LW Bogdanka S.A.’s Strategy for 2013-2020 And Dividend Policy
On 3 June 2013, the Company announced its Development Strategy for 2013-2020. The most important aspects of the strategy include: completing the investment programme aimed at doubling the output and doubling the recoverable reserves of the Company in the Lublin Coal Basin by 2015, and thereby prolonging the mine's life until about 2050. Following the increase in its output, LW BOGDANKA S.A. intends to gain a 20% share in the domestic power coal supplies market by 2015.
LW BOGDANKA also wishes to remain a leader in effective mining by undertaking such projects as the construction of an "intelligent mine". Further development of the deposit management system and continued computerisation and automation of the production process at the Company will make it possible. Coupled with constant streamlining of the work organisation and further development of outsourcing, this is to bring a decrease of Unit Mining Cash Cost by 15% until 2017 (in real terms).
The Company also intends to benefit from potential synergies with energy producers and considers two projects: modernisation and expansion of Łęczyńska Energetyka, and cooperation with GDF SUEZ Polska Energia Group as part of a project for the construction of a power plant with a capacity of 500 MWe in the vicinity of LW BOGDANKA.
COMPLETION OF AN INVESTMENT PROCESS TO DOUBLE PRODUCTION
By 2015 the Company plans to complete its investment programme designed to double its coal production compared to the level for 2011. The Company expects the increase in coal production to achieve, by 2015, a 20% market share in terms of power coal sales in Poland (compared to 10% as at the end of 2011 and 14% as at the end of 2012).
Additionally, LW BOGDANKA expects its modernisation of shaft 1.5 in Nadrybie to double the Company’s production capacity to approx. 12 million tonnes in 2018.
DOUBLING RESOURCES AND INCREASING MINE’S LIFETIME UNTIL 2050
LW BOGDANKA plans to nearly double its operating resources in the Lublin Coal Basin. The Company has applied for new licences in the Lublin Coal Basin in order to increase its operating resources to approx. 450 million tonnes from the current level of approx. 237 million tonnes.
As a result, given the average net production level of approx. 12 million tonnes of coal per year, the mine should continue to operate by approx. 2050 (with the current resources, the mine should be able to continue operations by 2034).
CONTINUED EFFORTS TO INCREASE EFFECTIVENESS & THE SMART MINE CONCEPT
LW BOGDANKA plans to remain the leader in effectiveness and innovative solutions in the mining sector by, among other things, building a “smart mine.”
This will be possible by further development of the Company's coal deposit management system as well as computerisation and automation the Company's production process.
LW BOGDANKA already has solutions unique in the Polish underground mining industry, designed to support decision-making processes in the preparation of coal deposits for investment projects and based on the latest technological advances in the world mining industry.
The Company plans to continue developing its coal deposit management system (designed in cooperation with the Polish Academy of Sciences). The components of the system include a digital deposit model (the only such model in the Polish hard coal mining industry), a digital map of mining pits, and a digital schedule of deposit access, preparation and mining work.
Additionally, as part of its efforts to build a “smart mine”, LW BOGDANKA is also in the process of building a map of its underground infrastructural facilities. The next step will be to implement active tags for tracing changes to the Company's underground infrastructure on the Company's map of mining pits.
As a result of the above efforts, continuous improvement in work organisation processes and the use of outsourcing services, the Company plans to reduce its unit mining cash cost by 15% by 2017 (in real terms) compared to the level for 2012.
POTENTIAL SYNERGIES WITH ENERGY PRODUCERS
The Company also plans to take advantage of potential synergies with energy producers and is considering two projects:
• carrying out the investment programme of its subsidiary Łęczyńska Energetyka Sp. z o.o., which involves the construction of a 69 MWt and 77 MWe power unit with the essential auxiliary systems.
• cooperating with the GDF SUEZ Polska Energia Group in the construction of a 500 MWe power plant in close proximity to LW BOGDANKA, where the Company would operate as the key supplier of hard coal, coal slurry and coal slurry mixtures for power generation purposes.
The final decision as to which investing option to choose will depend on the results of ongoing analyses.
FINANCING AND DIVIDEND POLICY
The Company has specified the necessary target level of cash for hedging its operational risks in 2013-2015 as the Company's average month sales revenue or approx. PLN 200-250 million. The Company plans to maintain its debt level (interest-bearing debt plus amounts owed to employees) not higher than EBITDA x 1.50.
In addition, the Company has developed a dividend policy, where 60% of its consolidated net profit for 2013-2015 will be allocated to dividend payments. The Company believes that this dividend policy will enable the Company to continue building its value in the long term, while ensuring profit distributions to its shareholders at levels consistent with the good practices followed by global commodity companies.