factor. We will be looking at various scenarios, and we will be trying to find locations which best meet those requirements. Now, small modular reactors is the only technology which is being certified by the American regulator. That actually, this is the only certified technology out there at level one. It is not as land intensive as other technologies. The footprint is 1,000 sq m. Of course, we're not talking about the buffer zone.
These types of nuclear operations are very sort of land-intensive.
As regards Deep Industrial Głogów, you might have noticed the gradual growth of this deposit in the total of our deposits. That's almost 30% now in this region, and we are gradually increasing the share of fields in this region. That concerns both copper and silver. Thank you very much.
Jakub Kadester, I have two questions. First, about Kulów-Luboszyce, Bytom Odrzański. There was information in the press that those processes are at a turning point. Could you update us, please, on the situation in this connection? What is your plan for those projects? When are you planning to start geological studies? When could you potentially both higher CapEx or greater commitment to this project?
The second question is about modernization that you mentioned in Cedynia and Kaldo furnace. Which of those elements of your production might affect production volumes if it stops operating?
As regards licenses, I have already mentioned that after seven or six years of administrative proceedings, it was issued. The final administrative decision regarding this geological license was issued. Previously, there was an administrative dispute over who was entitled to get it. The second potential investor complained about this decision, and now we are at the stage of court proceedings. Once this path has been exhausted, will we be able to move to the investment stage if the court decision is favorable to us? That's what we hope for.
These are independent courts, and we are waiting for the judgment. Usually such disputes go on. The important thing is that the decision was issued after many years of administrative activity. Of course, each party has the right to claim whatever they are interested in. Once all those court-related issues have been clarified, we'll move to operational issues. Now, if we look at operational matters, because those deposits were already explored in the 1970s, but we still have to wait a little bit.
To add to what the CEO has said, we are ready both in terms of financial and human resources to operate on the basis of those two licenses.
The license for Bytom Modrzewskie has been withheld. We managed to drill one place.
Thank you. If I may ask an additional question, which quarter will that be?
End of April till July.
Thank you very much.
Thank you. We have managed modernization and maintenance. There is a question from Morgan Stanley. Dan Shaw asks whether we could say a few words about expectations related to working capital changes in that. In 2021, there was quite a significant accumulation of that. Can we expect any reversal of that trend? Mr. Kensbok will take this question.
That will follow from what we see in the analysis of current situation, availability of resources.
If we managed our inventories dynamically, we would be able to actively respond to any challenges of security of production. I don't want to forecast what the second half of the year will be like, whether there will be any changes with regard to availability of resources or possibility of trade in commodities. We do not know how the situation will look with regard to availability of energy, but probably we will try to reduce our inventories. However, it is premature to discuss it right now. For the time being, this prudent approach is something that we consider appropriate.
Without the need to release financial resources for other purposes, we prefer to allocate them to security of production so that we can maintain production in a stable manner. These are the factors related to supply chains and factors related to the technology process, the preparation for downtime. This message that we manage that in an informed way, analyzing the situation on an ongoing basis, is the right one. We are not dogmatic. We are pragmatic in this approach. Thank you.
A question asked online, I do not see the name of the person asking. Whether the situation geopolitical situation related to Russia's invasion in Ukraine and the system of sanctions influence operations of KGHM Group in two aspects.
The question is about the impact of the current geopolitical situation on operations, also outside the mainstream technologies, that is, supporting services.
I will try to answer this question. As you might know, some resources produced in Ukraine or Russia are needed for steel processing, affect prices and costs, and we are experiencing those changes. It is not about limited access, the problem is more about price. We can see changes in the steel prices resulting from the Russian-Ukrainian conflict. Also, it is about certain resources needed for our functioning. We would have to replace supplies that we have from Ukraine with supplies from other countries. This is something that we are looking at on an ongoing basis. We experienced those things already earlier.
We also analyze the potential impact of gas, fuel, and potential embargo can also impact prices. We need to take that into account in our analyses, but those things are not certain yet. We do not know how that situation will develop, so these are our scenarios that we consider as options. We do not really have any major commercial relations of selling something to Russia. There was only ZANAM, which sold a few machines annually to Russia that will probably be limited as a result of the current situation. It is not anything that would affect the financial situation of the company to any material extent because the share in exports related to those machines was very, very small.
We already had certain previous experience with regard to disturbances in supply chains. We experienced that during the first outburst of the pandemic, so we know how to react to that. We had also some situations where we were unable to provide certain goods, and so we were responsible for certain breakdowns in supply chains. That experience allows us to find our way in the current situation.
To add to what the president has said, based on our previous experience during the pandemic, we put together a special team which studied the situation in the east, availability of resources, the materials that are used in our group in our companies. No risks were identified, and we see no threats related to that situation.
As regards the service provision company, that's a subsidiary of our ZANAM subsidiary. It is really a small company employing four people right now. At the moment, we do not supply any mining machines to Russia, so we do not see any risk resulting from that.
Thank you. I can see that on the most of topics that recur in the questions, we have already said something, but maybe also something concerning our costs. PKO BP brokerage house. Given the changes in the commodities market, what would be your modification of the cost guidance that you presented for 2022?
I think at this stage, the question is premature. It would be difficult for us to answer.
We do not modify those assumptions, otherwise we would be obliged to inform you of that. It is not the time to talk about things that are not taking place. If they did, if we had such scenarios, even if only at the back of our minds, this conference is not the place to communicate them.
Of course, ladies and gentlemen, we have done this analytical work while preparing the budget for this year. We assume that certain risks have already been identified and built into our budget. Now, two and a half months into this year, we are reassessing the situation and monitoring it because we know it is very volatile. I can quote here gas price.
It was EUR 220 for megawatt hour six months ago. Then it went up to EUR 400, then it was EUR 1,400, and now it is back at some EUR 370 or something around that level. It's very hard to predict how it's going to evolve over the rest of the year. We approached this in a somewhat different way, and namely, we created task forces which consider scenarios. One of the conclusions reached by one of the task forces was to discontinue production of heat on our gas vapor plants with the use of gas and instead put into operation coal plants where we have a significant stock of coal bought at a convenient price.
As a result, we achieved several million savings per month, and that has been the case for the last six months. Now, this team is analyzing another batch of units that could be handled in a similar way. That is a reactive approach, yet one where we have to respond to deep changes to costs and prices, but not to the extent of changing cost guidance.
Thank you very much. Thank you for all your questions. Gentlemen, thank you for exhaustive answers. We're not moving anywhere. We can answer your questions after the conference. You will be able to track our posts on the websites for questions that have not been taken during this meeting. This meeting is adjourned. Thank you very much indeed. Thank you, the audience, here and online.