Ladies and gentlemen, I would like to give you a warm welcome at the conference on the financial results of both group and the company program is KGHM, for the first half of 2021. We meet together mainly through video broadcast, but I would also like to welcome all those who came in person to the Warsaw Stock Exchange. We will start traditionally with Management Board comments on the results for the first half of the year, and then we will move on to the Q&A session. We will answer questions asked both here in the room and the ones that you send via chat. ir@kghm.com. If there are any questions that we want people to answer today, or questions that will require more detailed answers, we will answer them in a more detailed manner on our website, and you will be able to find all the answers there.
The results of KGHM for the first half of the year will be presented by the Management Board in its almost full composition, Marcin Chludziński, President of the Management Board, Adam Bugajczuk, Vice President for Development, Paweł Gruza, Vice President for International Assets, and Andrzej Kensbok, Vice President for Financial Matters. We do not have here Dariusz Świderski, but we will also address production matters and several ones related to our national domestic operations. Ladies and gentlemen, I would like to give the floor to President Marcin Chludziński.
Ladies and gentlemen, we would like to welcome you on this still summertime afternoon. We have already passed 12:00. We have a few pieces of good news about the operations of the company in the first half of 2021. I think that the figures of our joint meeting are 132 and 433. Why these numbers?
100% higher year-on-year adjusted EBITDA, 30% higher revenues, 433% higher net profit. If we make reference to the first half of 2020. It was a rocky experience in the macroeconomic space, and the recurring comment is that copper prices were favorable to us. I cannot deny that. For the first time in quite a while, I'm sure this is the first year when we have a tailwind rather than have to struggle against the wind. The prices in the first half of the year were very difficult, even the prices below PLN 5,000 per ton. 2018 and 2019 were not very favorable to us either. Copper prices is not the only or not the main reason why we can share those good numbers with you today. We implemented a number of optimization initiatives, and we can see the results.
In front of us here at Sierra Gorda comes another good number. I think that's very relevant here. This is the first year where money is flowing not from Poland to Chile, but from Chile to Poland. We are facing a situation where about $500 million came back from Sierra Gorda to Poland, and that's not the end of it. The next amounts are planned for this year, so we will not end with this number. If good production parameters continue, if good financial parameters continue, that should become a reality. Of course, this happened much later than we had planned it would when we started this investment. Three years of very intense work of the management board and people who are responsible for Sierra Gorda, both Polish people and Chileans there and in the headquarters of the company, brought fruit.
In spite of lower prices, we were able to show you much better financial results, improvement on EBITDA, improvement on production volumes, and the battle for this project in terms of cost, in terms of full utilization of production capacity, all that is bringing results. The price does support us, but even without this favorable price, we could see the positive impact on our financial results. Maybe that will sound like an anecdote, but there are quite a few examples like this, where several dozen cars more, vehicles more that carry output to the mill and give us specific measurable results because that at the end of the day means more copper. That was just one of the many optimization initiatives. Again, this is not the end of our initiatives in this regard. Most importantly, this is happening without Capital expenditures.
We basically only optimize what we had previously, and we try to create value based on what we have already invested. We are trying to increase the value of our assets to improve the financial results. By the way, we are trying to do exactly the same thing in Poland in terms of cost, in terms of maintenance of our production. We all know perfectly well that grade is not favorable as time goes on and the content of copper is decreasing. Sierra operates in cycles, occasionally we encounter greater content. In the mining industry worldwide, that is one of the deposits with a lower content in the ore. That is not a project that brings those results on its own. We have to combat to get them. We are happy we are getting those results.
We are also happy that for the first time in a long time, macroeconomic conditions support us. We are uncertain, and we also have to admit openly that there is an ongoing battle in the market in terms of price. Sometimes we can see declining prices and then there are intense efforts to push it up. This is something we are monitoring closely. We are prepared for a number of various options. Also, as the past year showed, we are ready for crisis scenarios, and in spite of those crisis conditions, we are able to show good financial results. As regards specific financials, these will be presented by individual members of the management board. Now I would like to give the floor to Andrzej Kensbok, who will tell us about production figures, but also financial data.
Good afternoon, ladies and gentlemen. I'd also like to give a warm welcome to everyone present here via our broadcast. Ladies and gentlemen, as regards production results, metals show an increase of paid copper 8.6% up six months to six months. We can say that this growth is recorded in all segments in Poland. KGHM International, that is mainly Robinson and Sierra Gorda. As regards the production of our two other products, that is silver, it is slightly lower than last year.
That results from the fact that we, particularly in Poland, we process more foreign concentrates with a slightly different type from the one that we processed last year. Therefore, with a higher content of copper, but not necessarily with a higher content of silver. The availability of silver in third-party concentrate is slightly lower. As regards North American mines, we are getting through areas that contain slightly less precious metal TPM.
We should also say a few words about the results of KGHM Polska Miedź as a main holding company in the group. Here I would like to bring your attention to the maintenance of the level of mining output. This is important because we know that mining conditions are deteriorating. We operate in increasingly difficult geological conditions, getting deeper and deeper on more expensive areas of the mine. The output level was maintained and even slightly exceeded from the first half of 2020. The initiatives that were linked to making the deposit available, extraction work, the functioning of the entire mining complex, transportation, processing, and so on and so forth, all that functioned smoothly. We are able to cope with the situation. Production of electrolytic copper increased, that increase stemmed from greater processing of third-party input, scrap and third-party input.
We are also expanding the range of third-party input, trying to adjust the capacity of our smelters to greater opportunities of choosing and optimizing the purchases of third-party inputs. On the other hand, our smelters also adjust their technology to be able to process those increased quantities. We are preparing for that by building storage centers, warehousing centers, and we're supporting logistics to transport third-party input. That is becoming a significant element of our production. It helps us because it gives us an opportunity to fully utilize the capacity for smelting and for refining in our smelters to push up our volumes. A decrease in the electrolytic copper production from our own input results only from a year-on-year comparison. In the middle of last year, we were still processing the remains of the surplus that we had accumulated before.
At the beginning of 2020, we still processed that previous surplus, and we had slightly higher processing of our own input. Now we are running on an ongoing basis that whatever is extracted is then subsequently processed. As for production results in Sierra Gorda, I will give the floor to my colleague.
Thank you, Andrzej. Ladies and gentlemen, the returns on our foreign assets, in particular Sierra Gorda and Robinson, are very good. You can see here those numbers that we are very proud of. This is the effect of both good management of the mine and of processing plants in Sierra Gorda, also it results from our good relations with trade unions.
We managed to sign the agreement at the very early stage. That allowed us to work in calm conditions in spite of the turbulent moment that Chile is going through right now, Chile and the mining companies operating under the jurisdiction. I would also like to mention the financial results and add a few words to what the president said regarding repatriation of cash from Chile to Poland. Last year, we managed to maintain financial supplies from Poland. This year, thanks to good production, thanks to the fact that for the first time, we are being supported in the term of a service management board, we are being supported by the macroeconomic situation. We can see the possibility of reversing this financial vector, which now points back towards Poland, and we are very happy about that. Thanks to cost savings, which we were able to implement.
The price went down to very low levels below $5,000 per ton. We were able, in Sierra Gorda and our foreign assets, implement those savings. Thanks to our discipline, the savings continue also this year. As a result, this year we generate a financial surplus, which is then brought back to Poland. With regard to KGHM International, we can boast excellent production results of Robinson, which is also working on the extension of its LOM plan, planned life of the mine, and that generates the value of assets on our books. Thank you.
[Non-English content]
Speaking of our financial performance, let me start with the revenue. The revenue of the capital group were up 32% on a year-over-year basis, and it is important to say that we have seen that growth across all the segments of our business. The main driving factor was the price increase for all the metals that we sell. The exchange rate of zloty against U.S. dollar was working against us. Zloty depreciated against the U.S. dollar. That has a negative impact on our financial performance, so we have actually experienced some adverse effect of exchange rate. The volume was down by 388 million, and this is due to the logistics of sales. First, we have to accumulate goods before we sell different batches. That happens in the U.S. and in Poland for silver. This is a temporary arrangement.
We simply had to stock up some products before the 20th of June when we were closing the books for the quarter. The negative result on our derivatives is the outcome of our hedging transactions. We adjusted the hedgings during the first six months of the year as much as we could on the market. Our historical hedging transactions that were defending our position during the all-time lows for the copper continued to affect us.
This negative effect is generously offset by the revenue increase and also another factor that I'm going to address in a second. Let me turn to the cost. C1 unit cost, which is the cash cost of the production of payable copper. We can tell that it went up from $1.6- $1.89 per pound, there's a number of factors that contributed to that. First of all, C1 cost was actually going down in Poland, so unit cost in Poland, in Polish production was going down.
At Sierra Gorda, we also had C1 unit cost falling. In Poland, the main thing is the increase of price of silver. In Sierra Gorda, the main driving force was the increase in the production volume. The negative effect is the increased net tax, so-called copper tax. It is included in C1 cost, and it is calculated based on the price of the copper and the volume that was produced. The volume is stable but the price was up substantially, the tax was also much higher, and that affected our C1 cost position. The operating result. As the CEO said, we've seen the increase in adjusted EBITDA by 100% on a year-to-year basis. Again, let me emphasize that we've seen that growth across all the segments, in Poland, in North America, and in Sierra Gorda.
We've also had EBITDA going up in the smaller companies of the group like Zanam, Tydzyka, et cetera. They are doing quite well. Nevertheless, because of that growth, they were able to keep their balances in check, and they were able to keep the financial arrangements to the benefit. Obviously, this is all driven by increased revenue. I may say that contributors to the EBITDA growth, to some extent, are also related to the fact that we are able to keep the production stable in terms of the cost wherever it's possible. I will address the cost at a greater length later, as a result of these measures, our operating margin was up twofold, nearly. Now, the net income, the net result of the capital group was up to PLN 4.723 billion. The main driving factor was, again, increased revenue.
The change in the cost by type is related to the fact that we need to buy more third-party ore because we have to increase our volume. The production and progress and products contributed positively to that, and therefore we have seen the growth. An important factor that I mentioned earlier is the very fact that we were part of the joint venture projects, namely the stable, predictable production and the growing prices of copper enabled us to come up with the revaluation of the loans that were granted to Sierra Gorda. That revaluation showed that the value of loans were up by PLN 1.866 billion. This is our consolidated profit. When you look at the standalone results, we show even higher number there.
In that result, we had to include the reversal of the previous write-offs of loans that were granted to our entities that were involved with Sierra Gorda. They were not included in Sierra Gorda in consolidated statements. Overall, this is the same outcome. We have better operational results of Sierra Gorda. We have more predictable revenue and profit, and overall, the macroeconomic environment is much more conducive to our business. Speaking of costs, the main driver for cost is much greater acquisition of third-party ore. When it comes to the cost by type, we are tracking them very closely, and there are third-party services and raw materials consumption and electricity and other energy consumption. This is under control, but there are some other price factors that are beyond our control, like the much higher prices of diesel fuel and the natural gas.
In addition to that, higher prices of ETS allowances. We are hedging those positions, but hedging is not long-term, and we are not able to hedge ourselves long-term. Our hedging policy works short-term, and we can see the results. On top of it, the price of the steel was up substantially in the general market, and we are actually using quite a lot of steel in the mining operations, and therefore we were impacted adversely by the growing prices of steel. Again, let me emphasize that we are tracking the consumption of raw materials very strictly, and we are tracking the cost of energy. There are no negative deviations. We do have savings, and we provided for savings in our budget, and we are right on target here, in line with the budget. The next slide shows our cash flow.
At this point, I would like to highlight the negative number that you see there, the negative cash flow, which is related to the change in the working capital. I've already explained that we had increased inventory, which was a temporary thing. It was a technical arrangement, and it was mostly anode copper that we had to stock up. We had to stock it up before we actually prepare ourselves for the smelter repair. We also had higher stock up of concentrate copper in the port, and that was to prepare for the next year. As a result, we had more ships coming to the port at the same time, all in June. It all coincided in time. In addition to that, we also had a reduction in our debt factoring.
The factoring was paid off, so there was no need to use it, and we didn't want to incur unnecessary financial expenses. Another thing was the acquisition of intangible assets. CapEx. It was CapEx for Polish operations and for international operations, specifically Robinson Mine. It was all in line with the plan. The third thing that contributed to that negative number was the payback of our loan to one of the banks, $450 million. We took advantage of the fact that we had free cash flow, and we didn't want to pay the cost of the debt, and therefore we decided to reduce our debt position. Moving on to the debt. Our net debt to adjusted EBITDA currently or actually at the end of Q2, was at 0.7.
This is a much better situation than last year, and this is all in line with the policy that we follow. The net debt has been fairly stable. As we indicated here, we took advantage of the fact that we had some positive cash flow, and we decided to pay back one of our loans, and everything else is pretty stable. We don't want to keep too much cash because the cash that sits idle does not generate any income, and we don't want to maintain the excessive debt because this is costly. We have an open credit line for PLN 8.2 billion, and this is a very flexible credit line. We have very good terms. Therefore, whenever needed, we can actually take advantage of that open credit line. Our financial structure and our structure of financing is currently very optimum.
We continue to optimize that. Our goal is to avoid financial expenses that are not needed. I think that we have pretty much covered our financial performance. Let me turn the floor to Mr. Bugajczuk.
Good afternoon, everyone. Let me walk you through our investment projects and development projects. The first six months were closed with the CapEx at PLN 1.36 billion . On the pie chart, you can see the breakdown of the CapEx for the first six months of 2021. Perhaps the number is not very impressive, but let me say that our projects are very complex, and many times these are multi-annual projects. Therefore, historically, the Q4 always shows more weight. I just want to assure you that all the investment projects are delivered according to the plan. This is the more and more important role of the deep Głogów.
The numbers are quite impressive. The annual growth is over 40% at each stage of operation. Looking at these ratios and looking at this growth, we may mention two things. First of all, we had more preparatory work completed, and we are also actually getting to the mining in that particular area. You may expect to see a growing production. Now, key projects. First of all, the tailing processing facility at the south is pretty much completed, and all different installations that have been planned will be delivered as scheduled. Now, Deposit Access Program. We continue to sink GG1 shaft. We hit 1,231 m , and for the shaft GG2, we do have a spatial development plan already published, and now we are actually moving on with the drill holes. We have also completed our central air cooling system. This is an important project.
It will actually help us produce at the sections of the deposit were not accessible since the conditions of mining were not adequate. All the projects related to BAT conclusions are moving on as scheduled, both in Głogów and Legnica sites. We are working on the Głogów I smelter, and again, the work goes as scheduled. Now our energy development program, we move in twofold. We are working on the renewable energy sources, but at the same time, we continue to optimize our energy consumption, and we have already seen the first outcomes. We were able to reduce energy consumption with the same production parameters as we used to have. The next slide shows how we want to reach a 50/50 split. 50% of energy will be from our own generation, including renewable sources, by 2030.
As of today, the plan is such that we will switch to this 50/50 system. We will save on CO2 emission by 900,000 tons, give or take. By 2030, Sierra Gorda mine will have 100% of electricity from renewable sources. We have the right data to show. Now, the next slide shows the photovoltaic farm. We were able to build that at Legnica smelter. We also have two other projects at Obora and Głogów. All the numbers for these investments are shown next to the pictures. All these projects have been delivered as scheduled.
Ladies and gentlemen, it seems that we are getting to the end of our presentation. Maybe as a wrap-up, I would like to say that it is worth mentioning that obviously we will not rest on our laurels, having communicated this good news to you.
As I mentioned before, we are working on updating our strategy and hopefully by September we will be ready to share with you the results of our studies. In general, we can say that unless something fundamental changes worldwide, we assume that the following years will be the years of copper and silver. If that is indeed the case, then we need to produce as much as possible with the optimum cost level and with the highest sales, while taking care of the cost. In order to do that, the company needs to transform. It needs to transform both in the context of increasingly restrictive regulations for the energy sector and in the context of environment, energy use, also in the context of optimization of processes, the use of new technologies, automation, and in the context of securing new deposits for further exploration and operation of our business.
What we are looking into very closely right now, that's actually something you are well familiar with. We have been working on green energy, on new energy sources, namely small nuclear reactors as a source of energy. Hydrogen, which is potentially a very interesting source of energy in our sector. Also offshore projects are being considered. A big project for us, the Modrzejewo license. That is basically a new mine, a new technology, new regulatory environment. That is a priority topic for us. Under the license in Puck, in potassium salts, that's also very promising future-oriented subject in the context of the current business cycle. All that is the subject of our analysis. We do not fundamentally change our assumptions.
In December 2017, when we developed our original strategy, we had this motto, "Uncertainty is the only thing that is certain." You have to be ready for all options, but at the same time, the company needs to transform in the context of opportunities that open up to it. That is why we are updating our strategy, and that is what we will bring to you in detail in September. Thank you.
Thank you very much to the management board members for their comments. Now I open the Q&A session. This time we have questions both from the room here and from the chat. ir@kghm.com. Please also ask questions here. The Q&A session will be chaired by Janusz Krystosiak, head of our investor relations department. I can see the first question.
Good afternoon, ladies and gentlemen. Paweł Puchalski, Santander. I have six questions altogether. Should I split that by sector? Okay, one by one. There will be a few short ones. First, does the company intend to change, adjust its volume guidance for any of the projects or for any of the metals for the whole 2021?
Are you talking about production?
Yes, production. Okay, that was my first question. The second.
You have mentioned this lower content on international. I would like to find out whether and when we can expect any changes in the metal content? If my recollection is correct, maybe you're talking about. What do you mean? Content? Grade?
Grade.
Oh, grade. Okay. Grade. Another simple question. We have made one-off. Does the company intend to maintain its dividend payout at the same level as it paid this year? That is, will one-off change in next year's dividend or not? There is a beautiful project, 3 MW in photovoltaics. My general question is about your strategy. A few years, when you showed the strategy, my understanding was very little has changed with regard to renewable energy sources. Now, please do not give us a plan for 2030. That's easy to come up with, but a plan for the next two years, three years. How exactly megawatts in photovoltaics onshore you are going to put up?
There is one more question about progress in the sale of assets. Has there been any progress in your selling of the assets? The last thing, which also contributes to the result, I would appreciate very much a short but informative discussion of this component of cost stock. You've had it PLN -700 in the first and adjustment of costs by stock, PLN -700 in the first quarter, PLN -300 in the second quarter. I would be happy to find out what is the management board's view of what the value might be in the third quarter or in the second half of the year. That's it from me.
Okay. We'll try to address those questions quickly now. For the changes in our production plans, excluding unpredictable events or those related to nature and random events, we do not plan any changes here in terms of our production. For the lower grade on international, Paweł, maybe you can take it.
Ladies and gentlemen, the subject you have brought up concerns one of the assets which is now in the process of sale. It is inconvenient for us to discuss it at the moment. That results from the existing geology, we are transparent on this point towards the participants of the disposal process. This is being assessed by our potential buyers of those assets.
With regard to your second question, I would like to inform you that the process of mix sales of our assets is moving on as planned in accordance with the procedure that we developed, transparent procedure that was communicated inside our organization. We are now at a very sensitive stage of this process. That's why my constraint in informing you more broadly about the subject. I think at the end of the year, we will be able to present you much more information on the point.
As regards our approach to dividend next year, it's not going to change. The dividend policy remains in place. You know that for a couple of years, the company did not pay out the dividend. 2020 was the first year for which the dividend was paid after a long break. Maintaining of the results on the current trends allows us to be optimistic about dividend. Our dividend policy does not change. That's what I can tell you right now. As for photovoltaic project, it's not just photovoltaics, it is broadly understood energy optimization.
Ladies and gentlemen, we do not have ready products in this field, we had to build them from scratch. You know the spacing development plans, environmental impact assessment, those procedures are very time-consuming. It doesn't take several months. It may take as long as years. The process of placing investments on our land takes time because the formalities take time. We will start one 8 MW investment, then we will start another of 6 MW and 2 MW smaller ones. That will be the beginning of the investment process once we have gone through the administrative preparation.
We also had some vapor and gas plants, which helps us improve our energy management. The production process is more intense, and we use less energy. We have lower energy consumption. Very soon we will go out to the market with an acquisition process. Apart from what we are working on, we want to acquire processes, projects that are already prepared for development.
We will also have PPA and apart from our own investments. It's weeks or months rather than years that we will be in the market. These are strategic projects. If you make a rough calculation, you will know that if we relied on photovoltaics, we would have to cover the area of three Województwa ships with our panels. It is not the only source that we can utilize in the context of delivering on the promise of being green in energy. This machine is going ahead full steam as much as the reality allows us to. Paweł commented on sales. There was also a question about stock in the future.
[Non-English content]
In terms of inventory, as I explained, the inventory was up for technical reasons. We actually have to stock up more inventory since we know that the modernization program will be continued for the next year and probably two years, and that is mostly the Głogów smelter. This inventory will be maintained perhaps in a different form. At the same time, we also process more third-party ore. Since we work on the third-party material, we have to stock it up first so that it is ready for the smelters. This is all technical and therefore it doesn't affect our performance because this is a repeated cycle. We've already said that this is also an additional element like sales logistics, and this is a temporary increase in inventory that tends to go down during the next quarter.
I don't want to predict when we are going to have it up and down because it's more related to the shipment cycles for the ore or silver concentrate or rolled material. For instance, for Cedynia, we have a higher inventory of rolled sheets because we are getting ready for several weeks of downtime of Cedynia smelter.
Any other questions from the room?
Well, thank you for all the answers. If I may, my first question was about the volume guidance for the year. As far as I remember, you are way above the plans for molybdenum in Sierra Gorda, and you said that you're not going to change your assumptions. Does it mean that you're going to reduce your production of molybdenum dramatically, or you're just being cautious and you'd rather keep a surplus in place instead of facing a different scenario? How should we look at it? You think that you will deliver the volume as actually identified in the guidance, or are you actually playing it safe?
Well, the Sierra Gorda budget is subject to different rules than our KGHM in Poland or international. At Sierra Gorda, we have to actually come to the arrangements with our partners at the joint ventures every time we work on the budget. At this moment, we have not had any discussions about any adjustment of the Sierra Gorda budget, including the production volume. At this point, we are not going to come up with any formal position regarding the future production of Sierra Gorda during the second half of the year. Just to make everything clear, it's not going to be less than the budget unless something unexpected happens. We always played safe because, as you know, we are in a business where there are many factors that are beyond our control. Sometimes we are at the mercy of nature.
Wherever possible, we try to over-deliver if the situation is conducive and the production situation allows that. To speak about molybdenum in Sierra Gorda, production during the first six months of this year was actually lower than production for the same time last year. However, the sales revenue is higher because the price was up. In terms of volume, we were down slightly, but the revenue was up because of the higher price. Any other questions from the room, from the audience?
Yes. Wojciech Jakóbik, BiznesAlert.
I just want to make sure whether you meant onshore or offshore. This is the question to the CEO. Were you speaking about the strategy update or no? You said that you are looking at various electricity options.
Yes, we are also looking at offshore options.
Yes. I also wanted to ask you about the impact of electricity prices on your financial performance. Mr. Kensbok said that the natural gas prices is also a major factor because the price of natural gas is going up. Are you still looking at the gas units? Because we know that the natural gas has a tap in the EU. I also have a question about the new deposits. Are we going to expect it any time during the coming conference season?
I think that I addressed the first question already in terms of electricity prices and prices of the natural gas and the impact of that on our business. I think Andrzej will provide more detail in a minute. Overall, well, the only reasonable response that we can take is long-term. This is all about the transformation and transition. There is no other long-term option to actually avoid the increase in the ETS allowances prices that determine, at the end of the day, the price of energy. We are trying to regroup. We are transforming our electricity consumption. We are trying to optimize consumption wherever possible. We want to come up with the technologies that will allow us to reduce energy consumption. In terms of the current developments, over to Andrzej.
I'm not sure if I have all the numbers at hand. If not, we will prepare the answer and send it out to you. Speaking of the Polish copper tax, because I think that that was your question. The cost of electricity was up by PLN 102 million, PLN 70 million because of the higher power price, PLN 77 million up because of the ETS prices, and PLN 19 million up because of the increase in natural gas and diesel fuel prices. This is the breakdown of energy prices. In terms of the gas-fired units, well, to be honest, the price dynamics is not very encouraging. Therefore, we are not taking any decisions. We are watching the trend because it may change. It would be much better if we had more regulatory certainty within the European Union in terms of the natural gas supply from Russia.
I have to actually add to what I said, that we are expecting the power capacity fee to go down. We know that the increase that we've seen in this component is not sustainable.
Thank you. I think that our CEO has already answered the question of Mr. Brzeziński, because the question was also about the cost of energy. I believe that we have covered this one. Any other questions from the audience? Yes. Jakub Szkopek, mBank Brokerage House.
I have a question about your renewable energy target at Sierra Gorda, and I would like to find out what is the current situation and how do you go about it. Do you actually have photovoltaic farms, or do you have a different approach? How you're going to actually develop that? Is CapEx going to be shouldered by Sierra Gorda or by external partners?
I also have a question about the surplus that you show at Sierra Gorda. Are you going to actually continue to transfer back to Poland, or you really think about future development like Sierra Gorda phase II, the project that was considered at some time, or Sierra Gorda Oxide project that was in the plan at some point in time?
Actually, as of today, Sierra Gorda has some electricity generated by renewable sources, and the ultimate 100% target has been adopted because very advantageous contracts that we have signed that are future forward-looking. We are waiting for the supplier of electricity to complete their project. This is all actually secured, and we are really happy with this electricity transition at Sierra Gorda. To answer your question about the cash flow from Sierra Gorda, well, at this point, Sierra Gorda is not planning the second phase.
There is no discussion about Sierra Gorda 2 at this point. There is no investment planning towards that. We continue the same investment methodology that we adopted for Sierra Gorda at the very beginning of our engagement there, when we actually stepped into this function of the management board. We want to optimize the operations while containing our financial exposure. This is what we continue to do. We do have a CapEx for improvements that are needed. It is not that we are going to double the CapEx for Sierra Gorda or that we want to double the capacity of Sierra Gorda. No, we do take a lot of small steps to move forward. Despite the CapEx that is dedicated to improvements, we continue to have substantial cash flow to Poland.
Final question. There is a very new trend of electromobility in the deep mines. Suppliers of this equipment are actually talking about it everywhere. Have you ever considered that, and would it be an option to reduce your energy consumption because you would be able to contain your cost related to ventilation and temperature direction? I know that one of your companies has such a big portfolio.
Let me answer that question, and Adam Bugajczuk, who's responsible for development, may provide more details. Well, it is true that there is a trend in place. I believe that we need time for technology to develop, and many times suppliers are actually speaking much more before they are able to deliver, because the loader has to lift 12 tons per hour, and it needs a lot of electricity from the battery.
It means that it would have to be charged several times during the six-hour cycle to be able to replace the currently operated diesel fuel machine. We are looking for options that would help us keep our production cycle intact so that we do not need to make it longer. We can actually think about the transportation of people with the use of electricity. We are testing that. The drilling machines is also a good option. Loaders or trucks that are heavy duty, not yet, probably. If the batteries develop substantially, then it could be feasible. At Sierra Gorda, we actually have huge machines that are also electrical, but they have to load vehicles that have capacity of 250 tons. These are electrical machines, but they need to be supplied from the grid.
It's not possible to operate these machines from the battery because the battery would be up very soon. Your question about Sierra Gorda electricity is very interesting. Chileans have it much easier because we spoke about the area that you have to dedicate to the photovoltaic. They have the entire Atacama Desert, this is one of the sunniest places in the world, and on top of it is completely empty.
The mine, such as ours, takes just a tiny fraction of this desert. Therefore, it's much easier to deploy photovoltaic farms there. For photovoltaics, you need to have appropriate acreage, and they have much more ambitious plans. They want to use electrolyzers to generate hydrogen, and they want to become a leading producer of hydrogen in the world. They will ship that by the sea with ships. Obviously, first they have to concentrate that into ammonia. Now over to my colleague.
I do confirm what Marcin has said. In two cases, we checked what the company had previously promised, and they were unable to deliver to us the machinery that would correspond to our profile. We are in talks with all major manufacturers worldwide. That's the situation right now. As regards lowering of the temperature, it is unfortunately just 1 degree Celsius. We will have temperature lower underground by 1 degree Celsius. That will not solve our problem of cooling the formation. We are thinking about that. We are open to this direction of developments. Apart from that, we need to optimize and cope with the difficult conditions. Thank you very much.
I would like to come back for a second to the theme of operations and results on Sierra Gorda. I would like Paweł Gruza to answer the question from Tomasz Płaziński. Thanks. To what activities did you achieve greater amount of copper in Sierra Gorda? Will you be able to maintain the 30% growth in production of the Chilean company?
In principle, the output is a function of metal content in the ore, also that depends on optimization of the process itself and on parametrization of this process. Let me remind you that in last quarters, we also concluded certain investments that were those tiny steps, low-cost, low capital intensity, baby steps that allowed us to improve the parameters of installation. We could enumerate here a number of elements, for example, hydrocyclones and other technological elements. All those activities taken together translated to greater capacity for processing and greater recovery from what geology offers to us.
If you ask about the second half of the year, as I said, we do not expect any major collapse in the production, anything that would threaten our good results. At present, we are not giving any clear guidance, any quantified plan.
Thank you very much. I think the president's comment and previous answers exhaust the question that I'm going to read out right now. There was a question addressed to Marcin Chludziński from Jakub Kajmowicz. What, to the greatest extent, contributed to the improvement of the situation in Sierra Gorda? Which factors were of key importance in this process?
I tried to explain this at the beginning of my presentation. Maybe I will address it in more detail. Ladies and gentlemen, when we joined this company, we had our entries full of some big CapEx projects, which mean that by investing more PLN billions, our production could grow. We took a risky decision. We invested in the form of purchase price plus loans for all the development of this project.
That was PLN billions. Maybe it's high time now to use ordinary optimization of maintenance and management of industrial assets and try to squeeze as much of it as possible so that in the following stages, we get even better financial results. In a nutshell, through a series of organizational initiatives. I can give you an example of vehicles. If one vehicle is loaded to a greater extent, thanks to better capacity, better motivation system, incentive system for the driver, for the loader, we have several dozen percent higher volume of those trucks.
If we have better transportation to the mills, then we have better coordination with maintenance. We act proactively. We eliminate all those risks that can potentially threaten us because they might bring down our production capacity down to 60% rather than 85%, which is a standard in the industry. We took a number of those baby steps, and as a result, we are able to produce more. That is the work of us as a whole management board, Paweł, managers here in Poland. We are working on this all the time. People know that this is Polish money of a Polish company, and we need to make sure that the investment is conducted in a way that pays off. Also on a cost level, we undertook a number of initiatives. Wherever possible, we try to do things in a less expensive way.
Like in this photovoltaic project, RES, or non-closing down of the company during COVID. It was not easy at all to continue production. COVID is still at high risk of COVID. We have frequent inspections. We go through them with a positive outcome, and that means that we're able to manage the company there quite well. Also, relations with trade unions. This is a delicate matter in Chile, and we are nonetheless able to find a common language with workers there. With a scale of production that is millions of zlotys or dollars, we were able to ensure transportation for employees, continuity of operations. There was a whole range of such factors. I would call them importance, significance, good management, and without any extra CapEx, we can see a result. CapEx can be brought in if this trend becomes a lasting one. We can consider adding additional capital expenditures.
Thank you very much. Let me just briefly read out a question to Andrzej Kensbok. Łukasz Rudnik and UBS ask this question, and it concerns doubts about the significant increase in remuneration at KGHM in the second quarter. Should that second quarter level be treated as a starting point for the following ones?
Ladies and gentlemen, remuneration cost is derivative of a collective bargaining agreement that we signed. This collective bargaining agreement identifies quite precisely the algorithm that determines salaries. It is a derivative of this arrangement. In the collective bargaining agreement, we also included awards from the profit. If all the factors that we have mentioned today continue on the positive trend, we forecast a record-high profit, and then we are obliged to establish a provision for an increased bonus for the crew.
We pay out more, but on the other hand, we also have the feeling that this collective bargaining agreement and our activities allow us to share the beneficial situation of the company with a broad range of stakeholders, that is employees.
Thank you very much. I have a financial question as well. I will quickly answer it right now, reminding you the impact of hedging on our results. Rafał Bigaj asks about how much hedging came on sales and how was on the remaining activities?
In the first half of the year, on hedging, we had PLN 742 million adjustment on revenue, PLN 733 million reduction of the result on other operations, and the remaining PLN 20 million was assigned to financial results. You can find it in our presentation in its full version, but I just mention that this is something that facilitates our modeling.
Are there any questions from the room? It seems we have more questions coming in. Some of them have already been answered, so I'm quickly going through what comes in here online. I would just like to refer to the question that was asked before about electrical energy. CEO answered that you expected, among other things, reduction, I think it was a reduction, in the power capacity fee. Why do you expect this fee to be reduced? Does it follow from any regulations?
Yes, it does follow from regulations. In the regulatory policy of the European Commission, we are on the list of industries that can be exempted from the fee. Copper mining can be exempted from the fee. Now, a resolution is being considered where this exemption is envisaged.
What was this fee in the first half 2021?
About PLN 100 million.
This fee will continue till the end of 2021?
That depends on when the resolution of the fee I just mentioned will come into force.
Thank you very much. I have two quick questions regarding whether we can say something more or whether we can dwell on the subject of our interest in SMR reactors and hydrogen?
We have already mentioned here that those things are being studied as part of a broader discussion, broader thinking, the results of which we will try to show you when we talk about update of our strategy or certain elements of the strategy.
On my part, we have exhausted the questions that were sent in by email. Thank you very much. Let me just remind you that all questions and answers from today and the questions that you will still send to us by email will be published on our website. We will provide answers, and we will add any details if you have any more specific questions. We are at your disposal also right after this conference. Let's hope we will meet again next quarter, hopefully with a bigger number of participants. Thank you very much. I would like to thank the management board as well. Thank you.