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Review of financial position

Unit cost of electrolytic copper production – total (PLN/t)

 

2011

2012

Pre-precious metals credit unit cost of copper production

17 534

21 542

Value of anode slimes

3 968

4 046

Total unit cost of copper production

13 566

17 496

Electrolytic copper production (kt)

571.0

565.8

Unit cost of electrolytic copper production – from own concentrate (PLN/t) and C1 cost of concentrate production (USD/lb)

 

2011

2012

Pre-precious metals credit unit cost of copper production

14 875

19 628

Value of anode slimes

4 576

5 038

Total unit cost of copper production

10 299

14 590

Electrolytic copper production from own concentrate (kt)

446.4

419.1

C1 cost of concentrate production (USD/lb)

0.63

1.34

Production of copper in concentrate (kt)

426.7

427.1

 

The Company’s operating costs are decisively impacted by the costs of electrolytic copper production, whose share in the Company’s costs is about 90%.

 

The pre-precious metals credit unit cost of copper production (unit cost prior to decrease by the value of anode slimes containing among others silver and gold) increased in 2012 versus 2011 by 4 008 PLN/t, i.e. by 23%, mainly due to the introduction in April of the minerals extraction tax (+2 346 PLN/t) and to an increase in the value of purchased copper-bearing materials (+1 182 PLN/t) due to a higher volume of consumption by 20% with a purchase price at the level of 2011.

 

The pre-precious metals credit unit cost of copper production from own concentrate increased by 4 753 PLN/t, i.e. by 32%, mainly due to the introduction of the minerals extraction tax (+3 167 PLN/t) and to the increase in expenditures by nature described below (excluding purchased copper-bearing materials), alongside the negative impact of a lower volume of copper production from own concentrate (-6% versus 2011).

 

C1 cost (cash cost of concentrate production plus administrative and smelting and refining (TC/RC) costs, less depreciation/amortisation and by-product premiums, calculated for payable copper in concentrate) was as follows: 0.63 USD/lb in 2011 and 1.34 USD/lb in 2012.

 

The increase in the C1 cost was mainly due to the introduction from April 2012 of the minerals extraction tax and the lower valuation of silver in by-products, whose price in 2012 was 11% lower than in 2011.

 

In 2012, total expenses by nature increased by PLN 2 963 million, i.e. by 27%, mainly due to:

  • the introduction from April 2012 of the minerals extraction tax (+PLN 1 596 million);
  • the higher value of purchased copper-bearing materials (+PLN 762 million) due to an increase in the volume of consumption by 30 kt Cu (of which 25 kt relates to electrolytic copper production);
  • employee benefits costs (+PLN 206 million) – mainly due to an increase in remuneration by 5% and
  • disability fund contributions by 2 percentage points;
  • external services (+PLN 101 million) – mainly due to an increase in the scope of mine development work (+PLN 63 million);
  • materials and fuel (+PLN 99 million) – mainly due to an increase in prices;
  • depreciation/amortisation (+PLN 100 million) – due to an increase in realised investments in property, plant and equipment (+16%).

 

The structure of expenses by nature in 2012 is shown in chart below. With respect to prior years, the change in the structure is mainly due to an increase in the share of taxation due to the introduction of the minerals extraction tax (3% in 2011, 14% in 2012) alongside the lower share of other costs.

 

Structure of expenses by type in 2012

 

 

 

Act on the Mineral Extractions Tax

 

A significant new cost item starting from April 2012, is the minerals extraction tax. This tax was introduced in accordance with the Act on the Minerals Extraction Tax dated 2 March 2012, which came into force on 18 April 2012.

 

The mineral extraction tax is charged based on the amount of copper and silver contained in the produced concentrate and depends on the prices of those metals as well as on the USD/PLN exchange rate. The tax is accounted for under manufacturing costs and is not deductible for tax purposes, and therefore does not decrease the taxable base.

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