KOPEX : Directors' report on the operations of KOPEX SA and the KOPEX Group in H1 2017

KATOWICE, SEPTEMBER 2017

1. KEY INFORMATION ON THE COMPANY (THE PARENT)

   • Name and address:

     KOPEX Spółka Akcyjna, ul. Grabowa 1, 40-172 Katowice, Poland

      Telephone No.: +48 32 604 70 00

      Fax No.: +48 32 604 71 00

   • Email address: KOPEX@KOPEX.com.pl

   • Corporate website: www.KOPEX.com.pl

   • Industry Identification Number REGON: 271981166;

   • Tax Identification Number NIP: 634-012-68-49;

   • National Court Register: The Company is entered in the Business Register of the National Court Register maintained by the District Court for Katowice-Wschód in Katowice, 8th Commercial Division of the National Court Register, under No. (KRS) 0000026782;

   • Share capital: PLN 74,332,538.00, divided into 74,332,538 ordinary bearer shares with a par value of PLN 1.00 per share. All the shares are fully paid.

   • HISTORICAL BACKGROUND

     KOPEX was established under Regulation No. 128 of the Minister of Mining and Energy dated November 4th 1961, as a state-owned enterprise under the name of Przedsiębiorstwo Budowy Zakładów Górniczych za Granicą - KOPEX, and on January 1st 1962 launched its operations as a general supplier of mining facilities and equipment for export. In May 1971, the enterprise was licensed to independently enter into foreign trade transactions, including, on an exclusive basis, for export and import of mining and drilling machinery and equipment, as well as of complete mining facilities.

     On November 19th 1993, under a notarial deed, KOPEX was transformed from a state-owned enterprise into a state-stock company under the name of Przedsiębiorstwo Eksportu i Importu KOPEX Spółka Akcyjna, and on January 3rd 1994 the Registry Court entered KOPEX S.A. into the commercial register as a commercial-law company under entry No. RHB 10375.

     KOPEX S.A. was first listed on the main market of Giełda Papierów Wartościowych w Warszawie S.A. (Warsaw Stock Exchange) on June 4th 1998.

     By the Registry Court's decision of October 23rd 2003, the Company's new name, KOPEX Spółka Akcyjna, was entered into the register, and the abbreviated name, KOPEX S.A. was approved.

     In 2009, the Group's trade name was changed from the ZZM-KOPEX Group to the KOPEX Group.

     In December 2016, its ownership structure changed as TDJ S.A., an investment vehicle owned by Mr Tomasz Domogała, became the parent of the KOPEX Group. TDJ S.A.'s investment portfolio comprises a number of WSE-listed companies, including FAMUR S.A., Zamet Industry S.A., PGO S.A., and Pemug S.A. The acquisition of shares by TDJ marked the beginning of consolidation of the two leading names in the mining support industry, specialising in the manufacture of machinery and provision of services for the mining and power industries. In May 2017, the Management Boards of KOPEX

     S.A. and FAMUR S.A. signed an agreement intended, among other things, to commence the integration of KOPEX S.A.'s machinery business assets with FAMUR S.A.'s assets. The next step on that road was the acquisition by FAMUR S.A. of a controlling interest in the Company in June 2017.

2. THE GROUP'S BUSINESS

   The principal business activity of the KOPEX Group ('KOPEX Group' or 'Group') is the manufacture of technologically advanced machinery and equipment for the mining industry. The KOPEX Group is not only a manufacturer and supplier of machinery and equipment for hard coal and lignite mining, but also a general contractor for investment projects. The Group includes companies operating in Poland, Russia, China, Serbia, South Africa, and other countries.

   The KOPEX Group's competitive advantages include a comprehensive portfolio of products and services for underground mining and the capacity to deliver products and services strictly to specific requirements of individual customers. The Group includes manufacturers of high-quality machinery and equipment as well as providers of high-quality technologies and

   solutions for the mining sector, recognised in Poland and abroad. The Group leverages the technical expertise and specialist capabilities of its companies, which have well-diversified and complementary product and service portfolios.

   The KOPEX Group's offering as a general contractor spans the entire investment process in the mining industry, including:

    Project feasibility studies,

    Supervision over geological surveys of a mining area and assessment of deposit volumes,

    Development of first-working technologies,

    Design of mining facilities,

    Manufacture, delivery and assembly of machinery, equipment and process systems, including maintenance services and spare part supplies,

    Construction, extension, modernisation, operation and decommissioning of mines,

    Project owner personnel training and engineering support during project execution. Mining machinery and equipment offered by the KOPEX Group include:

   • Mechanised longwall systems,

   • Various types of roof supports,

   • Heavy-duty shearer loaders, such as KSW 800, KSW 1500, KSW 2000,

   • Scraper and belt conveyors for underground mining,

   • Hydraulic actuators and controls for powered roof support systems,

   • Electric power supply and control equipment, including DC transmission for mining systems,

   • Mining electronics,

   • I&C systems,

   • Methane detection equipment and communications,

   • Controls and instruments,

     As well as maintenance services, including the supply of necessary spare parts for customers' mining machinery and equipment.

   • MARKET POSITION Restructuring of the KOPEX Group

   Following material deterioration of the KOPEX Group's financial condition and its failure to comply with bank covenants in Q4 2015, in early 2016 the Company was forced to enter into negotiations with the financing banks to restructure its debt. On December 1st 2016, a Restructuring Agreement was signed between the Company and its selected subsidiaries, the lending institutions, and the Investor.

   The Group agreed to implement a number of restructuring measures, including:

   • restructuring (divestment) of non-core non-current assets, with proceeds to be applied towards debt repayment,

   • divestment of shares in non-strategic companies,

   • cost and operational restructuring of the Company to reduce operating expenses and improve efficiency,

   • streamlining of the organisational structure and reducing operating expenses, which should enable the Group to perform the provisions of the Restructuring Agreement.

     At present, given the ongoing restructuring process and the Group's continuing financial distress, KOPEX S.A. is unable to obtain multi-purpose credit and guarantee facilities to finance its operations, which is an obstacle to securing and completing major contracts by the Company on its own, both in Poland and in foreign markets. The parent's current priority is to act in compliance with the provisions and obligations set out in the Restructuring Agreement. Successful performance of the Restructuring Agreement is expected to enable the parent to continue as a going concern.

     Integration with the FAMUR Group

   • On May 5th 2017, the KOPEX Management Board passed a resolution defining a model for the integration of the KOPEX and FAMUR Groups, and entered into a conditional agreement with FAMUR S.A. to set out the terms of cooperation and integration of the two companies ('Agreement').

   The integration process is expected to include the following steps:

3. Preparation for the integration by splitting off the following parts of the KOPEX business:

4. trading and services, comprising the KOPEX Group's current trading operations and services, to include KOPEX PBSz, ŚTW Dalbis and coal trading; and