Poland Mining Report Q4 2009

Poland Mining Report Q4 2009

In July 2009, the Polish government announced it was considering selling up to all of its 41% stake in
copper mining company KGHM Polska Miedz as part of a privatisation plan to tackle the country’s
growing public debt. The shares, worth approximately USD$5.9bn, would provide a much needed
financial boost to the country as its debt is level expected to pass the 50% mark in 2009. KGHM’s unions
have threatened strikes and other measures to prevent the sale. In August, a two-hour strike was held in
protest at revised plans to sell a 10% stake in the company. An estimated 80-90% of workers stopped
operations in the first action of its kind at the company in almost 20 years.
The company also came under fire from its unions in March 2009, when it announced – in line with many
other mining companies – that it would be imposing a wage freeze in response to the slowing of the
global economy. Rather than lose 334 jobs, KGHM wants to freeze the salaries of its 18,500 employees
and scrap bonuses for the year. Polish wages have been rising rapidly since the country joined the EU, but
this can no longer be supported since the end of the economic boom,
A major development within the mining sector in the last quarter was the floatation of the Bogdanka coal
mine. In June 2009, it was announced that Polish chemicals group Pulawy would not be buying shares in
the coal mine after its offer to invest received no response from Bogdanka. Bogdanka chief executive
Miroslaw Taras said in response to the offer that it was looking for ‘private and institutional’ investors of
a ‘financial character’. However, the initial public offering (IPO) was a huge success and on June 25 the
company saw share prices leap in what was the largest IPO in Poland in 2009. Bogdanka far surpassed the
original estimation of how much the company would raise with the floatation, amassing PLN528mn
(USD$163.8mn). This news bodes well for the government, with further selloffs of state companies
planned for the future.
Environmental concerns continue to affect the mining industry in Poland, which is heavily dependent on
the production of coal and has many coal mines and coal-fired plants in need of modernisation. The
Belchatów lignite-fired power plant, the EU’s largest polluting entity, will have to purchase 20mn tonnes
of CO2 permits by 2013. Despite a slowing economy and weakened demand for power, the plant, owned
by Polish utility Polska Grupa Energetyczna (PGE), is expected to run at a deficit of carbon credits in
the coming years. As a means of reducing the money spent on carbon credits, a carbon capture and
storage (CCS) project, the first of its kind in Poland, is being developed in Belchatów.
Industry Forecast
As a result of its mineral wealth, Poland has been disproportionately hit by the recent slump in
commodities prices. BMI estimates that in 2008 the mining sector contracted by 5.69% in real terms, and
we forecast a 1.03% regression for 2009. Although growth is expected to pick up towards the end of the
forecast period, it is still expected to be on the low side, with the market reaching a value of just
US$9.91bn by 2013, compared with US$8.60bn in 2008
Global overview
BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this
means for the industry moving forward on pages 9-12 of this report.

Executive Summary ....5
SWOT Analysis............7
Poland Political SWOT...... 7
Poland Economic SWOT.... 7
Poland Business Environment SWOT ... 8
Special Focus: Outlook For Global Mining.9
Table: Biggest Chinese Acquisitions In Australia Since 2005............ 11
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn) 13
Table: Global Mining – Key Players’ Future Investment Plans (selected projects)............. 13
Industry Trends And Developments .........16
Overview....... 16
Table: Mines In Poland ... 16
Regulatory Structure And Developments .......... 18
Environmental Protection 19
Key Projects.21
Metals .. 21
Copper.......... 21
Nickel............ 24
Bauxite And Aluminium ... 24
Minerals............. 25
Coal 25
Business Environment ..29
Regional Overview – Europe And Central Asia..... 29
Table: Europe Business Environment Ranking. 29
Poland’s Mining Business Environment Rating..... 30
Limits Of Potential Returns............ 30
Risks To Realisation Of Returns .... 31
Legal Issues .. 31
Table: BMI’s Legal Framework Ratings........... 32
Labour Force 33
Table: Labour Force Quality......... 35
Foreign Investment Policy .... 36
Table: Central And Eastern Europe And Central Asia’s FDI Inflows, 2005 And 2006........ 36
Table: Poland’s FDI Inflows, 2000-2006 ......... 38
Political Environment ...... 38
Economic Activity ... 40
Table: Poland - Economic Activity, 2005-2013............. 41
Industry Forecast Scenario ..........42
Metal Prices Outlook....... 42
Table: BMI Aluminium Forecast ... 42
Table: Aluminium, 2005-2010 ....... 44
Table: BMI Copper Forecast......... 45
Table: Copper, 2005-2010............. 47
Commodities Forecast ..... 48
Table: BMI Gold Forecast............. 48
Global Industry Overview 50
Regional Analysis ............ 50
Poland – Mining Industry Forecast .... 53
Table: Poland Mining Industry Forecast .......... 54
Competitive Landscape.56
Table: Poland’s Mining Sector – Key Players .. 57
Company Monitor......58
KGHM Polska Miedz SA.. 58
Jastrzebska Spólka Weglowa SA.... 61
Kompania Weglowa......... 62
Appendices ..64
Appendix A: Global Assumptions........ 64
Table: BMI’s Global Assumptions, 2007-2013 . 64
Table: Global And Regional Real GDP Growth, 2008-2011 65
Table: Developed Market Exchange Rates, 2008-2011 (average) ...... 66
Table: Key Emerging Market Exchange Rates, 2008-2011 (average against US dollar) .... 66
Appendix B: Mining Business Environment ........... 67
Ratings Overview............. 67
Table: Mining Business Environment Indicators ............ 68
Table: Weighting Of Components.. 69