Loans granted to Sierra Gorda S.C.M. were classified as credit-impaired financial assets due to the high credit risk at the moment of initial recognition (POCI). POCI loans are measured at amortised cost using the effective interest rate, adjusted by the credit risk using the scenario analysis and available free cash of Sierra Gorda S.C.M.
6.2 Loans granted to a joint venture (Sierra Gorda S.C.M.)
in PLN millions, unless otherwise stated
The terms of repayment of loans granted to finance operations abroad, including planned repayment dates, were set in individual agreements. Pursuant to the schedule, the principal amount and interest are paid on demand, but not later than 15 December 2024. Due to the implementation of IFRS 9 as at 1 January 2018, the expected, undiscounted credit loss at the moment of initial recognition was estimated to amount to PLN 6 105 million (USD 1 754 million per the 3.4813 USDPLN exchange rate of NBP dated 29 December 2017).
The repayments of loans by Sierra Gorda S.C.M. depends on that company’s financial standing. It is assumed in the long-term plans of Sierra Gorda S.C.M. that the loans will be repaid with interest. Due to the good financial situation of the company, in 2021 there were first repayments in the total amount of USD 308 million (PLN 1 259 million). Other payments are planned for 2022, and therefore a part of the loan, in the amount of USD 110 million (PLN 447 million) was classified as a current receivable (payment took place in February 2022 – note 12.14 Subsequent events), and the other part, in the amount of USD 1 937 million (PLN 7 867 million) the Group presents as a non-current receivable. Due to the fact that settling the loan is planned and probable in the foreseeable future, the loan is not a net investment under IAS 21.15.
Pursuant to the requirements of IFRS 9.5.5.17, the Group performed impairment testing of the loan. To estimate the expected credit losses, scenario analysis (IFRS 9.5.5.18) was used, comprising the Group’s assumptions on the repayment of the loan granted. Scenario analysis was based on cash flows adopted in December 2021 in Sierra Gorda S.C.M.’s budget, which were subsequently discounted using the effective interest rate adjusted by the credit risk, determined at the initial recognition of the loan pursuant to IFRS 9.B5.5.45 at the level of 6.42%.
| 2021 | 2020 | |
|---|---|---|
| As at 1 January | 6 069 | 5 694 |
| Repayment of loans | (1 259) | – |
| Accrued interest | 494 | 377 |
| Note 4.4 Gains due to the reversal of allowances for impairment | 2 380 | 74 |
| Exchange differences from the translation of statements of operation with a functional currency other than PLN | 630 | (76) |
| As at 31 December | 8 314 | 6 069 |
The loan granted to Sierra Gorda S.C.M. has a fixed interest rate of 8%.
As at 31 December 2021, the Group estimated the expected cash flows on repayment of receivables due to loans granted to Sierra Gorda S.C.M., updated by more favourable metal prices as a result of which an allowance for impairment recognised at the moment of initial recognition of an asset was reversed in the amount of PLN 2 380 million (in the first half of 2021 an allowance for impairment was reversed in the amount of PLN 1 655 million, and in the second half of 2021 in the amount of PLN 725 million). In the comparable period an allowance for impairment was reversed in the amount of PLN 74 million. As at 31 December 2021, the unreversed amount of an allowance for impairment of the loan at the moment of initial recognition amounted to PLN 796 million (as at 31 December 2020: PLN 3 043 million).
Assumptions adopted for the estimation of cash flows of Sierra Gorda S.C.M. (commodity prices and other key assumptions) were presented in note 6.1.