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 Company 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 shafts, wells, galleries, drifts, primary chambers), backfilling, drainage and firefighting pipelines, piezometric holes and electricity, signal and optical fiber cables. 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. In the initial cost of items of property, plant and equipment the Company includes discounted decommissioning costs of fixed assets related to underground and open-pit 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. An asset’s carrying amount includes costs of necessary regular major overhauls, including costs of overhauls for the purpose of certification. The 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 property, plant and equipment. Items of property, plant and equipment (excluding land) are depreciated by the Company, 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, as well as machines and mining equipment in gas-steam blocks. 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, which takes into consideration deposit content:

Accounting policies – property, plant and equipment

The most important property, plant and equipment of the Company 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 shafts, wells, galleries, drifts, primary chambers), backfilling, drainage and firefighting pipelines, piezometric holes and electricity, signal and optical fiber cables. 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.

In the initial cost of items of property, plant and equipment the Company includes discounted decommissioning costs of fixed assets related to underground and open-pit 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.
An asset’s carrying amount includes costs of necessary regular major overhauls, including costs of overhauls for the purpose of certification.
The 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 property, plant and equipment.
Items of property, plant and equipment (excluding land) are depreciated by the Company, 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, as well as machines and mining equipment in gas-steam blocks.

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, which takes into consideration deposit content:

Group	Fixed assets type	Total useful lives
Buildings and land	Land	Not subject to depreciation
	Buildings	100 years
	Primary mine tunnels	22-90 years
	Backfilling, drainage and firefighting pipelines	6-90 years
	Electricity, signal and optical fiber cables	10-70 years
Technical equipment, machines, motor vehicles and other fixed assets	Technical equipment, machines	4-66 years
	Motor vehicles	3-40 years
	Other fixed assets, including tools and equipment	5-25 years

The Company performs regular reviews of its property, plant and equipment in terms of the adequacy of applied useful lives to current operating conditions.

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.

Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

An impairment loss is recognised as the amount by which the carrying amount of the given asset or cash-generating unit exceeds its recoverable amount.

For the purpose of impairment analysis, assets are grouped at the lowest level at which they generate cash inflows, independently from other assets (cash-generating units). Cash-generating units are determined separately, each time an impairment test is to be performed.

If an impairment test indicates that the recoverable amount (i.e. the higher of: the fair value less costs to sell and its value in use) of a given asset or cash-generating unit is lower than its carrying amount, an impairment loss is recognised as the difference between the recoverable amount and the carrying amount of a given asset or cash-generating unit. The impairment loss is allocated to individual assets within the cash-generating units, proportionally to the share of an individual asset’s carrying amount in the carrying amount of the entire unit. If such an allocation is made, the carrying amount of the asset may not be lower than the highest of the following values: fair value less costs to sell, value in use and zero.

Accounting policies – intangible assets
Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets. Exploration and evaluation assets Exploration and evaluation assets are measured at cost less accumulated impairment losses. The following expenditures are recognised in the cost of the asset: 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 Company 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.
Exploration and evaluation assets

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

The following expenditures are recognised in the cost of the asset:

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 Company 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.

		Property, plant and equipment			Intangible assets		Total
		Buildings and land	Technical equipment, machines, motor vehicles and other fixed assets	Fixed assets under construction	Exploration and evaluation assets	Other	Total
	As at 1 January 2017
	Gross carrying amount	8 919	10 416	4 570	341	356	24 602
	Accumulated depreciation/amortisation	(4 382)	(5 134)	-	-	(54)	(9 570)
	Impairment losses	-	( 3)	(7)	(135)	(1)	(146)
	Net carrying amount	4 537	5 279	4 563	206	301	14 886
	Changes in 2017 net
	Settlement of fixed assets under construction	1 108	1 514	(2 622)	-	-	-
	Purchases	-	-	1 859	26	49	1 934
	Self-constructed	-	-	32	-	-	32
Note 9.4	Change in provisions for decommissioning costs of mines and tailings storage facilities	30	-	-	-	-	30
	Depreciation/Amortisation	(241)	(793)	-	-	(10)	(1 044)
	Recognition, utilisation of impairment losses	-	-	1	17	1	19
	Other changes	-	(10)	98	(77)	(6)	5
	As at 31 December 2017
	Gross carrying amount	9 990	11 529	3 937	290	398	26 144
	Accumulated depreciation/amortisation	(4 556)	(5 536)	-	-	(63)	(10 155)
	Impairment losses	-	( 3)	(6)	(118)	-	(127)
	Net carrying amount	5 434	5 990	3 931	172	335	15 862

	As at 1 January 2018
	Gross carrying amount	9 990	11 529	3 937	290	398	26 144
	Accumulated depreciation/amortisation	(4 556)	(5 536)	-	-	(63)	(10 155)
	Impairment losses	-	( 3)	(6)	(118)	-	(127)
	Net carrying amount	5 434	5 990	3 931	172	335	15 862
	Changes in 2018 net
	Settlement of fixed assets under construction	510	1 123	(1 633)	-	-	-
	Purchases	-	-	1 848	12	29	1 889
	Self-constructed	-	-	47	-	-	47
Note 9.4	Change in provisions for decommissioning costs of mines and tailings storage facilities	168	-	-	-	-	168
	Depreciation/Amortisation	(270)	(862)	-	-	(13)	(1 145)
	Other changes	(5)	(25)	126	-	41	137
	As at 31 December 2018
	Gross carrying amount	10 582	12 165	4 325	302	467	27 841
	Accumulated depreciation/amortisation	(4 745)	(5 936)	-	-	(75)	(10 756)
	Impairment losses	-	( 3)	( 6)	( 118)	-	( 127)
	Net carrying amount	5 837	6 226	4 319	184	392	16 958

Note 9.1.1 Mining and metallurgical property, plant and equipment– 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 Expenses related to mining and metallurgical assets

	from 1 January 2018 to 31 December 2018	from 1 January 2017 to 31 December 2017
Purchases	(1 889)	(1 934)
Change in liabilities due to purchases	144	(11)
Other	(139)	(25)
Total	(1 884)	(1 970)

Note 9.2 Other property, plant and equipment and intangible assets

Accounting policies
Other property, plant and equipment are recognised at cost less accumulated depreciation and accumulated impairment losses. The policy regarding impairment is presented in Note 9.1. Depreciation is done using the straight-line method. For individual groups of fixed assets, the following useful lives have been adopted:

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

Intangible assets presented as “other intangible assets” include in particular: acquired property rights not related to mining operations and software. These assets are measured at cost less any accumulated amortisation and impairment losses.

Intangible assets are amortised using the straight-line method over their anticipated useful lives. 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.

	Property, plant and equipment			Intangible assets	Total
	Buildings and land	Technical equipment, machines, motor vehicles and other fixed assets	Fixed assets under construction	Other intangible assets	Total
As at 1 January 2017
Gross carrying amount	51	175	8	120	354
Accumulated depreciation/amortisation	(31)	(126)	-	(96)	(253)
Net carrying amount	20	49	8	24	101
As at 31 December 2017
Gross carrying amount	54	192	5	138	389
Accumulated depreciation/amortisation	(33)	(143)	-	(104)	(280)
Net carrying amount	21	49	5	34	109
As at 31 December 2018
Gross carrying amount	54	203	22	164	443
Accumulated depreciation/amortisation	(35)	(152)	-	(112)	(299)
Net carrying amount	19	51	22	52	144

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	Depreciation/amortisation	1 151	1 053	22	19
	recognised in profit or loss	1 099	1 017	20	18
	cost of manufacturing products	1 078	1 006	19	16
	administrative expenses	21	11	1	1
	other operating costs	-	-	-	1
	being part of the manufacturing costs of assets	52	36	2	1

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. Estimation of this provision is based on specially-prepared studies using ore extraction forecasts (for mining facilities), and technical-economic studies prepared either by specialist firms or by the Company. 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 (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 in the Company is affected by the following indicators: 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. 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 order to estimate the provision for future decommissioning costs of mines and other technological facilities in the Company, a discount rate of 0.31% was applied as at 31 December 2018 (in 2017, 1.03%).

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. Estimation of this provision is based on specially-prepared studies using ore extraction forecasts (for mining facilities), and technical-economic studies prepared either by specialist firms or by the Company.
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 (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 in the Company is affected by the following indicators:

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.

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 order to estimate the provision for future decommissioning costs of mines and other technological facilities in the Company, a discount rate of 0.31% was applied as at 31 December 2018 (in 2017, 1.03%).

		As at 31 December 2018	As at 31 December 2017
	Provisions at the beginning of the reporting period	804	770
Note 9.1	Changes in estimates recognised in fixed assets	168	30
	Other	16	4
	Provisions at the end of the reporting period including:	988	804
	- non-current provisions	980	797
	- current provisions	8	7

Note 9.5 Capitalised borrowing costs

During the period between 1 January 2018 to 31 December 2018, the Company recognised PLN 133 million of borrowing costs in property, plant and equipment and intangible assets (during the period from 1 January 2017 to 31 December 2017: PLN 61 million).

The capitalisation rate applied by the Company to determine borrowing costs related to the unsecured revolving syndicated credit facility obtained on the basis of the financing agreement signed with the syndicate of banks amounted to 82.22%, and due to the loan from the European Investment Bank amounted to 50.63%.

During the period between 1 January 2017 to 31 December 2017, the capitalisation rate applied by the Company to determine the borrowing costs concerning the unsecured revolving syndicate credit facility obtained on the basis of the financing agreement signed with the syndicate of banks amounted to 72.39%.

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