KGHM copper to focus on investments in its new strategy (CEO interview)

"As a mining and metallurgical company, KGHM's DNA is primarily focused on minerals, resources and their exploitation. Everything else is just an optimisation add-on to deposit exploitation and metal production," CEO Andrzej Szydlo, who has been heading KGHM's management board since March 2024, told PAP Biznes.

The CEO stressed that KGHM puts the core business first, with metals at the centre.

"KGHM is not a multi-energy company. It is a raw materials company, mining and producing metals," Szydlo added.

As he pointed out, KGHM has a technological and value chains that are much longer than an average mining company that extracts metal ore.

The CEO announced that work on the group's new strategy is ongoing. The company still needs clarity on the regulations concerning mineral extraction tax.

"The new strategy of the KGHM group is at a very advanced stage and has already been preliminarily presented to the supervisory board. The strategy is ambitious, with significant investment and cost challenges," Szydlo told PAP Biznes.

"Work on the strategy is ongoing and we are constantly refining it until there is clarity on the regulations concerning the minerals extraction tax. We are not making any decisions that would be inconsistent with our strategic intentions," he added.

KGHM's CEO pointed out that once the tax amendment regulations are adopted and all the supervisory board's doubts regarding the strategy are dispelled, and the document itself is approved, the group will announce the new strategy.

The draft amendment to the act on tax on the extraction of certain minerals has been adopted by the Polish government on Tuesday, October 28.

The draft provides for changes in the rules for calculating the tax on copper extraction. Currently, KGHM is the only payer of this tax. In recent years, the copper company has paid over PLN 3 billion (EUR 708 mln) in tax annually, and since its introduction in 2012, over PLN 30 billion (EUR 7.1 bln).

The government plans to reduce the copper mining tax from 2026 by changing the formula for its calculation, and the cost of this reduction to the budget will be PLN 500 million (EUR 118.1 mln) in 2026, PLN 750 million (EUR 177.15 mln) in 2027 and PLN 750 million in 2028.

The changes also provide for the introduction of a mechanism for deducting part of the investment expenditure from tax, starting 2029.

"From the point of view of shareholders and KGHM, it would be best to abolish the copper tax, but we also understand that the state budget needs revenue at a time of huge expenditure, e.g. on defence. That is why a compromise is so important," CEO Szydlo told PAP Biznes.

"The proposed changes to the minerals extraction tax are clearly a step in the right direction. They allow us to achieve our goals to a large extent, although not fully," he added.

The CEO of KGHM said that in terms of investment implementation, KGHM's capital requirements will peak after 2027.

"Many projects are still in the development stage, and we do not need relatively large amounts of funds for the conceptual and documentation phase. Therefore, the degressive mineral tax rate is not bad for us, and we need stable regulations to make investment decisions," he assessed.

"Perhaps the curve for this degression could look different, but there are never any solutions that are good forever. It was a mistake that the tax remained unchanged for years; perhaps the necessary investment decisions could have been made much earlier," he added.

INVESTMENTS AS THE MAIN FOCUS OF THE STRATEGY

CEO Andrzej Szydlo assessed that in recent years KGHM had not placed sufficient emphasis on mining activities, including the development of new deposits. There was a lack of development projects.

As he recalled, over the last 13 years, KGHM has paid over PLN 30 billion (EUR 7.1 bln) to the state budget in tax on the extraction of certain minerals, the dividends were also paid to shareholders in recent years.

"Meanwhile, the only major investment projects undertaken by the group in the last 15 years were the GG1 shaft and the modernisation of technology at the copper smelter in Glogow. The rest were much smaller projects, many of which were merely replacement investments. All this needs to be modelled responsibly," he pointed out.

Investments are to be a priority in the group's new strategy.

"The most important aspect of KGHM's new strategy will be investments, including in the main technological line, which must be effective," the CEO stressed.

He announced that KGHM must intensify the exploration of future resources in its concession areas.

"In the current macroeconomic and fiscal environment, the construction of the so-called KGHM 2.0, or the development of promising deposits north of the Odra River, could be considered unprofitable, which does not mean that these resources should not be explored. We cannot waste time," Szydlo stressed.

"Every mining company must conduct exploration, taking the risk that the resources may turn out to have, for example, a lower metal content. In recent years, there has been too little exploration, and the company has strayed from its roots, focusing on issues unrelated to mining," he noted.

The CEO pointed out that copper is a critical metal, there will be a shortage of it on the market, and it is important to guarantee the security of raw materials for both Poland and the European Union.

KGHM wants to build three mine shafts in Poland's Copper Basin. Geological and hydrogeological surveys for the GG-2 'Odra', Retkow and Gaworzyce projects have already begun. The estimated cost of the investment is at least PLN 9 billion (EUR 2.1 bln).

"It would be ideal if we could increase production, but for now we are trying to maintain a stable supply. The three new shafts, which will be built over the next 10 years, will allow us to maintain a certain level of production. They are absolutely necessary and should have been built earlier. We are now starting construction," Szydlo told PAP Biznes.

According to KGHM's CEO, the group is also considering investments to extend the value chain.

The group also plans to improve its technological process and is considering cost optimisation.

Szydlo assessed that the KGHM group's energy strategy must be tailored to the needs of the main technological line.

"We need to consider how to develop an optimal mix so that energy is not a burden on the fulfilment of basic production needs, but rather provides support and is cost-effective," he pointed out.

THE GROUP'S DIVIDEND POLICY REMAINS UNCHANGED

When asked about the prospect of sharing profits with investors, the CEO replied that the current management board of KGHM is focused on developing the company and increasing its value through investment, development and efficiency projects. In his view, this proposition should be good enough for the long-term investors.

"KGHM's dividend policy remains unchanged. I do not know what the management board's recommendations will be regarding dividends in the future; decisions are made on an annual basis," Szydlo pointed out.

"However, if you look at the scale of investment in mining and the fact that for years these investments, especially in the area of development, have been insufficient, you have to realise how difficult decisions are regarding the distribution of profits and the allocation of capital in these two areas, i.e. investment needs and the expectations of KGHM's shareholders," he stressed, adding that the management board's task is to seek and come up with the best compromise.

Once again, the CEO indicated that perhaps the time has come for the group to catch up on investments and focus on ensuring that KGHM remains a highly valuable company for all its stakeholders.

The KGHM Polska Miedz group is one of the ten largest copper producers in the world and the second largest silver producer. It has mining assets (copper ore mines and associated elements such as silver, molybdenum, nickel, gold and other metals) located in Poland, the USA, Chile and Canada. It also owns copper smelters in Poland.

In the first half of 2025, the KGHM group posted revenues of PLN 17.556 billion (EUR 4.15 bln), an increase of 0.4 percent year on year. Adjusted EBITDA rose by 15.6 percent year on year to PLN 4.863 billion (EUR 1.15 bln).

pel/ ao/