KGHM Polska Miedź S.A.

Management Reports • Dec 19, 2018

Strategy of KGHM Polska Miedź S.A. for the years 2019-2023

The Management Board of KGHM Polska Miedź S.A. ("Company") announcesthat on 19 December 2018 the Strategy of KGHM Polska Miedź S.A. for theyears 2019-2023, submitted by the Management Board, was approved by theCompany's Supervisory Board.

In the face of macroeconomic changes in the minerals industry, as wellas the strong influence of worldwide megatrends, in the fourth quarterof 2018 the Management Board of KGHM Polska Miedź S.A. decided that itwas necessary to review the Strategy of KGHM Polska Miedź S.A. Thisdecision was mainly dictated by:

•dynamic changes in the mining and metallurgical industries, caused bymacroeconomic, technological and legislative challenges,

•the evolution of directions of global economic growth - megatrendsimpacting the mining industry, including technological breakthroughs,demographic and social changes, shortages of natural resources, climatechange, the fluctuating strengths of global economies and rapidurbanisation,

•prioritisation and adaptation of the investment program to theCompany's financial capabilities, and

•partial realisation of the objectives and strategic initiatives underthe Company's Strategy adopted in 2017.

The strategy review was aimed at ensuring the cohesion of the Company'sStrategy with current market conditions and the needs of the KGHM PolskaMiedź S.A. Group ("KGHM Group"). As a result, the assumptions of theCompany's Strategy for the years 2019-2023 ("the Strategy") were decidedupon. Four strategic development directions were identified:

•Elasticity - mainly encompassing the concepts related to the 4.0industry, digitalisation and electromobility,

•Efficiency - a response to the increasing competitiveness in theproduction and mining industries and the 4.0 industry,

•Ecology - based on electromobility, development of pro-ecologicallegislation, closed-circuit industry and environmentally-friendlyproduction,

•E-industry - based on automation, digitalisation, a knowledge-basedsociety and concepts of the 4.0 industry.

The aforementioned directions were reflected in individual strategicareas with the following specified main targets:

•Production,

main target: "Maintain cost-effective Polish and internationalproduction";

• Development,

main target: "Increase the efficiency and flexibility of the KGHMGroup's Polish and international assets";

• Innovation,

main target: "Increase the KGHM Group's efficiency through innovation";

• Financial Stability,

main target: "Ensure long-term financial stability and the developmentof mechanisms supporting further development".

• Efficient Organisation,

main target: "Implement systemic solutions aimed at increasing the KGHMGroup's value";

• People and the Environment,

main target: "Growth based on the idea of sustainable development andsafety as well as enhancing the KGHM Group's image of socialresponsibility";

Each of the main targets was broken down into operational goals, aimedat the realisation of the main target. Each of the six strategic areaswas correlated to the four aforementioned development directions, whichresulted in the creation of the initiatives matrix.

Each of the strategic areas was measured by the following KPIs (KeyPerformance Indicators):

• Production,

1. Mining production in Poland at the level of 450 thousand tonnes ofcopper in ore, with an average yearly C1 cost not higher than 3800 USD/tin the years 2019-2023.

2. Yearly average of daily ore processing in Sierra Gorda at the levelof at least 130 thousand tonnes - from 2020.

3. Average yearly metallurgical production in Poland at the level of 540thousand tonnes in the years 2019-2023.

• Development:

1. Ensure the possibility of basing 35% of metallurgical production onpurchased copper-bearing materials, including scrap, to 2030.

2. Increase the share of highly processed copper products (OFE-Cu rod,OFE-Cu granulate and end-application products) in the KGHM Group's totalsales to the level of 10% at the end of 2030.

3. Satisfy 50% of KGHM Polska Miedź S.A.'s demand for electricity fromits own sources of energy generation and renewable energy sources by theend of 2030.

• Innovation,

1. Ensure that 100% of innovation projects are realised pursuant to therules of a coherent model of innovation management and research anddevelopment work (R&D) in the KGHM Group, in the years 2019-2023.

2. Increase expenditures on innovation and R&D work to the level of 1%of KGHM Polska Miedź S.A.'s revenues by 2023.

3. Allocation of at least 75% of funds for R&D and innovation in theyears 2019-2023 to meet the challenges faced by KGHM Polska Miedź S.A.in the Core Business.

• Financial Stability,

1. Basing the KGHM Group's financing on long-term instruments.

2. Shorter cash conversion cycle.

3. Efficient management of market and credit risk by the KGHM Group.

• Efficient Organisation,

1. Ensure the financial stability of the Polish-based KGHM Groupcompanies, on the basis of their own activities, from 2022.

2. Increase the efficiency of support functions by 20% as a result ofcentralisation and digitalisation of key back-office processes by 2023.

3. Achievement of key strategic targets, at the level of at least 80% ofthe yearly goals assigned to them, in each of the years the strategy isin force.

4. Flexible reaction to volatile macroeconomic, geological and miningconditions. A halt in the Morrison mine's production in Sudbury is beingconsidered.

• People and the environment,

1. Annual improvement of the Lost-time injury frequency rate (LTIFR -for Polish assets) and the Total Recordable Incident Rate (TRIR - forinternational assets) by at least 20%.

2. Maintain a participation budget at the level of 20% of the amount ofdeductions for donations from the minerals extraction tax by 2020.

3. Achievement of a 70% level of commitment and satisfaction of the KGHMGroup's employees by 2023.

The updated Strategy does not change the Company's current approach tobusiness operations. KGHM Polska Miedź S.A. upholds its responsibleapproach and its long-term thinking about the company's future.

Legal basis: Art. 17 (1) of MAR (Regulation (EU) No 596/2014 of theEuropean Parliament and of the Council of 16 April 2014 on market abuse(market abuse regulation) and repealing Directive 2003/6/EC of theEuropean Parliament and of the Council and Commission Directives2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of theEuropean Union dated 12 June 2014, no. L 173/1)