Ladies and gentlemen, my name is Lydia Marjinkowska. It is my pleasure to welcome you to the conference on the financial results of the company and Capital Group Kakeha and PolskaMit for the Q1 of 2021. It is another time that we meet via a video broadcast rather than face to face, but it is a great pleasure because we came back to the room at the Stock Exchange, and we're hoping that our following presentations will be held together with the audience here on-site. The effects of the first quarter's work in the company will be presented by the management board composed of Mr. Marcin Kluginski, President of the Management Board Mr.
Adam Bogajuk, responsible for Development Director Mr. Pavel Curusa, Deputy President for Foreign Assets and Mr. Andre Kentsbach, Deputy President for Financial Affairs. We shall begin traditionally with the comments of the management board on the last quarter's events, and we will then have a Q and A session. The answers that will not being provided throughout today's broadcast will be then visible on the website together with the transcript of today's Q and A session and a recording of today's conference.
And also, traditionally, please e mail your questions to at kghm.com. Ladies and gentlemen, we are launching the conference over to Mr. Marcin Flujinsky. Many thanks. Welcome to the newly elected management board.
This is a new terms of office. Mr. Andrei Gensbok is here for the first time as CFO and Mr. Adam Bogaytuk and Pavel Gruza and myself are familiar faces from previous conferences. We're still waiting for our production director.
To be appointed, we're hoping that our next conference will see the full composition of the board for the duration of the time I'm dealing with production issues as well. It is a lovely May day, and we've got some good news for you, ladies and gentlemen. So it's all proving to be a very good combination.
At the
first, synthesis of the situation after the Q1, We have been very well supported by copper prices, 51% increase vis a vis the similar period in last year and also the same for silver, 55% increase year on year. And So the financials in terms of revenue have increased by 27%, 6,000,000,000 EUR 735,000,000 EBITDA, 1 100 and 31 percent and a significant increase in the net result. We have seen great support in the price increases, which is clear and needs to be said. But other than that, we've also got we managed to maintain or increase on Mining Production. And I will say a few words more about production later on.
What I want to be said strategically and explicitly is that in spite of The good times in terms of prices, we're assuming that we need to really look after our investments very well. We're going full steam ahead. We're going to spend PLN3 1,000,000,000 to make the deposits available to maintain and increase our production. This is a priority, both in extraction and production. We are Planning also to make a move in the foreign assets, we have distributed into them into strategic and those that were not matching our portfolio.
Right now, the smaller mines Our assets that we want to sell, we're looking at mines and projects in the U. S. And Canada. We have also got some good news from the latest dates. We have been granted an exploratory license for GOGOV and other license areas, and we're looking at the area on the other Bank of the Oda River.
This is the Lobosky region, and we are trying to discover what the deposit is like. And if we confirm the commonly available test results, we may even be talking about 20,000,000 tons. We're not sure yet in terms of copper. And this It's potentially the largest deposit in Europe, combined with the deposit that we already have available in the production site that has been launched. So a fast reconnaissance in Reconfirming all these values means that we shall launch the exploratory phase very soon, but still, we need to do a reconnaissance on the deposit and confirm all the geological conditions.
This is very good news for us, and I think it is worth sharing. We're seeing an important increase in our effectiveness in Sierra Gorda. Also, our domestic reservoirs here being used. So we're being we're quite busy. Macroeconomic picture is something that I've already touched upon, Very favorable price increase in Q1.
Also looking back at the pandemic and what happened in 2020, Neither the first half of the year nor the quarter 3 or 4 had such optimistic forecasting, but Now we're seeing a nice surprise. Now paid copper, the production has been Higher by 6.6 percent, we are seeing 186,000 tons. And again, in Polskamiej, an increase of almost 4% to 146 in Poland, Sierra Gorda, 23,000 tons, and that's a significant increase of 21%. And international Production has seen a 15% increase up to 16,000 tons. Key financial indicators It will be something that Andrey Kensbach will describe in detail.
And we will also hear from Adam Bogajtuk. €2,600,000,000 is the EBITDA of our group, and that's the adjusted value. The revenue, EUR 6 EUR1.745 billion. The net results are higher much higher than last year. Now we can see the production results for metal production throughout the Capital Group and as distributed into segments into specific metals.
Silver is decreasing. It's a matter of the deposit characteristics. This may happen, as you are quite aware. In silver, we can increase and intensify production sometimes, but it will sometimes decrease vis a vis last year's very good results, which in turn confirmed our leadership ranking in Mining and our ranking in terms of silver producer in globally. We had a record year last year, so it's very difficult to match it this year.
Now recovery and dry mass. I will not comment on this. I will give over to Pavel to present the Sierra Gorda results, and I'll ask him to comment on that. We are consistently moving ahead in this project. Nothing's changed in our strategy.
This is effective both in terms of scaling and financials, but it just needs to be maintained. Thank you very much, ladies and gentlemen. In the life of a mine such as Cerro Gorda, We've only seen such successful conditions a few times, and it is our responsibility to Enter this period with stable production on a high level. We have managed to achieve this despite the COVID crisis, which has been a challenge both domestically and globally. But maintaining a high level of production is what will determine our good results, and they are very good.
I will not be quoting the figures that have already been mentioned by the chair. But in Sierra Gorda, we're also looking at recovery of better grade ore from the point of view of metallurgic parameters. Now in Kegiheim International, we're observing a similar situation. We're seeing Stable good production combined with better grade of the ore and that triggers an increase of both copper and silver production. As was said just now by the chair, we have looked through our portfolio of mines.
And we have decided that we can not to see the smaller mines matching our portfolios. So it seems to be the optimal time now to review the portfolio. We have launched The process of discussing potential investors in order to Sell 2 of our assets, Frankel and Karlot, and these are
less
significant assets from the point of view of the overall Kihan production. And I think that after One semester, we will have more details on that. Thank you. Ladies and gentlemen, financials of the group. Let me begin with the revenues of the Capital Group.
As We have seen an increase by over PLN 1,500,000,000 quarter on quarter, up to EUR 6,745,000,000. We've got a few factors contributing towards this: the favorable pricing and volume in the copper production area, but also the negative volume aspect in the silver and gold production area. KPNs. So the Overall impact has been significant. Also, the change in the exchange rates, This has been slightly less favorable for us right now than it was last year, and this is also a negative impact.
And the last factor is the adjustment of the revenues for derivatives. That's minus €398,000,000 and that includes 2 elements. 1st It's the settlement of some of the derivative instruments that matured in the Q1 of this year, EUR266 million. And the second, in contrast, is the positive settlement of derivatives for the Q1 of last year, PLN 123,000,000. So the overall sum of the difference between them quarter to quarter is PLN389,000,000, so a negative impact on our revenues.
A second important factor is cost. C1 cost per unit. And Here, we note an increase of this indicator in combination for the Capital Group is $1.61 to $1.81 and there's a number of factors here that I wanted to outline the favorable ones being increasing volume and bigger value of silver and TPMs that reduce the C1 cost in the formula and then increase extraction and increase price of of molybdenum in Sierra Gorda. That also is a positive factor. Negative factors include decreased exchange rate of the dollar to the zloty.
The lower the exchange rate, the higher the C1. But Above all, the increased tax on some of the fossils, the mechanism of that is that It progresses depending on the price of the raw material on the exchange. And it is per extracted copper. So the increase of tax in some of the mines was quite significant from EUR0.31 per pound to EUR0.65 per pound. So unless the tax, if it weren't for the tax or if it were just for the factors that we can influence And that work towards our favor, which contributed to the decrease of C1, well, It would be different.
Unfortunately, it is inevitable to see the tax increase and which triggers the cost increase ultimately. Now operational results. Vis a vis the Q1 of 2020. Our EBITDA margin increased by Almost €1,500,000,000 The main contributor was Kageha and Polska Mi, S. A, euros 777,000,000 Ceragorda, EUR 539,000,000 which is quite an important element of our financials.
And KEGGERHAM International, that is an additional EUR 186,000,000 The remaining domestic companies On the level of EUR 21,000,000 lower than the same quarter of last year, It's still an insignificant point from this perspective because The Capital Group works throughout the entire year and the settlement of the results matter. In an annual perspective, the quarterly ones are less Important here. Very good operational results. And now when it comes to the financial result, We should predominantly be looking at the first four elements of the slide. So the increase from EUR 6.90 billion to EUR 1,000,000,000 of EUR 3.65 billion net And the operational elements, so the favorable changes in the revenues, Other costs which are not favorable, but mostly the purchasing of foreign input, which continues together with the market.
So we have to buy them at market prices. The positive change of production in course, so the stock. But that's a change that It's positive for two reasons.
Firstly, that follows from the fact that our stock and production in progress is now being revalued by mark to market rule and its value grows as the price of the raw materials commodities increases. And the second factor are technological activities and things related to the stages or phases that we undergo, for example, building up the technological stock of anode and the raw material for the production of silver and gold. That results from the technological cycles for renovation, refurbishments in our foundries and also building up stock of and of copper as the preparation to prepare for renovation of our refinery capacities that we scheduled for next year. We have also seen an increase in the of silver and ready products at the end of the Q1. And that was linked to the staggering of our sales.
We sell at some periods and those periods that ended in March in April rather than in March. And so this is only a shift in time. We also buy scrap as foreign input for our copper production. Here, we recorded an increase in the stock of scrap in the Q1. This was our Intentional action, we saw there was good availability of copper of scrap.
And besides the value of scrap material increases over time, in the case of our purchases, it increases a bit later than the price at which we buy. So having stock of copper scrap before prices get higher is favorable beneficial to us financially. Of course, we do that moderately without Exaggerating. These are the principal operational factors. As for the other elements, that is the result on derivatives, which was negative.
That is the second part of the impact, and it consists of 2 part. The first is the valuation of those instruments to fair And the second is purchase price that has changed in the result at the realization of the relatives that was negative in the Q1. And the total of those two events is about EUR 100,000,000 negative impact on our net result. So resulted in increased corporate income tax, €285,000,000 That is the level we are talking about. And the other costs that had a positive net result at EUR 1,365,000,000.
As for cash flows, of course, the main element here is So the operational part, profit before tax, earnings before tax and indirect method. We have The average impact of exclusions of some income and costs, The total impact is €325,000,000 Income tax reduces our cash flow by €2,000,000 That was the paid Tax and change in working capital, increasing the stock and increasing the value of the stock has a negative impact on our at PLN 1,000,000,000. Then we had some capital expenditures, acquisition of fixed assets. We also had some disinvestment in the Q1. We sold 2 assets, one real property owned by Kagehame Koprum and our shares in Yacht Yarden Nuclear Energy 1.
Those two transactions were accounted for in the Q1, but they are also included in this report. And we also repaid our loan. We reduced our debt, EUR 1,000,000,000,000 PLN net effect is that we increased our cash by 1.5 And the Net debt to EBITDA ratio is lower than planned. It is also lower than it was last year. Our debt Servicing capacity, dollar debt servicing capacity improved and our PLN debt servicing capacity also improved.
The only element which you may pay attention is the increase in nominal value of debt denominated in PLN from EUR 4,800,000,000 to EUR 5,000,000,000 is a translation conversion result. Settlement of the dollar debt took place on the 31st March at a time where the exchange rate to dollar was high, while our nominal debt in dollars decreased. Now I would like to invite Mr. Adam Bugajuk to tell us about development initiatives and investments. Ladies and gentlemen, as regards investments and development, We are consistent in implementing our rational and responsible investment program.
In the Q1, we spent More than €400,000,000 PLN, these were mostly recovery projects, 30% maintenance project and 41% of the total development projects. The total amount we spend is maybe not impressive, but as you know, perfect Well, the Q1 is always characterized by a lower dynamics of spending. However, all investments, all CapEx It's on our schedule. As regards to Guagwolf Industrial Guagwolf deposit. For the last 3 years, we've been repeating that the importance of this deposit is going to increase.
And the first quarter It confirms this point. We do see an increase. Very good results in terms of Production output, both in terms of content of copper and in terms of content of silver. We have quarter to quarter increases by 29% in output dry matter, 39% copper and 37%, silver. So we We are now focusing more and more on mining activities at Sarto, and we believe that we will be able to Maintain such good results in long term.
As for implementation of our key investments, maintenance and development. First of all, we are now completing the largest investment recently that is development of Zelazne Mosque disposal station. And we believe that at the next conference, when we present the results for the Q2, we will be able to say that we have completed this investment. We are actually very proud of it because the We are actually very proud of it because the last year and a half of work in COVID conditions and maintaining our investments with such Big budget was a major challenge. However, we managed to cope with it quite well and we are very proud of it.
As for development project, here the program of making deposit available has the largest share. We are gradually increasing the share of In the Q1, we finalized purchases of all plots of land for reconstruction of the second shaft, Gg2. And in August, we plan to put into operation the 1st smelters of the overground conditioning station, which is now being built next to DG1 shaft. That is also a very complex and major investment in which all work is progressing on schedule. We also plan to 8 are still ahead of us.
We intend to complete all our investments related to bad conclusions. As for long term projects, we are now working on a program of modernization in copper plant World War I. Here, we are also on schedule and on budget. To sum up, it is worth mentioning something that is always of interest at conferences where we present our results and namely dividends. We, as the management board, recommended to the supervisory board and the supervisory board issued a positive opinion of paying €300,000,000 dividend to our shareholders.
We decided that the situation of the company after the COVID year, a difficult year It was quite good in terms of our results and this is the ground for us to pay out dividends. Now we are waiting for the decision of the general meeting, which will vote on this I start my recap with this because previously, there was no discussion of the dividend. Financial results that we see are the best since 2012, which is also excellent news. Acquisition was something that kept us on our toes in the company. But maybe now, thanks to the hard work of Many people now, our situation is getting better and better as can be seen on the basis We also are consistent in reducing our debt.
This has already been mentioned here. The net debt The EBITDA ratio makes a very strong statement on this. And apart from the ratio itself, which is to some extent affected by the exchange rate. We repaid over EUR 1,000,000,000 in the Q1 2021. And for us, it is also very important to have great capacity and flexibility on this and maybe to have a lesser burden of debt.
CapEx Making the deposit available are our priorities to have the production capacity, to have the deposit available. This basically means preparing underground work, but also air conditioning, infrastructure, water removal installations. This is time consuming, but if it's necessary so In the following years, we can continue our work and use the opportunities offered by the market. And the development opportunity, a strategic chance The company that we see is opening up of a completely new area, but with a proviso that this is based on an exploratory license. We are exploring the deposit.
We are looking for minerals. And only then will we consider and the actual extraction. For 3 years, we operated in conditions where copper prices were unfavorable to us and now the prices support us. So we enjoy this. But we have to bear in mind that we live in very turbulent times.
The economic environment is variable. The sun might shine, but In spite of all the hope around us, we still are grappling with COVID. We have to make sure that Work is safe. We encourage our employees to get vaccinated so that we do not face Similar problems in the Artem. We also implemented a number of programs to support people to recover after this prolonged stress.
Also in of psychological assistance. We would like to allow people to return to full activity and to Thank you very much. Ladies and gentlemen, thank you very much for the comments from the management board on our record high results, Record high in almost a decade. As the CEO mentioned, we would very much like to return to normality. And today, we are probably the 1st company from VIGI20, which is able to hold its conference in the trading room.
So hopefully, the next conferences will be held with the audience here as well. Now Q and A session, Mr. Janusz Kryuzestoshak, who is the Head of our Investor Relations department, will chair this part of the meeting. Thank you very much. Give me just a moment.
I'm trying to find my way in all those questions. They keep flowing in, so I have all those props around me. I would like to start in a non standard way. This is from Erste Group. What was the cost of restructuring of hedging in the second quarter?
I can give you the answer immediately because we are also So you're discussing the Q1. We still have to wait for the discussion of the Q2 and trends in the Q2. That will be the Time to address this in detail. A question from Mbank, Jakub Skopec, Sierra Gorda. Excellent results in the Q1 2021.
Wouldn't it be worth taking a step forward and consider the 2nd stage of the mine Phase 2 of the project. Ladies and gentlemen, so far, we have conducted the process of low cost optimization in Sierra Gorda. Presentation in Sierra Gorda. And this brought the effects, which we could see and that was under the straight of macroeconomic environment in which we operate it. We have knowledge of the options available for Sierra Gorda.
But at this point in time, such major capital expenditures which are not planned. However, this does not mean that we do not have ready at hand a set of improvements that allow us to increase our daily throughput, which is basically the key issue at Sierra Gorda. Also another question from Jakub to Pavel Gruza. Change in taxes on extraction in Chile. Do you have any estimates how this change can affect on Sierra Garda Operations.
And this question will actually cover also some other points that were raised, but they all fall into the broader topic of changes in taxation in We are following this process very closely. We participate in numerous Expert panels, expert groups and our people are monitoring the developments very closely. We have estimates for various scenarios. However, the legal situation of it is highly uncertain. A certain legislative process has come to an end.
Now a new stage in the Senate is opening. It seems there is a major legal defect of the project bordering on the whole project being unconstitutional. So giving any quotations at the moment It's pointless now. There is also another factor that I could mention, namely Sierra Gorda has certain regulations, which mitigate the moment of this Additional potential burden on our results being introduced. So now there are no reasons to be concerned about that or to make any statements on that.
It Seems there are major legal defects of the whole process. The current proposal Leads to unprofitability of numerous mines in Chile. So it seems that the whole Project will be the whole draft law will be seriously modified. And then When we have a clear vision of the solution, we will communicate our position on it. Thank you very much.
And to build on the question asked by Jakub Sjogbet from Mbank, regarding the new license for Bitum Odrainski and Luboschwitzer. Can you say already now what CapEx should We dedicated what CapEx should be spent in order to make Guro, Obzhansky and Luboshetsen make them available for operation. Is it possible to use the existing infrastructure to make those deposits available? And another question Do you have any specific deadlines, dates where work can start? Possibility of using the existing infrastructure dates and CapEx in a nutshell.
Ladies and gentlemen, as for the CapEx of This activity, as Marcin has mentioned, that will only be able when we have completed Truly very much in line with the licenses that we already have. So we do not really need to build a new mine. We will simply and the existing infrastructure. So the spending will not be as significant as if we had to build the whole technological line from scratch.
The License have 10 years, 8 months. Kolofluvosysa, 7 years, 8 months. So As of now, we will be launching the works as soon as we can. We will not be delaying the launch of the work. I think after the first drilling and the first results, we will be able to then say something more about the further future of this project.
And another question to Mr. Adam Bugajuk from the Smedy website. What is the current situation in the area of the material shaft GG2 in Zhukovice? Like I said in my presentation, we already we have already completed the purchase of land for this investment. So in the nearest period of time, we will be going ahead with the design work.
Thank you. Mr. Pukhaski from Santander It's asking, Kakehaim was planning to develop its own renewable resources. Are you sustaining this plan? What are the plans that the company has for sustainable energy up to 2025, 2030, if there are any.
Definitely, we are sustaining our planning. These are our strategic assumptions that we have communicated before. We are currently rolling them out and performing investment processes. We're looking at 50% of our own renewable resources up to 2020. This definitely is all contingent on The attitude towards gas fuels, right now, we're not actually assuming it to be the target fuel for long term investment in our strategy, but that's also linked to the regulatory policy of the EU, which is Remains skeptical to gas as a fuel that can be neutral to the environment.
We are currently holding talks with bidders. There are various pathways to achieve our goal. We can either purchase projects that are already existing or that are in the pipeline that have been prepared from a legal point of view to get we can together with other partners proceed with the investment or we can build our own projects. We're active in all the pathways, exploring all of them together with the last one. We are going to launch more investments this year to mark the symbolic launch of these projects.
These are not long term projects, especially in photovoltaic. Some of them will be initiated and completed this year. The investment phase is ongoing other than potential land acquisition as well. So we're it's in progress. Thank you.
So also from the point of view of our impact in on the environment and the changes in the energy mix. We will have another questions. Another question. Mr. Patrick Ozanowski from Nacionale Nederlanden Investment Partners asks, Are you planning to announce climate neutrality anytime soon as An increasing number in the extraction business are doing a number of companies.
Climate neutrality and mining sector, It's very difficult to assume that to believe that they will be climate neutral. They might announce trying to minimize their footprint and impact on the environment, which is something we also thrive to do and continue. Going back to the bad convention, We spend dozens of 1,000,000 to purchase the best state of the art technology, so we are following what is being required from us. Now regarding EU law and domestic law, which results from EU law actually, here as well. We act in compliance with the regulations and the standards that are operational in Europe, which which is what makes it possible for us to operate it all.
And since there are a lot more requirements in our sector, we have put in place our strategy in the area of energy, renewable resources and the acquisition of renewable resources as well as all the technologies that may Reduce our impact on the environment, we are using in the production, we are using filters, installations and other equipment that may limit emissions, but also underground extraction CE's Electrical Solutions Powering Machines. And that's a far reaching program of various measures that aim at not just providing compliance with existing regulations, but also going ahead of the existing reality whenever It is possible to act. We want to make such investments that will make it possible for us to comply with what's going to be required in the future regulations. Another question is from Uka Srodnik from Trigon. Will we be seeing flows from Sierra Gorde to Owners, Repayment of Loans This Year.
I don't think we should Look at this as an opportunity to determine what decisions will be taken. In principle, the Sierra Gorda Financial Space is enlarging, and a decision will be necessary as to where the Cash flow should be earmarked. It is also possible to see various liabilities of Sierra Gorda satisfied. Another question by Lukas. Are you considering diversification in Metals, of platinum pallet nickel.
The acquisition of mines that Extract Ares Green Transformation Metals. It is a good question. We need to act in areas that are not just natural for us, but The areas where we have deposits here in Poland, it is difficult to encounter the on metals that were just listed. Is it the right point [SPEAKER UNIDENTIFIED COMPANY
REPRESENTATIVE:] To make acquisitions when we're
at a peak, we're seeing highest prices of metals. Is it the best Time to purchase projects? Probably not because the prices are higher than ever. So perhaps we should wait for other times with such strategic decisions. Victoria project, when can we expect milestones in this project?
Mr. Pavel Groza, please.
We are preparing this project in such a way so that Also, accounting measures can be put in place, reversing write offs that were made originally, but there's also the issue of negotiating contracts, which requires some amendments in order to enable realistic management of that project. Thank you. There is a question to Mr. Andrei Kunsbach about cost drivers and inflation in the cost by type category, how we see the Inflation Dynamics in this category. What are the factors that influence We're not free from Cost pressure that is present throughout the economy, we all know in our everyday experience that prices are growing both in terms of energy transmission and sources.
We see that also the CO2 emission rights are increasing in price. So we're putting in place some mitigating measures to neutralize or extend this impact over time. But unfortunately, we are aware that you cannot avoid them in at all. You may just reduce the consumption of those materials that Trigger costs. So we're looking at trying to limit the use of fuels and electricity.
We're looking at trying to change the structure of electricity acquisition. But obviously, these costs have had a negative impact on our results in KAKIJAIM SA predominantly, but also in other countries because the inflation pressure is present everywhere. We're offsetting that by increased production effectiveness and a reduced use of the costly elements. Now regarding figures, obviously, I can communicate them after the conference. Yes, yes.
You were asked to present a general outlook
on these cost
categories. Thank you. I can see Having distributed my questions into various themes, I see another question to Mr. Kurosawa, is there any progress on the Sierra Gorda sales? You can address that question to Sumitomo.
As far as we know, the process is advancing. And it is not our role to comment on it. Thank you. And like I said, This concludes the list of questions that have been sent through our Investors Relations mailbox. Thank you very much.
Thank you. Ladies and gentlemen, we will be responding also to the questions that are going to be asked after the conference. So if you would like to receive some detailed Figures were available also after the conference. Thank you very much, and see you in a quarter.