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Edited Transcript of JSW.WA earnings conference call or presentation 23-Aug-19 10:00am GMT

Half Year 2019 Jastrzebska Spolka Weglowa SA Earnings Presentation

Jastrzebie Zdroj Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Jastrzebska Spolka Weglowa SA earnings conference call or presentation Friday, August 23, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Artur Dyczko

Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development

* Artur Wojtków

Jastrzebska Spólka Weglowa S.A. - Vice Chairman of the Management Board for Labour & Social Policy

* Pawel Warzecha

Jastrzebska Spólka Weglowa S.A. - Head of Investors Relation Office

* Radoslaw Zalozinski

Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic

* Rafal Pasieka

Jastrzebska Spólka Weglowa S.A. - Deputy President of the Management Board for Trade

* Tomasz Sledz

Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters

* Wlodzimierz Herezniak

Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board

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Conference Call Participants

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* Pawel Puchalski

Santander Brokerage Poland, Research Division - Head of Equity Research Team

* Rafal Aleksander Wiatr

Citigroup Inc, Research Division - Director and Industrial Country Analyst

* Robert Maj

IPOPEMA Securities S.A., Research Division - Analyst

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Presentation

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [1]

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[Interpreted] I'd like to welcome you ladies, I'd like to welcome also gentlemen at today's meeting, which is to discuss the JSW results. So I'd like to begin with the formal elements, so by presenting the team. So I'm the CEO of the company for the second time. I was once the CEO in a different group in the company -- in a different company in the group. So I had the opportunity to ring the bell for the first time just to discuss. So I'd like to start with my people on the right side. This is Artur Wojtków ; Rafal Pasieka; Artur Dyczko; Radoslaw Zalozinski; and Tomasz Sledz.

Today, we would like to share with you the results for the first half of the year. The management team especially with me have been here since the 1st of August. So only 3 weeks have transpired or as many as 3 weeks have transpired, but it's a rather short period of time. So as a result, I'd like to emphasize as we wrap up the first half of the year. That's the subject meeting of today's -- the subject matter of today's meetings.

I'd like to talk about the things that have been handled in H1 2019. So let me start with production. So production, in line with expectations; was not as the best. It was a little over 7 million tons. In terms of coproduction, we're at 1.7 million tons. Our EBITDA was PLN 1.3 billion. Our net result was PLN 547 million. So what is -- what you see in green, those are the positive elements. So you see that the average coking coal price, which is PLN 700 per ton. The average coke price was PLN 1,149, nearly.

I would like to ask you to take a look at the last portion of this slide, the bottom right, our CapEx. It's up by nearly 45% over the plan, so nearly PLN 824 million. And corridor works, I'm a miner, and so achieving these type of results in the first half of the year, I'm not sure if that ever took place in the history of the company.

What does this mean? This is a positive signal. We have the opportunity to open up new parcels and open up new longwalls in the near future. So when I joined the company on August 1, we had 21 -- 20 longwalls. We've now opened up another 5 longwalls. So in September -- in October, we'll open up another 2 longwalls. So we should end the year with 27 longwalls. That's very important information in terms of our mining capacity. And so that's one of the most important things for our position -- to understand our position.

If we look at some of the important events, the most important thing that's very close to my heart because 12 years ago I was involved in preparing the project, Bzie-Debina. This is a concession that has been granted to us until 31 December, 2051. There is roughly 180 million tons of deposits of high-quality coal, so it's type 35, so it's typical hard coking coal. So this is a major accomplishment. And so for the next 2 to 3 years, we're going to want to launch this mine.

This concession has been extended also to extract methane, an important component of our operations. So on the 2nd of July, we entered into a memorandum of agreement with the trade unions. All of the representative trade unions operating in our group agreed. Basically, a memorandum was signed. This is a big, positive event because that means for 2019, we've exhausted all of the payroll-related expectations and claims.

And another important decision related to the distribution of dividends. So on the 3rd of July, the decision was made to pay dividends per share of PLN 1.71. This will be paid in the near future.

So another thing was the execution of financing agreements. And here, I would draw your attention to what was prepared between JSW and ARP as well as for other banks. This is a renewable loan of some PLN 360 million, a revolving loan facility of roughly PLN 360 million. We also have a term loan facility of PLN 100 million, and we also have some EUR 58.5 million financing.

Another important thing that happened during H1 was the acquisition of a majority stake in PBSz S.A. We have 95%, and so this is something that will reflect on the future development of the company. We have to continue sinking shafts, but we also have to do corridor works. So these are important elements that transpired -- important things that transpired in H1 2019.

Now I'd ask Mr. Sledz to go ahead and walk us through the operational results of the JSW Group.

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [2]

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[Interpreted] Good afternoon, ladies and gentlemen. In H1, as the CEO said, so we had some 7 million tons. I'm in the second term of office. So this is the mining plan we had, and we achieved it even though this is 11% lower than what we had in H1 2018. What was the reason? So we had 4 more longwalls, and at the most recent conference, I told you that quarter-on-quarter, we'll increase the run rate. And so we've increased this by 1.3% from Q1 to Q2. So we now have 25 longwalls, and we'd like to get to 27 longwalls by the end of the year. So the upcoming quarters will be better in terms of our run rate.

So we have now 5 new longwalls. [Knurów-Szczyglowice] have 2, and we have 1 in Budryk and 1 in Pniówek, and so these have long lengths. So we have 1,800 meters. And so we have 1.7 million tons. Knurów has more than 2 million tons extracted per year, and we're going to be able to extract 1.7 million. And so we'll have a safe amount of attraction capacity having 3 longwalls.

And so if we look at the total percentage of hard coking coal, so it's 68% and then 69% in Q2. And so we can say that this percentage will ramp-up over subsequent quarters. And then we have the wash plant. So the work -- the modernization has come to a conclusion. So in Budryk, by the end of the year, we'll complete the modernization. But in Knurów, we anticipate that by the middle of next year, we should complete the modernization of the wash plant.

And so if you look at the corridor works, so this is one of the things that we've talked about in previous quarters and conferences. We didn't have a lot of development, so we introduced what we call the efficiency program. So we're replacing roadways. We're reducing temperature, and we're also doing this roofing system. And so all of this means that we have 35,117 meters, which is 7% up over H1 2018. I also mentioned about this program where we're trying to do the roof and bolting system. Here on the slide, you see the -- this project, the time line. And so the machinery is JOY Global, and it's being assembled, and so on the 15th of August, the installation was completed. We're now training employees. And so on the 30th of September, we'll deliver it to the mine, then it will be installed. And so on the 30th of October, we're going to start producing coal. So in November and December, we'll start extracting coal. And so will be able to ramp up the amount of coal we're excavating.

So if we look at the mining cash cost and so you can see that it's higher. Above all the situation, the market has higher energy prices, higher material costs and so this means that the mining cash costs are higher. And so if we look at the inventory, you can see this, that we're a little bit above 1 million tons. So this is more or less a technological supply. So last year, it was 933 million tons, so we're going to be 1,000 tons.

So now if we look at the production of coke. So we're down by 8% to 1.7 million compared to H1 2018. But this is also caused by the fact that we still had the Debiensko coking plant, which produced some 990,000 tons. So if we look at these results, we can say that this is comparable.

If we look at the cash conversion cost for coke in the first half of 2019, it was PLN 294 million and so it was up by PLN 20 million. The main reason is labor costs. And so we also had PLN 12 million because of the agreement with the trade unions and higher cost of renovation. And so we have a sufficient inventory of coke and -- to run our operations on a regular basis. And if we look at the utilization of production capacity, it's 93.6%.

So thank you very much for your attention.

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [3]

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[Interpreted] Welcome, ladies and gentlemen. If we discuss the market environment in context, we usually start with a discussion of the steel market. So you know that it's on the levels of the production of global steel production in H1 2019 compared to H1 2018. So it's grown by nearly 5% across the world, but we have to indicate here that the growth took place in Asia because of the group by 7.4% there. The Chinese market grew by nearly 10%.

The EU market, where JSW sells the bulk of its products, shrank by 2.5% in this corresponding period, and the markets of greatest interest to us, the Polish market, fell by some 6% and the German market by some 5%. And the reasons for reducing production in the EU, or European countries, should be seen as a result of the conflict between the United States and China, and the outcome is the uncontrolled import of steel into the EU.

So in this period of H1 2019 compared to H1 2018, in the European market, we saw flat-rolled products prices falling by 17.4%. And then also we can see that rods' prices fell by 12%. And so you can see that the margin of steel production -- achieved on steel production fell because iron ore became more expensive. And if you look at the imports into the EU, these factors taken together mean that European producers have decided to curtail steel production substantially in H2 2019.

So if we look at the spot prices for hard coking coal, it fell by 2.4% to 2.3%. If you look at the semi-soft by, 14% -- if you look at semi-soft -- so if you look at the 2 half year periods, so you can see that there's a decline in global coal prices of 7.1%. If you look at blast furnace coke, prices for Chinese coke, it's down by 5.4%, where in the European market, the prices fell by 7.1%.

So if we continue looking at the steel market, and we analyze what's happening in Northern Europe for steel prices, we can see over the most recent 5 quarters, starting in Q2 2018 through Q2 2019, in each one of the quarters, we saw regular decline. So maybe this is not a major decline but a steady decline for flat products and rods. So if we narrow our analysis of steel production to the 2 quarters of this year, we can see that there is major growth across the world of 8.3%; whereas steel production in the EU was more or less flat at 0.3%. So this is more just symbolic growth.

The next slide depicts the evolution of spot prices and daily quotations for Chinese blast furnace coke and basically, they demarcate the price points for JSW's products. So you can say that one-offs actually had a major impact on our prices, like weather-related events or administrative decisions made by the Chinese government.

In Q2 of this year, there were no such events with respect to coking coal. And so we can say that the quotations were rather stable. At the end of Q2, so starting in mid-June, you can say that the prices started to fall, and they continue to fall to date. What has triggered this change in the trend line? What we said previously, so the margins are falling on the production of steel and also the demand for Australian coking coal in China. And we can see that the monsoon season in India has had a growing demand -- a growing impact because this is a stifled demand.

So if we look at JSW's coking coal prices, first is the major price indices. Here, we analyze 2 indices, which is the TSI Premium Hard Index, and we also look at the reference price according to the Nippon Steel method. We could say here, as we compare Q2 to Q1 for both of these indices, you can see that we have a decline of 1.9% and 1.2%, respectively. And so there were different market conditions whereby our prices reacted to what was happening in Q1. So the minor differences or changes in the indices is more a release -- more, a matter of fact, relating to the movement in exchange rates and shifts in composition of products. So if we look at our discount against the major indices, you can say that it was 11% discount in the -- against the TSI Premium Hard and 13% against the Nippon Steel method.

So what happened with coke prices when sold by JSW compared to what was happening on the European market and the Chinese market? So on this slide, we can see that over 4 quarters starting from Q2 2018 until now, the coke prices on the European market were quite stable. It wasn't until Q2 of this year that we saw a decline down to $340 as opposed to $312 in China.

We can say that the prices JSW had were pegged against the global market prices. The most important thing is the relationship between the price of coke and hard coking coal. And so if you look at the first half of this year, that ratio stayed at a pretty good high level of 1.6. So this means that our coke plants could generate good, solid robust financial results.

So the next slide shows us what's happening with steam coal prices versus -- at JSW versus the index on the Polish market where coal is sold to the commercial power sector and heating sector as well as with respect to the ARA coal index. And so we can say our prices were a little bit higher than what you see for the power index in Poland. But if you look at the ARA index, you can see that there was a decline, but this is related to the nature of the contracts in the power sector because these are long-term contracts lasting at least 1 year.

And then if we can go on to sales, the coke and coal in the H1 2019 period versus the other periods. And so if we compare Q2 to Q1, we can see that coal sales of steam coal fell by some 34%. If we look at coking coal, it was down by 1.3% across the half year period. So if you compare H1 2019 to H1 2018, the decline was 17% -- a little bit below 17% for steam coal and about 10% for coking coal. Across the entire period, we can say that the prices fell by 13%.

At the same time in this period, we saw increases of the average prices. So for coking coal, this was up by 4.2% and less than 16% for steam coal. The increases in these prices -- so the average prices, in part, offset the decline in the top line when you analyze H1 2019 versus H1 2018 where you had a decline, let's say, 7% in terms of the revenues on coal sales to external clients.

So then if we move on to the sales of coke in this period. When we compare H1 2019 to H1 2018, the coke sales fell to 5.5%, whereas the decline from Q1 to Q2 in 2019 was 9.4%. This is linked to the scheduling of shipments to overseas customers. Some of the shipments were made, but they have not yet been posted.

So the average coke sales price in H1 was up 6.6%. And to some extent, this price increase offset the decline in revenues and sales of coke and brought it back down to, let's say, less than 3%.

That's more or less it from my side ladies and gentlemen.

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [4]

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[Interpreted] Ladies and gentlemen, if we can then take a look at our investments. What could we say? You can see it yourselves. I'm going -- if somebody have a question, I'll fight with everybody who says that we're just spending money. I've had the pleasure of meeting with you now for several years regularly, and I think you can observe that we're quite consistent in how we operate. At this present point in time, this is what things look like. Year-on-year, we're up by some 44%. What's key is what we can see on the bottom, so in terms of JSW because you can see which horse is pulling the train and you can -- this is what's happening in -- at the mining pits, and I hope you've been able to observe that.

This is the essence of what we want to talk to you about. This is our investments in the mining -- underground mining pits. Our efficiency program, adding equipment, hiring new people, that's true. So we've got 35 kilometers of underground mining pits, Budryk and Knurow-Szczyglowice. We can take some bets on what's going to happen at back end of the year, but we're a mining company. So the essence of a mining company and its existence is to have this type of investment. So we observe with a lot of comfort. We can say that there's a slight cooling down in our industry. We're very happy to see the improvement in coke, so the increase in capital expenditures by 54% [barring] #4, we'll probably talk about that.

But you can see what's happening in Radlin. We've got the investments in the power unit, so we'll have the opportunity to talk about energy self-sufficiency as well. So here, there's more of a description. But I've accustomed you to a certain method of reporting.

So in terms of the major investments we're running in our mines, I'd like to tell you that you have this in your models. So if we start with Budryk and Borynia, we have 2 major areas, which is building the line of 1,180 and 1,220. In terms of 1,180, this is the nearly 60 some -- 64% completed. If we look at 1,220, this is the new strategy for this mine. We're around 7% completed. So Bzie-Debina, I'll leave it at the end.

And then we have Budryk. You know we're building the level 1,190, so we're at some 84% completion. So one of the most modern longwalls, and so we should have it outfitted in November. So we've got 3.5 meters of coking coal, and so we want to combine this in timing with the final stage of the modernization of the wash plant, the preparation plant, and so we can talk about the output of our mines.

These are investments we're finishing up now, and we're very pleased to see that they're going to get started at the time when we need them the most. And so we can see these consequences.

And then you have Knurów-Szczyglowice. So we've started the work there. The key thing are the 2 wash plants -- the preparation plants. And so the key equipment has been completed. And when we have a moment in time, I can talk about the percentage completion there in terms of the budget.

Pniówek, which is our pearl in the crown, so we're now building the 1,000-meter level. So this is a key investment, so we're sinking deeper 2 shafts and so we're -- 48% of the work has been completed. We'd like to ratchet up the pace of work. We assume that the company PBSz will have 2 legs and so one of them will be at Bzie-Debina, and the other one will be at Pniówek. They're going to have quite a bit to do.

So if you look at Bzie-Debina mine, we're very pleased that as of May, we have a concession for the entire deposit. And so the new leadership of that mine has started all of the tenders. We're strengthening also PBSz, and so our first mining crews should be in the mine to do the tunneling work in September. And in October, I'd like to invite you to join us. So our IR team is going to organize a visit, and so you can go down and see 1,250 meters. And you can see that people are there building the mine. So the funds have been secured, and the CEO is directly responsible for that project, and so we're going to intensify our work on that by -- to utilize the capacities we have. So that's what's happening in terms of mines.

So Tomasz Sledz talked about the kind of equipment. This is a breakthrough in the Polish mining sector. We'll see how this is going to work. So we're going to want to show you this, share our machine. We've done the work along with our employees for them to be able to utilize this roof and bolting machine. We've got -- Pawel is working there. We're very pleased that we've been able to create an ambitious team. So we have employees from PBSz who are going to be running that job.

If we look at energy efficiency. So at Radlin, the work is underway. But we're also intensifying the work to build our gas-fired engines in Budryk and elsewhere so we don't see any major problems here. It's not maybe easy, but it's possible to obtain funding for these investments since we've got a quite a bit of experience here in terms of utilizing external funding, and so we'll continue to run these investments.

That's it for me. If you're going to have any questions, then I'll try to respond to those questions about the investment field.

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [5]

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[Interpreted] Ladies and gentlemen, I'd like to present to you the most important financial information that had an impact in terms of our strategy of production -- our overall strategy, the head count. And then we could look at the investments that we've been dealing with over the last 6 months.

So if you look at our EBITDA, the result we achieved was because of our top line. So it's -- certainly, extraction operations and sales were critical here. So we were down from H1 2018 as you see on this slide. If you look at the data in Q2, you can see that we had a similar situation where sales revenues were down by 11.2% compared to Q1 2019. And so the revenue in H1 2019 was PLN 4.7 billion, so all of these factors mentioned by Mr. Sledz contributed to that.

So if we look at our EBITDA, those elements also impacted them, and so we have PLN 1.171 billion -- sorry, PLN 547 million. So it's down some 49 -- so it's down. So if we -- we had to -- sorry, EBITDA was PLN 740 million in Q1 and so then the net result is quite important to all of us, and so it was down by half to PLN 547 million compared to H1 2018 when it was PLN 1.086 billion.

Perhaps it's worth mentioning, this is objective information, that in H1 2018, this was one of the record-breaking periods in terms of our accomplishments. So it seems to me that this is worthwhile to mention. This is one of the best results we had.

If we look at our net working capital, not much has changed here. We have some structural changes. We paid the tax for 2018, so the corporate income tax. That's important information. But we also had a decrease in short term, so current payables as a result of our investments.

And so the next slide is our EBITDA bridge. So basically, it gives you a breakdown of the drivers contributing to what changed here. And so we can speak in detail how the individual declines in respect of prices affected our result. You can see that the volume also had an impact of PLN 106 million, so PLN 40 million was the coal price impact. So we've told you already that prices were higher in H1 this year compared to next -- last year. But quarter-to-quarter, that was not the same and so we had the coke sales volume down by 9.4%, and so a negative 94% (sic) [PLN 94 million]. And then the prices of coke had an impact of nearly PLN 44 million. Other operating income and expenses didn't have any impact. Then we had also a payment under the memorandum of agreement. And so I'll talk about the other one elsewhere in the presentation.

If we look at -- so if we look at the impact of the segments, we can say the coal segment contributed to a decline of PLN 152 million and then the coke segment contributed a negative PLN 62 million. So then we had the revaluation of our inventory. This is one of the most important consolidation eliminations that affected the value. If we look at the nonrecurring events, we had a payment of nearly PLN 160 million. But since we're accounting for that amount, only PLN 146 million had an impact on that period because some of the bonuses were for employees working in the underground mining pits, and so this would be capitalized in subsequent periods.

One of the most important slides for many of you is the cost side. So we have the costs of labor, so employee benefits and the bonus. So the costs moved up because of the employee pension program. So we know a company of our size is obligated -- has to make a choice between PPE and PPK. These are 2 different implement pension systems, and we chose one that was more beneficial to the employees in our opinion.

I already mentioned the cash bonus, but we also have an increase in head count. As Mr. Dyczko said, it was a strategic selection to -- choice to bump up our head count. So if you look at the data produced by the General Statistics Office (sic) [General Statistical Office], it was happening, so salaries are trending up. So in our sector -- in other sectors, companies are competing for employees, and this is contributing to higher salaries.

If we look at depreciation and amortization, we've talked many times about the impact exerted by IFRS 16 on leases, and so how certain assets are leased. And so the impact is PLN 52 million.

And if we look at the utilization of materials -- consumption of materials and energy, I think you're fully well-versed with this subject matter that we have seen an increase. So in terms of compensation, this won't apply to H1. We have an estimate of some PLN 25 million that we'll be able to take advantage of that. But we have a conservative valuation. We don't have certainty about certain amounts, so we have decided not to put it into the balance sheet as it stands today.

So if we look at our profitability, we can say that the net result has fallen considerably. And so that means these parameters are -- have sustained a hit. And so that means that we have a lower return. If we look at the cash flow, we've got PLN 1.3 billion in our account, plus the money we have on the close-end investment fund. So this is less than we had last year. But we also have investments, as you could hear a moment ago from the management team. I think it's also worthwhile to emphasize, having in mind the financial position of the company, we can say that the net financial position of the company, we can say that our liquidity is quite safe in terms of the cash resources the company holds. And -- but the purchase of the shares of PBSz had made a contribution to that parameter, and some of that purchase was financed with a loan.

That's more or less it in terms of the fundamental financials. But I'll field any questions you may have a little bit later. I'll give the floor back now to the CEO.

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [6]

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So ladies and gentlemen, the key measures we're focusing on and will focus on in the near future. This is the continuation of the new mine, the Bzie-Debina mine. This matter is the most important thing in the near future. That means that we will increase the extraction of hard coking coal substantially. This is going to be nearly premium quality. There are not many mines in the world that has such a coal grade, and we will have that, I hope.

And so this is a major challenge because we're talking about a depth under 1,000 meters, so you can use your imagination. Up until now in Poland, we weren't mining at such deep levels and deep shaft mines. All of the threats and hazards in the mining sector are present there.

Another thing that's quite important. This is the modernization of 2 coal preparation plants at Knurów-Szczyglowice and Budryk. This is quite important because we're going to be able to enrich coal selectively, especially in Budryk because we're going to have one 35 so hard coking coal and one semi-soft processing line. Then we also have the steam coal. that, by the nature of things, we'll be extracting anyway.

Another thing is the commercial utilization of methane. You know that the company is one of the leaders in the utilization of methane from mines. We have that solved in Zofiówka and Pniówek in a beautiful fashion. We want to do that as well in Budryk and Knurów-Szczyglowice because as we go deeper, that means we have a bigger problem with methane and employees' safety. But we also want to treat methane as an important source of energy.

It's quite obvious that we operate in a very specific region -- distinct region, the southern part of Poland where mining culture has been cultivated. So we will intensify all of the activities related to being pro environmental and prosocial -- proactively social because this is something that's generally more and more interest amongst our residents.

So what sort of challenges do we have? What sort of goals do we have? So we had a tragic situation in Zofiówka some time ago. We -- there was -- it's a difficult situation to master, so employee safety is a key factor for us. And so we've spent a lot of money to enhance employee safety.

Another thing is environmental protection. So we don't do selective utilization of deposits. So if we have thin layers or seams, so we have the mine plow system. We have 1 mine plow, but we want to, of course, continue to expand that technology. But that means we're going to have very high-quality hard coking coal.

Then the resource phase, this is of key importance to a mining company. So this is Bzie-Debina, so roughly 180 million tons of coal within our reach. So this is something we still have to do, but we're going to do everything we can to make sure that our resource base to be prepared in other mines in the near future.

Then relations with employees and our social stakeholders. As you know, we have strong trade unions, and so this cooperation is intricate and complicated. And so we encounter difficult things we have to solve on a day-to-day basis. We're going to try to do this in a balanced and sustainable manner. But this is not an easy process, and I think you're very well familiar with that subject. If we think about communication, we're going to try to act transparently and clearly. The legal regulations and corporate governance, honesty and management, these are all some of our key objectives.

That's a bit it -- that's about it in terms of what we want to tell you ourselves. And I understand that we can move on now to the Q&A session.

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Questions and Answers

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [1]

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[Interpreted] Good afternoon. My name is Pawel Puchalski. I'm from Santander. Perhaps I would start with a question to the CEO. I'm most interested in the volume of mining. The previous CEO assured us that this year, we will have a higher volume of production than last year. Last year, we had 15 million tons. We've heard about plans about new longwalls. Now I'd like to ask you whether or not you sustain the idea that the volume of production in 2019 will be higher on a year-on-year basis.

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [2]

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[Interpreted] We believe that it will be at the business plan level. It's going to be 15.5 million tons, and so this is possible. Understanding that the Budryk mine longwall will be launched. Of course, this is a difficult thing. This is the deepest mine in Poland, 1,290 meters. But there's a big chance that we're going to be able to achieve that plan, and that's the direction we're following. So I would sustain that quantity.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [3]

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[Interpreted] In that case, I have a question to our commercial gentlemen. We saw low sales in Q2 for coke and coal, and I'm hearing about substantially higher mining extraction quarter-on-quarter. Will there be clients to sell to? We hear about problems in the automobile industry and the steeling industry -- steel industry. Will we be able to sell so much more coal in the second half of the year?

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [4]

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[Interpreted] So our analysts are following the market situation. I did say, and we did show, that in the second half of the year, well, the steel prices had fallen, but we've shown the trend also from the middle of June where the prices of coking coal are falling, and this decline of prices was quite high, roughly 23%. So we can also say that steel prices have fallen, but around 5% was the decline in steel prices. And so iron ore prices are no longer rising but have fallen now by some 8%. So there is a gap, an opportunity for future periods to generate higher margins. So we assume that the European steel concerns will withdraw from their statements concerning their intentions to withdraw from steel production. But you're making this assumption because we're already in the middle of this. Well, there's hope here.

To be clear, today, we haven't seen any statements made by our key offtakers to reduce volumes, to make sure that this is clear, too. So sales through the middle of Q3 is at a substantially higher level than in Q2. So in Q3, we'll talk -- about Q3, we'll talk a little bit later.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [5]

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[Interpreted] Well, let's talk a little bit now about Q3 because based on what I know, the relationship between the coking coal price and the coke price is 1.6. Is there anything that could disturb -- disrupt that? So if I see prices at PLN 150, should I be able to project easily the coke price that's going to be much lower than what we saw in Q2? And will this happen already in Q3 or will it not happen until Q4?

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [6]

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[Interpreted] We don't anticipate any major decline in coke prices. Well, that ratio of 1.6x, we don't see any risk of the price relationship falling down. But if coke -- I'm sorry, coal prices has fallen -- have fallen from PLN 200 to PLN 150, so using that same ratio, well, the coke price should fall by the same amount. We haven't seen a decline.

If you look at Chinese coke prices, we haven't seen any major erosion in those prices. It's not in line with the price erosion on the coking coal. So -- and you're a journalist. This is what I have in mind. So we could assume then that the ratio will actually improve. We'll see what's going to happen over the next quarter, but we'll discuss quarters after the quarter has come to an end.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [7]

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[Interpreted] So I have another question to the gentleman, Mr. Wojtków, about employee relations. When we start the negotiations about salary with trade unions, I understand the situation is quite difficult on a daily basis. When will negotiations get started? And should we assume that salaries will increase by 6% to 7% like in industry? Or do you want to renegotiate a decline in salaries because of the situation being much worse in the prices?

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Artur Wojtków, Jastrzebska Spólka Weglowa S.A. - Vice Chairman of the Management Board for Labour & Social Policy [8]

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[Interpreted] Let me try to quiet you. This one-time payout of PLN 163 million, we think this is a one-off increase in labor costs. We don't assume that we're going to talk about an increase in salaries in the second half of the year. We maintain regular contact with the trade unions. We have steering committees where we have representatives of those trade unions and the management team. We talk about different assumptions. So we think in the second half of the year, we won't be talking about salary increases for this year.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [9]

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[Interpreted] So it's too early to estimate whether or not your salary hike will be at the level of 7% in the industry.

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Artur Wojtków, Jastrzebska Spólka Weglowa S.A. - Vice Chairman of the Management Board for Labour & Social Policy [10]

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[Interpreted] Well, it's too early. We don't have any such talks at present.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [11]

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[Interpreted] If I could pose a question to a different president about strategy and development. If we'd look about mine preparation plants, it seemed to me that the coal preparation plants should have already started. When will they actually get started? And when will we yield the benefits?

In one of the slides, I saw that it's possible to obtain higher coking coal type 35. Does that mean that you're going to convert certain steaming coal into semisoft or semisoft into hard coking coal?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [12]

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[Interpreted] I know that you know that this is not possible. I would like for it to be possible. The type of coal we have, we have hard and we've got good super hard coking coal. It has to be hard in the seam itself, the coal seam. So as we saw the coals, it's hard if we've got a high gas content. But it's a little bit difficult to extract it in terms of costs.

If we think about the mine preparation or the coal preparation, basically in 2 of our mines, Knurów-Szczyglowice, we can say that this process has basically been completed even though we're still in the process of acceptances, we should complete this process in May of next year at Knurów; and Szczyglowice, we should complete this January.

In Budryk, we have a more difficult situation because we have the semisoft coal 34. So the Budryk will have semisoft 34 and hard coking coal type 35. So we'll have 2 different streams. So at Budryk, this is doable. They also have the steam coal and so this is a major plus of this mine. We have to utilize this and basically steer those streams correctly.

So we're in the most difficult phase for this mine. To illustrate this, well, if you do the modernization of mine or coal mine preparation -- coal preparation, this is something that's never been done. We're talking about millions of tons of coal where we're going to be moving hundreds of thousands of tons of coal during the production going on. We're talking about what's been happening with water and sludge. We have to have a filtration press and we have to dry things out, extract the water and then do the separation work. And so right now, we're facing a challenge. Basically, we have 2 sedimentation machines and we have to get rid of the old machines and put in new machines. And so this process is the most difficult and this will lead to a decline in mining and extraction for 2 months. The management has made that decision that we're going to go in this direction. It won't eliminate the run rate but it will slow it down a little bit.

And so within a period of 2 months, we want to walk through that process and then be able to come back to the original run rate. So the budget is the most important thing for you, of course. We have -- so at 73% done and 74% done and 62%. So this doesn't reflect 2 things materially because -- so even if you've completed the work but the acceptance hasn't been done, then the machine won't work. The mine preparation or the coal preparation plant won't work. So everything has to be done. So Budryk will have a water and sludge system that's totally in play. So -- but we'll start the testing in November in Szczyglowice, and we're already doing testing and optimizing it to make sure that we can get started in January and so Szczyglowice, where we also assume that we'll be able to complete things in May.

What -- in Budryk, in terms of the winnings of coal, we've got 21% -- 20%. We want to have some 60% ultimately. And in Knurów-Szczyglowice, we want to move from 48% to 80%. That's what we're trying to achieve. The samples that we've done on these mine sections, they went from 19%. We've already up to 40%. These are tests. So we have to optimize that. The idea is to make sure that we've selected the parameters and situate to achieve the best possible outcome.

So at Budryk, I would like for these next 2 months to transpire as easily as possible. This is a complex primer. We have electricians, we have construction people, we've got tens of people who are working on this machinery. So this is the most important investment at present in the company. So we have the head of our JSW KOKS plant here. They'll do something simpler in Radlin. In Radlin, we'll get started and so this will be another subject of a similar magnitude.

So if you look at our mine preparation, our coal preparation plants. So we're close to the finish line.

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Pawel Puchalski, Santander Brokerage Poland, Research Division - Head of Equity Research Team [13]

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[Interpreted] If I can still ask one more question to Mr. Radoslaw Zalozinski. So 2 things about PBSz. I understand this is not totally incorporated in our costs. When will we see it? Will Q3 -- will that be the first quarter in which its -- all its costs are fully incorporated? What will the impact be on cost?

You also mentioned that the reduction of EBITDA was because of something that happened with inventory. Please tell me what you had in mind because you just talked about revaluation of inventories. You revaluate your inventories but prices hadn't moved. What did you really revalue? And are you doing mark-to-market? Because this could have an interesting impact on Q3.

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [14]

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[Interpreted] Perhaps, I'll start with the second question because it's easier to respond to. We're talking about intragroup sales. A large portion of the coal goes to JSW KOKS and so it's not a matter of revaluation of inventory in terms of the inventory we hold. It's just a matter of posting what we have.

As you know, Pawel, we sell the core product of this company. If, coming going back to your first question, we've incorporated this PBSz company, so the shaft construction company, sinking company, we're analyzing the profitability of their contracts, and since this process was completed in May, you can't fully see it. I think in Q3, by the end of the year, we should be able to say what the real impact of holding that company will be on our cost base.

So we're the only mining company in the hard coking coal industry that's building a new mine and this was a strategic decision that we're buying PBSz because we believe we're going to be able to utilize it for the contracts we have. And we're going to be able to increase their participation in the work we're doing. So sinking shafts, as the name of the company indicates, but there's also core corridor works for them to be involved in doing. And so this may also entail hiring more people, and we don't preclude that. But we want them to do more and more for us at JSW.

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [15]

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[Interpreted] Let me add a couple of words about this mineshaft company. We have a specially dedicated team appointed to achieve the synergies we identified. So when we took over that company, this is a company that's entitled on PGG and KGHM. For a while it was in the Lublin mining sector. So when we were buying them, they were 18% -- 10% at PGG, 27% in Tauron and 39% at KGHM. Right now, after the work that we're doing and this is what Mr. Zalozinski said, we're mostly interested in building resources that have a real impact on the operation capacity of our company. We'd like to have a company here that's going to be fully aligned to our strategy in terms of fighting for meters. So at the end of this year, I think that we will account for the 30% of the work next year. Next year, our plans are that we'd like to double that.

So the company has started to work very strongly in the Bzie-Debina mine and so it will be involved heavily in our Pniówek mine. So we see a lot of capacity. And so this company has started to create certain areas where they can be utilized for export purposes. So you have to learn how to run this roof and bolting machine. There's a lot of interest so we could create a new leg for the company's development in terms of export work. And so we want to do this as efficiently as possible. That's something that's underway.

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Unidentified Analyst, [16]

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[Interpreted] I'm from Wood & Company. This morning, the vice minister responsible for the mining sector said he would like for your production to stabilize at a higher level than at present. If you look at your CapEx plans and having in mind what the minister told us as a hint, so assuming that CapEx will be PLN 2.8 billion, so a little bit above PLN 2 billion, is it realistic having in mind the PLN 200 million you've spent for PBSz?

And my second thing about CapEx, so PLN 1.8 billion is a rational assumption having in mind your growth plans. And the third CapEx-related question, Mr. Dyczko said that there's starting to be a bit of a hiccup. In the second half of next year, we could have a slowdown in the mining investments. Do you intend to reduce CapEx substantially in the future?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [17]

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[Interpreted] I didn't say anything about a slowdown. So I've shown certain amounts. You're calculating these bars. It's PLN 827 million. As you're calculating, this is 30%, 40% of what we can do. You know very well that we're masters of the end of the year. So I think at the end of the year, we should do very well.

But let's agree on one thing. We, at JSW, aren't doing CapEx just to do CapEx and beat records. This will be a record-breaking year. That's a fact. When we meet to ramp up this year, we can tell you how much money we spend on CapEx compared to the run rate. I think there was PLN 113 per every ton. But if we look historically, in 2014, in half, we had PLN 217 million, then we had PLN 560 million, then PLN 480 million and now we're at PLN 823 million. We know that 2016 was a year of decline. We're now updating our strategy.

For us, strategy is a very important document when you -- I know you read our document about strategy. I'd like for us to have a higher run rate. For 2030, we're saying we're going to reach 18 million tons. So if we give consideration to the fact that this year -- think about in 2018 how many kilometers we did. We did 64 kilometers of corridor works. And so if we summarize what Mr. Sledz said, at the end of 2019, you can see how many meters we would have done.

We have to now divide up those longwalls. We have to have work done by book. By the book, we should -- done the works 8 to 10 years ahead of schedule. So we're now back on track. Mr. Sledz talked about that. That's the reality of the Polish mining sector. If we have to do something, we have to do the work ourselves, and that's what we're doing.

So coming back to your question about this year's CapEx, I think it's going to be a good year. But there won't to be a 2 at front. Do you want to take a bet? We're still calculating it. It's not the case. This is the mining sector. This -- these are commodities. But we shouldn't fall into a panic. We've got a plan, we've got a very good plan and we're going to stick to it and we're going to execute it.

Our strategy, above all, is safe for our company. Three years I've told you that we've been preparing, that we have to be well prepared. And now we're well prepared. What the future will tell us, nobody knows. I also don't know what the future will tell us. We have to analyze it. It's not easy. What we're disquieted by, our suppliers, subcontractors have problems to finance things. They have a huge problem. The Polish banks don't want to finance companies working for JSW.

We're in coal. For black coal, companies have to use factoring from Romania because there's no financing available to them. So let's think about if the situation changes dynamically, what's the motion? What's the result, the conclusion? We have to rely on ourselves. So our organization has become more sublime. We're doing more and more research analysis. We're looking at the situation in the coking plants and we're updating the strategy. And this is something that will show us some of the directions we should take. But there's no reason for us to think about slowing things down. That's not the right way to -- we're well prepared. And the investment process we're following shows you how consistent we are in performing. It's money, preparing people and execution tenders.

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Unidentified Analyst, [18]

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[Interpreted] My next question is about PBSz. 30% of their work will be for you. 60% in the future will be done for you. How soon?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [19]

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[Interpreted] Well as soon as possible.

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Unidentified Analyst, [20]

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[Interpreted] Next year?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [21]

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[Interpreted] I don't know. This is also something we're also still calculating. We don't -- PBSz should continue to fighting for contracts around their marketplace. We don't want to pull them out of the market. We are making sure that companies don't steal away employees from under them. Because as you know very well that there's a fight for employees, it seems to us. And as we observe things that this process seems to be under control and we're using the training and mining company that we have in the group. We don't want to destabilize the companies we have in our mines, but we have to achieve certain synergies.

I would like for PBSz to have 80%. It would be great to have a company that could work for us almost fully. It's not going to be a long period of time. There was a discussion at the management board. So PBSz should get highly involved in the construction of Bzie. So we want this to be a reference list. So we're moving crews that we've agreed upon with at [SGMBM] so we have 3 wall faces getting started so we're going to keep doing that.

Why is Bzie so important? The CEO already told us. We have very good, top quality coal. This is the type of coal we need. Of course, it's imprisoned there and we have to use the infrastructure to model -- draw models of that at the seams of coal there. We know what we have there. And so we have to utilize that coal seam.

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Unidentified Analyst, [22]

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[Interpreted] Is there are major difference between PBSz and JSW? Is there a risk that -- in terms of the salaries, is there a big risk that people having salaries at PBSz are going to want to have the salaries of people at JSW?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [23]

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[Interpreted] I wouldn't treat that as a risk. This is a normal life occurrence. I won't talk about the details and contracts. We have memorandums of agreements signed with the stakeholders, social stakeholders. This process is defined and so this is a group company. It's organized a little bit differently from the other companies in the group that are doing horizontal work while they do a lot of vertical work. They sink shafts and they have different payment systems. So they're paid differently. So making a direct comparison between their salaries and our salaries is not possible.

So time of execution is important and the number of meters they sink a shaft. So we believe that JSW Group is one big family and we have to put things together to make sure that we don't have a problem. We're analyzing these situations and so people have experience in verticals, sinking shafts will be in PBSz. And sometimes you have to be a little bit more dynamic. We have to achieve meters and not discuss things.

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Unidentified Analyst, [24]

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[Interpreted] So 15.5 million tons of production this year, we know how much there is at the end of the first half of this year. How much increase in production do you have to assume in Q3 and Q4 in order to be able to achieve the 15.5 million ton run rate?

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [25]

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[Interpreted] We're not going to talk about which month we're going to do that. In July, we had a higher level of run rates. In August, we had a higher run rate. At the end of Q3, we'll tell you what the figures are.

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Unidentified Analyst, [26]

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[Interpreted] What about the shift in the mix of coking coal?

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [27]

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[Interpreted] We'll have an increase of several percentages. We talked about having more than 70%.

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Unidentified Analyst, [28]

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[Interpreted] So in the upcoming quarters, how much?

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Tomasz Sledz, Jastrzebska Spólka Weglowa S.A. - Vice-President of the Management Board for Technical Matters [29]

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[Interpreted] So in the next couple of quarters, we should have an increase of a couple of percentage points.

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Unidentified Analyst, [30]

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[Interpreted] In the table where you have the EBITDA adjusted, there's some sort of dispute with FAMUR. You have 2 senses about that subject. Can you tell us a little bit more?

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [31]

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[Interpreted] Because of the court litigation, we decided that we'll put a provision on that because there's a higher risk of the payment being made. And that's why the change was -- the adjustment was made. Does that respond to your question?

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Robert Maj, IPOPEMA Securities S.A., Research Division - Analyst [32]

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[Interpreted] I'm from IPOPEMA, Robert Maj. I want to talk about the inventory that bumped up to above 1 million tons. And I'm thinking, if 15.5 million tons will be production, what sort of sales should we anticipate? Is it the case that main offtakers don't want this coal? And what will happen at the end of Q3 and Q4?

Perhaps, I should add. The question is about ArcelorMittal. We had discussions with them about the volume of coal to be supplied. If I remember correctly, that contract is in force until the end of next year. Or is it that is the case there will be no negotiations?

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Rafal Pasieka, Jastrzebska Spólka Weglowa S.A. - Deputy President of the Management Board for Trade [33]

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[Interpreted] This year, we don't anticipate any reduction in any of our contracts. In the near future, we'll have the round of discussions about 2020. Today, our major offtakers haven't started any negotiations to renegotiate volumes.

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Robert Maj, IPOPEMA Securities S.A., Research Division - Analyst [34]

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[Interpreted] What would the inventory level be at the end of the year? Will it be above 1 million tons?

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Rafal Pasieka, Jastrzebska Spólka Weglowa S.A. - Deputy President of the Management Board for Trade [35]

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[Interpreted] We always have to have a technological inventory for technological purposes whether it's going to be -- it's around 1 million tons, so 800,000 tons to 1 million tons.

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Robert Maj, IPOPEMA Securities S.A., Research Division - Analyst [36]

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[Interpreted] I have a question about PBSz. The head count jumped up in Q2 by 1,300 persons compared to Q1. How many of those people came from PBSz? And how much of this is incremental hiring at JSW?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [37]

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[Interpreted] I'm not really sure. It's not in the tables. We can check it. That's not a result of taking over PBSz. PBSz has the level of head count it had prior to us taking them over. We also see some people who completed their work at Tauron Wydobycie and now they're doing work for us. This is more a matter of hiring specialist experts to the bolter or to do some roof and bolter system or to some or the other. So it's not a major increase.

If we look at JSW, 827 people head count grew in JSW SiG as well as in JSW Ochronoa. This is the 1,300 people. Those are those groups. But PBSz is not incorporated in terms of the change of head count. So we opened 50 additional crews to open up longwalls.

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Robert Maj, IPOPEMA Securities S.A., Research Division - Analyst [38]

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[Interpreted] One more technical question about depreciation. PLN 254 million versus PLN 220 million in Q1 and the impact of IFRS was around PLN 30 million and PLN 37 million. Did something else happen there? Did you commission something?

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [39]

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[Interpreted] This is a matter of the analysis of the length of contracts. So if we have some contracts which including -- according to IFRS 16, was up to 12 months, then we didn't have to show it. Now if we have a new contract whose duration is beyond 12 months, that's why we had to incorporate that.

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Robert Maj, IPOPEMA Securities S.A., Research Division - Analyst [40]

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[Interpreted] So we can say you should have of more or less PLN 250 million per quarter of depreciation and amortization.

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [41]

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[Interpreted] That's right for financial purposes. But we also invest and so there'll also be incremental growth.

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [42]

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[Interpreted] Rafal Wiatr from Citi. I wanted to ask you, in your new role, what do you think about the share price? What does the management board think? And if it does think, what it is it thinking about what to do about it? Do you have a concept or feelings?

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [43]

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[Interpreted] So the management team thinks about the share price all the time. Sometimes once an hour, I check it, and this is a problem. So as you know, we're at the lowest level today in 3 years. The overall situation on the market has an impact. Generally speaking, our extraction is something that defends our position, the development of the company, so increasing the resource base. And in our opinion, this is something that will have a major positive impact on our share price at the end of the year. That's our opinion and our assignment.

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [44]

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[Interpreted] This is a question to you and to Mr. Dyczko. Have you thought or are you considering -- let's imagine a situation, and you've probably walked through these problems before, the price comes down to $120 or maybe even $100. Have you thought what you would do? We know what was done in the past. How are you preparing yourselves for such a situation? And what could we anticipate in such a scenario? And please don't tell me that we have a $160 price peg right now. Well, you have to think about something like that now. What will you if we hit such a level? We'd like to have an understanding or some sort of expectation.

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [45]

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[Interpreted] It's obvious that we're not making such assumptions. But my experience over many years, I've worked with many people here in different arrangements for many, many years, that the social stakeholders are demanding but are very well aware. You remember what happened in 2014. And these people basically took some major constraints. And that's a situation that's happened. It's very difficult. The situation is not so alarming. We shouldn't scare the social stakeholders. Of course, we're monitoring things. We frequently meet with them. We also give them information about what's happening in the company and the potential market context. And so God forbid, that such a situation happens, then we'll talk about it. But labor costs are the major cost component.

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [46]

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[Interpreted] So should we understand then that if such a situation were to occur, that you believe that this method of thinking would be similar to what happened in 2014; that the social stakeholders with understand that and that certain costs would be reduced for the duration of such a situation?

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [47]

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[Interpreted] I have quite a bit of experience. I have been a CEO for many, many years. People in our industry, not only in this company, but in other companies, are very well aware. And so in drastic situations, and I hope the drastic situations won't occur, then the talks are very constructive. That path always exists. But it would be difficult to scare people about such a situation because it's not transpiring.

It's true that there is a change in generation -- a generational shift. So we have the age of retirement for minors. We have a high average age of employees. And so this generation shift is taking place and so people, young people joining our company have slightly different expectations. We don't know what's going to happen in a year. But do want to make sure that we're fully abreast of the situation and capable of reacting to it.

So all of those measures are possible, but we're -- I can confirm that our employees have the interests of the company deep in their heart.

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [48]

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[Interpreted] While the dividend that was ratified is the hundred -- PLN 1.71 was the right level of a dividend. Would anybody at the management team...

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [49]

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[Interpreted] Is it not the right -- the shareholder meeting believe that PLN 1.71 was the right level. It doesn't sound as good as PLN 200 million, but it seems to be a good level.

You posed the question how we're preparing to a more difficult period. One of the things that we have is the closed investment fund. That's one of the reasons why we prepared it by having such a fund for a downturn. But we also are building mines, building a mine. We also have cash. We should have even more cash perhaps. But we look at these difficulties. Not only banks in our region, but across the European Union make decisions not to finance our sector even though we're producing a product that's used for different purposes. And so the EU believes that our product is very important. That doesn't change the fact that banks in England, France and Spain don't want to enter our sector. So the decision about the level of the dividend related -- resulted from that. What do you think?

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [50]

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[Interpreted] What would the management say to the shareholders? What can they count on? There was an extra bonus for the employees who are important, that's true. PLN 160 million, but the shareholders also function. Some of you are indirectly shareholders. And the question is, what can a shareholder count on?

I understand that you're so well-prepared and the dividend was so low, and you're prepared for a $100 coal price. There's no reason for people to think about a shareholder.

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [51]

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[Interpreted] Well, if the share -- if the price drops to $100, it'd be hard to imagine that the company could pay a dividend.

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Rafal Aleksander Wiatr, Citigroup Inc, Research Division - Director and Industrial Country Analyst [52]

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[Interpreted] And my last question. If you're going to be a management Board, if you're going to have the opportunity to report the result like you did last year, would you have the same level of a dividend as for this year?

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [53]

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[Interpreted] Everything depends on our investment targets. We should think about the revision of the strategy and the strategy would have an impact on our financial strategy. And this would tell us where the company wants to be in a few years. And this is an important document for us. And on that basis, we'll be able to tell you then what sort of recommendation we would give in terms of paying a dividend.

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [54]

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[Interpreted] The key word here in your question is strategy. You have to have a plan. You have to have a strategy. What we can say right now, what we're saying to you clearly is that we're analyzing a number of scenarios. We want to be able to navigate any turbulence that may transpire in the marketplace. Right now, we don't have that turbulence. The situation is totally different from the one we saw in 2015 and 2016. The company has a fund. We're doing the corridor works, many meters of corridor works. We're also automating processes computerizing this work.

So if you look at the situation in the mining sector in Germany and what was happening there. So in our dialogue with our staff, we have to say that our staff is quite accountable. When we talk about safety, we now have to make certain efforts with precursors because nobody has ever extracted mine from such a deep level. This is the deepest mine for coking coal in the world, 1,300 meters. We have a plan. We got temperatures, and all that sort of stuff, different types of risk. We also have price paths. So I assume that we're counting, in all of our plans, on ourselves. If we count on ourselves, then we take a very sober look at what sort of capabilities we have. And so depending on the overall context, then we're going to be able to do certain things. We've got different sections in different mines. We've got a group that's strongly focused on supporting the full technological cycle.

And so we'll update our strategy, and then we can talk about our major objectives in terms of having access to very high-quality coal. I'm an advocate of proactively taking crisis by the horns. We have to become more efficient and this is something we're doing. That's something we're going to do. There's no other path. We have to become more efficient at the run, run rate and reduce costs. And these are commodities. Commodities' prices move up, moving down. But on average, you are always moving forward. This is what we want our shareholders to do, to look at the situation soberly and with calmness.

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Unidentified Analyst, [55]

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[Interpreted] I'm happy to have the microphone back on the left side of the room. I have several questions. The first one is about the energy prices. You're saying that the refund should be around PLN 235 million. When will that final figure be known? When will you report this amount?

The second question is about geo-methane. As a new management board, will you take advantage of what Mr. Wlodzimierz said? Will you want to participate in this program?

And I have a third question about the prices or the bonuses on Slide 6. You said PLN 163 million, which was in Q2 results. But on 35, it says it's PLN 136 million. Is this a mistake? Or are these 2 totally different figures?

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [56]

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[Interpreted] I already talked about this. We're talking about employees who are participating in mining corridors. This will be capitalized later. What the -- in the salary agreement, it's PLN 162 million, but the amount that was expensed was PLN 135 million. And the CEO would want to respond to this question. It's more of a strategic nature, but in terms of when this refund would be posted, it'll be in Q3 or at the latest, in Q4.

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [57]

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[Interpreted] If we talk about the geo-methane program, regardless of the Polish oil and gas company, for us, this is an important case. We want to stir their interest in other areas but this is something that we can talk about at the next meeting because this is a rather complicated issue mining-wise. And it's something that's difficult for miners. Miners are afraid to disrupt deposits. We have to take a look at that, but this is important. I'm saying probably because we don't have this experience. This would increase or augment safety because of having less methane in the deposit.

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Unidentified Analyst, [58]

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[Interpreted] I have one short question. This is the first conference in many times where we've been here for more than 90 minutes, and nobody said a single thing about Debiensko. So under your strategy, what would you like to do with the strategic deposit of Debiensko, which is located just next to -- negotiations are still underway? Have they come to a conclusion?

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Wlodzimierz Herezniak, Jastrzebska Spólka Weglowa S.A. - Chairman of Management Board [59]

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[Interpreted] That's a tough question. I was one of the people who closed Debiensko. So I was working in a different company. It's a big deposit, more than 300 million tons. Generally speaking, semisoft, but there's also some hard coking coal. It's an interesting case. But the guidelines from the ministry are very clear that it's the interest of the ministry and the owner. So we're analyzing that and we're going to scrutinize it. It's too early, at least for me, to speak.

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Unidentified Analyst, [60]

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[Interpreted] (inaudible) from Noble. We have the corridor works increase. I see improvement in terms of efficiency. But on the financial side of things, if I look at Slide 39, the line item where we talk about cash and cash equivalents. Could you share some of your feelings about what we should expect in respect of this line item in upcoming quarters? The decline, there's a trend moving down. Will this continue? Will it fall off?

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [61]

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[Interpreted] Everything will depend on the market. We've got pessimistic views and other views, optimistic views. So everything will depend on cash flow. We have clarity in terms of our investments, our CapEx, which will have a big impact. But right now, the trend is negative or downward.

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Unidentified Analyst, [62]

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[Interpreted] It seems to me that one of your brigade leaders, crew leaders, won a court case that she should receive overtime pay.

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Radoslaw Zalozinski, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Economic [63]

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[Interpreted] We don't have an estimate of that sort. We don't believe under our preliminary analysis that's not a major amount.

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Unidentified Analyst, [64]

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[Interpreted] One technical question. When you update the strategy, when do you plan to update the strategy and publish it? By the end of this year?

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [65]

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[Interpreted] I would say Q1 next year after we get all of the acceptances. That's when we're going to be able. So by the end of March 2020, I think that's a good and safe horizon.

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Pawel Warzecha, Jastrzebska Spólka Weglowa S.A. - Head of Investors Relation Office [66]

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[Interpreted] So ladies and gentlemen, the calendar for our CAO doesn't allow us. So maybe the final question.

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Unidentified Participant, [67]

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[Interpreted] So the -- I'm from the newspaper. So coking coal for the last year is going to be on the list of strategic resources of the EU, critical resources. What sort of efforts are you taking now to extend the period over which your product is on that list of EU critical resources.

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Artur Dyczko, Jastrzebska Spólka Weglowa S.A. - Vice-Chairman of the Management Board for Strategy & Development [68]

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[Interpreted] We're aware of that. We've articulated that topic quite strongly. We'd like to be able to present and pitch the business we have and so we have a team that's been appointed in the company. It consists of people who are well known in the environment plus across Europe and they're our ambassadors. So we have a company appointed in Brussels that should work on that process and we're going to lobby for that. We'll see what -- how things flesh out. It's our profound hope that our efforts here regarding new technology, where we're trying to show them that we're in the chemicals business. So we think that this is one of those elements where we're going to be able to articulate that strongly. And so one of the members of that team is Professor [Wojtków]. So this is a person who is highly competent and we're going to keep fighting for that, and we'll see how things work out at the end.

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Pawel Warzecha, Jastrzebska Spólka Weglowa S.A. - Head of Investors Relation Office [69]

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[Interpreted] So we'd like to thank you very much and we'd like to invite you to join us for some refreshments. So thank you very much once again and bye-bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]