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

Financial results

GRI[ ]

Financial results of KGHM Polska Miedź S.A.

  • 201-1

Statement of profit or loss

In 2020, KGHM Polska Miedź S.A. recorded a net profit of PLN 1,779 million, i.e. by PLN 515 million (+41%) higher than in the previous year.

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Key items of the statement of profit or loss of KGHM Polska Miedź S.A. (PLN million)

2020 2019 Change
(%)		 IVQ’20 IIIQ’20 IIQ’20 IQ’20
Revenues from contracts with customers 19,326 17,683 +9.3 5,966 4,463 4,672 4,225
reclassification of revenues from contracts with customers following
realisation of hedging position		 323 245 +31.8 (6) 38 169 123
Cost of sales, selling costs and administrative expenses (16,161) (15,291) +5.7 (4,957) (3,643) (3,952) (3,609)
Net profit on sales 3,165 2,392 +32.3 1,009 820 720 616
Other operating income and (costs) (398) 39 × (131) (223) (532) 488
foreign exchange differences on assets and liabilities other than borrowings (269) 168 × (150) (145) (420) 446
interest on loans granted and other financial receivables 269 272 (1.1) 64 64 68 73
dividend income 20 37 (45.9) 5 – 15 –
provisions (recognised)/reversed 14 (39) × 20 – (3) (3)
measurement and realisation of derivatives (240) (122) +96.7 (32) (74) (45) (89)
fees and charges on re-invoicing of costs of bank guarantees securing payment of liabilities 53 31 +71.0 3 23 7 20
(recognition)/reversal of impairment losses on financial instruments measured at amortised cost (61) 102 × (1) 25 91 (176)
impairment losses on shares and investment certificates in subsidiaries (141) (460) (69.3) (10) – (89) (42)
Fair value gains/(losses) on financial assets measured at fair value through profit or loss (20) 84 × (33) (99) (175) 287
donations given (40) (30) +33.3 (2) (15) (3) (20)
refund of excise tax for previous years 53 4 ×13.3 5 – 48 –
other (36) (8) ×4.5 – (2) (26) (8)
Finance income and (costs) – (504) × 62 89 345 (496)
foreign exchange differences on borrowings 190 (209) × 109 81 401 (401)
interest on borrowings (148) (183) (19.1) (37) (111) (48) 48
bank fees and commissions on external financing (27) (49) (44.9) (6) (21) (10) 10
measurement and realisation of derivatives (7) (22) (68.2) (2) (5) (3) 3
unwinding of the discount effect (8) (41) (80.5) (2) 145 5 (156)
Profit before tax 2,767 1,927 +43.6 940 686 533 608
Income tax (988) (663) +49.0 (317) (277) (185) (209)
Net profit 1,779 1,264 +40.7 623 409 348 399
Depreciation/amortisation recognised in profit or loss (1,293) (1,220) +6.0 (397) (301) (311) (284)
Adjusted EBITDA1) 4,458 3,619 +23.2 1,406 1,121 1,031 900
1) Adjusted EBITDA = net profit on sales + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets, recognised in cost of sales, selling costs and administrative expenses
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Primary factors of change in profit/(loss) of KGHM Polska Miedź S.A.

Item Impact on change of profit or loss
(PLN million)		 Description
Increase in revenue from contracts with customers by PLN 1,643 million +1,216 Increase in revenues due to higher prices of copper (+181 USD/tonne, +3%), silver (+4.33 USD/oz t, +27%) and gold (+370 USD/oz t, +27%)
+258 Increase in revenues from sales of core products (Cu, Ag, Au) due to a more favourable average annual USD/PLN exchange rate (a change from 3.84 to 3.90 USD/PLN)
+78 Increase in adjustments to revenues from hedging transactions, from PLN 245 million to PLN 323 million
+42 Increase in revenues due to a higher volume of sales of copper (+4.0 thousand tonnes, +1%), lower volume of sales of silver (-24 tonnes, -2%) and gold (-1.2 koz t, -1%).
+49 Increase in other sales revenues, including revenues from the sales of merchandise, waste and production materials (PLN +132 million), alongside a decrease in sales of refined lead (PLN -27 million), sulphuric acid (PLN -13 million) and rock salt (PLN -12 million)
Increase in cost of sales, selling costs and administrative expenses(1
(-PLN 870 million) 		(207) Utilisation of inventories (change in 2020: PLN +576 million; in 2019: PLN +369 million)
(196) Higher consumption volume of external inputs by 4.9 thousand tonnes of Cu (+3%), at higher purchase price by 3%
(467) Primarily, an increase in the value of merchandise and materials sold by PLN 159 million and other expenses by nature by PLN 294 million, mainly due to a change in costs: employee benefits (increase by PLN 241 million), minerals extraction tax (increase by PLN 105 million) depreciation/amortisation (increase by PLN 66 million), energy and energy factors (increase by PLN 49 million), and mine development works (decrease by PLN 47 million)
Impairment losses on shares and investment certificates in subsidiaries (PLN +319 million) +319 Lower impairment losses on shares and investment certificates in subsidiaries from -PLN 460 million to – PLN 141 million
(Recognition)/reversal of impairment losses on financial instruments measured at amortised cost (-PLN 163 million) (163) Change in the balance of impairment losses recognised reversed on financial instruments measured at amortised costs from PLN +102 million to PLN +61 million.
Fair value gains/(losses) on financial assets measured at fair value through profit or loss (-PLN 104 million) (104) Fall resulting in movement in fair value of financial assets measured at fair value through profit or loss, from PLN +84 million to PLN -20 million.
Impact of derivatives and hedging transactions (PLN -103 million) (118) Change in the result due to the measurement and realisation of derivatives in other operating activities, from -PLN 122 million to -PLN 240 million
+15 Change in the result due to the measurement and realisation of derivatives in finance activities, from PLN -22 million to PLN -7 million
Provisions (recognised)/reversed (PLN +53 million) +100 Decrease of added provisions from PLN -107 million to PLN -7 million
(47) Decrease in reversed provisions from PLN 68 million to PLN 21 million
Refund of excise tax for previous years (PLN +49 million) +49 Increase in excise tax for previous years from PLN 4 million to PLN 53 million
Impact of foreign exchange differences (PLN +38 million) (437) Change to the result due to foreign exchange differences on the measurement of assets and liabilities other than borrowings – in other operating activities.
+399 A change in the result due to foreign exchange differences on borrowings (presented in finance costs).
Effect of unwinding of the discount (PLN +33 million) +33 Change in value from PLN -41 million in 2019 to PLN -8 million in 2020.
Change in interest income and cost on loans and borrowings (PLN +32 million) (3) Decrease in interest income on loans granted
+35 Lower interest cost on borrowings
Increase in income tax
(PLN -325 million) 		(325) The increase in income tax results from an increase in current income tax by PLN 92 million, alongside an increase in deferred income tax by PLN 75 million and a lower negative adjustment of current tax for prior periods by PLN 158 million.
1) Cost of products, merchandise and materials sold plus selling costs and overheads

Cash flows

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Cash flows statement of KGHM Polska Miedź S.A. (PLN million)

2020 2019 Change
(%)		 IVQ’20 IIIQ’20 IIQ’20 IQ’20
Profit before tax 2,767 1,927 ×1.4 940 686 533 608
Depreciation/amortisation recognised in profit or loss 1,293 1,220 ×1.1 397 301 311 284
FX differences (204) 200 × (25) 31 (177) (33)
Remaining adjustments 620 188 ×3.3 232 150 241 (3)
Total exclusions of income and costs 1,709 1,608 ×1.1 604 482 375 248
Income tax paid (730) (465) ×1.6 (295) (63) (186) (186)
Changes in working capital 1,070 973 ×1.1 707 (170) 149 384
Net cash flows from operating activities 4,816 4,043 ×1.2 1,956 935 871 1,054
Expenditures on mining and metallurgical assets (2,373) (2,294) ×1.0 (576) (627) (461) (709)
Expenditures on other property, plant and equipment and intangible assets (49) (72) ×0.7 (5) (6) (3) (35)
Expenditures on the acquisition of shares and investment certificates (43) (430) ×0.1 (14) (22) (3) (4)
Payments on loans granted (288) (445) ×0.6 (3) (15) (270) –
Proceeds from the redemption of investment certificates – 404 × – – – –
Other (11) (17 ×0.6 (6) 55 (18) (42)
Net cash flows from investing activities (2,764) (2,854) ×1.0 (604) (615) (755) (790)
Proceeds from loans and borrowings 4,052 4,669 ×0.9 – – 2,390 1,662
Proceeds from the issue of debt financial instruments – 2,000 × – – – –
Proceeds from cash pool 154 50 ×3.1 54 50 50 –
Repayment of loans and borrowings (4,478) (7,726) ×0.6 (61) (1,275) (, 693) (449)
Interest paid (173) (228) ×0.8 (25) (20) (65) (63)
Other (62) (30) ×2.1 (23) (3) 18 (54)
Net cash flows from financing activities (507) (1,265) ×0.4 (55) (1,248) (300) 1,096
Net cash flows 1,545 (76) × 1,297 (928) (184) 1,360
Foreign exchange gains/(losses) on cash and cash equivalents 74 (35) × 57 2 (8) 23
Cash and cash equivalents at the beginning of the period 516 627 ×0.8 781 1,707 1 899 516
Cash and cash equivalents at the end of the period 2,135 516 ×4.1 2,135 781 1,707 1,899

Net cash flows from operating activities in 2020 amounted to PLN +4,825 million and mainly comprised profit before income tax in the amount of PLN 2,767 million, adjusted by, among others, depreciation/amortisation in the amount of PLN +1,293 million, less income tax paid in the amount of PLN -730 million and the change in working capital in the amount of PLN +1070 million.

Net cash flows in investing activities in 2020 amounted to PLN -2,764 million and mainly comprised expenditures on property, plant and equipment and intangible assets in the amount of PLN – 2,422 million, payments on the account of loans granted of PLN -288 million, and expenditures on the acquisition of investment certificates and shares in subsidiaries in the amount of PLN -43 million.

Net cash flows in financing activities during the same period amounted to PLN -507 million and mainly comprised proceeds from loans and borrowings in the amount of PLN +4,052 million, alongside repayments of loans and borrowings of PLN -4,478 million and interest paid in the amount of PLN -173 million.

After reflecting foreign exchange differences on cash and cash equivalents, in 2020, cash and cash equivalents increased by PLN 1,619 million and amounted to PLN 2,135 million.

Assets and sources of asset financing

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Assets of KGHM Polska Miedź S.A. (PLN million)

31.12.2020 31.12.2019 Change (%) 30.09.2020 30.06.2020 31.03.2020
Mining and metallurgical property, plant and equipment 19,162 18,092 +5.9 18,791 18,459 18,212
Mining and metallurgical intangible assets 675 651 +3.7 671 671 748
Other property, plant and equipment 102 103 (1.0) 96 99 99
Other intangible assets 65 61 +6.6 57 58 60
Investments in subsidiaries 2,848 2,946 (3.3) 2,844 2,823 2,908
Financial instruments, including: 9,459 8,200 +15.4 9,581 9,133 8,643
loans granted 7,648 7,217 +6.0 7,750 7,871 7,886
derivatives 789 123 ×6.4 863 242 24
Other non-financial assets 56 58 (3.4) 64 60 67
Non-current assets 32,367 30,111 +7.5 32,104 31,303 30,737
Inventories 3,555 3,783 (6.0) 3,910 3,624 3,996
Trade receivables 351 243 +44.4 406 334 153
Tax assets 217 435 (50.1) 282 343 355
Derivatives 210 291 (27.8) 269 222 892
Cash pooling receivables 128 335 (61.8) 131 265 341
Other financial assets 268 221 +21.3 262 295 361
Other non-financial assets 66 54 +22.2 115 192 163
Cash and cash equivalents 2 135 516 ×4.1 781 1,707 1,899
Fixed assets held for sale 45 – × 15 – –
Current assets 6,975 5,878 18.7 6,171 6,982 8,160
TOTAL ASSETS 39,342 35,989 9.3 38,275 38,285 38,897

As at 31 December 2020, total assets amounted to PLN 39,342 million, which represents an increase as compared to the end of 2019 by PLN 3,353 million, i.e. by 9%, mainly due to increases in the following items:

  • cash and cash equivalents by PLN 1,619 million,
  • property, plant and equipment and intangible assets by PLN 1,097 million, including mining and metallurgical property, plant and equipment by PLN 1,070 million, arising from the completion of investments – expenditures on property, plant and equipment and intangible assets in 2020 amounted to PLN 2,422 million,
  • non-current financial instruments by PLN 1,259 million, including derivative financial assets (PLN +666 million) and loans granted (PLN +431 million),

decrease in inventories (PLN -228 million), tax assets (PLN -218 million) and cash pooling receivables (PLN -207 million).

 

The balance sheet value of equity and liabilities as at 31 December 2020 is presented below:

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Equity and liabilities of KGHM Polska Miedź S.A. (PLN million)

31.12.2020 31.12.2019 Change (%) 30.09.2020 30.06.2020 31.03.2020
Share capital 2,000 2,000 – 2,000 2,000 2,000
Other reserves from measurement of financial instruments (1,390) (698) +99.1 (743) (860) (748)
Accumulated other comprehensive income (872) (622) +40.2 (887) (855) (772)
Retained earnings 20,988 19,209 +9.3 20,365 19,956 19,608
Equity 20,726 19,889 +4.2 20,735 20,241 20,088
Liabilities on account of loans, borrowings, leasing and debt securities 6,525 7,215 (9.6) 6,711 7,304 8,845
Derivatives 981 131 ×7.5 789 532 537
Employee benefit liabilities 2,724 2,363 +15.3 2,732 2,626 2,532
Provisions for decommissioning costs of mines and other technological facilities 1,185 1,119 +5.9 1,154 1,150 1,146
Other non-current liabilities 272 277 (1.8) 353 248 195
Non-current liabilities 11,687 11,105 +5.2 11,739 11,860 13,255
Liabilities on account of loans, borrowings, leasing and debt securities 306 275 +11.3 317 1,104 311
Cash pooling liabilities 284 130 ×2.2 230 180 80
Derivatives 653 60 ×10.9 226 179 315
Trade and similar payables 3,334 2,460 +35.5 2,811 2,640 2,572
Employee benefit liabilities 1,042 890 +17.1 917 905 956
Tax liabilities 369 258 +43.0 378 263 279
Provisions for liabilities and other charges 77 158 (51.3) 111 123 139
Other current liabilities 864 764 +13.1 811 790 902
Current liabilities 6,929 4,995 +38.7 5,801 6,184 5,554
Non-current and current liabilities 18,616 16,100 +15.6 17,540 18,044 18,809
TOTAL EQUITY AND LIABILITIES 39,342 35,989 +9.3 38,275 38,285 38,897

The higher equity and liabilities was mainly due to increases in the following items:

  • equity by PLN 837 million, including as a result of the net profit for 2020 in the amount of PLN 1,779 million, and increase in the negative other reserves from measurement of financial instruments (PLN -692 million),
  • financial derivatives (PLN + 1,443 million),
  • trade and similar payables (PLN +874 million),
  • employee benefits liabilities (PLN +513 million),

alongside lower liabilities on account of loans, borrowings, leasing and debt securities by PLN 659 million.

Contingent assets and liabilities under guarantees and warranties granted

promissory notes receivables in the amount of PLN 208 million and guarantees received by the Company in the amount of PLN 208 million.

As at 31 December 2020, liabilities under guarantees and warranties granted amounted to PLN 2,570 million, and liabilities under promissory notes amounted to PLN 16 million, including:

  • a security for the performance of contracts entered into by Sierra Gorda S.C.M. in the amount of PLN 1,814 million,
  • a security for the costs of restoring the areas of the Robinson mine, Podolsky mine and the Victoria project, in the amount of PLN 372 million,
  • a security for the proper performance by DMC Mining Services (UK) Ltd. and DMC Mining Services Ltd. of a contract for sinking shafts under a project underway in the United Kingdom, in the amount of PLN 188 million,
  • a security for the proper performance by KGHM Polska Miedź S.A. of future environmental obligations to restore the area, following the closure of operations of the Żelazny Most tailings storage facility, in the amount of PLN 175 million.

As far as the Company is aware, as at the end of the reporting period the Company determined the likelihood of paying the amounts related to the contingent liabilities of Sierra Gorda S.C.M. as moderately low, and that of the remaining entities of the Group as low.

Other liabilities not recognised in the statement of financial position represent liabilities to local government entities due to expansion of the tailings storage facility, in the amount of PLN 100 million.

Financial results of the KGHM

  • 201-1

Statement of profit or loss

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Financial results of the Group (PLN million)

2020 2019 Change
(%)		 IVQ’20 IIIQ’20 IIQ’20 IQ’20
Revenues from contracts with customers 23,632 22,723 +4.0 7,052 5,632 5,649 5,299
Cost of sales, selling costs and administrative expenses (20,471) (20,268) +1.0 (5,997) (4,666) (5,004) (4,804)
Net profit on sales 3,161 2,455 +28.8 1,055 966 645 495
Result on participation in a joint venture 247 9 ×27.4 169 95 (113) 96
Other operating income and (costs) (624) 186 × (395) (389) (680) 840
Finance income and (costs) (28) (528) (94.7) 48 100 326 (502)
Profit before tax 2,756 2,122 +29.9 877 772 178 929
Income tax (959) (701) +36.8 (252) (299) (169) (239)
Net profit 1,797 1,421 +26.5 625 473 9 690
Adjusted EBITDA1) 6,623 5,229 +26.7 2,205 1,767 1,522 1,129
1) Adjusted EBITDA = net profit + depreciation/amortisation (recognised in profit or loss) + impairment loss (-reversal of impairment losses) on non-current assets recognised in cost of sales, selling costs and administrative expenses) according to part 2 of the consolidated financial statements – including Sierra Gorda S.C.M.
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Main factors impacting the change in profit or loss of the Group

Item Impact on change of profit or loss
(PLN million)		 Description
Revenues from contracts with customers +909 The increase in revenue results primarily from sales revenue of copper in the amount of PLN +835 million, silver – PLN +675 million, and gold – PLN +201 million, alongside a decrease in the revenue from sales of services – PLN -618 million. Detailed explanation of the changes in revenues of the segments of KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. can be found in section 7 and 8 of this statement.
Cost of sales, selling costs and administrative expenses (203) The increase in cost of sales, selling costs and administrative expenses results primarily from higher costs by nature by PLN 47 million, alongside a change in products and production in progress by PLN 137 million and a lower adjustment to cost of production of goods for own use by PLN 28 million. Detailed explanation of the changes in the costs of the segments of KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. can be found in section 7 and 8 of this statement.
Result on participation in a joint venture +238 The change in profit/loss on involvement in joint ventures from PLN 9 million to PLN 247 million was due to:
– a decrease in gains due to reversal of impairment losses on loans granted to joint ventures, by PLN 32 million,
– a lower share of losses of joint ventures accounted for using the equity method, by PLN 234 million,
– a higher interest income on loans granted to joint ventures, by PLN 36 million.
Other operating income and (costs) (810) The decrease in the result on other operating activities from PLN 186 million to PLN -624 million was mainly due to:
– a lower foreign exchange gain/loss on the measurement of assets and liabilities other than borrowings, by PLN 562 million,
– a lower result on the measurement and realisation of derivatives, by PLN 140 million,
– a higher result on the recognition and reversal of losses due to impairment of fixed assets under construction and intangible assets not yet available for use, by PLN 224 million,
– a higher negative balance of provisions recognised and reversed, by PLN 65 million.
Finance income and (costs) +500 The change in finance income and costs from PLN -528 million to PLN -28 million was mainly due to:
– a higher foreign exchange gain/loss on the measurement and realisation of borrowings, by PLN 396 million,
– lower interest costs on borrowings, by PLN 59 million,
– a higher result on the measurement and realisation of derivatives, by PLN 15 million.
Income tax (258) The increase in income tax results from:
– higher current tax, by PLN 77 million,
– higher deferred tax, by PLN 23 million,
– lower adjustment of tax for previous periods, by PLN 158 million.

Cash flows

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Cash flows of the Group (PLN million)

2020 2019 Zmiana
(%)		 IVQ’20 IIIQ’20 IIQ’20 IQ’20
Profit before tax 2,756 2,122 +29.9 877 772 178 929
Depreciation/amortisation recognised in profit or loss 1,963 1,920 +2.2 572 438 470 483
Share of losses of joint ventures accounted for with the equity method 204 438 (53.4) (2) (4) 210 –
Gains due to reversal of impairment losses on loans granted to joint ventures (74) (106) (30.2) (74) – – –
Interest on loans granted to joint ventures (377) (341) +10.6 (93) (91) (97) (96)
Other interest 159 244 (34.8) 39 7 62 51
Impairment losses on non-current assets 239 51 ×4.7 145 2 65 27
FX differences (101) 184 × 154 212 87 (554)
Change in employee benefits provisions and liabilities – 114 × (29) 44 32 (47)
Change in receivables and payables other than working capital 584 (176) × 525 132 91 (164)
Changes in assets / liabilities on account of derivative instruments (171) (31) ×5.5 (219) (225) 35 238
Re-classification of other comprehensive income to the profit and loss as a result of realisation of hedging derivatives (42) (86) (51.2) 80 32 (97) (57)
Other adjustments 11 2 ×5.5 (3) (25) 38 1
Total exclusions of income and costs 2,395 2,213 +8.2 1,095 522 896 (118)
Income tax paid (667) (410) +62.7 (223) (58) (196) (190)
Changes in working capital 1,172 1,123 +4.4 653 87 102 330
Net cash flows from operating activities 5,656 5,048 +12.0 2,402 1,323 980 951
Expenditures on mining and metallurgical assets (3,060) (2,872) +6.5 (861) (810) (566) (823)
Expenditures on other property, plant and equipment and intangible assets (397) (360) +10.3 (109) (96) (52) (140)
Expenditures on financial assets designated for decommissioning of mines and other technological facilities (22) (293) (92.5) – – – (22)
Acquisition of shares in joint ventures (207) (439) (52.8) – – (207) –
Proceeds from financial assets designated for decommissioning of mines and other technological facilities 11 335 (96.7) 8 2 – 1
Other 14 (14) × (24) 54 (17) 1
Net cash flows from investing activities (3,661) (3,643) +0.5 (986) (850) (842) (983)
Proceeds from loans and borrowings 4,247 4,730 (10.2) 66 24 2,417 1,740
Proceeds from the issue of debt financial instruments – 2,000 × – – – –
Proceeds from derivative instruments linked to external financing sources 52 – × 18 1 33 –
Repayment of loans and borrowings (4,513) (7,746) (41.7) (84) (1,282) (2,695) (452)
Repayment of lease liabilities (97) (52) +86.5 (12) (41) (31) (13)
Expenditure on derivative instruments linked to external financing sources (78) – × (38) – (40) –
Interest paid (177) (239) (25.9) (28) (14) (68) (67)
Other 18 (1) × 12 4 1 1
Net cash flows from financing activities (548) (1,308) (58.1) (66) (1,308) (383) 1,209
Net cash flows 1,447 97 ×14.9 1,350 (835) (245) 1,177
FX differences 59 (3) × 53 3 (2) 5
Cash and cash equivalents at the beginning of the period 1,016 957 +6.2 1,119 1,951 2,198 1,016
Cash and cash equivalents at the end of the period 2,522 1,016 ×2.5 2,522 1,119 1,951 2,198

Net cash flows from operating activities in 2020 amounted to PLN +5,656 million and mainly comprised profit before income tax of PLN +2,756 million, increased by:

  • adjusted depreciation/amortisation in the amount of PLN +1,963 million,
  • a change in working capital in the amount of PLN +1,172 million,
  • the adjustment in the balance of remaining receivables and payables other than working capital in the amount of PLN +584 million,
  • the adjustment of loss from impairment of non-current assets by PLN 239 million,
  • the adjustment to the share in the losses of joint ventures measured with the equity methods by PLN +204 million,
  • the adjustment of other interests by PLN +159 million.

The lower flows from operating activities are due primarily to the income tax paid of PLN -667 million, an adjustment of interests on loans granted to joint ventures by PLN -377 million, a change in the balance of assets and liabilities on the account of derivative instruments of PLN -171 million, an adjustment to the gain from the reversal of impairment of loans granted to joint ventures by PLN -74 million, and reclassification of other comprehensive income to the profit and loss as a result of realisation of hedging instruments in the amount of PLN -42 million.

Net cash flows from investing activities in 2020 amounted to PLN -3,661 million and mainly comprised expenditures on purchase of property, plant and equipment and intangible assets in the amount of PLN -3,457 million, and expenditures on the acquisition of shares in joint ventures in the amount of PLN -207 million.

Net cash flows from financing activities in 2020 amounted to PLN -548 million and mainly comprised proceeds from loans and borrowings in the amount of PLN -4,247 million, repayments of loans and borrowings in the amount of PLN -4,513 million, interest paid in the amount of PLN -177 million, repayment of leasing liabilities of PLN 97 million, as well as expenditure on derivative instruments linked to external financing sources of PLN -78 million.

After reflecting foreign exchange differences on cash and cash equivalents, cash and cash equivalents increased in 2020 by PLN 1,506 million and amounted to PLN 2,522 million as at 31 December 2020.

Assets

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Consolidated assets (PLN million)

31.12.2020 31.12.2019 Change (%) 30.09.2020 30.06.2020 31.03.2020
Mining and metallurgical property, plant and equipment 20,576 19,498 +5.5 20,291 19,945 19,793
Mining and metallurgical intangible assets 2,024 1,966 +3.0 2,048 2,076 2,197
Other property, plant and equipment 2,857 2,829 +1.0 2,795 2,779 2,852
Other intangible assets 141 155 (9.0) 133 134 178
Loans granted to joint ventures 6,069 5,694 +6.6 6,075 6,159 6,317
Derivatives 789 124 ×6.4 864 243 24
Other financial instruments measured at fair value 636 448 +42.0 532 581 345
Other financial instruments measured at amortised cost 601 656 (8.4) 699 710 688
Deferred tax assets 193 157 +22.9 150 141 163
Other non-financial assets 161 142 +13.4 139 135 128
Non-current assets 34,047 31,669 +7.5 33,726 32,903 32,685
Inventories 4,459 4,741 (5.9) 4,854 4,615 4,951
Trade receivables 834 688 +21.2 745 747 667
Tax assets 295 571 (48.3) 426 498 482
Derivatives 210 293 (28.3) 269 222 892
Other financial assets 210 280 (25.0) 298 301 394
Other non-financial assets 142 151 (6.0) 248 347 327
Cash and cash equivalents 2,522 1,016 ×2.5 1,119 1,951 2,198
Fixed assets held for sale 61 – × 31 – –
Current assets 8,733 7,740 +12.8 7,990 8,681 9,911
TOTAL ASSETS 42,780 39,409 +8.6 41,716 41,584 42,596

At the end of 2020, total assets in the consolidated statement of financial position amounted to PLN 42,780 million and were higher as compared to 31 December 2019 by PLN 3,371 million.

Non-current assets as at 31 December 2020 amounted to PLN 34,047 million and were higher by PLN 2,378 million compared to the end of 2019. The increase in non-current assets mainly applied to property, plant and equipment and intangible assets – by PLN 1,150 million, financial derivative instruments – by PLN 665 million, loans granted to joint ventures – by PLN 375 million, and other financial instruments measured at fair value – by PLN 188 million. Compared to 2019, there was a decrease in other financial instruments measured at amortised cost – by PLN 55 million.

The increase in the value of current assets by PLN 993 million refers to cash and cash equivalents – by PLN 1,506 million, trade receivables – by PLN 146 million, and non-current assets held for sale – by PLN 61 million (the Group did not have non-current assets held for sale as at the end of 2019). Compared to the end of 2019, there was a decrease primarily in the value of inventories – by PLN 282 million, tax assets – by PLN 276 million, derivative financial instruments – by PLN 83 million, and other financial assets – by PLN 70 million.

Equity and liabilities

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Consolidated equity and liabilities (PLN million)

31.12.2020 31.12.2019 Change (%) 30.09.2020 30.06.2020 31.03.2020
Share capital 2,000 2,000 – 2,000 2,000 2,000
Other reserves from measurement of financial instruments (1,430) (738) +93.8 (786) (897) (796)
Accumulated other comprehensive income other than from measurement of financial instruments 1,728 1,954 (11.6) 1,657 1,616 1,583
Retained earnings 18 ,694 16,894 +10.7 18,068 17,596 17,586
Equity attributable to shareholders of the Parent Entity 20,992 20,110 +4.4 20,939 20,315 20,373
Equity attributable to non-controlling interests 89 92 (3.3) 90 89 90
Equity 21,081 20,202 +4.4 21,029 20,404 20,463
Liabilities on account of loans, borrowings, leasing and debt securities 6,928 7,525 (7.9) 7,093 7,697 9,218
Derivatives 1,006 183 ×5.5 825 574 588
Employee benefit liabilities 3,016 2,613 +154 2 986 2,874 2,772
Provisions for decommissioning costs of mines and other facilities 1,849 1,774 +4.2 1,862 1,870 1,855
Deferred tax liabilities 442 445 (0.7) 544 428 397
Other liabilities 551 631 (12.7) 611 627 641
Non-current liabilities 13,792 13,171 +4.7 13,921 14,070 15,471
Liabilities on account of loans, borrowings, leasing and debt securities 407 348 +17.0 404 1,201 404
Derivatives 688 91 ×7.6 252 205 341
Trade and similar payables 3,593 2,766 +29.9 3,146 2,856 2,879
Employee benefit liabilities 1,313 1,150 +14.2 1,189 1,178 1,211
Tax liabilities 537 433 +24.0 545 411 422
Provisions for liabilities and other charges 162 222 (27.0) 178 193 203
Other liabilities 1,202 1,026 +17.2 1,048 1,066 1,202
Liabilities linked to assets held for sale 5 – × 4 – –
Zobowiązania krótkoterminowe 7,907 6,036 +31.0 6,766 7,110 6662
Non-current and current liabilities 21,699 19,207 +13.0 20,687 21,180 22,133
TOTAL EQUITY AND LIABILITIES 42,780 39,409 +8.6 41,716 41,584 42,596

As at 31 December 2020, equity amounted to PLN 21,081 million and was higher by PLN 879 million than at the end of 2019, mainly due to an increase in retained earnings by PLN 1,800 million.

Non-current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2020 amounted to PLN 13,792 million and were higher by PLN 621 million compared to the end of 2019, mainly due:

  • to an increase in liabilities on the account of financial derivative instruments – by PLN 823 million,
  • and employee benefits liabilities – by PLN 403 million.

In comparison with the end of 2019, there was a decrease primarily of loan, borrowings, leasing, and debt securities liabilities – by PLN 597 million.

Current liabilities of the KGHM Polska Miedź S.A. Group as at 31 December 2020 amounted to PLN 7,907 million and were higher by PLN 1871 million compared to the end of 2019, mainly due to an increase in trade and similar payables – by PLN 827 million, liabilities on the account of financial derivative instruments – by PLN 597 million, other liabilities – by PLN 176 million, employee benefits liabilities – by PLN 163 million, and tax liabilities – by PLN 104 million.

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Contingent assets and liabilities under guarantees and warranties granted

As at 31 December 2020, the Group held contingent assets under guarantees and warranties received in the amount of PLN 526 million, which mainly related to proper performance of agreements in the amount of PLN 297 million and promissory notes receivables in the amount of PLN 117 million.

As at 31 December 2020, the Group held liabilities under guarantees granted and letters of credit in the amount of PLN 2,213 million and promissory notes payables of PLN 160 million.

The most important items are securing the following liabilities:

Sierra Gorda S.C.M.:

  • financial guarantees:
    • corporate guarantees in the amount of PLN 1,140 million securing the repayment of short-term working capital facilities,
    • corporate guarantees in the amount of PLN 18 million, granted to secure the payments from lease agreements,
  • other guarantees:
    • a letter of credit in the amount of PLN 517 million, granted to secure performance under a long-term electricity off-take contract,
    • a corporate guarantee in the amount of PLN 104 million, securing repayment of a specified part of payment to a guarantee granted by Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, securing repayment of a corporate loan drawn by the joint venture Sierra Gorda S.C.M.,
    • a corporate guarantee in the amount of PLN 35 million, securing claims arising from the obligation to restore post-mining terrain following mine closure;

of other Group entities, including the Parent Entity:

  • guarantees in the amount of PLN 188 million, securing proper performance by DMC Mining Services (UK) Ltd. and DMC Mining Services Ltd. of a contract for sinking shafts under a project underway in the United Kingdom,
  • a guarantee in the amount of PLN 175 million, securing proper performance of future environmental obligations of the Parent Entity to restore the area, following the conclusion of operations of the Żelazny Most tailings storage facility,
  • guarantees and letters of credit in the total amount of PLN 21 million, securing proper performance of agreements entered into by the Parent Entity and Group companies.

Execution of the 2020 budget and assumptions for 2021 budget

KGHM POLSKA MIEDŹ S.A. does not publish forecasts of financial results. However, the Company published the fundamental assumptions for the 2020 and 2021 Budgets in the current reports of 16 January 2020 and 28 January 2021, respectively. The execution of the 2020 assumptions and the assumptions for the 2021 Budget are given below.

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Execution of the 2020 Budget and assumptions for 2021 Budget

Execution 2020 2020 Budget Performance (%) 2021 Budget Change (%)
KGHM Polska Miedź S.A.
Production of copper in concentrate thousand tonnes 392.7 399.2 (1.6) 390.0 (0.7)
Production of silver in concentrate tonnes 1,218 1,448 (15.9) 1,200 (1.5)
Production of electrolytic copper, including: thousand tonnes 560.4 563.0 (0.5) 573.0 +2.2
from own inputs thousand tonnes 413.3 410.3 +0.7 385.0 (6.8)
Production of metallic silver tonnes 1,323 1,432 (7.6) 1,197 (9.5)
Sales volume of copper products thousand tonnes 561.0 565.7 (0.8) 566.3 +0.9
including in concentrate thousand tonnes – 4.9 × – ×
Sales volume of silver products tonnes 1,369 1,451 (5.7) 1,165 (14.9)
including in concentrate tonnes – 14 × – ×
Total unit cost of production
of electrolytic copper from own inputs		 PLN/t 17,827 19,297 (7.6) 20,248 +13.6
Capital expenditures on property, plant and equipment (1 PLN million 2,331 2,250 +3.6 2853 +22.4
Other expenditures, including loans (2 PLN million 387 133 ×2.9 306 (20.9)
KGHM INTERNATIONAL LTD.
Payable copper production thousand tonnes 66.9 71.7 (6.7) 73.9 +10.5
TPM production tys. troz 66.1 62.8 +5.3 53.7 (18.8)
Sierra Gorda (55%)
Payable copper production thousand tonnes 81.8 78.8 +3.8 98.9 +20.9
Molybdenum production million pounds 9.0 8.9 +1.1 6.7 (25.6)
1) Zexcluding the external financing costs, leases as per IFRS 16 not linked to the investment project and expenditure on uncompleted development work
2) acquisition of interest, shares and investment certificate in subsidiaries, including loans to these entities; the Management Board of KGHM Polska Miedź S.A. adjusted the assumptions for the 2020 Budget, raising the baseline amount from PLN 133 million to PLN 365 million in respect of the plan to provide financing to Sierra Gorda S.C.M. (current report no. 9/2020 of 12 May 2020)

Execution of the budget in 2020

In 2020, the Company’s execution of electrolytic copper production was by 2.6 thousand tonnes Cu (-1%) lower than assumed in the 2020 Budget, whereby the production from own inputs was higher by 3.0 thousand tonnes and the production from external inputs was lower by 5.6 thousand tonnes. A lower production of silver was achieved, by 109 tonnes (-8%). As a result, the sales of copper and silver were lower than planned (by 4.7 thousand tonnes, i.e. 1%, and 82 tonnes, i.e. 6%, respectively).

Total unit cost of electrolytic copper production from own concentrates was 8% lower than planned, mainly due to a 20% increase in the price of anode slimes resulting from higher prices of precious metals.

In 2020, capital expenditures on property plant and equipment (excluding external financing costs, leases as per IFRS 16 not linked to the investment project and expenditure on uncompleted development work) were executed at a level by PLN 81 million (+4%) higher than assumed (primarily as a result of reclassification of a part of operating expenses to capital expenditures).

The other expenditures were higher by PLN 254 million (2.9 times). The Management Board of KGHM Polska Miedź S.A. adjusted the budget assumptions for the other expenditures, raising the baseline amount from PLN 133 million to PLN 365 million in respect of the plan to provide financing to Sierra Gorda S.C.M. (current report no. 9/2020 of 12 May 2020). The overrun of the budget is a result of increased investment in domestic companies.

KGHM INTERNATIONAL LTD.’s payable copper production was lower than planned in the Budget by 4.8 thousand tonnes (-7%), as a result of lower production in the Franke and the Sudbury Basin mines. On the other hand, production of precious metals was by 3.3 koz t (+5%) higher than planned in the Budget, ensuing from the growth of metals production in the Robinson mine and the Sudbury Basin mines.

In 2020, Sierra Gorda produced 3.0 thousand tonnes (+4%) of payable copper more than planned in the Budget, as a result of higher volume of ore processing and higher copper yield.

Assumptions of the 2021 budget

Production – increase of copper production in the Group in 2021 by 36.7 thousand tonnes, (+5%) relative to the level achieved in 2020, including:

  • KGHM Polska Miedź S.A. – by 12.6 thousand tonnes (+2%),
  • KGHM INTERNATIONAL LTD. – by 7.0 thousand tonnes Cu (+10%) – the increase applies to the majority of the mines,
  • Sierra Gorda – by 17.1 thousand tonnes (+21%), as a result of increased ore processing capacity and higher content of Cu in the zones operated in 2021,

Sales KGHM Polska Miedź S.A. – in view of the increased production, the planned sales of copper is higher by 5.3 thousand tonnes (+1%).

Total unit cost of electrolytic copper production from own concentrate (KGHM Polska Miedź S.A.) – planned growth by 14%, primarily due to the planned decrease in production from own concentrate.

Investments – higher capital expenditures on property plant and equipment (excluding external financing costs, leases as per IFRS 16 not linked to the investment project and expenditure on uncompleted development work) in KGHM Polska Miedź S.A. by PLN 522 million (+22%), attributable to a broader material scope of planned investments. The Sierra Gorda 2021 Budget include the updated expenditure on increased processing capacity, up to 130/140 thousand tonnes of ore per day in the successive years.

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