Poland Mining Report Q4 2008

Poland has a healthy mining industry even though its contribution to GDP is small . in the region of 3%.
The country hosts large deposits of coal, contributing about 3% of the world.s bituminous coal demand.
Its copper reserves add up to 5% of the global reserves. The nation is also a significant producer of silver,

responsible for nearly 6% of the global silver production. The Polish mining equipment and services industry is also gaining international repute, especially in Russia, Ukraine, China and Australia.

Coal extraction in Poland has been witnessing a contraction in recent years. To improve the situation, the
Polish government has earmarked over US$90mn from the state budget for development of the coal

industry, which will be utilised during FY09/10. However, corruption remains a major issue for the industry as indicated by Poland.s Supreme Board of Inspection, according to which Poland loses about 2- 3mn tonnes of resources annually via smuggling. Nonetheless, well-established infrastructure and well- defined governing bodies ensure a secure business environment. Further, surging metal prices presage a lucrative period for the Polish mining industry.

The State Mining Authority is the regulatory body for the mining industry in Poland while it is the 1994
Geological and Mining Law that regulates the mining industry in the country. According to a new mining

bill, the state will sponsor 30% of the initial investment required for the development of mining companies. The bill also permits mining companies to raise funds from the stock market . widening access to much-required capital.

Labour unrest at Kombinat Gorniczo Hutniczy Miedzi Polska Miedz (KGHM) was the main news over

the early part of Q408. In October, mining unions had threatened to go on a one-day strike amid demands for an increase in wages. This demand came despite KGHM having already increased wages earlier in

2008. However, by early November, the trade unions had dropped these demands, with the head of the

main mining union admitting to Reuters that falling copper prices had played a part in calling the strike off.

KGHM hopes to end 2008 with a net profit of PLN2.9bn, but has warned that 2009 will be a tougher year.
The miner.s share price has tanked so far this year, falling around 80% year-to-date and underperforming

the main Polish stock index.

Against this backdrop, Treasury Minister Aleksander Grad seemed to be calling the miners. bluff before

the strike was eventually called off, with comments that the government may think again about its decision not to sell off any of its remaining 42% stake in the company. With the current economic environment making any potential near-term sale unviable, it seems more likely that his comments were aimed at the miners, reminding them that having the state as the major stakeholder in the company may well be preferable to private ownership when it comes to pay and conditions.

Industry Forecast The Polish government has been implementing investor-friendly policies and laws over the past few years

and hopes to cut down on bureaucratic delays that inhibit substantial investments. On the back of these policies, this report forecasts the Polish mining industry to grow an average of 6.8% per annum during

2008-2012.
At the present time, the ongoing economic crisis gripping world markets is continuing to play out. BMI is

choosing to wait until the Q109 reports to carry out a comprehensive review of its mining sector reports, in light of the current economic difficulties.