Information on the results of the conducted tests for impairment

Tuesday, 14 February, 2017
Regulatory filing no. 4/2017

With respect to regulatory filing no. 46/2016 dated 13 December 2016, the Management Board of KGHM Polska Miedź S.A. („Company”) announces that the major work related to testing for the impairment of international mining assets of the KGHM Polska Miedź S.A. Group has been completed.

For purposes of the tests conducted, the recoverable amount was set based on an analysis of the discounted cash flow generated by individual assets, and took into consideration among others the current forecasts of pricing paths for individual commodities and the reviewed technical and economic assumptions as regards mine lives, metals production volumes, reserves and resources, operating costs and the level of capital expenditures.

The price path for copper was set based on internal macroeconomic assumptions developed with the use of long-term forecasts available from financial and analytical institutions. A detailed forecast is being prepared for the period 2017 – 2021, while for subsequent years a forecast is based on long-term metal price of 6 614 USD/t (3.00 USD/lb). For comparative purposes, a long-term copper price of  7 075 USD/t (3.21 USD/lb) was set for the purpose of conducting testing for impairment as at 31 December 2015.

Following are the major technical and economic assumptions applied to individual assets:

Sierra   Gorda

 

Assumptions for the test as at 31 December 2016

Assumptions for the test as at 31 December 2015

Mine life (years)

24

40

Copper production during mine life (kt)

 

4 352

10 750

Average operating margin during mine life

 

36%

42%

Capital expenditures to be incurred during mine life
  (mn USD)

 

 

2 004

5 623

 

 

Following are the main factors responsible for the difference between the current and prior assumptions, in particular as regards production and mine life:

a) presented assumptions regarding production do not include mining and metals production from the Pampa Lina deposit estimated at approx. 4 853 thousand tonnes; for the purpose of the test as at 31 December 2016 valuation of the Pampa Lina deposit was based on comparable market transactions, which similarly to the valuation carried out as at 31 December 2015 represented a marginal part of the value of the Sierra Gorda mine;

b)  current assumptions do not include phase II of the mine’s development; taking into consideration current macroeconomic assumptions for the price of molybdenum and copper and the current level of operating efficiency of Sierra Gorda, it is presently assumed that phase II of the project will not be commenced;

c) the independent technical and economic review of the mine conducted in 2016 using updated pricing paths and applying updated costs assumptions as well as the technical parameters of the processing plant.

 

Robinson

 

Assumptions for the test as at 31 December 2016

Assumptions for the test as at 31 December 2015

Mine life (years)

6

11

Copper production during mine life (kt)

257

531

Average operating margin during mine life

30%

34%

Capital expenditures to be incurred during mine life
  (mn USD)

316

805

 

The main factors responsible for the modification of forecasted assumptions regarding the life of the Robinson mine are related to the change in projected copper price, further supported by independent review  of technical and economic assumptions of the mine’s operating plans conducted in 2016. It assumed optimised capital expenditures on the mine and selection of the most advantageous mine development scenario in terms of the level of future cash flow.

 

 

 

Sudbury
  (Morrison and Victoria)

Assumptions for the test as at 31 December 2016

Assumptions for the test as at 31 December 2015

Mine life (years)

19

19

Copper production during mine life (kt)

305

378

Average operating margin during mine life

61%

62%

Capital expenditures to be incurred during mine life
  (mn USD)

1 616

1 446

 

Ajax

 

Assumptions for the test as at 31 December 2016

Assumptions for the test as at 31 December 2015

Mine life (years)

19

21

Copper production during mine life (kt)

1 005

1 090

Average operating margin during mine life

40%

42%

Capital expenditures to be incurred during mine life
  (mn USD)

1 629

1 544

With respect to the separate financial statements of KGHM Polska Miedź S.A. for the financial year ended 31 December 2016, the tests carried out indicated justification to recognise an impairment loss in the amount of PLN 5 869.8 million, of which: PLN 4 770 million due to an impairment of the carrying amount of the interest in a holding company which owns 100% of KGHM International Ltd. and PLN 1 099.8 million due to an impairment of the carrying amount of loans granted to the companies within the KGHM Polska Miedź S.A. Group.

With respect to the consolidated financial statements of KGHM Polska Miedź S.A. for the financial year ended 31 December 2016, the tests carried out indicated justification to recognise the following impairment losses including the tax effect (amounts in USD together with their equivalents in PLN at the average exchange rate of the National Bank of Poland as at 30 December 2016):

1.  an impairment loss in the amount of USD 1 036.3 mn (PLN 4 331.0 mn) due to an impairment of the carrying amount of the loan granted to Sierra Gorda SCM; 
2.  an impairment loss in the amount of USD 45.1 mn (PLN 188.7 mn) due to an impairment of the carrying amount of the assets of the Robinson mine;
3.  an impairment loss in the amount of USD 61.3 mn (PLN 256.3 mn) due to an impairment of the carrying amount of the assets of the Sudbury Basin mines;
4.  an impairment loss in the amount of USD 99.1 mn (PLN 414.4 mn) due to an impairment of the carrying amount of the assets of KGHM Ajax.

The total amount of the aforementioned impairment losses due to impairment testing carried out in the consolidated financial statements after including the tax effect amounts to USD 1 241.8 million (PLN 5 190.0 million).

The impairment losses recognised are a non-cash item and have no impact on the liquidity of the KGHM Polska Miedź S.A. Group.

The amounts presented above are estimates and are subject to change. The final results of the testing will be presented in the separate and consolidated financial statements for 2016, the publication of which is planned for 16 March 2017.  

 

Legal basis: Art. 17 (1) of MAR (Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of the European Union dated 12 June 2014, no. L 173/1)

 

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