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A new era of growth for KGHM

a global player on the metals


market
6 March 2012

Disclaimer
The data and information provided by this presentation may not be construed as representing a
comprehensive financial analysis nor a commercial offer by the Company, and are only provided for
informational purposes. The activities and financial condition of KGHM Polska Mied S.A. have been
presented in current and periodic reports which are available on the Companys corporate website,
www.kghm.pl. All of the data presented are based on sources which the Company considers, but cannot
guarantee, to be accurate and reliable. The Company reserves the right to alter the data and information
contained herein at any time, without prior announcement.
This presentation contains certain forward-looking statements. These statements may not be construed
as representing a forecast or projection of Company results, or as an indication of future Company
results. The expectations and assumptions of the Management Board are based on the current
knowledge, awareness or opinions of the Management Board of the Company, and are subject to a
range of factors which may cause the actual results achieved to be materially different from those set
forth in this document.
KGHM Polska Mied S.A. bears no responsibility whatsoever related to the use of this presentation by
outside parties. This presentation was prepared solely for informational purposes, and does not
constitute in any form whatever an offer to purchase or sell, nor to engage in any investment-related
activities, involving the securities or associated financial instruments of the Company, nor to participate
in any commercial activity.

KGHM is a global player on the non-ferrous metals market


Canada
McCreedy (Cu, Ni, TPM*)
Morrison (Cu, Ni, TPM)
Podolsky (Cu, Ni, TPM)
Victoria (Cu, Ni, TPM)

KGHM mining projects


KGHM mines
Smelters

Greenland
Malmbjerg (Mo)

Niemcy
Weisswasser
(Cu, Ag)

Canada
Afton-Ajax (Cu, Au)

Poland
Polkowice-Sieroszowice mine (Cu, Ag)
Lubin mine (Cu, Ag)
Rudna mine (Cu, Ag)
Gogw smelter
Legnica smelter
Exploration in the region

USA
Robinson (Cu, Au, Mo)
Carlota (Cu)

Chile
Franke (Cu)
Sierra Gorda (Cu, Mo, Au)
* TPM precious metals

Agenda

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


Production
1
boost

2 Cost reduction

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

Reduction in average production costs (by approx. 20% in 2018)


Improvement in Companys financial stability during downturns on the copper market
Reduction of KGHMs operational risk following geographic, currency and product

3 Diversification

Knowledge and
4
skills

Takeover
5
moment

diversification
Direct access to key global resources
Increase in metals production other than copper and silver (gold, nickel, palladium,
platinum, molybdenum)

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)
Attractive Quadra FNX price given the good prospects on the copper market
Leveraging KGHMs solid financial standing

KGHM consistently follows its growth strategy

Following the transaction, KGHM will significantly increase its resource base
and production
Resource base

Mined copper production

Copper content, in million tons

In thousand tons, 2010

Codelco

93.2

Southern Copper

58.2

Freeport
4

55.8

KGHM + QUX 2010*

37.5

BHP Billiton

35.2

Anglo American

31.6

KGHM 2010*

29.3

Xstrata

18.1

Rio Tinto

17.0

RAO Norilsk

9.1

Antofagasta

8.9

QUX 2010

8.2

Codelco

1,757

Freeport

1,441

BHP Billiton

1,134

907

Xstrata

700

Rio Tinto

645

Anglo American

635

7 KGHM + QUX 2018E

589

Grupo Mexico

526

8 KGHM + QUX 2010


Glencore

508

Southern Copper

488
425

10 KGHM 2010
QUX 2010

101

* Excluding Afton-Ajax project where KGHM has a 51% stake in 1.3 M tonnes of Cu resources
Source: Production - CRU Copper Quarterly Industry and Market Outlook, Oct. 2011; Resources Brook Hunt (A Wood Mackenzie Company); KGHM reports

The transaction will reduce average operational costs


Estimated production cost C1
Reduction by
-21%
>20%

KGHM 2018
(estimate)

KGHM+QUX 2018
(estimate)

Source: KGHM outlook (including impact from by-product metals)

Agenda

Transaction benefits
Information about the transaction
KGHM as a global player on the non-ferrous metals
market

Value creation through integration

Transaction structure and value

Type of
transaction

Friendly takeover through Plan of Arrangement


Following acquisition by KGHM, Quadra FNX will be de-listed from Toronto

Share

100% KGHM Polska Mied 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

stock exchange

Internal funds of KGHM Polska Mied S.A.

* At the exchange rate of Mar. 5, 2012

For Quadra FNX stake KGHM paid ~20% below market consensus
Analyst recommendations on QUX share price before
transaction annoucement (in CAD)
Broker

Report date Recommendation Valuation

Cormark
TD Newcrest

03.11.2011
01.11.2011

Buy
Buy

18.0
18.0

Desjardins
Macquarie
RBC
Credit Suisse

31.10.2011
28.10.2011
28.10.2011
24.10.2011

Buy
Buy
Buy
Buy

18.5
17.0
19.0
20.0

Stifel Nicolaus
Salman Partners
UBS
BofA
Canaccord
GMP
BMO

19.10.2011
17.10.2011
17.10.2011
16.10.2011
14.10.2011
08.09.2011
29.08.2011

Buy
Buy
Buy
Sell
Buy
Buy
Buy

16.0
26.8
15.0
10.0
17.0
19.9
20.0

Paradigm Capital

15.08.2011

Buy

22.0

CIBC

10.08.2011

Buy

25.5

Average consensus

18.8

Average Datastream

20.8

No. of shares

Consensus price

191 500 000 * 18.8 = 3 600 200 000

Transactions on the metals market


Announcement date

Target

06.12.2011
30.09.2011
20.07.2011
05.06.2011
15.06.2011
25.04.2011
15.11.2010
22.10.2010
17.09.2010
06.04.2010
01.03.2010
28.12.2009
04.02.2009
06.06.2008
06.01.2008
06.12.2007
29.10.2007
19.03.2007
15.08.2006
11.08.2006
17.05.2006
15.03.2006
14.03.2006
14.02.2006

Quadra FNX
Canada
Anvil Mining
Canada
Meridian Minerals Limited Australia
Metorex
RPA
Breakwater Resources
Canada
Equinox Minerals
Australia
Farallon Mining
Canada
Globestar Mining Corp
Canada
Continental Minerals Corp Canada
Crowflight Minerals
Canada
Chariot Resources
Canada
Corriente Resources
Canada
Frontera Copper Corp.
Canada
Petaquilla Copper
Canada
Tyler Resources
Canada
Northern Peru Copper
Canada
Jubilee Mines
Australia
Wolfden Resources
Canada
Equatorial
Australia
Inco
Canada
Falconbridge
Canada
Weda Bay
Canada
Regalito Copper
Canada
Tethyan
Australia

Listed

Buyer
KGHM Polska Mied
Minmetals Resources
Northwest NonFerrous
Jinchuan Group
Nystar
Barrick Gold
Nyrstar
Perilya
Jinchuan Group
Jinchuan Group
China Sci-Tech Holdings
Tongling
Southern Copper
Inmet Mining
Jinchuan Group
Jiangxi Copper
Xstrata
Zinifex
Antofagasta
CVRD
Xstrata
Eramet
Pan Pacific Copper
Antofagasta/Barrick

NAV*
mln USD P/NAV**
3600
1,275
76
965
814
6,084
386
158
424
166
501
968
nm
240
267
nm
1,362
232
nm
7,304
11,305
475
nm
101

Average
Median

* 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 purchase
Source: Companies, Bloomberg, Wall Street Research, Metals Economics Group, Mergermarket, BNP

0.79x
1.0x
1.0x
1.2x
0.8x
1.2x
1.1x
1.2x
1.0x
0.9x
nm
0.7x
na
1.4x
0.8x
na
2.1x
1.3x
na
2.4x
1.9x
0.5x
na
1.4x
1.2x
1.1x

10

On American markets the company will operate under KGHM International


brand

11

Agenda

Transaction benefits
Information about the transaction
KGHM as a global player on the nonferrous metals market

Creating value through integration

12

KGHM is one of the worlds largest metals producers


Silver producers ranking

Copper producers ranking


In thousand tons, 2010

Cu

Codelco

1,757

Freeport
BHP Billiton
Xstrata
Rio Tinto

1,441
1,134
907
700

Rhenium producers ranking

In million ounces, 2010

Ag

BHP Billiton

47

Fresnillo plc.

39

3 KGHM

37

Pan American Silver Corp.

24

Goldcorp Inc.

23

In tons, estimate, 2011


Molybdenos y Metales
(Molymet)

Climax Molybdenum
(Freeport McMoRan)

3 KGHM
Anglo American

645

Cia Minera Volcan

20

Grupo Mexico

589

Hochschild Mining

18

8 KGHM + QUX
Glencore
Southern Copper

526

JSC Polymetal

17

508

Coeur dAlene Mines Corp.

17

488

Source: CRU Copper Quarterly Industry and Market


Outlook, Oct. 2011

Sumimoto Corp.

Source: GFMS World Silver Survey 2011

Re

28.0

7.0

5.0

Zhezkazganredmet

~3.0

Jangxi Copper

3.0

14
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

13

KGHM will become a multimetal company through acquisition


Production volume
Copper

Metal
Industrial
Copper** (ths tons)

Molibdenium

KGHM
in 2011

410

Nickel (ths tons)

0.6***

Lead (ths tons)

25

Increase
to 2018*

1.5 x
23 x

~ N.c.
New
metal

Molibdenium

Usage (industry)
Electric power 35%; pipes, heating 13%; cooling 11%;
automotive 9%; telecommunications 5%; industrial plant
machinery 4%; electronics 3%; other 20%
Stainless steel 60%; aluminum alloys 7%; batteries 7%;
plating 14%
Car battery plates, batteries; cables, pipes; ammunition; ballasts;
paints
Iron, steel, superalloys 81%

Precious

Gold

PGM

Electronics 27%; jewelry 25%; photography 13%; coins and


medals 11%; other industrial 25%

41,000

~ N.c.

23

8x

Platynium, palladium
(k oz)

16 x

Ren (tons)

~ N.c.

Superalloys (used to produce jet engine parts) and as a catalyst


(in petroleum production)

636

~ N.c.

Production of other acids, pigments, artificial fibers, explosives,


fertilizers

85

B.z.
~ N.c.

Glass 40%; chemicals and pigments 20%; metallurgy 15%;


agriculture 15%; solar panels 10%

Silver (k oz)
Gold (k oz)

Jewelry 43%; investments 26%; electronics 14%; medicine 13%;


other 5%
Catalysts (automotive) 47%; electronics 16.5%; jewelry 10.5%;
dentistry 4%

Other
Sulphuric acid (ths tons)
Selenium (tons)

* Including KGHM International


** Payable copper from own mines
*** Nickel contained in nickel sulphate

N.c. no significant change


14

KGHM is a global player on the non-ferrous metals market


Canada
McCreedy (Cu, Ni, TPM*)
Morrison (Cu, Ni, TPM)
Podolsky (Cu, Ni, TPM)
Victoria (Cu, Ni, TPM)

KGHM mining projects


KGHM mines
Smelters

Greenland
Malmbjerg (Mo)

Niemcy
Weisswasser
(Cu, Ag)

Canada
Afton-Ajax (Cu, Au)

Poland
Polkowice-Sieroszowice mine (Cu, Ag)
Lubin mine (Cu, Ag)
Rudna mine (Cu, Ag)
Gogw smelter
Legnica smelter
Exploration in the region

USA
Robinson (Cu, Au, Mo)
Carlota (Cu)

Chile
Franke (Cu)
Sierra Gorda (Cu, Mo, Au)
* TPM precious metals

15

KGHM project portfolio ensures development of the current production base


Resources*, million tons

Cu

Szklary
Kirkwood

55

Cu equivalent

Wartowice

50

Victoria
Malmbjerg
Afton-Ajax

45

Sierra Gorda (55%)

40
35
Franke

30

Morrison
Robinson

Podolsky
McCreedy

Resources
under
development

Gogw Gboki

Carlota

25
20
Resources
in
production

KGHM mines in
Poland

15
10
5
0
Mines with life
of mine >5 yrs

Mine with life


of mine <=5 yrs

Mines in construction

Technical/financial study Exploration projects**

* For KGHM International mines total Measured, Indicated, Inferred resources. For KGHM Polska Mied balanced geological resources
** Planned additional exploration in new locations

Total resources

16

Cu
equivalent

KGHM operates 6 underground and 3 open pit mines


Thousand tons of paid copper, 2011

Cu

Underground mines
Poland
Lubin

Morrison

17
Polkowice-Sieroszowice

28

Robinson

Pt Pd Au Ni Cu

McCreedy West

Pt Pd Au Ni Cu

Podolsky*

Rudna

11
410 548

Open pit mines

16

43

47

Mo Au Cu

Carlota*

11

11

Cu

Franke

Pt Pd Au Ni Cu

15

15

Cu

Ag Cu
* Quadra FNX Boards decision: halt production in Podolsky, close Carlota
Source: KGHM Polska Mied 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

17

Copper production will grow by 25% in 2018


Cu
Thousand tons of paid copper
+25%
509
KGHM International mines

100

Current KGHM assets

410

2011

* Estimated forecast

635
187

448

2018*

18

KGHM has 2 advanced mine construction projects


SIERRA GORDA
Cu

Au

Mo

GOGW GBOKI PRZEMYSOWY


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

Ownership 55% KGHM International, 45% Sumitomo

Ownership 100% KGHM

Mine type

Open pit

Mine type

Underground

Status

Secured financing
Started construction works (first production
planned for 2014)

Status

Preparation to drill GG-1 ventilation shaft;


ongoing work on slopes connected to Rudna
mine structure Rudna

19

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

20

KGHMs portfolio includes 3 projects nearing construction phase


AFTON-AJAX
Cu

Au

VICTORIA
Ni

Cu

Au

Pt

MALMBJERG
Mo

Resources

~ 512 million t @ 0.31% Cu,


0.19 g/t Au

Resources

~14.5 million t @ 2.5% Cu,


2.5% Ni, 7.6g/t TPM**

Resources

Ownership

51% KGHM, 49% Abacus


Mining

Ownership

100% KGHM International*

Ownership

98.2% KGHM International

Mine type

Open pit

Mine type

Underground

Mine type

Open pit

Status

Completed Banking
Feasibility Study, possible to
acquire further 29% shares

Status

Ongoing feasibility study

Status

Ongoing feasibility study

* Vale has buyback option for 51% stake in the project


**TPM precious metals

216.9 Mt @ 0.198% Mo

21

Portfolio of exploration projects will ensure further growth for KGHM*

Germany

Germany
Weisswasser
(Cu, Ag)

Poland

Poland
Wartowice
(Cu, Ag)

Poland
Szklary (Ni)

* Plus additional exploration potential in currently active mines

Canada

Poland
GaworzyceRadwanice
(Cu, Ag)

Canada
Kirkwood (Cu, Ni)
Falconbridge
Footwall
Foy

22

KGHM has significant potential to increase its valuation

First Quantum

Southern Copper

Lundin

Inmet

Antofagasta PLC

Boliden

Capstone

Grupo Mexico

Oz Minerals

Source: Bloomberg, as of 23.02.2012; KGHM Polska Mied S.A.

Kazakhmys

* EBITDA for the past 12 months (based on published data); EV as of 23.02.2012

Hudbay

KGHM

EV/ EBITDA
P/E
2011 2-3 times higher
12 M*
P/E 12 M*
On average, precious metal producers are
valued
than copper producers
8.3
5.3
Anglo American PLC
KGHM is the 3rd largest silver producer worldwide
9.1
5.6
BHP Billiton
9.0
4.3
Freeport McMoran
6.3
4.6
Norilsk Nickel
EV/ EBITDA 12M
18.1
4.9
Rio Tinto PLC
9.6
5.0
Teck
7.6 7.7
13.1
5.4
Vedanta Resources
7.0
6.4
9.8
Xstrata PLC
5.8
5.7
12.4
Zijin
11.2
5.3 5.4 5.4
4.8 5.1
4.3
16.0
5.7
Antofagasta PLC
9.4
5.4
Boliden
15.2
Capstone
5.4
1.9
18.5
First Quantum Minerals Ltd
7.7
10.6
5.3
Grupo Mexico
4.3
23.7
Hudbay
6.4
16.8
Inmet Mining Corp
4.8
7.6
Kazakhmys
7.0
15.5
Lundin Mining Corp
13.3
5.1
Oz Minerals
12.0
7.6
Southern Copper Corp
3.2
1.9
KGHM
Capitalization
Peer group median
5.4
15.2 (USD billion) 8,9 2.1 9.6 3.7 24.8 1.3 4.8 20.7 4.6 3.0 28.3 11.1
79%
KGHM discount vs. peer group
65%
23

KGHMs resource base confirms the companys significant value growth


potential
EV/Resources*
USD/lbs of Cu equivalent
1.08

KGHM** has the 4th largest


copper resources worldwide
0.50

0.19

0.19

Hudbay

Grupo
Mexico

0.24

0.57

0.61

0.65

0.31

0.07
KGHM**

Capstone Lundin
Mining

First
KazakhQuantum mys
FQM

Boliden

Antofagasta
PLC

Oz
Minerals

* Reserves
** Incl. KGHM International
Note: 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
Source: Bloomberg, Brook Hunt, as of 23.02.2012; data published by KGHM

24

KGHM will continue to focus on shareholder value creation

25

Agenda

Transaction benefits
Information about the transaction
KGHM as a global player on the non-ferrous metals
market

Creating value through integration

26

Integration and value creation have been well prepared

Day 1

1 Prepare

integration

First 100
days

2 Confirm value

creation plan and


joint Group
strategy

3 Build KGHM International


value and share best
practices

27

KGHM has defined 3 key objectives for the integration process


Key objectives
Objective

Description

Ensure positive impact of integration activities on KGHM Internationals


operations

Quickly implement retention program for key employees

Ensure
appropriate
control

Obtain full transparency of operations in KGHM International

Execute business objectives

Ensure value
creation

Ensure business
continuity

Identify key risks and mitigation activities early


Confirm operational plans and focus on their uninterrupted implementation

Implement controls in key areas, e.g., cash management, purchasing, etc.


Define management information flows

Intensify operational improvements


Capture synergies
Share best practices

28

Value creation teams are already operational in Poland, Canada and US

Value creation
team in
Canada and
US

Tight cooperation

Value creation team


in Poland

18 task groups within the integration teams cover all key areas, e.g.,
Production

Sales and hedging

Finance

IT

Exploration projects

Purchasing

Accounting and tax

Health and safety

Sierra Gorda project

Capex

HR

Environment

29

KGHM will have majority in KGHM Internationals Board of Directors and will
appoint 2 members of Executive Committee
Number of KGHM employees assigned
to KGHM International

Description

Board of
Directors

6 KGHM representatives among 9 members


of Board of Directors

Executive
Committee

2 KGHM representatives in Executive


Committee

Value creation
team

6 members of value creation team


responsible for key functional areas

KGHM specialists supporting operations


(e.g. regarding metalurgy and geology)
and for best practice sharing

10-15

Specialists

30

KGHM International will aim at leading currently developed projects


to the production stage

Sierra Gorda

Victoria

Falconbridge Footwall,
Malmbjerg, Foy, Kirkwood

Afton Ajax

Synergy effects

Utilize Quadra FNXs experience in open-pit mining


Strengthen the position of KGHM Ajax Mining and Quadra Mining FNX vis--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
31

Value creation plan can lead to IPO on the Toronto Stock Exchange

Day 1

2014

2015

2016

Value creation

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

Potential
IPO

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 KGHMs subsidiary)

32

KGHM Polska Mied S.A. is a good investment

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

33