9. Non-current assets and related liabilities

in PLN millions, unless otherwise stated

Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets

Accounting policies – property, plant and equipment

The most important property, plant and equipment of the Group is property, plant and equipment related to the mining and metallurgical operations, comprised of land, buildings, water and civil engineering structures, such as: primary mine tunnels (including in underground mines: shafts, wells, galleries, drifts, primary chambers), backfilling, drainage and firefighting pipelines, piezometric holes and electricity, signal and optical fiber cables. Stripping costs of surface mines and machines, technical equipment, motor vehicles and other movable fixed assets are also included in mining and metallurgical property, plant and equipment.

Property, plant and equipment are recognised at cost less accumulated depreciation and accumulated impairment losses (the policy regarding impairment is presented in Part 3).
In the initial cost of items of property, plant and equipment the Group includes discounted decommissioning costs of fixed assets related to underground and surface mining, as well as of other facilities which, in accordance with binding laws, must be decommissioned upon the conclusion of activities. Principles of recognition and measurement of decommissioning costs are presented in note 9.4.

The initial cost is increased by borrowing costs (i.e. interest and exchange differences representing an adjustment to interest cost) that were incurred for the purchase or construction of a qualifying item of assets.

Items of property, plant and equipment (excluding land) are depreciated by the Group, pursuant to the model of consuming the economic benefits from the given item of property, plant and equipment:

using the straight-line method, for items which are used in production at an equal level throughout the period of their usage,
using the units of production method, for items in respect of which the consumption of economic benefits is directly related to the quantity of extracted ore from a deposit or of units produced, and this extraction or production is not spread evenly through the period of their usage. In particular it relates to buildings and mine construction, as well as machines and mining equipment, except for the items of property, plant and equipment used in metallurgical plants, where their usage results from the useful economic life of the given item of property, plant and equipment.

The useful lives, and therefore the depreciation rates of fixed assets used in the production of copper, are adapted to the plans for the closure of operations.

For individual groups of fixed assets, the following useful lives have been adopted, estimated based on the anticipated useful lives of mines with respect to deposit content:

Group	Total useful lives
Buildings	25-90 years
Primary mine tunnels	22-90 years
Backfilling, drainage and firefighting pipelines	6-90 years
Electricity, signal and optical fiber cables	10-70 years
Stripping costs
Technical equipment, machines	4-15 years
Motor vehicles	3-14 years
Other fixed assets, including tools and equipment	5-10 years

The individual significant parts of a fixed asset (significant components), whose useful lives are different from the useful life of the given fixed asset as a whole, are depreciated separately, applying a depreciation rate which reflects its anticipated useful life.

Accounting policies – intangible assets
Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets, and water rights in Chile. Exploration and evaluation assets The following expenditures are classified as exploration and evaluation assets: work on geological projects; obtaining environmental decisions; obtaining concessions and mining usufruct for geological exploration; work related to drilling (drilling; geophysical and hydrogeological research; geological, analytical and geotechnical services; etc.); the purchase of geological information; the preparation of geological documentation and its approval; the preparation of economic and technical assessments of resources for the purpose of making decisions on the application for mine operating concessions; and equipment usage costs (property, plant and equipment) used in exploratory work. Exploration and evaluation assets are measured at cost less accumulated impairment losses. The Group is required to test an individual entity (project) for impairment when: the technical feasibility and commercial viability of extracting mineral resources is demonstrable; and the facts and circumstances indicate that the carrying amount of exploration and evaluation assets may exceed their recoverable amount. Any potential impairment losses are recognised prior to reclassification resulting from the demonstration of the technical and economic feasibility of extracting the mineral resources.

Accounting policies – intangible assets

Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets, and water rights in Chile.

Exploration and evaluation assets

The following expenditures are classified as exploration and evaluation assets:

work on geological projects;
obtaining environmental decisions;
obtaining concessions and mining usufruct for geological exploration;
work related to drilling (drilling; geophysical and hydrogeological research; geological, analytical and geotechnical services; etc.);
the purchase of geological information;
the preparation of geological documentation and its approval;
the preparation of economic and technical assessments of resources for the purpose of making decisions on the application for mine operating concessions; and
equipment usage costs (property, plant and equipment) used in exploratory work.

Exploration and evaluation assets are measured at cost less accumulated impairment losses.

The Group is required to test an individual entity (project) for impairment when:

the technical feasibility and commercial viability of extracting mineral resources is demonstrable; and
the facts and circumstances indicate that the carrying amount of exploration and evaluation assets may exceed their recoverable amount.

Any potential impairment losses are recognised prior to reclassification resulting from the demonstration of the technical and economic feasibility of extracting the mineral resources.

Significant estimates and assumptions
Significant estimates and assumptions relating to impairment of mining and metallurgical property, plant and equipment and intangible assets are presented in Note 3. The net value of mining and metallurgical property, plant and equipment which is subject to depreciation using the natural method as at 31 December 2018 amounted to PLN 1 346 million (as at 31 December 2017, PLN 1 286 million).

Mining and metallurgical property, plant and equipment and intangible assets

		Property, plant and equipment			Intangible assets			Total
		Buildings and land	Technical equipment, machines, motor vehicles and other fixed assets	Fixed assets under construction	Water rights	Exploration and evaluation assets	Other	Total
	As at 1 January 2017
	Gross carrying amount	15 669	12 422	4 447	260	3 001	698	36 497
	Accumulated depreciation/amortisation	(7 550)	(5 974)	-	-	-	(251)	(13 775)
	Impairment losses	(3 007)	(783)	(7)	(148)	(1 059)	(27)	(5 031)
	Net carrying amount	5 112	5 665	4 440	112	1 942	420	17 691
	Changes in 2017 net
	Settlement of fixed assets under construction	1 106	1 573	(2 679)	(1)	-	1	-
	Purchases	-	-	1 252	1	70	43	1 366
	Stripping cost in surface mines	319	-	-	-	-	-	319
	Self-constructed	-	-	790	-	25	4	819
Note 9.4	Change in provisions for decommissioning costs	41	-	-	-	-	-	41
Note 4.1	Depreciation/amortisation	(540)	(837)	-	-	-	(15)	(1 392)
Note 4.4	Impairment losses	(85)	(76)	(1)	-	(695)	(3)	(860)
	Exchange differences from the translation of foreign operations statements with a functional currency other than PLN	(102)	(46)	(15)	(14)	(298)	(3)	(478)
	Other changes	(1)	(8)	31	(68)	(73)	(1)	(120)
	As at 31 December 2017
	Gross carrying amount	15 711	13 014	3 824	50	2 574	700	35 873
	Accumulated depreciation/amortisation	(7 452)	(6 090)	-	-	-	(232)	(13 774)
	Impairment losses	(2 131)	(574)	(6)	(20)	(1 603)	(22)	(4 356)
	Net carrying amount	6 128	6 350	3 818	30	971	446	17 743
	Changes in 2018 net
	Settlement of fixed assets under construction	512	1 236	(1 738)	(2)	-	2	-
	Purchases	-	-	1 300	2	45	29	1 376
	Stripping cost in surface mines	298	-	-	-	-	-	298
	Self-constructed	-	-	882	-	12	-	894
Note 9.4	Change in provisions for decommissioning costs	173	-	-	-	-	-	173
Note 4.1	Depreciation/amortisation	(657)	(940)	-	-	-	(16)	(1 613)
Note 4.4	(Recognition)/reversal of impairment losses	(22)	13	(7)	(37)	(12)	(5)	(70)
	Exchange differences from the translation of foreign operations statements with a functional currency other than PLN	50	21	10	-	-	2	83
	Other changes	15	28	47	72	74	44	280
	As at 31 December 2018
	Gross carrying amount	17 186	14 041	4 318	237	2 736	785	39 303
	Accumulated depreciation/amortisation	(8 284)	(6 700)	-	-	-	(259)	(15 243)
	Impairment losses	(2 405)	(643)	(6)	(172)	(1 646)	(24)	(4 896)
	Net carrying amount	6 497	6 698	4 312	65	1 090	502	19 164

Note 9.1.1 Mining and metallurgical property, plant and equipment– major fixed assets under construction

	As at 31 December 2018	As at 31 December 2017
Deposit Access Program - Deep Głogów (Głogów Głęboki – Przemysłowy)	1 650	1 012
Construction of the SW-4 shaft	582	554
Investment activity related to development and operation of the Żelazny Most Tailings Storage Facility	498	382
Metallurgy Development Program	373	744
Investments related to infrastructural development in the mines	206	197
Change in the L-VI shaft’s function to a material-transport shaft	203	110
Pyrometallurgy Modernisation Program	16	194

Note 9.1.2 Exploration and evaluation assets

Significant expenditures incurred on exploration and evaluation assets are presented in the table below.

Operating segment	Description	As at 31 December 2018	As at 31 December 2017
KGHM INTERNATIONAL LTD.	Expenditures related to exploratory work, mainly within the Victoria project located in the Sudbury Basin in Canada	1 496	1 476
KGHM INTERNATIONAL LTD.	Expenditures related to exploratory work within the Ajax project	573	573

Note 9.1.3 Expenses related to mining and metallurgical assets

	from 1 January 2018 to 31 December 2018	from 1 January 2018 to 31 December 2018
Purchases	(1 376)	(1 366)
Self-constructed fixed assets	(894)	(819)
Stripping costs of surface mines	(298)	(319)
Change in liabilities due to purchases	84	19
Other	(125)	(42)
Total	(2 609)	(2 527)

Note 9.2 Other property, plant and equipment and intangible assets

Accounting policies

Other property, plant and equipment and intangible assets are recognised at cost less accumulated depreciation/amortisation and accumulated impairment losses (the policy regarding impairment is presented in Part 3). Depreciation is done using the straight-line method.
For individual groups of fixed assets, the following useful lives have been adopted:

The Group	Total useful lives
Buildings	25-60 years
Technical equipment and machines	4-15 years
Motor vehicles	3-14 years
Other fixed assets	5-10 years

The useful lives of the main groups of intangible assets are as follows:

acquired property rights not related to mining activities: 5 – 50 years;
software: 2 – 5 years; and
other intangible assets: 40 - 50 years.

Other property, plant and equipment and intangible assets

Note		Property, plant and equipment			Intangible assets	Total
Note		Buildings and land	Technical equipment, machines, motor vehicles and other fixed assets	Fixed assets under construction	Intangible assets	Total
	As at 1 January 2017
	Gross carrying amount	2 252	2 187	60	504	5 003
	Accumulated depreciation/amortisation	(559)	(1 123)	-	(177)	(1 859)
	Impairment losses	(213)	(12)	(1)	(119)	(345)
	Net carrying amount	1 480	1 052	59	208	2 799
	Changes in 2017 net
	Settlement of fixed assets under construction	131	161	(292)	-	-
	Purchases	-	-	240	16	256
	Self-constructed	-	-	46	-	46
4.1	Depreciation/amortisation	(76)	(198)	-	(18)	(292)
4.4	(Recognition)/reversal of impairment losses	28	-	-	(5)	23
	Other changes	(42)	1	89	8	56
	As at 31 December 2017
	Gross carrying amount	2 292	2 287	141	522	5 242
	Accumulated depreciation/amortisation	(608)	(1 260)	-	(189)	(2 057)
	Impairment losses	(163)	(11)	1	(124)	(297)
	Net carrying amount	1 521	1 016	142	209	2 888
	Changes in 2018 net
	Settlement of fixed assets under construction	159	176	(335)	-	-
	Purchases	-	-	172	36	208
	Self-constructed	-	-	112	-	112
4.1	Depreciation/amortisation	(83)	(187)	-	(20)	(290)
4.4	(Recognition)/reversal of impairment losses	9	(8)	-	-	1
	Other changes	(23)	14	104	(1)	94
	As at 31 December 2018
	Gross carrying amount	2 440	2 331	194	555	5 520
	Accumulated depreciation/amortisation	(696)	(1301)	-	(207)	(2 204)
	Impairment losses	(161)	(19)	1	(124)	(303)
	Net carrying amount	1 583	1 011	195	224	3 013

Note 9.3 Depreciation/amortisation

		Property, plant and equipment		Intangible assets
		from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Note 4.1	Total	1 867	1 651	36	33
	settled in profit or loss	1 762	1 578	34	31
	cost of manufacturing products	1 762	1 550	29	26
	administrative expenses	26	18	5	5
	selling costs	10	10	-	-
	being part of the manufacturing cost of assets	105	73	2	2

Note 9.4 Provision for decommissioning costs of mines and other facilities

Accounting policies	Important estimates and assumptions
The provision for future decommissioning costs of mines and other technological facilities is recognised based on the estimated expected costs of decommissioning of such facilities and of restoring the sites to their original condition, which are made on the basis of ore extraction forecasts (for mining facilities), and technical-economic studies prepared either by specialist firms or by the Parent Entity. A change in the discount rate or in the estimated decommissioning cost adjusts the value of the relevant item of a fixed asset, unless it exceeds the carrying amount of the item of a fixed asset, and any surplus above this amount is recognised in other operating income.	These provisions represent the estimated future decommissioning costs of mines and other technological facilities discounted to present value. Revaluation of this provision at the end of the reporting period is affected by the following indicators: 1) in the Parent Entity: the index of changes in prices in the construction-assembly sector published by the Central Statistical Office (GUS), the forecasted discount rate calculated based on the yield on treasury bonds with maturities nearest to the planned financial outflow. 2) in the KGHM INTERNATIONAL LTD. Group: the rate of return on investments in US 10 and 20 year treasury notes of the Federal Reserve of the United States of America, and the rate of return on investments in 5-year government bonds issued by the governments of Canada an The yield on treasury bonds and the inflation rate are set separately for future periods, i.e. for the first, second and third years, and jointly for periods from the fourth year. In the KGHM Polska Miedź S.A Group, in order to estimate provisions for the decommissioning costs of mines and other technological facilities located in individual countries, the following discount rates were applied:
		2018	2017
	in Poland	0.31%	1.03%
	in the United States	0.69% - 0.87%	0.33% - 0.58%
	in Canada	0.00% - 0.18%	0.04% - 0.26%

		from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
	Provisions at the beginning of the reporting period	1 360	1 500
Note 9.1	Changes in estimates recognised in fixed assets	173	41
	Other	43	(181)
	Provisions at the end of the reporting period including:	1 576	1 360
	- non-current provisions	1 564	1 351
	- current provisions	12	9

Note 9.5 Capitalised borrowing costs

During the period from 1 January 2018 to 31 December 2018, the Group recognised PLN 177 million of borrowing costs in property, plant and equipment and intangible assets (during the period from 1 January 2017 to 31 December 2017:
PLN 80 million).
The capitalisation rate applied with respect to the loan from the Syndicate of Banks and loans from other banks amounted to 100%, and 50.63% with respect to the loan from the European Investment Bank.

Financial Statements

Separate financial statements

Explanatory notes

Consolidated financial statements

Explanatory notes

PDF Version

Download KGHM Sustainable Report 2018 in PDF

Download

Chapters

KGHM Group and Our World

How we create value

Management principles

Our Strategy

Risk Management

Human Resources management

Activities on behalf of society

Activities on behalf of the natural environment

Operations and results in 2018

Outlook