Note 12.1 Related party transactions

The accounting policies and significant estimates and assumptions presented in Part 10 are applicable to transactions entered into with related parties.

The transactions between the Group and related parties include transactions with:

• the joint venture Sierra Gorda,
• entities controlled or jointly controlled by the State Treasury or over which it has significant influence, and
• the management board and the supervisory board (remuneration) – Note 12.11.

Operating income from related parties

Purchases from related parties

Trade and other receivables from related parties

Trade and other payables towards related parties

Pursuant to IAS 24, the Group is obliged to disclose unsettled balances, including payables towards the Polish Government and entities controlled or jointly controlled by the Polish Government, or over which the Polish Government has significant influence.

As at 31 December 2017,  balances of unsettled payables concerned the mining usufruct agreements necessary to conduct principal operating activities. Pursuant to these agreements, the Parent Entity is obliged to pay for the right to mine the copper and rock salt deposits. As at 31 December 2017, the balance of liabilities due to these agreements amounted to PLN 202 million (as at 31 December 2016: PLN 209 million). In the reporting period,  the variable part of the fee for the right to mine, recognised in costs in the amount of PLN 31 million, was set as the equivalent of the 30% of the mining fee due for 2016 (correspondingly, in the period from 1 January to 31 December 2016: PLN 31 million).

In the current and comparable periods, no other individual transactions were identified which would be considered as significant in terms of unusual scope and amount.

The remaining transactions, which were collectively significant, between the Group and the Polish Government and with entities controlled or jointly controlled by the Polish Government, or over which the government has significant influence, were within the scope of normal, daily economic operations, carried out at arm’s length. These transactions concerned the following:

the purchase of goods to meet the needs of current operating activities. In the period from 1 January to 31 December 2017, the turnover from these transactions amounted to PLN 991 million (from 1 January to 31 December 2016:
PLN 585 million), and, as at 31 December 2017, the unsettled balance of liabilities from these transactions amounted to PLN 107 million (as at 31 December 2016: PLN 85 million),

sales to Polish State Treasury Companies. In the period from 1 January to 31 December 2017, the turnover from these sales amounted to PLN 82 million (from 1 January to 31 December 2016: PLN 52 million), and, as at 31 December 2017, the unsettled balance of receivables from these transactions amounted to PLN 7 million (as at 31 December 2016: PLN 8 million).

Note 12.2 Dividends paid

In accordance with Resolution No. 7/2017 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 21 June 2017 regarding the payout of a dividend from prior years’ profits and setting the dividend date as well as the dividend payment dates, the amount of PLN 200 million was allocated as a dividend, representing PLN 1.00 per share.

The dividend date (the date on which the right to dividend is set) was set on 14 July 2017. Moreover, it was decided that the dividend will be paid in two instalments: on 17 August 2017 – the amount of PLN 100 million (representing PLN 0.50 per share) and on 16 November 2017 – the amount of PLN 100 million (representing PLN 0.50 per share).

In accordance with Resolution No. 6/2016 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 28 June 2016 regarding the dividend payout from prior years’ profits, setting the dividend date and the dividend payment date, the amount of PLN 300 million was allocated as a shareholder dividend, representing PLN 1.50 per share.

The dividend date (the day on which the right to dividend is set) was set at 15 July 2016 with the dividend being paid in two instalments: 18 August 2016 – the amount of PLN 150 million (representing PLN 0.75 per share) and 17 November 2016 – the amount of PLN 150 million (representing PLN 0.75 per share). 

All shares of the Parent Entity are ordinary shares.

Note 12.3 Other assets

Note 12.5 Assets and liabilities not recognised in the statement of financial position

The value of contingent assets and liabilities and other liabilities not recognised in the statement of financial position were determined based on estimates.

Note 12.6 Capital commitments related to property, plant and equipment and intangible assets

Capital commitments incurred in the reporting period, but not yet recognised in the statement of financial position, were as follows (as at 31 December of a given year):

The Group’s share in capital commitments of joint ventures accounted for using the equity method (Sierra Gorda project) is presented in Note 6.1 [Joint ventures accounted for using the equity method].

Note 12.7 The right of perpetual usufruct of land

The Parent Entity and the Group’s Polish subsidiaries obtained the right of perpetual usufruct of land mostly free of charge on the basis of laws in force. The land subject to perpetual usufruct is industrial area related to the core business activities, which also includes protective zones in which environmental quality standards have been exceeded as a result of the activities carried out.
Due to the nature of the use of the above-mentioned land, the Group has not determined fair values for these perpetual usufruct rights.
The table below contains information on future payments due to the right of perpetual usufruct of land.

The Group’s liabilities due to the right of perpetual usufruct of land, which were not recognised in the statement of financial position, were estimated on the basis of annual payment rates resulting from the recent administrative decisions and the useful life of the land subject to this right.

Note 12.8 Employment structure

Note 12.9 Other adjustments to profit before income tax in the statement of cash flows

Note 12.10. Remuneration of key managers

Based on the definition of key management personnel according to IAS 24 and based on an analysis of the rights and scope of responsibilities of managers of the Group arising from corporate documents and from management contracts, the members of the Board of Directors of KGHM INTERNATIONAL LTD. and the President of the Management Board of KGHM INTERNATIONAL LTD. were recognised as other key managers of the Group.

Note 12.11 Remuneration of the entity entitled to audit the financial statements and of entities related to it (in PLN thousands)

Note 12.12 Composition of the Group

Note 12.13 Subsequent events after the reporting period

Convening of an Extraordinary General Meeting of KGHM Polska Miedź S.A.

On 14 February 2018, the Management Board of KGHM Polska Miedź S.A. convened an Extraordinary General Meeting of KGHM Polska Miedź S.A., which will take place on 15 March 2018 beginning at 11 A.M., at the head office of the Parent Entity in Lubin.

The Extraordinary General Meeting of KGHM Polska Miedź S.A. was convened in order to adopt the following resolutions:

• on changing the subject of the Company’s activity and amending the Statutes of KGHM Polska Miedź S.A.,
• on changes to the composition of the Supervisory Board of the Company KGHM Polska Miedź S.A.

Extension of the deadline for repayment of bank loans

On 2 February 2018, the Parent Entity extended the period of availability of the USD 100 million credit line in Bank Gospodarstwa Krajowego to 2 February 2019. Interest on the bank loan is based on LIBOR plus a margin.

On 27 February 2018, the Parent Entity extended the period of availability of the PLN 170 million credit line in Bank Zachodni WBK S.A. to 28 February 2019. Interest on the bank loan is based on WIBOR/LIBOR plus a margin.

Granting guarantees

On 21 February 2018, the Parent Entity granted a corporate guarantee in the amount of USD 50 million to cover the obligations of DMC due to the contract signed on 13 February 2018 by DMC Mining Services (UK) Ltd. and DMC Mining Services Ltd. (“DMC”) to provide design services and to sink 4 shafts as part of the project to mine polyhalite in the United Kingdom.

 Changes in the composition of the Management Board of the Parent Entity

On 10 March 2018, the Supervisory Board of the Parent Entity dismissed the following persons from the Management Board of KGHM Polska Miedź S.A.:

Radosław Domagalski-Łabędzki, President of the Management Board;

Michał Jezioro, Vice President of the Management Board.

The Supervisory Board set the number of 9th-term Management Board members at 3 Members of the Management Board.

At the same time, the Supervisory Board assigned:

• the duties of President of the Management Board - to Rafał Pawełczak, Vice President of the Management Board (Development), until the appointment of a President of the Management Board of KGHM Polska Miedź S.A. following qualification proceedings;
• the duties of Vice President of the Management Board (International Assets) - to Stefan Świątkowski, Vice President of the Management Board (Finance), until the appointment of a Vice President of the Management Board (International Assets) following qualification proceedings.

Rafał Pawełczak and Stefan Świątkowski will continue to fulfil the functions assigned to them to date on the Management Board of KGHM Polska Miedź S.A.