Sierra Gorda carried out an analysis of indicators which could impact the fair value of its non-current assets and as a result, the possibility was identified for a reversal of impairment losses recognised in prior periods. As a result of the test conducted, the fair value of assets as at 31 December 2021 was determined, which, after decreasing by costs to sell, exceeded the existing carrying amount of net non-current assets by USD 1,182 million. The reversal of the impairment loss does not affect the amount of adjusted EBITDA for 2021 or calculation of C1 cost.
Cost of sales, selling costs and administrative expenses and production cost of payable copper (C1) of Sierra Gorda S.C.M.
| |
Unit |
2021 |
2020 |
Change
(%) |
4Q’21 |
3Q’21 |
2Q’21 |
1Q’21 |
| Cost of sales, selling costs and administrative expenses (prior to the reversal of the impairment loss) |
USD mn |
(1,030) |
(958) |
+7.5 |
(268) |
(264) |
(264) |
(234) |
| Reversal of impairment loss on non-current assets |
USD mn |
1,182 |
– |
× |
1,182 |
– |
– |
– |
| C1 unit cost* |
USD/lb |
0.78 |
1.19 |
(34.5) |
0.69 |
0.71 |
0.81 |
0.93 |
*C1 unit production cost of copper - cash cost of payable copper production, reflecting costs of ore extraction and processing, the minerals extraction tax, transport costs, administrative expenses during the mining phase and smelter treatment and refining charges (TC/RC) less by-product value
The cost of sales, selling costs and administrative expenses, prior to reflecting the reversal of the impairment loss on non-current assets (USD 1,030 million), was higher by 8% than costs incurred in 2020. One of the main factors was the increase in prices of materials, including mainly diesel fuel, steel, explosives, higher prices for maintenance services and land/sea transport rates. These factors, which to a large degree are beyond the company’s control, led to an increase in expenses by nature as regards external services (+7%), costs of materials (+5%), fuel and oils (+50%) and transport costs (+38%).
There was also a significant increase in labour costs (+45%) as a result of reflecting the impact of wage agreements signed in 2021 (payment of one-off premium).
Despite the increase in prices of materials and services, the unit cost of processing ore in 2021 was not substantially different compared to 2020, due among others to an increase in production capacity and consequently a higher volume of ore processed (+4%). Similarly, the increase in the volume of copper produced and sold led to a decrease in the cash cost of copper production (C1) from 1.19 USD/lb in 2020 to 0.78 USD/lb in 2021. Moreover, the doubling of the achieved prices of molybdenum sold was also significant, as well as the substantial increase in deduction from revenues from the sale of associated metals.
