Integrated Report of KGHM Polska Miedź S.A.
and the KGHM Polska Miedź S.A. Group
for 2020

7.1 Financial Instruments

in PLN millions, unless otherwise stated

As at 31 December 2020 As at 31 December 2019 
Financial assets At fair value through other comprehensive income At fair value through profit or loss At amortised cost Hedging instruments Total At fair value through other comprehensive income At fair value through profit or loss At amortised cost

Hedging instruments

Total
Non-current 618 58 6 670 749 8 095 431 18 6 350 123 6 922
[Note 6.2] Loans granted to a joint venture 6 069 6 069 5 694 5 694
[Note 7.2] Derivatives 40 749 789 1 123 124
Other financial instruments measured at fair value 618 18 636 431 17 448
[Note 7.3] Other financial instruments measured at amortised cost 601 601 656 656
Current 489 3 086 199 3 774 328 1 660 289 2 277
[Note 10.2] Trade receivables 478 356 834 300 388 688
[Note 7.2] Derivatives 11 199 210 4 289 293
[Note 8.5] Cash and cash equivalents 2 522 2 522 1 016 1 016
[Note 12.3] Other financial assets 208 208 24 256 280
Total 618 547 9 756 948 11 869 431 346 8 010 412 9199

 

As at 31 December 2020 As at 31 December 2019
Financial liabilities At fair value through profit or loss At amortised cost Hedging instruments Total At fair value through profit or loss At amortised cost Hedging instruments Total
Non-current 205 7 130 801 8 136 65 7 736 118 7 919
[Note 8.4.1] Borrowings, lease and debt securities 6 928 6 928 7 525 7 525
[Note 7.2] Derivatives 205 801 1 006 65 118 183
Other financial liabilities 202 202 211 211
Krótkoterminowe 127 4 101 603 4 831 53 3 221 38 3 312
[Note 8.4.1] Borrowings, lease and debt securities 407 407 348 348
[Note 7.2] Derivatives 85 603 688 53 38 91
[Note 10.3] Trade payables 2 329 2 329 2 170 2 170
[Note 10.3] Similar payables – reverse factoring 1 264 1 264 596 596
Other financial liabilities 42 101 143 107 107
Total 332 11 231 1 404 12 967 118 10 957 156 11 231

 

Gains/(losses) on financial instruments

from 1 January 2020
to 31 December 2020

Financial assets/liabilities measured at fair value
through
profit or loss

Financial assets measured
at amortised cost
Financial liabilities measured
at amortised cost
Hedging instruments Total
[Note 4.2] [Note 6.2] Interest income 381 381
[Note 6.2] Gains due to the reversal of allowances for impairment of loans granted to joint ventures 74 74
[Note 4.3] Interest costs (131) (131)
[Note 4.2] Foreign exchange gains/(losses) (43) 85 (433) (391)
[Note 4.3] Foreign exchange gains 188 188
[Note 4.4] Reversal of impairment losses 5 5
[Note 7.2] Revenues from contracts with customers 323 323
[Note 4.2] Gains on measurement and realisation of derivatives 378 378
[Note 4.2] Losses on measurement and realisation of derivatives (597) (597)
[Note 4.3] Gains on measurement and realisation of derivatives 70 70
[Note 4.3] Losses on measurement and realisation of derivatives (77) (77)
[Note 4.3] Fees and charges on bank loans drawn (22) (22)
Other losses (10) (9) (19)
Total net gain/(loss) (279) 545 (407) 323 182

 

from 1 January 2019
to 31 December 2019
Financial assets/liabilities measured at fair value through profit or loss Financial assets measured
at amortised cost
Financial liabilities measured
at amortised cost
Hedging instruments Total
[Note 4.2] [Note 6.2] Interest income 350 350
[Note 6.2] Gains due to the reversal of allowances for impairment of loans granted to joint ventures 106 106
[Note 4.3] Interest costs (190) (190)
[Note 4.2] Foreign exchange gains/(losses) 11 361 (201) 171
[Note 4.3] Foreign exchange losses (208) (208)
[Note 4.4] Impairment losses (9) (9)
[Note 7.2] Revenues from contracts with customers 245 245
[Note 4.2] Gains on measurement and realisation of derivatives 199 199
[Note 4.2] Losses on measurement and realisation of derivatives (278) (278)
[Note 4.3] Gains on measurement and realisation of derivatives 37 37
[Note 4.3] Losses on measurement and realisation of derivatives (59) (59)
[Note 4.3] Fees and charges on bank loans drawn (48) (48)
Other losses (13) (13)
Total net gain/(loss) (90) 795 (647) 245 303

 

The fair value hierarchy of financial instruments

As at
31 December 2020
As at
31 December 2019
fair value Carrying amount fair value Carrying amount
Classes of financial instruments level 1 level 2 level 3 level 1 level 2 level 3
Long-term loans granted 18 5 998 6 087 17 5 694 5 711
Listed shares 523 523 326 326
Unquoted shares 95 95 105 105
Trade receivables 478 478 300 300
Other financial assets 24 24
Derivatives, of which: (695) (695) 143 143
Assets 999 999 417 417
Liabilities (1 694) (1 694) (274) (274)
Received long-term bank and other loans (4 358) (4 342) (4 915) (4 912)
Long-term debt securities (2 024) (2 000) (2 028) (2 000)
Other financial liabilities (42) (42)

Methods and measurement techniques used by the Group in determining fair values of each class of financial assets or financial liabilities.

Listed shares

Shares are measured based on quotations from the Warsaw Stock Exchange and the TSX Venture Exchange in Toronto.

Long-term debt securities

Long-term debt securities are measured based on quotations from the Catalyst Market of the Warsaw Stock Exchange.

Unquoted shares

Unquoted shares are measured using the adjusted net assets. Observable Input data other than the ones from the active market were used in the measurement (e.g. transaction prices of real estate similar to the one subjected to measurement, market interest rates of State Treasury bonds and term deposits in financial institutions, and the risk-free discount rate published by the European Insurance and Occupational Pensions Authority).

Trade receivables

Receivables arising from the realisation of sales under contracts which are finally settled using future prices were measured using forward prices, depending on the period/month of contractual quoting. Forward prices are from the Reuters system.

For trade receivables transferred to non-recourse factoring, a fair value is assumed at the level of the amount of the trade receivables transferred to the factor (nominal value from the invoice) less interest, which are the factor’s compensation. Due to the short term between the transfer of receivables to the factor and their payment, fair value is not adjusted by the credit risk of the factor and impact of time lapse.

Long-term loans granted

This item comprises loans measured at fair value, the fair value of which was estimated on the basis of contractual cash flows (per the contract) using the model of discounted cash flows, including the borrower’s credit risk.

Other financial assets/liabilities

Receivables/payables due to the settlement of derivatives, whose date of payment falls two working days after the end of the reporting period were recognised in this item. These instruments were measured to fair value set per the reference price applied in the settlement of these transactions.

Currency and currency-interest derivatives 

In the case of currency derivatives on the currency market and currency-interest transactions (CIRS), the forward prices from the maturity dates of individual transactions were used to determine their fair value. The forward price for currency exchange rates was calculated on the basis of fixing and appropriate interest rates. Interest rates for currencies
and the volatility ratios for exchange rates were taken from Reuters. The standard Garman-Kohlhagen model is used to measure European options on currency markets.

Metals derivatives

In the case of derivatives on the commodity market, forward prices from the maturity dates of individual transactions were used to determine their fair value. In the case of copper, official closing prices from the London Metal Exchange were used, and with respect to silver and gold – the fixing price set by the London Bullion Market Association. Volatility ratios and forward prices for measurement of derivatives at the end of the reporting period were obtained from the Reuters system. Levy’s approximation to the Black-Scholes model was used for Asian options pricing on metals markets.

Received long-term bank and other loans

The fair value of bank and other loans is estimated by discounting the cash flows associated with these liabilities in timeframes and under conditions arising from agreements, and by applying current rates. Fair value differs from the carrying amount by the amount of the premium paid to acquire the financing.

Long-term loans granted

There was a transfer in the Group of financial instruments between individual levels of the fair value hierarchy in the reporting period. Due to utilisation of forecasted cash flows from international assets in the fair value measurement (an unmeasurable assumption classified to level 3), the Group transferred the measurement of loans granted from level 2 to level 3 of the fair value hierarchy.

Pursuant to the adopted principle on transferring fair values between levels, as at 31 December 2020 an analysis of classification was made of fair value of financial instruments to levels of the fair value hierarchy. As a result of the analysis, a transfer was made from level 2 to level 3 of the fair value measurement hierarchy, of loans measured at amortised cost in the financial statements in the amount of PLN 6 069 million.

With respect to estimating the fair value of these loans, a significant element of the estimation are the forecasted cash flows of Sierra Gorda, which pursuant to IFRS 13 are unobservable input data, that is input data at level 3 of the fair value, which formed the basis for transferring the fair value of these loans to level 3 of the fair value. The discount rate used to calculate the fair value of loans measured at amortised cost is 9.58%.

Detailed disclosures on the assumptions adopted for the measurement of loans were presented in note 6.2, while the sensitivity of the fair value classified to level 3 for loans granted – in note 7.5.2.5.

The Group does not disclose the fair value of financial instruments measured at amortised cost (except for long-term loans granted, long-term bank and other loans received and long-term debt securities) in the statement of financial position, because it makes use of the exemption arising from IFRS 7, paragraph 29 (Disclosure of information on the fair value is not required when the carrying amount is approximate to the fair value) .

Search results