Management Board Report on the activity of the JSW S.A. for 2012

2.5.1. Capital expenditures in 2012

In 2012, Jastrzębska Spółka Węglowa S.A. incurred expenditures on non-current assets in the amount of PLN 1,467.6 million, up by 13.4% from the year before. The following table presents the structure of capital expenditures in 2012 and in the comparative period:

	2012	2011	Growth rate
Capital expenditure construction activity	487.3	429.2	113.5%
Purchases of finished capital assets	493.1	576.3	85.6%
Expenditures on expensable mining pits	487.2	288.6	168.8%
Total	1,467.6	1,294.1	113.4%

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From the total expenditures incurred in 2012 in the amount of PLN 1,467.6 million, PLN 1,455.9 million was incurred for property, plant and equipment, PLN 7.6 million for investment property and PLN 4.1 million for intangible assets. The capital expenditures in 2012 were financed from own funds. In the upcoming years, the Company does not plan to change significantly the structure of capital expenditure financing.

The capital expenditures incurred by the Company on property, plant and equipment in 2012 were earmarked for the following tasks:

• development tasks (for vertical and horizontal expansion of mines),
• to ensure current production capacity.

The amounts of expenditures incurred for property, plant and equipment in 2012 and in the comparable period, according to the above breakdown, are as follows:

	2012	2011	Growth rate
Capital expenditures on development tasks	317.5	277.7	114.3%
Capital expenditures to ensure current production capacity	662.9	727.8	91.1%
Expenditures on expensable mining pits	487.2	288.6	168.8%
Total	1,467.6	1,294.1	113.4%

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As for development investments, in 2012 Jastrzębska Spółka Węglowa S.A. executed the following projects pertaining to vertical expansions of mines and horizontal expansion:

Construction of a new level in the existing Budryk mine

The Company continued construction of the 1290m mining level. This will make it possible to open resources of Type 35 (hard) coking coal in the mine’s deposits. The total amount of the operable resources at level 1290m is estimated at 157.8 million tons. The investment project was started in 2007 and will be completed in 2019. The remaining capital expenditures scheduled for project execution associated with construction of level 1290m to 2019 (end of construction) are estimated at PLN 713.9 million.

Development of the Pniówek mine

The Company continued its work on opening and developing the new “Pawłowice 1” deposit started in 2007. The total amount of operable resources in this deposit is estimated at 54.2 million tons up to level 1140m. After their extraction, resources up to the level 1300m are planned to be opened. The deposit contains mainly type 35 (hard) coking coal. The remaining capital expenditures scheduled for project execution associated with opening and development of the “Pawłowice 1” deposit till 2045 are estimated at PLN 2,626.2 million.

In addition, in the Pniówek mine, the Company continued the construction of the 1000m mining level. The total size of the operable resources at level 1000m is estimated at 54.2 million tons. The remaining capital expenditures scheduled for project execution associated with construction of level 1000m and maintenance of extraction at this level to 2016 (end of construction) are estimated at PLN 168.6 million.

Development of the Borynia-Zofiówka mine, Zofiówka Section

The Company continued the opening and utilizing of new resources started in 2005: “Bzie-Dębina 1-Zachód” and “Bzie-Dębina 2-Zachód” from level 1110m. Operable resources planned to be opened from level 1110m amount to 98.6 million tons. After their extraction, resources up to the level 1300m are planned to be opened. The deposits contain mainly type 35 (hard) coking coal. The remaining capital expenditures scheduled for project execution associated with opening and developing “Bzie-Dębina 1-Zachód” and “Bzie-Dębina 2-Zachód” deposits till 2042 are estimated at PLN 3,037.5 million.

In addition, in the Zofiówka Section, the Company continued the development of the 1080m mining level started in 2006. The total size of the operable resources at level 1080m is estimated at 47.0 million tons. The deposits at this level contain mainly type 35 (hard) coking coal. The remaining capital expenditures scheduled for project execution associated with construction of extraction level 1080m to 2020 (end of construction) are estimated at PLN 657.1 million.

Development of the Krupiński mine

In 2010, the Company started to open the “Żory-Suszec” deposit and sections “E” and “Zgoń” in the Krupiński mine. The total amount of potential operable resources is estimated at 27.3 million tons of coking coal. The remaining capital expenditures scheduled for project execution associated with opening of the “Żory-Suszec” deposit and section “E” and “Zgoń” till 2018 (end of construction) are estimated at PLN 389.8 million.

Development of the Borynia-Zofiówka mine, Borynia Section

As part of its formal and legal activities (execution of a contract for a fee-based use of geological information and receipt of a decision approving the geological documentation of the “Żory-Warszowice” coal deposit) aimed at the provision and utilization of the “Żory-Warszowice” deposit, in 2012 the Company incurred capital expenditures of PLN 2.9 million. The total amount of potential operable resources is estimated at 31.5 million tons. The capital expenditures scheduled for project execution associated with opening and development of the “Żory-Warszowice” deposit are estimated at PLN 575.0 million.

The expenditures incurred in 2012 for property, plant and equipment earmarked for execution of JSW S.A.’s aforementioned key projects are presented in the table below:

	2012	2011	Growth rate
Vertical development of the mines
Budryk Mine Construction of level 1290m	62.6	36.2	172.9%
Pniówek Mine Construction of level 1000m	95.7	80.5	118.9%
Borynia-Zofiówka Mine, Zofiówka Section Construction of level 1080m	35.3	25.6	137.9%
Total	193.6	142.3	136.1%
Horizontal development and development of potential new mining areas
Borynia-Zofiówka Mine, Zofiówka Section Opening and industrial utilization of the “Bzie-Dębina 2-Zachód” and “Bzie-Dębina 1-Zachód” coking coal deposits	61.9	71.9	86.1%
Pniówek Mine Opening and industrial utilization of the new “Pawłowice-1” coking coal deposit	15.8	19.8	79.8%
Krupiński Mine Opening seams in sections “E” and “Zgoń” and reserves of part of the “Żory-Suszec” deposit	43.3	43.7	99.1%
Borynia-Zofiówka Mine, Borynia Section Utilization of the "Żory-Warszowice” deposit	2.9	-	-
Total	123.9	135.4	91.5%
Total capital expenditures on development tasks	317.5	277.7	114.3%

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Furthermore, as part of expenditures incurred to ensure the current production capacity, works were performed on the construction of infrastructure for the technical and organizational integration of the Borynia-Zofiówka and Jas-Mos mines.