KGHM Polska Miedź S.A.

The Metal Beneath Poland's Feet — and at the Heart of the AI Age

Beneath the farmlands and forests of Lower Silesia lies one of the most strategically important geological formations on earth: the Legnica-Głogów Copper Belt, a deposit stretching across 416 square kilometres that contains copper, silver, gold, molybdenum, rhenium, and a suite of other industrial metals that the modern world simply cannot function without. Since 1961, KGHM Polska Miedź has been the custodian of this national inheritance — mining it, refining it, and selling it to the world's most demanding industrial customers.

At Fides Polonia, we do not invest in commodities. We invest in businesses. And KGHM, at its core, is a magnificently positioned business: Europe's largest copper producer, the world's second-largest silver producer by volume, a state-anchored company with 34,000 employees, over PLN 10 billion in annual EBITDA, and mines that have been compounding in strategic value for more than six decades. The timing of this report is not accidental. The two metals KGHM produces in greatest abundance — copper and silver — are now at the centre of the most powerful demand cycle in a generation, driven by the global artificial intelligence infrastructure build-out. The AI revolution does not merely run on microchips. It runs on copper and silver. And KGHM sits on top of both.

This report is written for the institutional investor seeking rigorous analysis and for the Polish family investor who has never stopped to ask why the country whose GDP grew 500% since 2000 also happens to sit on the world's most significant integrated copper and silver producing operation. Both deserve to understand the answer — and why KGHM belongs in a portfolio built on the conviction that Poland's greatest assets remain undervalued by the world.

Sixty-Four Years of Mining Poland's National Treasure

KGHM Polska Miedź S.A. — Poland's Copper and Silver Mining Company — was established on 1 May 1961 in Lubin, Lower Silesia, as a state enterprise created to develop the vast copper deposits discovered beneath the Fore-Sudetic Monocline. Its founding purpose was straightforward: to mine, smelt, and refine the extraordinary mineral wealth lying beneath Lower Silesia, and to do so in the service of the Polish nation. Over the following two decades, KGHM built four underground mines, three copper smelters and refineries, and an integrated logistics infrastructure that transformed a quiet corner of south-western Poland into the backbone of European copper supply.

In 1991, the state enterprise was converted into a joint-stock company of the State Treasury. In 1997, KGHM completed its IPO on the Warsaw Stock Exchange — one of the most significant listings in Polish capital market history. Today it is a component of the WIG30 index and one of the most internationally recognised Polish companies in the world's mining industry.

Europe's Largest Copper Mine — and the World's Most Productive Silver Operation

The Legnica-Głogów Copper Belt in Lower Silesia is not merely a mine. It is a geological phenomenon — a stratiform copper-silver deposit of exceptional grade, continuous over more than 400 square kilometres, that has been producing at industrial scale for over sixty years without exhausting its reserves. KGHM's three Polish mine divisions — Lubin, Polkowice-Sieroszowice, and Rudna — together constitute the largest copper mining complex in Europe and rank among the most significant in the world.

The AI Supercycle: Why Copper and Silver Are the Metals of the Machine Age

The most significant structural demand development in the global copper and silver markets in a generation is not electric vehicles, not wind farms, and not traditional industrial growth. It is artificial intelligence — and specifically, the physical infrastructure required to run it.

A hyperscale AI data centre is, at its physical core, a copper machine. Every GPU server rack — including Nvidia's GB200 NVL72, the most powerful AI chip unit in commercial production — contains over 5,000 copper cables totalling more than 3.2 kilometres in length. The high-voltage transmission lines feeding those campuses, the busbars distributing power across server halls, the windings inside the liquid cooling pumps that prevent billions of dollars of GPU hardware from overheating — all copper. A single hyperscale AI data centre requires 30 to 40 tonnes of copper per megawatt of capacity. The global AI infrastructure build-out is now consuming copper at a pace that is measurably shifting global supply and demand balances.

Silver's role is equally critical, though less widely understood. Silver is essential in the chip packaging process: it appears in the bonding wire of high-end AI processors, in the silver-palladium multi-layer ceramic capacitors (MLCCs) that power AI server modules, in the connectors and high-performance circuit boards of every major data centre build. Demand for silver in electronics and industrial applications is forecast to remain at record highs throughout this decade, with AI hardware representing one of its fastest-growing end-use categories. KGHM, as the world's second-largest silver producer, sits directly in the path of this structural demand tailwind.

KGHM's response to this environment has been measured and disciplined. The company's strategic investments in four new mine shafts and expanded processing capacity in Poland are designed to grow output precisely when this demand surge reaches peak intensity in the late 2020s and 2030s — ensuring KGHM is not merely a beneficiary of the AI supercycle, but a structurally larger one as it matures.

The Numbers: Record Earnings, Fortress Balance Sheet, Growing Returns

2025 Full-Year Performance

The Dividend — Returning to Policy

KGHM's Management Board has explicitly signalled its intention to return to its established dividend policy — distributing up to 30% of net profit — following a period in which capital was prioritised for the new shaft construction programme and debt management. With net profit of PLN 3.7 billion in 2025, a return to full dividend policy would imply a distribution of up to PLN 1.11 billion, representing a meaningful yield on current market capitalisation. The Board's own words from the Q4 2025 earnings call: "We can see grounds to be able to pay the dividend… it is a component worth discussing, and we will be making that recommendation to the shareholders meeting."

Valuation

At roughly 5–6 times EBITDA, KGHM trades at a discount to global copper peers — a function of its Polish-market listing and the modest investor attention that Central European equities attract relative to their underlying quality. As the copper supply deficit deepens and EBITDA compounds with rising copper and silver prices, this discount is our margin of safety and our source of return.

The Polish State, 34,000 Workers, and a Six-Decade Social Compact

The Polish State Treasury's 31.79% stake in KGHM is not a passive financial position. It is a declaration of national strategic interest in a company that supplies approximately 40–50% of Europe's copper demand and holds an effective monopoly on Poland's silver output. This ownership structure provides KGHM with several concrete investment advantages: near-sovereign access to capital markets, long-term regulatory certainty, and a strategic orientation that protects the core asset base from short-term financial engineering.

KGHM's ~34,000 employees are predominantly Polish — concentrated in Lower Silesia, where the company is by far the dominant private-sector employer. The mining communities of Lubin, Głogów, Legnica, and Polkowice have built their economic identities around KGHM over sixty years. This is not merely a social fact. It is a competitive one: KGHM's workforce possesses accumulated operational knowledge of the Legnica-Głogów Belt — its geology, its water management challenges, its ore grades and processing characteristics — that cannot be replicated, hired away, or acquired by any competitor at any price. The knowledge lives in the people, and the people are here.

What Could Go Wrong

Intellectual honesty is non-negotiable at Fides Polonia. The following material risks are acknowledged in full:

• ◆Commodity price volatility. KGHM's revenue and earnings are directly exposed to the global copper and silver price. A sustained decline in either — whether from demand slowdown, recession, or supply surplus — directly compresses EBITDA and earnings.
• ◆USD/PLN exchange rate risk. KGHM sells copper and silver in US dollars but reports and operates primarily in Polish złoty. A strengthening złoty — as seen in 2025 — reduces reported revenues and can compress margins despite stable operational performance.
• ◆Geological and operational risk. Underground mining in the Legnica-Głogów Belt requires active water management. KGHM has successfully managed flooding risk in recent years — including stabilising water inflow at Rudna and Polkowice-Sieroszowice — but subsurface conditions remain inherently unpredictable.
• ◆Copper extraction tax. Poland's minerals extraction tax is a material cost item for KGHM's domestic operations, growing by 21% in 2025. It is a direct function of metal prices, meaning it rises in precisely the environments where revenue also rises — partially smoothing, but also capping, the full earnings benefit of commodity price upswings.
• ◆Declining domestic ore grades. Management have acknowledged that Polish deposit grades will gradually decline over the next decade, requiring greater reliance on deepened mining infrastructure, new shafts, and international assets to maintain production volumes. The new shaft programme addresses this, but execution risk over a 15-year horizon is real.
• ◆Government influence. The State Treasury's 31.79% stake, while providing strategic stability, also creates the possibility of political objectives influencing capital allocation or dividend decisions — particularly in election years or periods of fiscal pressure on the Polish government.

None of these risks, in our assessment, impairs the long-term structural investment thesis. The global copper supply deficit, KGHM's unique asset position as Europe's primary copper and silver producer, its disciplined balance sheet, and the irreplaceable nature of its Lower Silesian reserves provide a foundation that comfortably accommodates these cyclical and operational headwinds.

The Fides Polonia Verdict