• 8.6 Liabilities due to guarantees granted

8.6 Liabilities due to guarantees granted

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in PLN millions, unless otherwise stated

Guarantees and letters of credit are an essential financial liquidity management tool of the Group.

The Group issued guarantees which meet the definition of contingent liabilities pursuant to IAS 37 and recognises them in contingent liabilities and guarantees, which meet the definition of financial guarantees under IFRS 9, and which are measured and recognised as financial instruments pursuant to this standard.

The financial guarantee agreement is an agreement obliging its Issuer to make certain payments compensating the holder of the guarantee for the loss they will incur due to a debtor’s failure to pay on the due date, pursuant to the initial or amended terms of a debt instrument.

The liability due to the financial guarantee granted as at the end of the reporting period is recognised at the higher of two amounts: the initial value of the issued guarantee less the amount of profits recognised in profit or loss on guarantees, or the amount of an allowance for expected credit losses – set pursuant to the principles of the general model, described in accounting policies in Note 7.5.2.

For the calculation of expected credit losses (ECL), the Group adopts estimates for the rating, PD (probability of default) and LGD (loss given default) parameters. Calculation of the expected credit losses takes place in the horizon remaining to the end of the guarantee, while the rating of a guarantee’s beneficiary is adopted as the rating of the entity used for the purposes of calculating the PD parameter.

As at 31 December 2021, the balance of liabilities of the Group due to guarantees and letters of credit granted amounted to a total of PLN 849 million (as at 31 December 2020, PLN 2 213 million) and due to promissory note payables amounted to PLN 173 million (as at 31 December 2020, PLN 171 million).

The most significant items are liabilities of the Parent Entity aimed at securing the following obligations:

Sierra Gorda S.C.M. – a corporate guarantee in the amount of PLN 670 million (USD 165 million) set as security on the repayment of a tranche of a bank loan drawn by Sierra Gorda S.C.M. The guarantee’s validity period falls on September 2024. The carrying amount of the liability due to a financial guarantee granted was recognised in the amount of PLN 58 million*,

other entities, including the Parent Entity:

  • PLN 124 million to securethe proper execution by the Parent Entity of future environmental obligations related to the obligation to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility (as at 31 December 2020 in the amount of PLN 175 million),
  • PLN 39 million (PLN 32 million and CAD 2 million) securing the obligations related to proper execution of agreements concluded (as at 31 December 2020 in the amount of PLN 21 million, or PLN 3 million, USD 3 million and CAD 2 million).

* The financial guarantee was recognised pursuant to par. 4.2.1. point c of IFRS 9.

Based on the knowledge held, at the end of the reporting period the Group assessed the probability of payments resulting from liabilities due to guarantees and letters of credit granted as low.

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