Ladies and gentlemen, welcome to the conference devoted to discussing the results of the KGHM Group for the first quarter of 2026. The results are going to be presented by Mr. Remigiusz Paszkiewicz, President of the Management Board, and Anna Sobieraj-Kozakiewicz, Vice President of the Management, Mirosław Laskowski, Vice President of Production, Piotr Krzyżewski, Vice President of the Management Board Finance, and Zbigniew Bryja, Vice President for the Development. We also have Mr. Janusz Krystosiak, Director of the Investor Relations Department. I would like to tell you that our conference is transmitted online, and during the second part, we'll have a Q&A, and you'll be able to ask questions here from the room. You can also ask questions by sending them to the email address ir@kghm.com. Also, in the results sections, all the questions and results will be published. Now, Mr. Paszkiewicz will take the floor.
Ladies and gentlemen, welcome. I would like to welcome you all, and I would like to welcome all our online audience. Ladies and gentlemen, let me start with the following statement. We know the figures very well. We know the results of the entire KGHM Group for the first quarter. I would like to discuss several aspects of these results, especially the macroeconomic environment in which we obtained record high, very good results that we have not witnessed for even a decade of our activity. As far as the economic factors go, I would like to say that we did have very high levels of volatility and lack of stability in the market. We have not faced that since 2008. New war that affected the prices of energy factors, especially gas. Additionally, uncertainty regarding further Fed activities regarding the change of the chief of this committee.
These changes also affected the prices of the American dollar. We know that the American dollar is the basic currency in the market of copper and precious metals. When the war started, gas prices went up, also we needed to adjust metal prices. As a result, the demand for investment gold rose, and I'm talking about coins and about bars. Central banks also were engaged in the process, but also private and public investors affected this demand. As a result, precious metal prices, especially silver, went up. In our case, it is very, very important because we are the second greatest producer of this metal in the world. This trend of these high prices of metals, because copper, after the adjustment, actually go back to the high levels, was maintained till the end of Q1.
As far as our activities go, how did we react in this situation? First of all, we pursued very feasible, very reliable sales policy. We do have increased inventories, but we also had that in the Chinese copper exchange. We were very conservative and basically all the players in the world pursued this conservative action. The demand did not decrease, so very conservative, very reasonable sales policy. Next, our results are due not only to the very conducive market, but also better compared to the previous year and previous quarters, better operational and cost activity. Here, I would like to mention energy factors. When the prices of gas increased, we, for example, switched off our gas dependency, and we used energy from the network, from the grid.
As a result, we compensated our costs because we only faced a very small increase in the energy factors compared to the last year. I'm talking about single millions of Polish złotys compared to the entire pool of costs for energy, for gas, and other fuels. Next, we started using the opportunities offered by the market. We used the local content, and we are the leader in Poland as far as cooperation with companies and businesses and suppliers go, and also other entities whose services we are using in Poland. We decreased the costs of materials and services, not only because we obtained better prices, but because of the decreased use. We managed to do that. We were successful in this area, despite the fact that the production levels remained the same.
As far as the production level goes, it's 8% increase in the payable copper production. In the entire group, we faced a production that was higher by 4%, and the cost side was very well controlled. Even though, due to natural reasons and certain factors related to the natural causes, we had a certain volatility in our assets. We did have a 4% increase in the production of payable copper in the g roup. As a summary, our adjusted EBITDA was over 2x higher compared to Q1 last year, and 3x higher profit for the period compared to the last year. These are record high results starting from 2014 and 2012. For over a decade, KGHM Group has not had these results, and I'm talking about the contribution of international assets as well.
Record-high results for over a decade. Now I would like to give the floor to Mr. Krzyżewski, who is going to comment on the financial side, and maybe he will talk about more details about the costs and inventories. Then I will give the floor to Anna Sobieraj-Kozakiewicz and other Vice Presidents of the Management Board, so that they can talk about details about our production and development and our international assets. That will happen in a minute. Now, Vice President.
Ladies and gentlemen, welcome. Before I move on to my part, I would like to give you a couple of words of introduction. I'm going to talk about finances. If I were to list three features that accompanied us in Q1 and that contributed to these record-high results, I would say that first, monetization of resilience.
We've been talking about that for a long time. We've been building this resilience for a long time, and we've been doing a lot in that direction. This quarter showed us that we are very well prepared and that we can find our place in this market very well. The second feature, the second aspect, and I'm sure that you know that the world is going faster, developing faster. We have actually faced that as well, and we need to react in a very rapid way. This volatility, this changeability happened, and there were various changes in the world, but this is becoming something normal. This requires resilience from us, preparation from us, but also flexibility and fast decision-making. We actually face that every day.
We make decisions, hundreds of decisions every day, also through the prism of certain financial aspects. The third feature may be more personal. I feel like this is an annual conference, not a quarterly conference, because for the first three months, we faced numerous events, and probably they would be enough for an entire year, not a quarter. If we were to look at single months, January, as Mr. President said, the 29th of January, historical high prices of copper, $14,500, gold, $120,000, $5,100. The silver, also record high prices. January and February, these were the months that were the points that were optimum for us.
From hindsight, I could say that these were perfect moments to implement our sales policy. That was the positive information. Negative information in Poland, energy prices were very high in January. Not much sunlight, not much wind, very high cost of generating energy. In a minute, we are going to show you that this did not affect negatively our company. Actually, we were able to manage our sources of energy very well, and we did not increase our cost base, but actually we used this momentum to optimize our production, and I'm going to show you the production cost in a minute.
February, on the one hand, this is winter, obviously, but it surprised us and it affected our logistics, also from the hub side, but also we had different challenges, our railway logistics as well, and road logistics as well. Also Mr. President said that we had certain shifts in inventories, however, our deliveries and sales to the customers were successful. We were able to, for example, use railway transport instead of marine transport. The customer is the most important thing for us, so we try to focus on that and we try to address these changes in the environment, and we tried to achieve timely deliveries, so that's a good thing.
Another thing that happened in February, we discussed that with Mr. President, we visited Denmark in February and we signed an agreement with one of our, and NKT, this is a producer of cables, this is one of our customers. This is one of the first agreements that we signed, and this is a special agreement. Why? Volume, EUR 5 billion-EUR 7 billion, this is the value of the agreement, of the contract. The second element is this is a 10-year contract. From the point of our strategy and geopolitics, I can say that in five, seven years we are going to be able to supply this volume. We are a mining company, we are a metallurgical company. We produce the wire rod, copper wire rod, and we are a producer that can answer this demand.
From the in the time perspective, long time perspective, this is something that we can use to build our monetization and value. In the next quarters we are going to implement that, and we are going to act in this way with our strategic customers. March rollercoaster. Every day basically something happened. The Hormuz was closed, the Hormuz Strait was closed then. This affected the prices of gas. It grew 2 x. Again, in our financial metrics, there's no negative impact. Last year, we decided to secure gas prices, and this year also, we made some transactional decisions, and that secured us from the financial side. As a result, we safely navigated this conflict.
From 14.5 to 1,200, prices dropped, and you can see this enormous changeability and volatility that accompanies us day by day, moment by moment, hour by hour. Let me tell you something about energy prices and this energetic aspect in March. In March, PSE, our energy operator, asked us to join the DSR system, and we receive assets because our energy grid actually provides energy to the network. We had a test. This test was very successful, and we were remunerated for that. This is something that shows that the energy aspect is very important for us and our energy-generating sources are very important. We manage that very well, and we are very flexible in a short period of time. We can react to the changing environment.
Last but not least, as far as energy goes, this pertain to the future, and also it relates to the European Commission decisions from decision from the 23rd of December. Non-ferrous mining can actually receive remuneration from the energy-high sectors and energy-intensive sectors. Poland is obliged by the European Commission to implement that by the 30th June. As far as finances go, this should be related, we hope, with additional PLN 100 million every year that we should receive. So far we did not have this element, so this is a new element that will be very important for us. If I may summarize all this in one sentence, this quarter in one sentence, I would say that we do not manage a company just quarter by quarter.
We focus on a long time horizon. We probably are going to multiply this quarter by four. Maybe you think if it this is possible. Probably not. There are so many factors to take into account. I would like to say that this Q1 contributed to these results, business results. That's why we have this record high performance. We are very positive about the quarters to come. Now I would like to give the floor to Anna Sobieraj-Kozakiewicz.
Let me just say one thing which I want to express at the end of this part of our presentation. After a detailed discussion of all the months in the quarter, let me now thank all the associates, all my colleagues from the entire KGHM Group, miners, metallurgy workers, all the others who have supported us so greatly in implementing decisions. They're preparing these decisions. They watch what's going on in the company and on the outside. I would like to wish all the best to the metallurgy workers on account of the holiday. We are celebrating this very important moment and celebration.
When it comes to national assets in the basic segments of our operating activities like copper production, extraction, production of copper in concentrate, electrolytic copper, electrolytic silver, we, well, in comparison with other quarters, we will see the absolute numbers and percentages. When it comes to important things that will happen at KGHM, we have been preparing for months to the overhaul at Głogów II by amassing a large inventory of anodes in order to be able to continue to work over this three-month overhaul period that will start on the 28th of June and will finish on the 26th of September this year. We will keep informing you on an ongoing basis about what's going on in this respect.
Ladies and gentlemen, when it comes to production results of international assets, our main asset, Sierra Gorda, in the first quarter of this year we've recorded production at the level at 20.6 kilotonnes of payable copper. That's slightly less by 1% in comparison of the first quarter of last year. This value is quite similar when it comes to commentary on buy part. A slight deviation shows the weather situation at Sierra Gorda in February. We were dealing with downpours of rain at the Atacama Desert. As you know, this desert is the driest place on Earth, yet once in several decades there are downpours, heavy rains, which of course affect the operation of the mine. We had to deal with such heavy rains in February.
When it comes to production results concerning copper in the 1st quarter, they are as we expected, as our budget targets were, above slight by 2% when it comes to molybdenum production. 80% increase of molybdenum production in comparison to Q1 of last year, so nearly 11% higher than budget target for the first quarter. When it comes to silver production, again, an increase in comparison with the reference period last year, so by 54% to 7.7 tonnes of silver. When it comes to gold and precious metals, we've seen a decrease, but it's a result from the quality of the ore we are mining at the moment.
When it comes to production results of KGHM International, as you can see the numbers here on the slide, we've seen a decrease 31% in comparison with Q1 of 2025. This is a result of mining lower quality copper ore, which we've reported on. Production moved from West 5 pit to the Liberty pit, which has lower quality parameters of the deposit and a certain instability, geotechnical instability of this deposit. We can see that these production results for the first quarter are slightly lower. Nevertheless, the mine is working very intensely to reach the production target by the end of this year. When it comes to silver production, given the disposal of the Sudbury assets, we don't have the silver from here at Robinson and Carlota mines, we're not producing silver.
When it comes to gold, also because of the quality of the [raw] mine at the moment, we have recorded a 37% decrease quarter-to-quarter. I think that's a full stop now.
As far as a comment I would like to share with you, the financial position or EBITDA of international assets is stable. Our international assets continue to contribute to the EBITDA of the entire group at the level of 20%, despite the fact that the production is about, has the share of 70%, more or less. Given the fact that the cash cost of C1 are at a very competitive level, I think it's $1.02 at Sierra Gorda per pound.
For the KGHM International, even less, because we are helped by metal prices and good processing premium. The EBITDA is at a stable level. Well, the international assets are co-contributing positively to the entire group. In the first quarter. The foreign asset paid $175 million to the group, including $165 million by Sierra Gorda and $10 million from KGHM International. When it comes to Sierra Gorda, in total it has paid $30 million of loans. It has paid back, so half of what was paid last year. We are in a positive mood, and we know that the loans will be paid back on schedule.
Good afternoon, ladies and gentlemen. When it comes to CapEx for the first three months of this year, we have been seeing what we said last year, that we are focusing on development.
Those proportions between development, maintenance, are changing in favor of development. You see we have 24% rise of expenditure on development in comparison with the reference period. Maintenance, the lower value, results from the fact that we've completed some investment when it comes to de watering drainage system investment and we're continuing other. The target we had to secure mines against inflow of water, we have this on a safe level. Replacement, again, I will tell you more in detail. An increase in comparison with last year by 16%. Why? We are preparing for the major overhaul of the Głogów II smelter, as has already been mentioned. Coming back to development, deposit access and mining, it's being made.
Dewatering of mines, outfitting, and as we got the permitting at the 205 m above sea level with the Żelazny Most facility. Replacement of mining machinery and then preparation of this major overhaul. That's all as far as the main categories are concerned. This slide is slightly different to what you might be used to when we used to just show you a map and comment on mining and extraction in GG1 area. Let me remind you. Maybe it's not very visible. This is the GG1 shaft, GG2 shaft under construction and Gaworzyce shaft under construction and Głogów marked here. 24% of production from domestic assets, so we are moving north, as you can see very clearly. The focus of our production is moving north, hence continued work, research and development work that will be used there.
When it comes to the construction site, GG1, we've dismantled the surface facilities. We are completing works when it comes to our lining and outfitting. We have the various permits. At the bottom you see the air cooling station, surface station. We are increasing its capacity to 40 MW. Very advanced work. I think we'll be able to manage that on target. Retków, Gaworzyce and GG2, the shafts, as you can see, when we are advanced, way ahead and as you can see, geological surveys are going on, drilling and we are assessing the structure and to say whether we can put the shaft here or not or move it slightly. When it comes to GG2, we know now that these will be the final sites when the shafts will be there.
Now that's all as far as mining is concerned because we have PLN 657 million of planned, we've already done PLN 602 million. A lot is going on in the metallurgy, preparation for the shutdown and overhaul maintenance for Głogów II. We're launching that this year. Think we will finish this year what we've been in for two years at the Legnica smelter. Permanent starter sheets, interaction with the permanent starter sheet system. Same when it comes to Cedynia. It's a place where we're preparing to launch a new line at the wire rod plant. Concept work is being done to prepare the plans for the future facility.
When it comes to R&D work, as I said, the focus of our mining activities is moving north. A lot of work is being done when it comes to prototyping machinery that would be working there at the heads. Automatic bolting rig, we've been waiting for that for years. The experimental unit is working, and we will finish this work that we report by the end of this year. After all the shortcomings have been removed, we will order the machine. The same when it comes to electrically-powered drill. These are , well, these have always been energy-powered, but it's about the transmission. Replacing humans when it comes to furnace. We already have one robot for the Głogów I smelter.
The most difficult things, parts, jobs will be replaced with machines, like working next to furnaces. It's not only machines for mines and smelters. Occupational health and safety, we are doing conceptual work with Mr. Laskowski, prototyping vests providing safety for workers, working in high temperatures. Also we working on solving the problem of waters with higher mineral content, so reverse osmosis that we've tested in Lubin, in the Lubin mine, very good result. Although water there is not as contaminated as here, so it was easy to achieve, so we want to do that for other mines because the problem of water with high water salt content and getting into the Oder River is keep coming back. In addition to that work relating to problems with satellite testing of surface deformation and so on.
A lot is going on in this respect as well. Thank you very much.
Ladies and gentlemen, to end this financial part, let me ask for the next slide. When it comes to revenues, let me draw your attention to one aspect mentioned by Mr. Bryja, considering wire rod. When we look at the sale of copper, 52% in this quarter were processed products or wire rod. This is part of our strategy. We're moving into products with higher added value, so more processed, which also generates an additional margin. When we looked at the cost structure, as has been mentioned by Mr. President, on what has been generated by the operational leverage, with the growing macro, we've managed to keep the cost on specific level.
We see the rise in the EBITDA in all segments from the point of view silver, and this has enabled us to generate such a significant result, which we have delivered it in the first quarter. When we look at its revenue, strictly revenues, next slide, please, we see the macro impact. The biggest item is the mainly silver. Despite a directly lower volume, but the sales both in April and May, we are catching up with on that. It doesn't mean stem from the fact that there has been no demand. No, it's been our well-thought-out strategy. These slight deviations we see, they do not worry us. Of course, the exchange rate dollar to złoty has had a negative impact.
All in all, the results we have is quite significant, and we are improving the EBITDA margin we see on domestic assets. Next slide. Expenses by nature. If we look at expenses by nature all in, we see 21% rise. 2 categories we have outside our control. Tax, which has risen by over 20%. Purchased materials, metal-bearing materials, they also increased our revenues. As Mr. Laskowski has said, this is our deliberate strategy in smelting of scrap and purchased materials, seeing as macro the so from the point of view also of gold and sulfuric acid, it has enabled us to generate additional margin. We are going with the production also through financial aspects. Again, look at the costs under our control. Year-on-year, we have a rise of 2% below inflation.
Well, that's the best result quarter-on-quarter, year-on-year for many years. That's what we've been talking about. That's our ambition, that within this cost optimization program, which is within every aspect of our activity, our everyday work produces results, as we can see. Coming back to I've mentioned energy. We have two items. First, energy and energy factors, as you can see on this bar, and then gas, which is hidden among the materials. First, we exceeded on energy by PLN 43 million . First, we produce more, so we consumed more energy. The price element didn't have as much impact. We produce less from gas. Gas prices rose. We were able to optimize that. If we add these two amounts, PLN 35 million less gas.
The difference is PLN 8 million, PLN 9 million with a higher use of energy factors, we haven't seen that rise. In principle, what we said at the annual conference, we are upholding our ambitions to keep the prices of energy factors over the course of the year, which is an ambitious target. We have a lot of optimization activities in order to achieve that. At the next slide, we see the C1 costs, unit cost. As Madam President also said, 35% fall of C1, as you can see the numbers here. This is a product of everything, production, cost side, all these elements affect C1. In Poland, quite an interesting situation demonstrating that any equation has its advantages and disadvantages. C1 fall from $ 3.15 to $ 1.91.
If we deduct the tax, $ 2.45, so without the tax, C1 is below zero. That's the result of the amount of associated metals and silver, mainly. C1 in international assets has already been set $0.7, $1.02. We are performing year-on-year well. From this point of view, costs and C1 are very much under control.
Financial results. The key element that is positive is EBITDA. Sierra Gorda positive loan result. Quarter-on-quarter exchange rate differences, also positive. Income tax, better result, but the tax is higher. All in all, our profit is over PLN 3.5 billion . Finally, cash flow. Yes, indeed. On the one hand, this cash flow requires more information, but President Laskowski talked about that. We have two factors. First element resulting from the production cycle. Even though the smelter and refinery is out, we want to provide the same amount of cathodes, and we need to build inventories as far as anodes go, and we do build this inventory. We have calculated everything, and we know it's profitable, especially from the point of view of financial aspects and business leverage.
Also, we paid up a lot of factoring, we decreased financial costs, and at the same time, we decreased our debt that was registered also outside the indices. Our working capital is more efficiently used, but we can go back to this instrument as if need be. When you look at the entire year, and I would like to ensure you that the amount of inventories volume-wise is going to go down by the end of the year, this working capital in Q4 is going to be released. As Ms. Vice President said, we expect certain flows from Sierra Gorda, this effect should be enhanced due to positive cash flows that we are going to register. That's it from me. Thank you very much.
Let me start again. The result is better than the market consensus. You know, together with the analysts, you know what the results are going to be. I'm sure that you are aware that the results are higher compared to the market consensus. As a result, our capitalization increased as well. I would like to say that we went back to one of the biggest companies as far as capitalization go, one of the biggest mining companies in the world. We rank 42. Now Q&A. The first question, please.
Welcome, ladies and gentlemen. This is [Agencja Informacyjna JP ] portal, Janusz Jóźwiak . I have two questions. One to Mr. Krzyżewski and the second one to Ms. Sobieraj-Kozakiewicz. Investment plans. We have record high financial performance for Q1 2026. If we add to that the situation in the global market, so copper prices. Do you plan to adjust your financial plan? I'm talking about investments in particular. Should we expect some shifts here? The second question to Ms. Sobieraj-Kozakiewicz, Chile, KGHM Chile. Could you talk more about this project? Could you talk more about the assumptions of this project? Do you think that this project is going to result in the international asset increase in terms of the value?
Okay, let me answer the first question. Maybe Mr. Bryja will add something. Financial aspects. Well, we do have almost PLN 5 billion of net debt. First of all, I would like to decrease this debt of the group and our costs, and I would like to prepare the company for the future. Stable position, comfortable position. That's the answer to your question.
The second aspect, why are copper prices so high? Even if you have extraordinary cash, you cannot accelerate global production. It doesn't work that way. Investment projects have their own calendar and their own schedules. Even if you increase your assets, and we always want to be very effective financially, sometimes you just cannot pursue certain operations even if you invest more cash. From this point of view, I do not see short term any further investment in CapEx in order to increase production, because it doesn't work that way.
Let me add one thing. We would like to invite you to the strategy presentation at the beginning of July. During that presentation, we are going to talk about our investment plans for the years to come. This year there are no changes.
We want to spend further PLN 4 billion on CapEx, we want to maintain the CapEx level that will allow us to implement our, well, ambitious projects pertaining to investments. As far as any adjustments to our investment plans, no, we are not thinking about that because in our multi-year investment plan, we think that PLN 4 billion is enough. We try to manage the plan in such a way as to use these assets in a very efficient way. At the end of the year, we always collect projects that are of interest to our group, and the value of these projects are about PLN 5.5 billion. There are various stages of these projects, and sometimes you cannot implement a given project in any given year because simply it's not ready.
This PLN 4.1 billion that we have to use this year is an optimum value, optimum amount. We have four shaft yards that are being invested in currently, and I cannot remember any other moment in my history, maybe this happened before I came to KGHM, when we had four shafts in an investment plan. GG 1, GG 2, Retków and Gaworzyce, four shafts at different stages of development. In three of them, the investment stage is already developed, but still it's an early stage, no huge investment. GG 1 actually already moved from the biggest investment phase, PLN 3 billion. Well, PLN 2.89 billion, GG 1. PLN 1.5 billion is the shaft pipe. We have PLN 800 million still to dispose to work on the shaft openings.
We have investments for the lining. This is still ahead of us. We do have money for modernization investment into smelters and refinement plants. We are within this PLN 4 billion. This PLN 4 billion is a very satisfactory level of investment. If we have any additional assets, we will use them. We have two shafts at the sinking level. A lot to do. We are going to probably work on these investments for two, three years to come.
Okay. KGHM Chile and an agreement that we signed with Freeport-McMoRan in Chile, of course. This is an agreement that defines our partnership in an early exploration phase. It does not define the joint venture agreement in the future. We do not have 100% details yet.
We are talking with our partners about any potential areas where we can explore for new ores and deposits. We know that in Chile these deposits are huge, so we want to be present there. We want our presence to be strong. This is a far mount agreement at this point, and it defines cooperation framework. Later on, maybe JV agreement is going to be signed, but right now we are at a very early stage, and we cannot tell you more at this point. However, as you know, KGHM Chile is a company that provides services for Sierra Gorda, but also it does have a group of geologists that work there for Sierra Gorda, but they also explore the areas in the vicinity. [Exploratory] drills are being made. That's why we would like this company to develop organically. That's my comment on this.
Thank you very much. Another question, please.
Good afternoon. Łukasz Kaźmierczak , the Głogów portal Głos Głogowa, a newspaper. My question is probably to Mr. Krzyżewski, because we are talking about the first quarter, so we had a rise up to PLN 1.9 billion. What about this mechanism? Why, despite increased investments, PLN 157 million, there is , well, I haven't found any effect. How does it really look?
Ladies and gentlemen, in accordance with the act, the legislation, the indicator for this year has changed. If it hadn't been for the change, we would have paid way over PLN 2 billion. The formula on which this tax is based depends on the price, and we can say that the cutoff point for silver, because this act of parliament specifies the maximum level of tax, and on silver we've reached this level at $56, $57 per ounce. The tax has reached its maximum level. When it comes to copper, it's on the rise, but t his increase is quite high to the of power.
The cutoff point for copper is about $15,000 per ton. We are very close to that point, yet we can say that this extra tax, this windfall tax is on the rise, but the results are on the rise. This is a highly dynamic situation, and this is closely correlated.
We are talking all the time as the board with the Ministry of Finance, showing various scenarios. This year, about PLN 600 million provided for a plan of a tax reduction, it's PLN 10 billion over 10 years. We will observe that, but the tax base is behaving like the macro.
Are there any questions from the floor?
Marta Jasińska. I have a question about the very good results, we have this figure, PLN 286 million of a loan. What was that loan for?
Let me answer to you. As we look at liquidity of the last periods, we've had over PLN 3 billion in factoring. From the point of view of liquidity, it was recorded in the working capital and operating flows. Now, we down to zero basically as of now. At the end of March, it was PLN 800 million, now it's down to 0. We've had to extend this financing. Please, we are paying back when it's the most expensive. We're continuing where it's the least expensive, that's a technical issue. The debt of the company globally, including factoring and debt in bank debt, it has fallen down considerably. The stability, financial stability of the company is increasing every quarter.
A question to Mr. Bryja. We've heard at the New Mobility Congress that KGHM is strongly entering the electro mobility market, battery market. Will those investments be on the current assets or we are building something new? Will it be Głogów-Legnica Copper Belt or are there any plans for that?
We are entering this in the sense that we need electro mobility, we need batteries, although not all the machinery underground can utilize them. Drills, bolting rigs, carriers carrying people, loading machinery, they need so much power. We would have to exchange batteries, replace batteries every several times per shift, so that's the most expensive part of the machine. The company producing equipment for us, ZANAM and Mine Master in Lower Silesia, local content again, although not our group, these are companies producing drills and bolting rigs. We are experimenting with battery power, but we experiment with vehicles carrying crew, carrying vehicles. We will buy some more such vehicles. The battery safety is a prime factor for us and norms and standards concern surface. We have to do such tests because as you realize, a fire on the ground is dangerous. Underground, it's a disaster.
Briefly speaking, it will take some time, but when it comes to electromobility, yes, we are looking at this. What types of batteries we can use? KGHM ZANAM is open to that, and it is a company that will provide us with such equipment. I understand that you maybe mean what we would like to do something innovative with other alloys, let's say. Let me stress that all the new ideas we are considering when it comes to location, they are focused mainly on the Legnica smelter. To have power to produce foil.
Yes, yes. Let me stress again, we said that at the congress, we are exploring this with entities interested in cooperation when it comes to obtaining new products, new alloys, new pellet powder products. Perhaps Mr. Bryja will add to that.
Well, indeed, we have to add something to that. We are thinking about powders for producing foil used in batteries. Another thing, at Legnica smelter, and we have been doing testing alloys, metal plus non-metallic material, so lead and calcium alloy used in batteries. We've done such tests. There are companies interested in such alloys.
Any other questions from Janusz, the floor is yours now.
Thank you very much. Questions asked online. We've already talked about the change in the inventories effect, but we need a little more explanations. Four analytical centers are asking for explanations and the vision of such a great effect of change in inventories given the constant macro. Is it an effect after the sale of the product and use of semi-finished products is reversed a little bit with the cost of sales? What can we expect in the following quarters given this reversal effect?
I would like to ask for a slide we have about capital and inventories. Yes. As you can see, we are looking on volume side, global volume. We are at the peak, the volume peak, when it comes to inventories. There are changing proportions resulting from repairs, overhaul, processing, and so on. I wouldn't like to go into details. The volume has peaked. It will continue into June, then we will release a volume. When it comes to the price, the price of inventories is based on the real average cost of production. If macro is stable, we can say, from the point of view of changes in the valuation of inventories, we will not see that, and the lowering volume should release working capital.
Changes, macro changes may lead to a valuation from the point of view of working capital and the valuation of inventories. To illustrate that, what does it mean after the first quarter? The value of inventories increased by PLN 2 billion. Two-thirds of that increase is an increase from the point of view of valuation, and 1/3 is from the point of view of value of this volume. We can see that the beginning is lower than the end of the quarter. That's what I'm talking about, 2/3 and 1/3. By December, we should be below the opening, so this should continue to fall below the level we saw at the end of last year.
Thank you very much. Sticking to flows and PMR, question from Łukasz Piasecki, IPOPEMA Securities. Cash conversion working capital, EBITDA ratio. The EBITDA in the first quarter was PLN 5.5 billion, but given such high prices of metals, the demand for working capital increases and the tax burden, mineral tax burden, what part of this EBITDA has translated into operating and free cash flow?
Perhaps in the next quarters, some of that will be eaten by the higher taxes, for example. From that point of view, of that risk, from point of view of working capital, we don't see that. From the point of view of tax, the only risk or factor we need to take into account, we are paying advance income tax, and we will see that in following years, we will pay the difference resulting from the calculated tax and taking into account what we paid in the advance. What we saw between 2023, 2024, there was a big difference then. We can see that it's the only factor which from the point of view of cashflow, when converting cashflow should take place.
From the point of view of working capital, we are saying that the factoring we have, we have PLN 3 billion , which we can use any time over a short period to release some. Looking continually at the third and fourth quarters, we see from on the side of volume and the flow from international sssets, there will be many events supporting our liquidity, and we assume that the liquidity at the end of the year will be very high.
Thank you very much. Question also from Łukasz Piasecki, IPOPEMA. It's about the performance of Sierra Gorda. It has improved its result year-over-year, but its contribution to the group was limited with regard to KGHM Polska. What about other leverages as the greater coverage, molybdenum unit costs or possible expansion of capacity? Do the current copper prices changing, change the priorities for this Sierra Gorda asset?
Well, that's an interesting and complex question. When it comes to operational performance of Sierra Gorda, it's a dissatisfying level. When it comes to processing and the production of molybdenum, processing of copper production of molybdenum, it has stabilized, so everything is under control. When it comes to operating costs, working with our partners, South32 and the management of Sierra Gorda, we are actively working to maintain those costs in check in order not for them to rise year -on -year, although the prices of metals are conducive to that situation. When it comes to development and expansion, we are talking about investment plans for expanding the mine to add fourth grinding line.
We are revising documents, and at the right moment, we will inform you about our decisions. I think it's an answer to this question. Thank you very much.
Daniel Major from UBS. Daniel Major from UBS. KGHM has announced a payment of the dividends, PLN 1.5 per share, so 15% of dividend, 15% of the profit for the period, for the parent company. If the prices of copper and silver continue at this level, do you expect that this dividend indicator will rise as of this year?
Our dividend policy we are maintaining, we see no need to change it. According to this policy, by 30% of the profit is paid in the form of dividend. Two key points, we are analyzing short, mid, and long-term liquidity, taking into account what Mr. Bryja has said and the investment project that will evolved. If we see that we build shareholder value through investments in better results, we will try to provide this value. Well, it's hard to define now what the macro will look, what our environment will look. We can imagine any possible scenario in which the dividend will be higher or lower, we will make this decision on the basis of the data we have as we have the results for the next period. Thank you very much.
Robert Maj, Kepler Cheuvreux. The unit cost in Poland, minus the anode slime, it has increased year-on-year. Of course, personnel cost have increased and energy costs have increased year-on-year by 9%. You've talked about hedging on gas volumes or energy. Should we expect higher increases of energy costs in the following quarters?
Well, let me say we will provide in writing. We may not be able to find them in the financial statement. When we look at the volume and the prices of energy versus gas, because we have to inter-interpret it together, we don't see such a threat when it comes to precious metals credit unit costs. When prices continue to rise and we have the hedging at 55% and the non-hedged side, we may perform worse, but we are working differently in such a situation with our sources. We will continue to work in order to keep the energy prices in check. We would like to maintain this rate, this price year-on-year unchanged. Thank you very much.
Do we have any other questions from the floor?
I am still looking on for online questions, perhaps. Having analyzed the questions that we are receiving, I would like to say that the viewers are interested in the financial points which we discussed. There are no new questions. Thank you so much for participating in the conference. I would like to invite you to participate in another one. I would like to thank everyone. Thank you so much.