JSW SA - Jastrzębska Spółka Węglowa SA

• Building a 1120 level in the Borynia Section of KWK Borynia-Zofiówka-Jastrzębie mine.
• Building a 1080 level in the Zofiówka Section of the KWK Borynia-Zofiówka-Jastrzębie mine.
• Opening and industrial utilization of coal resources within the area of “Bzie-Dębina 2-Zachód” and “Bzie-Dębina 1-Zachód” deposits (the Zofiówka Section of the KWK Borynia-Zofiówka-Jastrzębie mine).
• Building a 1290 level in the KWK Budryk mine.
• Opening resources of seam 405/1 and 405/2 in the KWK Budryk mine.
• Building a 1050 level in the Knurów Section of the KWK Knurów-Szczygłowice mine.
• Building a 1050 level in the Szczygłowice Section of the KWK Knurów-Szczygłowice mine.
• Building a 1140 level in the KWK Pniówek mine.
• Opening and industrial development of resources in the Pawłowice 1 deposit in the KWK Pniówek mine.
• Expansion of level 1000 and deepening of shafts IV and III in the KWK Pniówek mine.

• Upgrade of coke oven batteries 3 and 4 at the Przyjaźń Coking Plant.
• Modernization of the Radlin Coking Plant – stage III.
• Upgrade of the BTX plant with associated hydrocarbons facilities at the Radlin Coking Plant.
• Coke oven gas desulfurization installation at the Jadwiga Coking Plant.
• Construction of a power unit at the Radlin Coking Plant.

• Modernization of mining machinery and equipment and modernization of the Coal Preparation Plants in KWK Budryk and KWK Knurów-Szczygłowice mines.

In periods of favorable economic conditions in the coal market, the Group generates high positive cash flows, while in a period of economic downturn, the Group needs financing for high negative cash flows at the FCF level, therefore responsible management of the capital structure becomes a major challenge. The major objectives of the strategy for financing the Group’s activity include:

• ensuring a stable financing structure, by achieving and maintaining at least 50% of the share in equity in the structure of liabilities, and covering the value of non-current assets with fixed capitals,
• attempting to match the average maturities of financing with the times of obtaining returns on the financed assets,
• taking actions to ensure the amount of financing which allows for maintaining continuity of processes of operating and investing activity at the assumed levels,
• seeking the most effective forms of financing at a given time, while ensuring the most appropriate maturities for the financing,
• aiming to maintain in the Group a cash buffer to ensure that the key liabilities may be covered, including in particular liabilities for salaries, with the buffer to be used in periods of dramatic decreases in sales revenues,
• maintaining a stabilization fund in the assets at a level of PLN 1.5 billion, in periods of favorable economic situation in the coal market so as to ensure an appropriate level of financial liquidity at the beginning of a possible downturn period in the coal market,
• effective financial risk management in the Group.

In periods of upswing on the coal markets, the Company intends to transfer a portion of generated cash surpluses to a specially established stabilization fund. Such cash saved during market upswings will help ensure financial liquidity in a period when downturn begins and negative cash flows are generated at the FCF level. It is also assumed that cash from the stabilization fund will be used to finance, among others, investment projects as well as innovative development projects.

The key assumptions about the stabilization fund:

• JSW will have full control over the funds transferred to the fund,
• the fund’s assets will be invested mainly in liquid assets with a high degree of safety (debt financial instruments),
• there will be specific rules for withdrawing cash from the fund,
• the fund management will be entrusted to an entity which will ensure safety of investments and full transparency of the fund’s operations,
• efficient legal and tax structure.

The Parent Company uses debt financing in the form of bond issues. Such a form of financing remains the major source of third party capital in a long-term perspective. The final JSW’s bond redemption date falls in 2025 but the obligation, defined in the documentation of the issue program, to make additional redemptions in specific situations, after fulfilling all the assumed conditions, cause the redemption to be accelerated and the financing term shortened, i.e. it is assumed that the bonds will be finally redeemed by the end of 2019.

The accelerated bond redemption schedule as compared to the schedule defined in the financial records may make it necessary to take out both long-term and current financing. To optimize and diversity financing sources, the Group also assumes the possibility of long-term financing in the form of bank loans and credit.

In order to achieve more effective management of current liquidity, the Group has in place a cash management system known as PCP. This is also an intra-Group financing mechanism. The Group’s financial strategy assumes an active access to the intra-Group financing for each company belonging to the structure.

In a strategic perspective, the Group takes into consideration the possibility of implementing other forms of current liquidity management in the Group, also by launching an internal bond issue program and intra-Group loans.