Information on the update of conducted tests for impairment

Wednesday, 02 March, 2016
12/2016

In reference to regulatory filing no. 8/2016 dated 8 February 2016, the Management Board of KGHM Polska Miedź S.A. („Company”) announces that the impairment tests performed on the carrying amount of assets in accordance with IAS 36 have been updated.

For purposes of the tests conducted, the results of which were announced in regulatory filing no. 8/2016, the recoverable amount was set based on an analysis of the discounted cash flow generated by individual assets, based on forecasts of pricing paths for particular commodities and the schedules for particular projects which were current as at the date the tests were performed.

During the work on the Company’s budget for 2016 the market price forecasts of individual commodities were updated, which in particular led to a change in the forecasted copper price for the period 2017 – 2020. The forecasted long term copper price remained unchanged. In addition, the Company’s Management Board decided to modify the existing schedule for the Victoria project in the Sudbury basin.

As a result, in order to guarantee that the recoverable amounts determined for individual assets are based on assumptions which are valid at the moment of completion of the Company’s financial statements for 2015, the impairment test was appropriately updated. In updating this test, apart from the adoption of current forecasts of pricing paths and Victoria’s new project schedule, the risk associated with individual assets was revised which was reflected in the applied discount rates used to calculate discounted cash flow generated by the individual assets. Other parameters assumed in the tests for impairment, in particular production related assumptions, were not changed.

With respect to the separate financial statements of KGHM Polska Miedź S.A. for the financial year ended 31 December 2015, the updated tests indicated justified recognition of an impairment loss in the amount of PLN 4 854 million due to an impairment of the carrying amount of the interest in a holding company which indirectly owns 100% of KGHM International Ltd.

With respect to the consolidated financial statements of KGHM Polska Miedź S.A. for the financial year ended 31 December 2015, the updated tests indicated justification to recognise the following impairment losses after 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 31 December 2015):

1.  An impairment loss in the amount of USD 787 million (PLN 3 070 million) due to an impairment of the carrying amount of the investment in Sierra Gorda SCM,
2.  An impairment loss in the amount of USD 240 million (PLN 936 million) due to an impairment of the carrying amount  of assets of Sudbury Basin mines,
3.  An impairment loss in the amount of USD 212 million (PLN 827 million) due to an impairment of the carrying amount of assets of the Robinson mine; and
4.  An impairment loss in the amount of USD 59 million (PLN 230 million) due to an impairment of the carrying amount of assets of the Franke mine.

The total amount of the aforementioned impairment losses due to updated impairment testing carried out in the consolidated financial statements after including the tax effect is equal to USD 1 298 million (PLN 5 063 million).

The aforementioned results for impairment testing supersede the results announced in regulatory filing no. 8/2016 from 8 February 2016. Apart from this, the results of impairment testing announced in regulatory filing no. 8/2016 were unchanged.

Until the auditing process of the Company’s financial statements for 2015 is completed, the amounts presented above remain as estimates. The final results of the testing will be presented in the separate and consolidated financial statements for 2015, the publication of which is planned for 17 March 2016. 

Legal basis: art. 56 section 5 of the Act dated 29 July 2005 on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies (unified text: Journal of Laws 2013.1382).

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