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DESCRIPTION
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Disclaimer
The data and information provided by this presentation may not be construed as representing acomprehensive financial analysis nor a commercial offer by the Company, and are only provided forinformational purposes. The activities and financial condition of KGHM Polska Miedź S.A. have beenpresented in current and periodic reports which are available on the Company’s corporate website,www.kghm.pl. All of the data presented are based on sources which the Company considers, but cannotguarantee, to be accurate and reliable. The Company reserves the right to alter the data and informationcontained herein at any time, without prior announcement.This presentation contains certain forward-looking statements. These statements may not be construedas representing a forecast or projection of Company results, or as an indication of future Companyresults. The expectations and assumptions of the Management Board are based on the currentknowledge, awareness or opinions of the Management Board of the Company, and are subject to arange of factors which may cause the actual results achieved to be materially different from those setforth in this document.KGHM Polska Miedź S.A. bears no responsibility whatsoever related to the use of this presentation byoutside parties. This presentation was prepared solely for informational purposes, and does notconstitute in any form whatever an offer to purchase or sell, nor to engage in any investment-relatedactivities, involving the securities or associated financial instruments of the Company, nor to participatein any commercial activity.
KGHM is a global player on the non-ferrous metals market
2* TPM – precious metals
KGHM mining projectsKGHM minesSmelters
PolandPolkowice-Sieroszowice mine (Cu, Ag)Lubin mine (Cu, Ag)Rudna mine (Cu, Ag)Głogów smelterLegnica smelterExploration in the region
GreenlandMalmbjerg (Mo)
NiemcyWeisswasser (Cu, Ag)
CanadaMcCreedy (Cu, Ni, TPM*)Morrison (Cu, Ni, TPM)Podolsky (Cu, Ni, TPM)Victoria (Cu, Ni, TPM)
ChileFranke (Cu)Sierra Gorda (Cu, Mo, Au)
USARobinson (Cu, Au, Mo)Carlota (Cu)
CanadaAfton-Ajax (Cu, Au)
Agenda
3
• Transaction benefits
• Information about the transaction
• KGHM as a global player on the non-ferrous metals market
• Creating value through integration
KGHM will benefit from the transaction in a number of ways
4
• Significant increase in the resource base given the good prospects on the copper market (mainly the world-class Sierra Gorda deposit)
• Immediate production boost with high metals prices• Further production boost potential from development projects
Production boost1
• Access to new mining knowledge (open-pit mines and other deep mining technologies)• Deeper knowledge of mining projects in new regions• Best practice sharing (e.g. experience in ore processing)
Knowledge and skills4
• Attractive Quadra FNX price given the good prospects on the copper market • Leveraging KGHM’s solid financial standingTakeover
moment5
• Reduction in average production costs (by approx. 20% in 2018)• Improvement in Company’s financial stability during downturns on the copper marketCost reduction2
• Reduction of KGHM’s operational risk following geographic, currency and product diversification
• Direct access to key global resources • Increase in metals production other than copper and silver (gold, nickel, palladium,
platinum, molybdenum)
Diversification 3
6
Following the transaction, KGHM will significantly increase its resource base and production
Source: Production - CRU Copper Quarterly Industry and Market Outlook, Oct. 2011; Resources – Brook Hunt (A Wood Mackenzie Company); KGHM reports
Resource base
6
4
QUX 2010 8.2
Antofagasta 8.9
KGHM + QUX 2010* 37.5
Freeport 55.8
Southern Copper 58.2
Codelco 93.2
RAO Norilsk 9.1
Rio Tinto 17.0
Xstrata 18.1
KGHM 2010* 29.3
Anglo American 31.6
BHP Billiton 35.2
Copper content, in million tons
* Excluding Afton-Ajax project where KGHM has a 51% stake in 1.3 M tonnes of Cu resources
8
Mined copper production
10
7
101
425
488
508
526
589
635
645
700
907Xstrata
BHP Billiton 1,134
Freeport 1,441
Codelco 1,757
Glencore
KGHM + QUX 2010
Grupo Mexico
KGHM + QUX 2018E
Anglo American
Rio Tinto
QUX 2010
KGHM 2010
Southern Copper
In thousand tons, 2010
7
KGHM 2018 (estimate)
-21%
KGHM+QUX 2018(estimate)
The transaction will reduce average operational costs
Estimated production cost C1
Source: KGHM outlook (including impact from by-product metals)
Reduction by >20%
Agenda
8
• Transaction benefits
• Information about the transaction
• KGHM as a global player on the non-ferrous metals market
• Value creation through integration
9
Transaction structure and value
* At the exchange rate of Mar. 5, 2012
Type of transaction
• Friendly takeover through Plan of Arrangement• Following acquisition by KGHM, Quadra FNX will be de-listed from Toronto
stock exchange
Share • 100% KGHM Polska Miedź S.A.• CAD 15.00 per share• Number of shares – 193.3 million
Transaction value
• 2.90 B CAD • 2.92* B USD • 9.15* B PLN
Transaction financing
• Internal funds of KGHM Polska Miedź S.A.
For Quadra FNX stake KGHM paid ~20% below market consensus
10
* Value of company assets less liabilities. A popular company value indicator** Offer aggressiveness indicator in takeover transactions. Price paid for estimated company value. The higher the indicator, the more expensive
the purchaseSource: Companies, Bloomberg, Wall Street Research, Metals Economics Group, Mergermarket, BNP
MedianAverage
Average – consensus Average – Datastream
Transactions on the metals market
30.09.201120.07.201105.06.201115.06.201125.04.201115.11.201022.10.201017.09.201006.04.201001.03.201028.12.200904.02.200906.06.200806.01.200806.12.200729.10.200719.03.200715.08.200611.08.200617.05.200615.03.200614.03.200614.02.2006
Announce-ment date06.12.2011
Anvil MiningMeridian Minerals LimitedMetorexBreakwater ResourcesEquinox MineralsFarallon MiningGlobestar Mining CorpContinental Minerals CorpCrowflight Minerals Chariot Resources Corriente Resources Frontera Copper Corp.Petaquilla Copper Tyler Resources Northern Peru Copper Jubilee MinesWolfden ResourcesEquatorialIncoFalconbridgeWeda BayRegalito CopperTethyan
Target Quadra FNX
CanadaAustraliaRPACanadaAustraliaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaAustraliaCanadaAustraliaCanadaCanadaCanadaCanadaAustralia
Listed Canada
Minmetals ResourcesNorthwest NonFerrousJinchuan GroupNystarBarrick GoldNyrstarPerilyaJinchuan GroupJinchuan Group China Sci-Tech Holdings Tongling Southern CopperInmet Mining Jinchuan Group Jiangxi Copper XstrataZinifexAntofagastaCVRDXstrataErametPan Pacific CopperAntofagasta/Barrick
Buyer KGHM Polska Miedź
1,27576
965814
6,084386158424166501968nm240267nm
1,362232nm
7,30411,305
475nm101
NAV*mln USD
36001.0x1.0x1.2x0.8x1.2x1.1x1.2x1.0x0.9xnm0.7xna
1.4x0.8xna
2.1x1.3xna
2.4x1.9x0.5xna
1.4x1.2x1.1x
P/NAV**0.79x
Analyst recommendations on QUX share price before transaction annoucement (in CAD)
Broker CormarkTD NewcrestDesjardins MacquarieRBCCredit SuisseStifel NicolausSalman PartnersUBSBofACanaccordGMPBMOParadigm CapitalCIBC
RecommendationBuyBuyBuyBuyBuyBuyBuyBuyBuySellBuyBuyBuyBuyBuy
Valuation18.018.018.517.019.020.016.026.815.010.017.019.920.022.025.5
18.820.8
Report date03.11.201101.11.201131.10.201128.10.201128.10.201124.10.201119.10.201117.10.201117.10.201116.10.201114.10.201108.09.201129.08.201115.08.201110.08.2011
191 500 000 * 18.8 = 3 600 200 000
Consensus priceNo. of shares
Agenda
12
• Transaction benefits
• Information about the transaction
• KGHM as a global player on the non-ferrous metals market
• Creating value through integration
13
KGHM is one of the world’s largest metals producersCopper producers’ rankingIn thousand tons, 2010
Silver producers’ ranking
In million ounces, 2010
Rhenium producers’ ranking
In tons, estimate, 2011
Source: CRU Copper Quarterly Industry and Market Outlook, Oct. 2011
Source: GFMS World Silver Survey 2011
Source: „Rhenium: Supply - Demand Stats” by Anthony Lipmann of Lipmann Walton & Co Ltd and Courtesy of MMTA (The Minor Metals Trade Association, London); KGHM Ecoren estimate
Sumimoto Corp. 14
Coeur d’Alene Mines Corp. 17
JSC Polymetal 17
Hochschild Mining 18
Cia Minera Volcan 20
Goldcorp Inc. 23
Pan American Silver Corp. 24
KGHM 37
Fresnillo plc. 39
BHP Billiton 47
Southern Copper 488
Glencore 508
KGHM + QUX 526
Grupo Mexico 589
Anglo American 645
Rio Tinto 700
Xstrata 907
BHP Billiton 1,134
Freeport 1,441
Codelco 1,757
Jangxi Copper 3.0
Zhezkazganredmet ~3.0
KGHM 5.0
Climax Molybdenum (Freeport McMoRan) 7.0
Molybdenos y Metales (Molymet) 28.0
Cu Ag Re
8
3
3
14
KGHM will become a multimetal company through acquisitionProduction volume
* Including KGHM International N.c. – no significant change** Payable copper from own mines*** Nickel contained in nickel sulphate
~Selenium (tons) 85 B.z. • Glass 40%; chemicals and pigments 20%; metallurgy 15%; agriculture 15%; solar panels 10%
PGM~Sulphuric acid (ths tons) 636 N.c. • Production of other acids, pigments, artificial fibers, explosives,
fertilizers
Other
Ren (tons)
Copper
Molibdenium
Gold
Copper** (ths tons) 410 1.5 x• Electric power 35%; pipes, heating 13%; cooling 11%;
automotive 9%; telecommunications 5%; industrial plant machinery 4%; electronics 3%; other 20%
Nickel (ths tons) 0.6*** 23 x • Stainless steel 60%; aluminum alloys 7%; batteries 7%; plating 14%
~Lead (ths tons) 25 N.c. • Car battery plates, batteries; cables, pipes; ammunition; ballasts; paints
Molibdenium Newmetal • Iron, steel, superalloys 81%
~Silver (k oz) 41,000 • Electronics 27%; jewelry 25%; photography 13%; coins and medals 11%; other industrial 25%
Gold (k oz) 23 8 x • Jewelry 43%; investments 26%; electronics 14%; medicine 13%; other 5%
Platynium, palladium(k oz) 3 16 x • Catalysts (automotive) 47%; electronics 16.5%; jewelry 10.5%;
dentistry 4%
Industrial
Precious
KGHMin 2011
Increase to 2018*Metal Usage (industry)
5 • Superalloys (used to produce jet engine parts) and as a catalyst(in petroleum production)~ N.c.
N.c.~
N.c.
KGHM is a global player on the non-ferrous metals market
15* TPM – precious metals
KGHM mining projectsKGHM minesSmelters
PolandPolkowice-Sieroszowice mine (Cu, Ag)Lubin mine (Cu, Ag)Rudna mine (Cu, Ag)Głogów smelterLegnica smelterExploration in the region
GreenlandMalmbjerg (Mo)
NiemcyWeisswasser (Cu, Ag)
CanadaMcCreedy (Cu, Ni, TPM*)Morrison (Cu, Ni, TPM)Podolsky (Cu, Ni, TPM)Victoria (Cu, Ni, TPM)
ChileFranke (Cu)Sierra Gorda (Cu, Mo, Au)
USARobinson (Cu, Au, Mo)Carlota (Cu)
CanadaAfton-Ajax (Cu, Au)
KGHM project portfolio ensures development of the current production base
0
5
10
15
20
25
30
35
40
45
50
55
Total resourcesExploration projects**Technical/financial studyMines in constructionMine with life of mine <=5 yrs
Mines with life of mine >5 yrs
Cu
Cu equivalent
Resources*, million tons
* For KGHM International mines – total Measured, Indicated, Inferred resources. For KGHM Polska Miedź – balanced geological resources** Planned additional exploration in new locations 16
Głogów Głęboki
Sierra Gorda (55%)
Robinson
KGHM mines inPoland
MorrisonFranke McCreedy
Podolsky
Carlota
Afton-AjaxMalmbjerg
VictoriaWartowice
KirkwoodSzklary
Resources under
development
Resources in
production
17
* Quadra FNX Board’s decision: halt production in Podolsky, close CarlotaSource: KGHM Polska Miedź S.A., Quadra FNX (for Quadra FNX: data on metal sales)Prices used in Cu equivalent calculation: 4.00 USD/lb Cu, 11.68 USD/lb Ni, 1,572USD/oz Au, 1,732 USD/oz Pt, 704 USD/oz Pd
KGHM operates 6 underground and 3 open pit minesThousand tons of paid copper, 2011 Cu
Cu equivalent
Underground mines
Lubin
Polkowice-Sieroszowice
Rudna
CuAg410
PolandRobinson
Carlota*
Franke
CuAuMo43 47
Cu11 11
Cu15 15
Podolsky*
McCreedy West
Morrison
17 28
548
Open pit mines
2 8 CuNiAuPdPt
11 16 CuNiAuPdPt
CuNiAuPdPt
Copper production will grow by 25% in 2018
18* Estimated forecast
410 448
+25%
Current KGHM assets
KGHM International mines
2018*
635
187
2011
509
100
CuThousand tons of paid copper
19
KGHM has 2 advanced mine construction projects
SIERRA GORDA GŁOGÓW GŁĘBOKI PRZEMYSŁOWY
StatusSecured financingStarted construction works (first production planned for 2014)
Mine type Open pit
Ownership 55% KGHM International, 45% Sumitomo
StatusPreparation to drill GG-1 ventilation shaft; ongoing work on slopes connected to Rudna mine structure Rudna
Mine type Underground
Ownership 100% KGHM
Cu MoAu Cu Ag
Resources ~1,274.8 million t @ 0.39% Cu, 0.024% Mo Resources ~292 million t @ 2.4% Cu, 78.7 g/t Ag
20
The most important KGHM International project– Sierra Gorda is advancing on time, on budget
• Mine equipment is being delivered, e.g.,– Trucks have been delivered– Orders for machines with long delivery time have
been placed• Engineering works on salt water pipeline have begun• R.O. (reverse osmosis) plant and waste treatment
plant are in advanced construction
KGHM’s portfolio includes 3 projects nearing construction phase
VICTORIAAFTON-AJAX
Cu PtAuNiCu Au
MALMBJERG
Status Ongoing feasibility study Status Ongoing feasibility studyCompleted Banking Feasibility Study, possible to acquire further 29% shares
Status
Mine type Underground Mine type Open pitOpen pitMine type
Ownership 100% KGHM International* Ownership 98.2% KGHM International51% KGHM, 49% Abacus MiningOwnership
Resources ~14.5 million t @ 2.5% Cu, 2.5% Ni, 7.6g/t TPM** Resources 216.9 Mt @ 0.198% Mo~ 512 million t @ 0.31% Cu,
0.19 g/t AuResources
Mo
21* Vale has buyback option for 51% stake in the project**TPM – precious metals
Germany• Weisswasser
(Cu, Ag)
Poland• Wartowice
(Cu, Ag)
Poland• Szklary (Ni)
Poland• Gaworzyce-
Radwanice(Cu, Ag)
Canada• Kirkwood (Cu, Ni)• Falconbridge
Footwall• Foy
Portfolio of exploration projects will ensure further growth for KGHM*
Germany Poland Canada
22* Plus additional exploration potential in currently active mines
KGHM has significant potential to increase its valuation
Anglo American PLCBHP BillitonFreeport McMoranNorilsk NickelRio Tinto PLCTeckVedanta ResourcesXstrata PLCZijinAntofagasta PLCBolidenCapstoneFirst Quantum Minerals LtdGrupo MexicoHudbayInmet Mining Corp KazakhmysLundin Mining CorpOz MineralsSouthern Copper CorpKGHMPeer group medianKGHM discount vs. peer group
5.35.64.34.64.95.05.45.8
11.25.75.45.47.75.34.36.44.87.05.17.61.95.4
65%
8.39.19.06.3
18.19.6
13.19.8
12.416.09.4
15.218.510.623.716.87.6
15.513.312.03.2
15.279%
EV/ EBITDA 12 M* P/E 12 M*
* EBITDA for the past 12 months (based on published data); EV as of 23.02.2012
P/E 2011• On average, precious metal producers are valued 2-3 times higher than copper producers
• KGHM is the 3rd largest silver producer worldwide
Source: Bloomberg, as of 23.02.2012; KGHM Polska Miedź S.A.
8,9 2.1 9.6 3.7 24.8 1.3 4.8 20.7 4.6 3.0 11.128.3Capitalization (USD billion)
First Quantum
7.7
Southern C
opper
7.6
Lundin
7.0
Inmet
6.4
Antofagasta P
LC
5.7
Boliden
5.4
Capstone
5.4
Grupo M
exico
5.3
Oz M
inerals
5.1K
azakhmys
4.8H
udbay4.3
KG
HM
1.9
EV/ EBITDA 12M
23
KGHM’s resource base confirms the company’s significant value growth potential
24
EV/Resources*
Oz Minerals
1.08
Antofa-gasta PLC
0.65
Boliden
0.61
Kazakh-mys
0.57
First QuantumFQM
0.50
Lundin Mining
0.31
Capstone
0.24
Grupo Mexico
0.19
Hudbay
0.19
KGHM**
0.07
USD/lbs of Cu equivalent
Source: Bloomberg, Brook Hunt, as of 23.02.2012; data published by KGHM
* Reserves** Incl. KGHM InternationalNote: Capstone Mining – excl. magnetite; Hudbay Minerals – incl. Constancia; Lundin Mining - incl. Galmoy and Aguablanca; New Boliden – incl. Tara; Kazakhmys – excl.
Kazakhmys Gold and Kazakhmys Coal; First Quantum - excl. Congo assets; Gruppo Mexico – incl. 80% share in Southern Copper
• KGHM** has the 4th largest copper resources worldwide
Agenda
26
• Transaction benefits
• Information about the transaction
• KGHM as a global player on the non-ferrous metals market
• Creating value through integration
Integration and value creation have been well prepared
First 100 daysDay 1
Build KGHM International value and share best practices
2 Confirm value creation plan and joint Group strategy
1 Prepare integration
3
27
2828
DescriptionObjective
Key objectives
▪ Ensure positive impact of integration activities on KGHM International’s operations
▪ Quickly implement retention program for key employees▪ Identify key risks and mitigation activities early▪ Confirm operational plans and focus on their uninterrupted implementation
Ensure business continuity
▪ Obtain full transparency of operations in KGHM International▪ Implement controls in key areas, e.g., cash management, purchasing, etc.▪ Define management information flows
Ensure appropriate control
▪ Execute business objectives▪ Intensify operational improvements▪ Capture synergies▪ Share best practices
Ensure value creation
KGHM has defined 3 key objectives for the integration process
Value creation teams are already operational in Poland, Canada and US
Value creation team in
Canada and US
Value creation team in Poland
18 task groups within the integration teams cover all key areas, e.g.,
Tight cooperation
2929
Production
Capex
Sales and hedging Finance
PurchasingExploration projects
IT
Health and safety
EnvironmentSierra Gorda project
Accounting and tax
HR
3030
KGHM will have majority in KGHM International’s Board of Directors and will appoint 2 members of Executive CommitteeNumber of KGHM employees assigned to KGHM International Description
• 6 KGHM representatives among 9 members of Board of Directors
• 2 KGHM representatives in Executive Committee
• 6 members of value creation teamresponsible for key functional areas
• KGHM specialists supporting operations(e.g. regarding metalurgy and geology)and for best practice sharing
Board of Directors
Specialists
Executive Committee
Value creation team
1
2
3
4
6
2
6
10-15
KGHM International will aim at leading currently developed projects to the production stage
31
Sierra Gorda Victoria Falconbridge Footwall, Malmbjerg, Foy, Kirkwood
Afton – Ajax
• Utilize Quadra FNX’s experience in open-pit mining • Strengthen the position of KGHM Ajax Mining and Quadra Mining FNX vis-à-vis government bodies and business
partners in Canada • Build an investment vehicle in the Americas • Prepare KGHM International for an IPO on the Toronto Exchange
Synergy effects
Value creation
Value creation plan can lead to IPO on the Toronto Stock Exchange
• Increase annual volumes in production assets, incl.
– Robinson – open new walls to achieve more production flexibility
• Extend resources/mine lifecycle in production assets
– Robinson – plan for Liberty Pit (May 2012), later for Ruth Pit West,Ruth Pit East
– Value creation potential for Carlota in connection with Pinto Valley opening
• Intensify development activities at Afton-Ajax• Further development projects (Sierra Gorda, Victoria)
• Further exploration potential at Sierra Gorda (triple the size of exploration area)
• Potential to process oxide ore from Sierra Gorda (potential to use sulphuric acid from KGHM)
• Development of remaining exploration projects (e.g., Kirkwood, Falconbridge Footwall, Foy)
• Synergies in purchasing (e.g., mining machinery)
• Reduce financing costs (as KGHM’s subsidiary)
‘Day 1’ 2014 2015 2016
Potential IPO
32
KGHM Polska Miedź S.A. is a good investment
33
Clearly defined and consistently implemented growth strategy
Fourth largest copper resources globally
Eighth biggest copper producer and third biggest silver producer globally
Portfolio of development (incl. seventh biggest project worldwide) and exploration projects ensuring growth of production base
Clearly defined value creation plan in connection with Quadra FNX
Attractive share valuation vs. industry peers