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2017-02-10

LW Bogdanka S.A. reveals its strategy – company wants to continue flexible development, double its raw material resources and pursue innovations

LW BOGDANKA S.A. REVEALS ITS STRATEGY – COMPANY WANTS TO CONTINUE FLEXIBLE DEVELOPMENT, DOUBLE ITS RAW MATERIAL RESOURCES AND PURSUE INNOVATIONS
A KEY ELEMENT OF THE STRATEGY WILL BE SYNERGIES IN THE KOZIENICE-BOGDANKA-POŁANIEC MINING AND POWER GENERATION AREA

 

LW Bogdanka S.A., the most advanced  and most efficient hard coal mine in Poland and a member of the Enea Group, one of the leaders in Poland’s power market, presented a development strategy for the Mining Area of the Enea Group. The strategy covers a period until the year 2025, within the 2030 framework. The strategy is in line with the Strategy of the Enea Group and reflects both Responsible Development Plan and Polish Hard Coal Mining Programme.

The strategy of LW Bogdanka in the Mining Area of the Enea Group includes two development scenarios: baseline, which assumes average production at a level of about 8.5 million tonnes a year over 2017-2025, and flexible development, with average annual production at a level of about 9.2 million tonnes over the same period. Taking into account the current and expected market situation, the Company wants to implement the flexible development scenario. CAPEX forecast for 2016-2025 (nominally) amounts to PLN 3.7 billion for the baseline scenario and about PLN 4 billion for the flexible development scenario.


LW Bogdanka, which is responsible for the Mining Area in the Enea Group, wants to pursue certain key initiatives to ensure close cooperation and synergies in the Kozienice-Bogdanka-Połaniec mining and power generation area, to double its exploitable resources and to implement various innovative strategic projects. Within the framework of such ventures, LW Bogdanka will prepare, jointly with the Enea Group, a feasibility study for a project to deploy the integrated gasification combined cycle (IGCC) technology which is to provide fuel for power generation; use leading-edge high-performance face complex; continue its “Smart Mine” programme; efficiently manage waste rock; and develop an operator’s services, offered on the basis of high technology and management standards of the Company. Compliance with the highest work safety standards and with corporate social responsibility (CSR) rules is invariably one of the top priority components of the strategy.

The Company expects that the flexible development scenario will reduce the Unit Mining Cash Cost by 10% by 2025 (in real terms, as compared to 2015). Over the same period, the Return on Equity (ROE) ratio should grow to 10.9% (from 8.7% in 2015), the Return on Assets (ROA) ratio is expected to increase to 8.5% (from 5.3% in 2015) and EBITDA will rise, nominally, by 44% (as compared to 2015, adjusted by revaluation).   
 
LW Bogdanka S.A. also announced its dividend policy for the near future. It assumes that the Company will request that up to 50% of its net profits shown in its separate financial statements be allocated for dividend.

 

SYNERGIES IN THE KOZIENICE-BOGDANKA-POŁANIEC MINING AND POWER GENERATION AREAC

The Enea Group has signed with ENGIE International Holdings B.V. an agreement on the conditional purchase of 100% of shares in ENGIE Energia Polska, which is the owner of the Połaniec Power Plant.
After this takeover, the Enea Group will include two key clients of LW Bogdanka. As a result, the Kozienice-Bogdanka-Połaniec mining and power generation area will emerge in south-east Poland.

This will bring about various benefits to both LW Bogdanka and the Enea Group and a further efficiency improvement in the generation of power from coal supplied by Bogdanka. This will also strengthen the market position of the Enea Group as one of the leading producers of electricity in Poland. For Bogdanka, in turn, this means more operational stability and a possibility of planning its production and employment levels over a long time horizon.

 

DEVELOPMENT OF RESOURCE BASE AND LONGER LIFE OF THE MINE

LW Bogdanka intends to double its exploitable resources in the Lublin Coal Basin (from 227 million tonnes at present to about 446 million tonnes). Assuming the annual production at the level of approximately 9 million tonnes, the mine will be able to continue its operations for about 50 years (as compared to the expected life span of 25 years at present).

For the presented strategy, the key mining areas for the Company include Puchaczów V (deposit currently in use of about 211 million tonnes), Stręczyn (K-3 deposit, currently in use, with exploitable resources of about 16 million tonnes) and Ludwin (Ostrów deposit with estimated exploitable resources of about 186 million tonnes).

The Company is planning to obtain a mining licence for the Ludwin area (Ostrów deposit) in 2017. Simultaneously, Bogdanka will continue to analyse the K-6 and K-7 deposits and the Orzechów area as prospective areas for future mining operations.

 

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Because of its crucial importance to the region, one of the Company’s goals, as always, is to run its business operations in compliance with the rules of corporate social responsibility (CSR), which include ensuring the highest work safety standards, environmental effectiveness, the protection of local biodiversity, the stimulation of development and a guarantee of security for local communities, as well as the effective management of relationships with all groups of stakeholders - all these in line with the principles of sustainable growth.

 

INNOVATIONS IN LW BOGDANKA - STRATEGIC INITIATIVES

In the course of preparations of the strategy for the Enea Group, 60 strategic initiatives have been conceived, of which 10 by engineers from Bogdanka.


The top priority projects include:

Feasibility study of construction of an integrated gasification combined cycle (IGCC) system

The Company will prepare, jointly with the Enea Group, a feasibility study of construction in LW Bogdanka of an integrated gasification combined cycle (IGCC) system for production of fuel for power generation.  If it is decided to implement the project, a new market for hard coal will emerge, leading to a higher energy independence of Poland’s economy.

 

Advanced high-performance face complex

The high-performance face complex project is an element of the initiatives which have been pursued for years by LW Bogdanka to promote innovative solutions that increase its operational efficiency.
The project is to shorten the time in which heading excavations must be maintained and to achieve the above-average progress of work to drill roadway excavations. 

 

Smart Mine

Even today LW Bogdanka has solutions that are unique in Poland’s underground mining sector. They support decision making in the process of preparation of deposits for extraction and employ the most recent technological developments introduced in the global mining sector.

The Company intends to retain its position of the efficiency and innovation leader in the mining sector, also by continuing its “Smart Mine” programme. Those activities will cover the further development of the deposit management system and the continued computerisation and automation of the production chain in the Company.

 

Effective waste rock management

The waste rock management project is to improve even further the control of quality of the coal output by optimising its production - from planning to deposit cutting and exploitation to liquidation of excavations. The scenarios being considered include placing the waste rock underground and using it for road construction.
The programme is to improve the quality of raw coal by reducing the content of waste rock in the output, to minimise waste rock pollutions and to reduce the costs of mining waste, including to extend the life span of waste stockpiles. 

 

LW Bogdanka as provider of an operator’s services

LW Bogdanka wants to use its top-class technology and management standards and leading know how to develop a new line of business - services of an operator of mining plants provided for entrusted assets. Such services would be offered throughout Central and Eastern Europe.

 

Further work safety improvement programme

For years, work safety has been a top priority for LW Bogdanka. Also the current strategic framework considers the safety and health of employees to be an issue of overriding importance.  

 

CAPITAL EXPENDITURES

The baseline scenario assumes CAPEX in the amount of PLN 3.7 billion (nominally) over 2016-2025. If the flexible development scenario is opted for, capital expenditures will increase to about PLN 4 billion, mainly in connection with the planned expenditures for mining machinery and equipment.

The above capital expenditure level also includes initial activities related to the Ostrów project, which is a must if LW Bogdanka wants to maintain the assumed production level after 2030.
Preliminary estimates show that the total capital expenditures required to start the exploitation of the Ostrów deposit will amount to PLN 1.2-1.3 billion (in real terms). Those expenditures would be spent to create the OG “Ludwin” mining plant (on the Ostrów deposit), which will be built after 2025 and, therefore, they are not included in the estimated capital expenditures in the current Strategy (except initial outlays of PLN 70 million).

The above amount of capital expenditures also excludes the potential implementation of strategic initiatives by the Company.

 

DIVIDEND POLICY

In the future, the Management Board of LW Bogdanka S.A. intends to ask the General Shareholders Meeting for approval of dividends up to 50% of the net profits shown in the Company’s separate financial statements, prepared in accordance with the International Financial Reporting Standards.

Each time, the dividends recommended by the Management Board will depend on:

  • current market situation,
  • generated operating cash flows,
  • planned capital expenditures and investments,
  • projected debt of the Company.

 

“The strategy of LW Bogdanka reflects the strategy of the Enea Group presented in October 2016, the primary goal of which is to build an innovative raw material and power group able to successfully face up to market challenges. Our most important task for the next few years is to create an appropriate synergy between mining and power generation assets on the basis of LW Bogdanka and the leading-edge power generation resources of the Enea Group, including the Połaniec Power Plant, which we are taking over right now. The Kozienice-Bogdanka-Połaniec mining and power generation area, situated in south-east Poland, will bring about various beneficial synergies and will strengthen the position of the Group on the Polish market. We also want to continue to set trends as regards innovation, both in the power sector and – via LW Bogdanka, responsible for the Mining Area in the Group – in the hard coal mining sector,” said Mirosław Kowalik, President of the Management Board of Enea S.A. and Chairman of the Supervisory Board of LW Bogdanka.

 

“The strategy we have just announced defines in detail the key objectives for the Mining Area which are presented in the strategy of the Enea Group, published in October 2016. Because of changing market conditions in our industry, we have prepared both a baseline scenario, which assumes production at the average annual level of about 8.5 million tonnes over 2017-2025, and a flexible development scenario, with the average annual production of about 9.2 million tonnes in the same period. After analysing the market environment, we are inclined to opt for the flexible development scenario,” said Krzysztof Szlaga, President of the Management Board of LW Bogdanka S.A.

“The key pillars of our strategy until 2025 will include the active utilisation of synergies in the Kozienice-Bogdanka-Połaniec mining and power generation area, as the next step of integration within the ENEA Group, and efforts to double our exploitable resources. As always, we will also pursue innovations, which are a vital component of Bogdanka’s strategy. We intend to retain our position of the efficiency and innovation leader in the mining sector, also by continuing our “Smart Mine” programme or by implementing initiatives to ensure a more effective management of waste rock or the utilisation of our high-performance face complex. We are also planning to prepare, jointly with the Enea Group, a feasibility study of construction of an integrated gasification combined cycle (IGCC) system which is to provide fuel for power generation,” added Krzysztof Szlaga.

“In the medium and long run, we want to share earnings with our shareholders by distributing up to 50% of our stand-alone net profits as dividends. Taking into account the volatile market conditions in our sector, our priority is, obviously, to keep the financial and liquidity security of our Company. Therefore, dividends will always be recommended after an in-depth analysis,” continued the President of the Management Board of LW Bogdanka S.A.

 

“Even before the Ministry of Energy was established, I kept emphasising on every occasion that the best option to reform the Polish mining sector would be the integration of coal mining and power generation. We have been consistently implementing this plan for over a year, i.e. since the Ministry of Energy was created. And our consistent activities have been winning more and more trust in the market, promising stabilisation. Symbiosis between the power and mining sectors is possible and mutually beneficial. And the Bogdanka mine and the Enea Group are an excellent example here. As shareholders, power companies gain access to low-cost fuel and stable supplies. Bogdanka also takes advantage of such relationships as it has a guarantee of sale of its output. And the planned development of the power generation resources of Enea Wytwarzanie means stable operations in the future. It should also be noted that Enea intends to build, in the immediate vicinity of the Bogdanka mine, the first European power plant using the so-called clean coal technology. This is just another reasonable example of synergies between the power and coal sectors. I believe that the decisions which are now being considered in the European Union will let us still use the potential of our fuel and power sectors for production of clean coal energy,” said Grzegorz Tobiszowski, Secretary of State in the Ministry of Energy and Government Plenipotentiary for Hard Coal Mining Restructuring.

 

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