7.2 Derivatives
in PLN millions, unless otherwise stated
Derivatives are classified as financial assets/liabilities measured at fair value through profit or loss, unless they have not been designated as hedging instruments.
Purchases or sales of derivatives are recognised at the transaction date.
Derivatives not designated as hedges, defined as trade derivatives, are initially recognised at fair value and at the of the reporting period are measured at fair value, with recognition of the gains/losses on measurement in profit or loss.
In the KGHM Polska Miedź S.A. Group, the Parent Entity applies hedge accounting for cash flows. Hedge accounting aims at reducing volatility in the Parent Entity’s net result, arising from periodic changes in the measurement of transactions hedging individual types of market risk to which the Parent Entity is exposed. Hedging instruments may be derivatives as well as bank and other loans in foreign currencies.
The designated hedges relate to the future sales transactions forecasted as assumed in the Sales Plan for a given year. These plans are prepared based on the production capacities for a given period. The Parent Entity estimates the probability that transactions included in the production plan will occur is very high, as from the historical point of view sales were always realised at the levels assumed in Sales Plans. Future cash flows arising from interest on bonds issued in PLN also represent a hedged position.
The Parent Entity may use natural currency risk hedging through the use of hedge accounting for bank and other loans denominated in USD, and designates them as positions hedging foreign currency risk, which relates to future revenues of the Parent Entity from sales of copper, silver and other metals, denominated in USD.
Gains and losses arising from changes in the fair value of the cash flow hedging instrument are recognised in other comprehensive income, to the extent by which the change in fair value represents an effective hedge of the associated hedged item. The Group recognises in other reserves from measurement of financial instruments a part of the change of the hedging instrument arising from changes in the time value of the option, the forward element and currency margin. The portion which is ineffective is recognised in profit or loss as other operating income or costs. Gains or losses arising from the cash flow hedging instrument are recognised in profit or loss as a reclassification adjustment, in the same period or periods in which the hedged item affects profit or loss.
Derivatives are no longer accounted for as hedging instruments when they expire, are sold, terminated or settled, or when the goal of risk management for a given relation has changed.
The Parent Entity may designate a new hedging relationship for a given derivative, change the intended use of the derivative, or designate it to hedge another type of risk. In such a case, for cash flow hedges, gains or losses which arose in the periods in which the hedge was effective are retained in accumulated other comprehensive income until the hedged item affects profit or loss.
If the hedge of a forecasted transaction ceases to function because it is probable that the forecasted transaction will not occur, then the net gain or loss recognised in other comprehensive income is immediately transferred to profit or loss as a reclassification adjustment.
If a hybrid contract has an underlying instrument which is not a financial asset, the derivative is separated from an underlying instrument and is measured pursuant to the rules for derivatives only if (i) the economic characteristic and risk of the embedded instrument are not strictly related to the character of the host contract and its risks, (ii) a separate instrument, whose characteristics reflect the traits of the embedded derivative, would fulfil the conditions of the derivatives, and (iii) the combined instrument is not classified to financial assets measured at fair value, whose results of revaluation are recognised in other income or other operating costs in the reporting period. If an embedded derivative is separated, the underlying instrument is measured pursuant to appropriate accounting principles. The Parent Entity separates embedded derivatives in commodities transactions with settlement periods in the future, after the date of recognising a purchase invoice in the books up to the date of final settlement of the transaction.
If a hybrid contract has an underlying instrument, which is a financial asset, the criteria for classification of financial assets are applied to the whole contract.
| Type of derivative | As at 31 December 2022 | Stan na 31.12.2021 | ||||||||
| Financial assets | Financial liabilities | Total | Financial assets | Financial liabilities | Total | |||||
| Non-current | Current | Non-current | Current | Non-current | Current | Non-current | Current | |||
| Hedging instruments (CFH), including: | 709 | 755 | (700) | (280) | 484 | 585 | 249 | (1 056) | (848) | (1 070) |
| Derivatives – Metals (price of copper, silver) | ||||||||||
| Options – seagull* (copper) | 60 | 440 | (36) | (232) | 232 | 299 | 89 | (578) | (837) | (1 027) |
| Options – collar (silver) | – | – | – | – | – | 11 | 97 | – | – | 108 |
| Options – seagull* (silver) | 5 | 50 | (1) | (3) | 51 | 92 | 49 | (14) | – | 127 |
| Derivatives – Currency (USDPLN exchange rate) | ||||||||||
| Options – collar | 328 | 262 | (88) | (11) | 491 | 1 | 5 | (2) | (6) | (2) |
| Options – seagull* | 1 | 3 | (6) | (34) | (36) | 20 | 9 | (31) | (5) | (7) |
| Derivatives – Currency-interest rate | ||||||||||
| Cross Currency Interest Rate Swap CIRS | 315 | – | (569) | – | (254) | 162 | – | (431) | – | (269) |
| Trade instruments, including: | 5 | 41 | (14) | (118) | (86) | 6 | 3 | (73) | (40) | (104) |
| Derivatives – Metals (price of copper, silver, gold) | ||||||||||
| Sold put option (copper) | – | – | (13) | (49) | (62) | – | – | (57) | (6) | (63) |
| Purchased put option (copper) | – | 1 | – | – | 1 | – | – | – | – | – |
| Purchased call option (copper) | 4 | 32 | – | – | 36 | – | – | – | – | – |
| QP adjustment swap transactions (copper) | – | – | – | (10) | (10) | – | – | – | (5) | (5) |
| Sold put option (silver) | – | – | (1) | (1) | (2) | – | – | (10) | (3) | (13) |
| Purchased put option (silver) | – | – | – | – | – | – | 2 | – | – | 2 |
| Purchased call option (silver) | – | – | – | – | – | 1 | – | – | – | 1 |
| QP adjustment swap transactions (gold) | – | 4 | – | (14) | (10) | – | – | – | (2) | (2) |
| Derivatives – Currency | ||||||||||
| Sold put option (USDPLN) | – | – | – | (1) | (1) | – | – | (5) | (2) | (7) |
| Purchased put option (USDPLN) | – | – | – | – | – | 1 | 1 | – | – | 2 |
| Purchased call option (USDPLN) | 1 | 4 | – | – | 5 | 4 | – | – | – | 4 |
| Collars and forwards/swaps (EURPLN) | – | – | – | – | – | – | – | (1) | (1) | (2) |
| Embedded derivatives (price of copper, silver, gold) | ||||||||||
| Purchase contracts for metal-bearing materials | – | – | – | (43) | (43) | – | – | – | (21) | (21) |
| Instruments initially designated as hedging instruments excluded from hedge accounting, including: | – | – | (5) | (36) | (41) | 4 | 2 | (5) | (1) | – |
| Derivatives – Currency (USDPLN exchange rate) | ||||||||||
| Options – seagull | – | – | (1) | (4) | (5) | 4 | 2 | (4) | (1) | 1 |
| Derivatives – Metals (price of copper, silver) | ||||||||||
| Options – seagull (silver) | – | – | – | – | – | – | – | (1) | – | (1) |
| Options – seagull (copper) | – | – | (4) | (32) | (36) | – | – | – | – | – |
| TOTAL OPEN DERIVATIVES | 714 | 796 | (719) | (434) | 357 | 595 | 254 | (1 134) | (889) | (1 174) |
The table below presents detailed data on derivative transactions designated as hedging, held by the Parent Entity as at 31 December 2022.
| Open hedging derivatives | Notional | Average weighted price /exchange rate/interest rate |
Maturity
– settlement period |
Period of profit/loss impact*** | ||
| Type of derivative | copper [t]
silver [mn ounces] currency [USD mn] CIRS [PLN mn] |
[USD/t]
[USD/ounce] [USD/PLN] [USD/PLN, fixed interest rate for USD] |
from | to | from | to |
| Copper – seagulls* | 189 000 | 8 075 – 9 759 | Jan‘23 | – Dec‘23 | Jan‘23 | – sty‘24 |
| Silver – seagulls* | 4.20 | 26.00 – 42.00 | Jan‘23 | – Dec‘23 | Jan‘23 | – sty’24 |
| Currency – collars | 2 640 | 4.58 – 5.78 | Jan‘23 | – Dec’24 | Jan‘23 | – sty’25 |
| Currency – seagulls* | 315 | 3,94 – 4.54 | Jan‘23 | – Dec‘23 | Jan‘23 | – sty’24 |
| Currency – interest rate – CIRS** | 400 | 3.78 and 3.23% | June‘24 | June‘24 | ||
| Currency – interest rate – CIRS** | 1 600 | 3.81 and 3.94% | June‘29 | June‘29 | – July ‘29 | |
** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction.
*** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost). However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement.
The table below presents detailed data on derivative transactions designated as hedging, held by the Parent Entity as at 31 December 2021.
| Open hedging derivatives | Notional | Average weighted price /exchange rate/interest rate |
Maturity
– settlement period |
Period of profit/loss impact*** | ||
| Type of derivative | copper [t]
silver [mn ounces] currency [USD mn] CIRS [PLN mn] |
[USD/t]
[USD/ounce] [USD/PLN] [USD/PLN, fixed interest rate for USD] |
from | to | from | to |
| Copper – seagulls* | 243 000 | 7 553-9 227 | Jan‘22 | – Dec‘23 | Jan‘22 | – Jan‘24 |
| Silver – collars | 6.60 | 26.36-55.00 | Jan‘22 | – Dec’22 | Jan‘22 | – Jan‘23 |
| Silver – seagulls* | 7.80 | 26.00-42.00 | Jan‘22 | – Dec‘23 | Jan‘22 | – Jan‘24 |
| Currency – collars | 240 | 3.85-4.60 | July’22 | – Dec’22 | July’22 | Jan‘23 |
| Currency – seagulls* | 630 | 3.94-4.54 | Jan‘22 | – Dec‘23 | Jan‘22 | – Jan‘24 |
| Currency – interest rate – CIRS** | 400 | 3.78 i 3.23% | June ‘24 | June ‘24 | ||
| Currency – interest rate – CIRS** | 1 600 | 3.81 i 3.94% | June ‘29 | June ‘29 | – July ‘29 | |
** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction.
*** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost). However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement..
The impact of derivatives and hedging transactions on the items of the statement of profit or loss and on the statement of comprehensive income is presented below.
| Statement of profit or loss | from 1 January 2022 to 31 December 2022 |
from 1 January 2021 to 31 December 2021 |
| Revenues from contracts with customers (reclassification adjustment) | (182) | (1 651) |
| Other operating income / (costs) (including the reclassification adjustment): | (220) | (385) |
| realisation of derivatives | (213) | (452) |
| measurement of derivatives | (7) | 67 |
| Finance income / (costs): | 41 | (44) |
| realisation of derivatives | (19) | (9) |
| measurement of derivatives | – | (1) |
| interest on borrowings (reclassification adjustment) | 60 | (34) |
| Impact of derivatives and hedging instruments on profit or loss for the period (excluding the tax effect) |
(361) | (2 080) |
| Statement of other comprehensive income | ||
| Impact of measurement of hedging transactions (effective portion) | 1 239 | (2 431) |
| Reclassification to revenues from contracts with customers due to realisation of a hedged item | 182 | 1 651 |
| Reclassification to finance costs due to realisation of a hedged item | (60) | 34 |
| Reclassification to other operating costs due to realisation of a hedged item (settlement of the hedging cost) | 310 | 379 |
| Impact of hedging transactions (excluding the tax effect)* | 1 671 | (367) |
| TOTAL COMPREHENSIVE INCOME | 1 310 | (2 447) |