9. Property, plant and equipment

Property, plant and equipment comprise the following assets:

• maintained for the purpose of their utilisation in production processes or in the delivery of goods or the provision of services, for the purpose of making them available for use to other entities under rental agreements, or for administrative purposes, and
• expected to be used for periods longer than one year.

Property, plant and equipment are valued at the net value, i.e. the initial value (or at the cost assumed for non-current assets used before the date of transition to IFRSs) less depreciation and impairment write-downs. The initial value of property, plant and equipment includes their purchase price plus all costs related directly to their purchase and adjustment to the condition making them available for use. Such costs include also the expected costs of the decommissioning of property, plant and equipment, their disposal, and the restoration of a particular location of a given asset to its original condition. The obligation to incur such costs occurs at the time of the installation of an asset or its usage for purposes other than the manufacture of inventories. As at the time of purchasing or manufacturing a component of property, plant and equipment, the Group identifies and distinguishes all their constituents significant in view of the purchase price or manufacturing cost of the whole asset and depreciates each such a constituent separately. The Group also recognises the costs of general overhauls and periodic maintenance inspections as an element of a component of property, plant and equipment.

The basis for calculating depreciation charges is a purchase price/manufacturing cost of a component of property, plant and equipment less its residual value. Depreciation starts when an asset is available for use. Depreciation of property, plant and equipment takes place on the basis of a depreciation plan specifying the expected economic useful life of a component of property, plant and equipment. The applied depreciation method reflects the process of the Group’s consuming the economic benefits related to a given asset. General overhauls and periodic maintenance inspections constituting components of property, plant and equipment assets are depreciated for the period from the month following the end of an overhaul/inspection to the month in which the next overhaul/inspection starts.

For the particular groups of property, plant and equipment, the following ranges of economic useful lives are used:

The method of depreciation, rates of depreciation and residual values of property, plant and equipment are reviewed annually. All changes resulting from conducted reviews are recognised as changes in estimates and possible adjustments of depreciation charges are made in the year in which a review is made and in the subsequent periods.

Property, plant and equipment under construction are assets in the course of being constructed or assembled; they are recognised at their acquisition prices or manufacturing costs less possible impairment write-downs. Property, plant and equipment under construction are not depreciated until construction is completed and the item of property, plant and equipment is brought into use.

Borrowing costs include interest and other costs incurred by the Group in connection with the borrowing of financial resources. Borrowing costs which can be allocated directly to the purchase, construction or generation of a given asset are capitalised as a part of the purchase price or the manufacturing cost of such an asset. Other borrowing costs are recognised as costs of the period. In the case of foreign exchange differences occurring in connection with loans and credits in foreign currencies, the Group capitalises them up to the amount in which they are regarded as an adjustment of interest costs.

As at every reporting date the Group estimates whether there are any circumstances indicating the possibility of impairment of any non-financial non-current assets. If the Group determines that there are such circumstances or if it becomes necessary to conduct an annual test checking whether particular assets have been impaired, the Group estimates the recoverable value of a given asset or a cash generating unit to which a given asset belongs.

The recoverable value of an asset or a cash generating unit corresponds to its fair value less the costs of selling such an asset or a relevant cash generating unit or its use value, whichever is higher. The recoverable value is determined for particular assets unless a given asset does not generate cash flows which are mostly independent of cash flows generated by other assets or groups of assets. If the book value of an asset is higher than its recoverable value, impairment occurs and the asset needs to be written down to the established recoverable value. In the estimation of value in use, forecast cash flows are discounted to their current value based on the discount rate before taking into consideration the consequences of taxation, which reflect the current market estimate of the time value of money and risks typical for a given asset. Impairment write-downs on assets used in the continued activities are recognised in the categories of costs corresponding to the function of an asset in the case of which impairment has been identified.

If the conditions specified in interpretation IFRIC 20 are met, the mines recognise also so-called stripping assets, i.e. the costs of overburden removal incurred during the production stage, as a component of property, plant and equipment. The value of the stripping asset at the production stage is determined based on a model that takes into account, among other things, the estimated value of the overall N-W ratio (the ratio of the amount of overburden to lignite) and the actual annual N-W ratio. This ratio is calculated as the ratio of the remaining quantity of overburden to the remaining lignite resources to be removed from the date of application of IFRIC 20 until the end of lignite extraction from a given deposit component. The ratio is determined on the basis of the mines technical team’s best knowledge as at the end of every financial year; it may change if new information concerning the size of a particular deposit and its deposition is acquired in parallel to progress in the mining operations.

The stripping asset is depreciated systematically by means of the natural method based on the volume of lignite extracted from a given part of the deposit.

The value of the asset related to stripping operations at the stage of production is established on the basis of a model including, among other things, the estimated value of the general N:W ratio.

The opencast lignite mines operating in the PGE Group recognise in the value of property, plant and equipment the estimated rehabilitation costs of the final pits attributable to excavated overburden in the proportion corresponding to the ratio of the volume of the open pit attributable to overburden as at the reporting date to the planned volume of the open pit attributable to overburden as at the end of the mining period.

The asset related to land rehabilitation costs is depreciated systematically by means of the natural method based on the volume of lignite extracted from a given open pit.