LW Bogdanka publishes its strategy – the company is committed to the flexible development scenario, doubling its resource base and innovation

LW Bogdanka SA, the most modern and high-performance coal mine in Poland, a part of Enea Group, one of the leaders of the Polish energy market, presented development strategy for the Mining area of Enea Group until 2025 with an outlook to 2030. The published strategy corresponds with the Strategy of Enea Group, and is also consistent with the Responsible Development Plan, as well as draft Program for coal mining industry in Poland.

The strategy of the Bogdanka coal mine for the Mining area of Enea Group includes two development scenarios: the baseline with target average production of ca. 8.5 million tonnes in the years 2017-2025 and the flexible development scenario with average annual production in the same period of ca. 9.2 million tonnes. Taking into account the current and anticipated market situation, the Company intends to carry out the flexible development scenario. CAPEX target for 2016-2025 (in nominal terms) amounts to PLN 3.7 billion according to the baseline scenario and ca. PLN 4 billion according to the flexible development scenario.

The Bogdanka coal mine, responsible for the mining area of Enea Group, considers the following to be of fundamental importance: close cooperation and implementation of synergies within the Kozienice-Bogdanka-Połaniec mining and generation complex, doubling the base of operable resources, as well as implementation of a number of key innovative strategic initiatives. The most important of them is the implementation, together with Enea Group, of the feasibility study of the integrated gasification combined cycle (IGCC) technology project, use of the modern high-performance mine face complex, carrying on the “Mine of Intelligent Solutions” program, gangue efficiency and development of operator’s services of the Bogdanka coal mine offered on the basis of high technical and managerial standards of the Company. Maintaining the highest level of work safety and conducting business in accordance with Corporate social responsibility (CSR) are consistent priorities of the Company’s strategy.

The Company anticipates that the implementation of the flexible development scenario will result in the Unit Mining Cash Cost decreased by 10% until 2025 (in real terms, compared to 2015). In the same period the return on equity (ROE) is anticipated to increase to 10.9% (from 8.7% in 2015), return on assets (ROA) t0 8.5% (from 5.3% in 2015) and EBITDA is anticipated to increase in nominal terms by 44% (compared to value earned in 2015, adjusted with a write-down).

LW Bogdanka SA also published a dividend policy for the coming years – it provides for applying for allocation of 50% of net profit shown in the non-consolidated financial statements of the Company for dividend payouts.

Synergies of the Kozienice-Bogdanka-Połaniec mining and generation complex

Enea Group and ENGIE International Holdings B.V. signed a conditional agreement for purchase of 100 per cent of shares of ENGIE Energia Polska S.A., the owner of the Połaniec Power Plant.

The takeover will mean that two principal customers of the Bogdanka coal mine will become a part of the structure of Enea Capital Group. The Kozienice-Bogdanka-Połaniec mining and generation complex located in south-eastern Poland will be created as a result.

It will bring a number of beneficial results to the Bogdanka coal mine and Enea Capital Group, as well as further enhance the efficiency of energy generation based on raw material from the Bogdanka mine. The takeover will also strengthen the market position of Enea Group as one of the leading electricity producers in the country. As for the Bogdanka mine, it will mean even better stability of operations and the possibility to plan the levels of production and employment.

Development of the resource base and prolonging the life of the coal mine

The Bogdanka coal mine intends to double its operable resources in the Lublin Coal Basin (Lubelskie Zaglebie Weglowe - LZW) from current 227 million tonnes to ca. 446 million tonnes. At the coal production level of ca. 9 million tonnes per year it means the life of the mine prolonged to ca. 50 years (at present ca. 25 years).

From the perspective of the presented strategy the following mining areas are crucial for the Company: Puchaczów V (currently mined coal deposit has the resources of ca. 211 million tonnes), Stręczyn (the currently mined K-3 coal deposit has operable resources of ca. 16 million tonnes) and Ludwin (Ostrów coal deposit, estimated operable resources – ca. 186 million tonnes).

The Company plans to obtain a production licence for the Ludwin mining area (Ostrów coal deposit) in 2017. At the same time the Bogdanka mine will still be considering the K-6, K-7, and Orzechów mining areas as further potential exploration areas.

Corporate social responsibility (CSR)

Due to its significant role in the region, the unchanging target of the Company is conducting business in accordance with the provisions of the corporate social responsibility strategy, including provision of the highest level of safety at work, environmental performance, protection of local biodiversity, development stimulation and guaranteeing safety for local communities, as well as effective management of relationships with all groups of stakeholders, based on the principles of sustainable development.

Innovation at the Bogdanka coal mine – strategic initiatives

As part of the process of Enea Group strategy creation 60 strategic initiatives were developed, of which 10 by the staff of engineers and technicians from the Bogdanka mine.

The crucial ones are:

Feasibility study of the integrated gasification combined cycle (IGCC) system 

The Company, together with Enea Group, intends to perform a feasibility study of the integrated gasification combined cycle (IGCC) system at the Bogdanka mine. The possible decision to conduct the investment will result in the creation of a new market for hard coal, which, in turn, will promote increased energy self-sufficiency of Polish economy.

Modern high-performance mine face complex

The modern high-performance mine face complex project is a part of the work on innovative solutions improving operational efficiency that has been conducted at the Bogdanka mine for years.
The purpose of the project is reduction of the time of longwall maintenance, as well as achieving above-average progress in drilling drifts.

Mine of Intelligent Solutions

The Bogdanka mine already has at its disposal underground solutions that are unique in Polish mining industry, regarding decision support in the process of preparing the coal deposit for investment, including the latest technological achievements of the global mining industry.

The Company intends to remain the leader of efficiency and innovative solutions in mining industry, among others thanks to the continuation of the “Mine of Intelligent Solutions” program. Actions undertaken in this regard will include further development of system of coal deposit management, as well as further computerisation and automation of the production process at the Company.

Gangue efficiency

The initiative regarding gangue efficiency is aimed at even better control of the quality of output via optimisation of production, starting from planning, through cutting the deposit and its exploration, to liquidation of excavations. Placing the gangue underground and its use in road construction are considered, among others.

The purpose of the program is to enhance the quality of raw coal as a result of reducing the amount of gangue in the output, minimisation of coal contamination by gangue and reduction of cost related to mining waste, including prolongation of life of the mining waste site.

Operator’s services of the Bogdanka coal mine

The Bogdanka coal mine intends to use its high technical and managerial standards and know-how to develop a new business line – operator’s services for mining facilities provided on the basis of entrusted assets. Such services would be offered in the whole Central and Eastern Europe.

Program for further improvement of work safety

Work safety has been consistently one of key priorities of the Bogdanka coal mine. From the current strategic viewpoint the safety and health of employees is also considered top priority.

Capital expenditures

CAPEX target according to the baseline scenario is PLN 3.7 billion in nominal terms in 2016-2025. If the flexible development scenario is implemented, capital expenditures in the same period will amount to ca. PLN 4 billion, mainly due to the planned expenditures for mining machinery and equipment.

The level of capital expenditures presented above includes primary work performed on the Ostrów project necessary for the Bogdanka mine to maintain the target level of coal production after 2030.

Total estimated value of expenditures in real terms related to starting the exploration of the Ostrów deposit are PLN 1.2-1.3 billion. These expenditures would entail the necessary creation of the “Ludwin” mining division (within the Ostrów deposit), whose construction should start after 2025, therefore it is not included in the estimated expenditures of the current strategy (only the initial expenditure of PLN 70 million was included).

The aforementioned level of capital expenditures does not include possible execution of strategic initiatives by the Company either.

Dividend policy

It is the intention of the Management Board of LW Bogdanka SA to apply in future to the General Meeting of Shareholders for dividend payout ratio up to 50% of net profit shown in the non-consolidated financial statements of the Company prepared in compliance with the International Financial Reporting Standards.

The amount of dividend recommended each time by the Management Board will depend on:

• current market situation,
• generated cash flows arising from operating activities,
• planned investment processes,
• forecast level of the Company’s debt.

The strategy of the Bogdanka coal mine is consistent with the strategy of Enea Group published in October 2016 whose primary purpose is to create an innovative resource and energy group that would successfully meet the demands of the market. Our major task for the coming years is to create an appropriate synergy of exploration and generation assets based on the Bogdanka coal mine and modern generation capacity of Enea Group, including the Połaniec Power Plant that is currently being taken over by us. Located in south-eastern Poland, the Kozienice-Bogdanka-Połaniec mining and generation complex will bring a number of beneficial synergies and strengthen the position of the Group on the Polish market. We also want to continue setting trends regarding innovation both in the energy industry and – through the Bogdanka coal mine, responsible for the mining area of the Group – in the hard coal mining industry – said Mirosław Kowalik, President of the Board of Enea SA and President of the Supervisory Board of the Bogdanka coal mine.

The strategy we published contains detailed key objectives of the mining area presented in the strategy of Enea Group published in October 2016. Taking into account the volatility of market conditions in our sector we have presented both the baseline scenario with target coal production of ca. 8.5 million tonnes per year in the years 2017-2025, as well as the flexible development scenario with target average annual production in the same period at the level of ca. 9.2 million tonnes. The analysis of the market environment induces us to execute the flexible development scenario – said Krzysztof Szlaga, President of the Board of the Lubelski Węgiel Bogdanka SA

The mainstays of our strategy until 2025 will be active use of the synergy in the Kozienice-Bogdanka-Połaniec mining and generation complex as another stage of the integration process within ENEA Group and doubling the base of our operable resources. We are also consistently committed to innovation that is an important element of the Bogdanka’s DNA. We intend to remain the leader of efficiency and innovative solutions in mining, thanks to the continuation of the “Mine of Intelligent Solutions” program, initiatives in gangue efficiency or the use of the high-performance mine face complex, to name a few. We are also planning to implement, together with Enea Group, the feasibility study of the integrated gasification combined cycle (IGCC) technology project – added  Krzysztof Szlaga.

In the medium and long term we want to share the achieved profits with our shareholders, allocating 50% of non-consolidated net profit for dividend payouts. Taking into consideration volatile market conditions of our sector maintaining the Company's financial stability and liquidity is our obvious priority. For this reason we will carefully analyse the recommended amount of dividend in each case – continued the President of the Board of the LW Bogdanka SA

Even before the Ministry of Energy was created I pointed out on every occasion that the best reforming idea for the Polish mining industry is to link coal production with the energy sector. For more than a year, since the Ministry of Energy was created, we have been consistently implementing that plan. The consistency of our actions inspires increased market confidence. It gives hope of stabilisation. The symbiosis of the energy and mining sectors is possible and serves their mutual interest. The Bogdanka coal mine and Enea Group are an excellent example of the above. The ownership interest gives the energy sector access to cheap raw material and the stability of supplies. The Bogdanka mine also benefits from this relationship, having guaranteed sales of its coal. The planned development of generation assets of Enea Wytwarzanie guarantees stabilisation for the Bogdanka mine in the coming years. It should be noted that Enea’s plans include the construction of a power plant, first in Europe, in the so-called pure coal technology and in the Bogdanka’s vicinity. It is another example of why the synergy of energy and mining sectors is sensible. I hope that the decisions taken at present in the European Union will allow us to continuously use the potential of our fuel and energy industry in the production of pure energy from coal – says Grzegorz Tobiszowski, Secretary of State in the Ministry of Energy, Government Plenipotentiary for Hard Coal Mining Industry Restructuring.

The Bogdanka coal mine – key details

Lubelski Węgiel Bogdanka SA is the most modern and one of the biggest hard coal mines in Poland. In 2016 coal production of the Bogdanka mine amounted to ca. 9 million tonnes (provisional data).

Mining activities of the Bogdanka coal mine include coal production, concentration and sales. The Bogdanka mine supplies in particular industrial customers located in eastern and north-eastern Poland. The market of the customers is stable and the sales are conducted mainly based on multi-annual contracts. Key customers for the Bogdanka’s sales of commercial coal include commercial and industrial energy industry.

The Company stands out in this sector with its financial performance and hard coal production efficiency. LW Bogdanka SA has been a publicly listed company on the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.) since July 2009. Since October 2015 LW Bogdanka SA has been a part of Enea Group, one of the leaders of the Polish energy market.

More information: www.bogdanka.eu