6.1 Joint ventures accounted for using the equity method

The item “involvement in joint ventures” comprises investments in joint ventures accounted for using the equity method and loans granted to joint ventures.

The Group classifies as investments accounted for using the equity method interests in joint ventures which are joint contractual arrangements, in which the parties sharing control have the right to the net assets of a given entity. Joint control occurs when decisions on the relevant activities of joint ventures require the unanimous consent of the parties sharing control.

Investments are initially recognised at cost. The Group’s share in the profit or loss of entities accounted for using the equity method (assessed while taking into account the impact of measurements to fair value at the investment’s acquisition date) from the acquisition date is recognised in profit or loss, while its share in changes of accumulated other comprehensive income from the acquisition date is recognised in the relevant item of accumulated comprehensive income.

Unrealised gains and losses on transactions between the investor and the joint venture are eliminated in an amount proportional to the investor’s share in these profits/(losses), and correspond with the carrying amount of the Group’s share in this unit. If, at the end of the reporting period, the Group’s share in the unrealised gains on transactions between the Group and the joint venture exceeds the carrying amount of the investment in this unit, the Group’s share in these gains is eliminated to the level of the carrying amount of the Group’s interest in this unit. Elimination of unrealised gains, proportionally to the Group’s share, unsettled in the period in which the transaction occurred, is performed in subsequent reporting period at the moment the carrying amount of the Group’s interest in this unit exceeds zero.

If there are any indications of a possibility of impairment, an investment is tested for impairment by  calculating the recoverable amount.

Joint control

The Group classifies Sierra Gorda S.C.M. with its head office in Chile as a joint venture under IFRS 11, in which KGHM INTERNATIONAL LTD.’s share equals 55%. Classification of Sierra Gorda S.C.M. as a joint venture, despite the 55% share of the Group, was made based on analysis of the terms of the agreements between the parties and contractual stipulations which indicated joint control. Pursuant to the terms of the agreements, all relevant activities of Sierra Gorda S.C.M. require the unanimous consent of both owners. The Group and other owners have three members each in the appointed Owners Council.

The Owners Council makes strategic decisions and is responsible for overseeing their execution. Moreover, it approves the appointment of senior management. In the reporting period, there were no changes to provisions that were the basis of classifying the investment as a joint venture.

Pursuant to the Group’s judgment, loans granted to the joint venture Sierra Gorda S.C.M. do not meet the criteria of recognition as net investments in a joint venture, because the loans’ settlement is planned and probable in the foreseeable future.