European mining future supply of EU s metals. Euro Mine Expo Conference Skellefteå, June

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1 European mining future supply of EU s metals Euro Mine Expo Conference Skellefteå, June

2 Agenda Mining in Europe KGHM in brief Mining company of the future Raw Materials Initiative 2

3 Geological availability of minerals in Europe 3

4 Market structure of metal mining companies 4

5 Global exploration

6 European exploration

7 European mine production 7

8 Number of mineral resources projects 8

9 Perspective of copper market Global copper production and primary demand M t Possible projects Probable Projects Highly Probable Projects Base Case Production Capability Primary copper demand Stable economic growth in China will support copper demand Plant closures and deferring many mining projects during financial crisis Decreasing grades and increasing cost of production in mines worldwide Copper looks an attractive long term investment Source: Brook Hunt 9 9

10 Copper mine production in Europe Russia Turkey EU-12 Copper mine production in Europe ('000 tons) CEE countries EU About 90% of the European copper mine production is concentrated in the CEE countries. The biggest producers are Russia and Poland In CEE the mine production increased 1.2% during the last 10 years In the EU-15 countries mine production has been stable for the last 10 years at the level +/ t/y, but on average dropped (-)0.3% Refined copper production in Europe ('000) During last 10 years the share of the CEE countries in refined copper production in Europe increased from 43% to 46% Average yearly growth of CEE refined production in the last 10 years was 1.2% Average yearly growth of EU-15 countries refined production in the last 10 years was (-)0.1% Source: ICSG, KGHM Polska Miedz S.A Russia Turkey EU-12 43% 46% CEE countries EU

11 Copper usage projection Current and future usage of refined copper in Europe Copper usage in Western Europe is projected to slow considerably in the foreseeable future. CEE countries will be the main source of copper demand in the future Russia EU Turkey EU The structure of copper usage in Europe 100% 80% 60% EU-15 42% CEE countries share in European copper demand in 2009 was 27%. 40% 20% 0% % CEE Source: ICSG, Brook Hunt, KGHM Polska Miedz S.A By the end of the 2025 this may be close to about 42% 11

12 KGHM key data No. 2 European copper producer KGHM 8th largest copper producer 2nd largest silver producer Listed on Warsaw Stock Exchange ticker KGH 12

13 Production cycle KGHM - fully integrated producer of high quality copper Core bussines of KGHM Upstream Midstream Downstream 13

14 World production vs KGHM production Copper mine production 2009 World Mg KGHM Mg (2,74%) Codelco Freeport - McMoran Copper & Gold Inc. BHP Billiton Group Xstrata Rio Tinto Group Anglo American Plc. Southern Copper KGHM Polska 摥 + Norilsk Nickel Group First Quantum Copper smelter production 2009 World 14.1Mt Copper refined production World 18.3Mt KGHM Mg (2,7%) Codelco Xstrata Jiangxi Copper Company Aurubis Nippon Mining Mitsubishi Materials Corporation Sumitomo Metal F-McM Copper KGHM Southern Copper Silver mine production World mln troz KGHM 38.4 mln troz (5,64%) BHP Billiton Group 䵈傠汯歳 ꁡ 楍摥 ꁺ Industrias Penoles S.A. de C.V. Volcan Compania Minera S.A. Pan American Silver Corporation Cia. Minas Buenaventura Polymetal Hochschild Mining Kazakhmys Southern Copper Corporation 14

15 Expanding KGHM resource base 15

16 Exploration Expanding existing reserves near mine & in-mine exploration: 16

17 KGHM Polska Miedz (Poland) I n - m i n e & n e a r m i n e e x p l o r a t i o n L o c a l i s a t i o n o f d r i l l h o l e s D r i l l e d h o l e s 17

Depth of mineralisation: 800-1500 m Expenditures: 23 mln

18 Weisswasser (Saxony, Germany) Brownfield & greenfield exploration Exploration program: drill holes Depth of mineralisation: m Expenditures: 23 mln EUR Hipothetical resources: apx. 100 mln Mg of ore (1,5 mln Mg Cu) 18

Greenfield exploration Exploration program: Sep 2010 - Dec 2013 Drill holes: 3 (IQ 2011), 2 (IIQ 2012) Depth of

19 Greenfield exploration Exploration program: Sep Dec 2013 Drill holes: 3 (IQ 2011), 2 (IIQ 2012) Depth of mineralisation: m Expenditures: 4-5 mln USD Hipotetical resources : mln Mg (1 mln Mg Cu Eq. ) Nowiny (Poland) 19

Brownfield & greenfield exploration Exploration programme 2010-2013 Drill holes: 9 (IQ 2010-2011), 6 (IIQ 2012) Depth of mineralisation: 1200-1300m Expenditures: 23-25 mln USD

20 Brownfield & greenfield exploration Exploration programme Drill holes: 9 (IQ ), 6 (IIQ 2012) Depth of mineralisation: m Expenditures: mln USD Estimated resources: Niecka Grodziecka 57,2 mln Mg Cu ore 0,67 mln Mg Cu Wartowice 59,0 mln Mg Cu ore 0,71 mln Mg Cu Average Cu content - 1,58 % Synklina Grodziecka (Poland) 20

21 Szklary (Poland) Other exploration Exploration programme Drill holes: 54 Depth of mineralisation: 10-40m Expenditures: 1 mln USD Estimated resources: Metal content [Mg] Cut off grade 0,3% Ni Average Ni content 0,55% Ni 21

22 Main issues of European Mining Exploration and mining - increasingly difficult Land access: conflict of interest Complexity of regulatory framework, related procedures, increased costs. Need for simplification! Permitting and appealing issues: very long processes, too many instances and possibilities to appeal Poor understanding of industrial requirements and constraints among authorities Increased workload for industry and authorities (often understuffed!) Increasing trade distortion 22

23 Main issues of European Mining Bad image within the population: dangerous branch (people & environment), dirty industry Human resources: Age pyramid Know-how, loss of competences at all levels Education: low interest and status for the mining industry at all stages and levels Technology and R&D: Lack of support from EC between Source: Mineral Resources for Europe 23

24 Crucial facts explaining the current situation of extractive industry in the EC. Public introduction of the EC Working Document SEC 2007 (771) held in June 2007 by DG Ent. & Industry. It describes the situation of non-energy raw materials branch in the EU. Main topics of the document: Importance of raw materials for the EU economy Trends on the international raw material markets Risks associated with the supply of raw materials for the future of EU economy 24

25 Key assumptions of the new policy in raw materials - May 2008, DG Ent. & Industry 1. Increase the sustainable supply of raw materials from European Sources 2. Ensure sustainable and more transparent supply from third countries 3. Encourage capacity building in developing countries 4. Encourage greater efficiency in the use of resources 5. Establish an adequate EU Knowledge Base on raw materials 25

26 Mining Company of the Future the scope of idea Global Integrated Enterprise How will we operate globally? Aging Workforce What will we do with the shortage of skilled resources? Collaborative Innovation How can we effectively innovate and learn from our partners? IT Effectiveness How can we manage better with less? Cost Reduction Which areas should we focus on for cost reductions? Remote Operations How can we manage safely away from the mine site? source: IBM & EIT+ Meeting, Switzerland April 8-9,

27 The EC Raw Materials Initiative The integrated strategy is based on 3 major pillars: 1. Access to Raw materials on world markets at undistorted conditions; 2. The right framework to foster sustainable supply of raw materials from EU sources; 3. Increase resource efficiency and promoting recycling in the EU. 27

28 The Raw Materials Initiative activities 28

29 The Raw Materials Initiative activities 29

resource efficiency Increase resource efficiency and foster substitution of raw

30 Other RMI activities Promote skills and focussed research on innovative exploration and extraction technologies, recycling, materials substitution and resource efficiency Increase resource efficiency and foster substitution of raw materials Promote recycling and facilitate the use of secondary raw materials in the EU. 30

31 Herbert Wirth President & CEO Thank you 䵈倠汯歳楍摥 + h.wirth@kghm.pl

The New Leader in Global Copper

The New Leader in Global Copper November 2013 TSX: FM; LSE: FQM Cautionary Note Regarding Forward-Looking Statement Some of the statements contained in the following material are forward looking statements