POLISH FINANCIAL SUPERVISION AUTHORITY

Annual report RR 2022

(in accordance with § 60 sec. 1 point 3 of the Decree regarding current and periodic information)

for issuers of securities involved in production, construction, trade or services activities

for the financial year 2022 comprising the period from 1 January 2022 to 31 December 2022 containing the separate

financial statements according to International Accounting Standards in PLN.

Publication date: 22 March 2023

KGHM Polska Miedź Spółka Akcyjna

(name of the issuer)

KGHM Polska Miedź S.A.

(name of the issuer in brief)

59 – 301

(postal code)

M. Skłodowskiej – Curie

(street)

(+48) 76 7478 200

(telephone)

ir@kghm.com

(e-mail)

6920000013

(NIP)

G30CO71KTT9JDYJESN22

(LEI)

Mining

(issuer branch title per the Warsaw Stock Exchange)

LUBIN

(city)

(number)

(+48) 76 7478 500

(fax)

www.kghm.com

(www)

390021764

(REGON)

23302

(KRS)

PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp.k.

(auditing company)

SELECTED FINANCIAL DATA

in PLN mn in EUR mn

2022 2021 2022 2021

Revenues from contracts with customers

28 429

24 618

6 064

5 378

II.

Profit on sales

3 966

4 104

846

897

III.

Profit before income tax

4 996

6 716

1 066

1 467

IV.

Profit for the period

3 533

5 169

754

1 129

Other comprehensive income

902

263

192

VI.

Total comprehensive income

4 435

5 432

946

1 186

VII.

Number of shares issued

200 000 000

VIII.

Earnings per ordinary share

17.67

25.85

3.77

5.65

IX.

Net cash generated from operating activities

1 791

1 963

382

429

Net cash used in investing activities

( 1 629)

( 607)

( 347)

( 133)

XI.

Net cash used in financing activities

( 506)

( 2 091)

( 108)

( 457)

XII.

Total net cash flow

( 344)

( 735)

( 73)

( 161)

XIII.

Non-current assets

36 707

34 671

7 827

7 538

XIV.

Current assets

11 288

8 787

2 407

1 910

XV.

Total assets

47 995

43 458

10 234

9 448

XVI.

Non-current liabilities

10 311

9 707

2 199

2 110

XVII.

Current liabilities

8 009

7 911

1 708

1 720

XVIII.

Equity

29 675

25 840

6 327

5 618

Average EUR/PLN exchange rate announced by the National Bank of Poland

2022

2021

Average exchange rate for the period*

4.6883 4.5775

Exchange rate at the end of the period

4.6899 4.5994

*Exchange rates are the arithmetical average of the current average exchange rates announced by the National Bank of Poland on the last day of each month respectively of

2022 and 2021

Polish Financial Supervision Authority

This report is a direct translation from the original Polish version.

In the event of differences resulting from the translation, reference should be made

to the official Polish version.

SEPARATE FINANCIAL STATEMENTS

FOR 2022

Lubin, March 2023

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Table of contents

SEPARATE STATEMENT OF PROFIT OR LOSS ................................................................................................................................................... 3

SEPARATE STATEMENT OF COMPREHENSIVE INCOME ................................................................................................................................... 3

SEPARATE STATEMENT OF CASH FLOWS ......................................................................................................................................................... 4

SEPARATE STATEMENT OF FINANCIAL POSITION .......................................................................................................................................... 5

SEPARATE STATEMENT OF CHANGES IN EQUITY ............................................................................................................................................ 6

PART 1 – General information ......................................................................................................................................................................... 7

PART 2 – Operating segments and information on revenues .................................................................................................................... 11

PART 3 – Impairment of assets ..................................................................................................................................................................... 18

PART 4 – Explanatory notes to the statement of profit or loss ................................................................................................................. 23

Note 4.1 Expenses by nature ............................................................................................................................................................................................ 23

Note 4.2 Other operating income/(costs) ....................................................................................................................................................................... 24

Note 4.3 Finance income/(costs) ...................................................................................................................................................................................... 25

Note 4.4 Reversal / recognition of impairment losses on assets in the statement of profit or loss ................................................................... 25

PART 5 – Taxation ........................................................................................................................................................................................... 26

Note 5.1 Income tax in the statement of profit or loss................................................................................................................................................ 26

Note 5.2 Other taxes and charges ................................................................................................................................................................................... 30

Note 5.3 Tax assets and liabilities .................................................................................................................................................................................... 30

PART 6 – Investments in subsidiaries ........................................................................................................................................................... 32

Note 6.1 Subsidiaries ......................................................................................................................................................................................................... 32

Note 6.2 Receivables due to loans granted ................................................................................................................................................................... 34

PART 7 – Financial instruments and financial risk management .............................................................................................................. 38

Note 7.1 Financial Instruments ........................................................................................................................................................................................ 38

Note 7.2 Derivatives ........................................................................................................................................................................................................... 45

Note 7.3 Other financial instruments measured at fair value .................................................................................................................................... 49

Note 7.4 Other non-current financial instruments measured at amortised cost ................................................................................................... 50

Note 7.5 Financial risk management............................................................................................................................................................................... 51

PART 8 – Borrowings and the management of liquidity and capital ......................................................................................................... 73

Note 8.1 Capital management policy .............................................................................................................................................................................. 73

Note 8.2 Equity .................................................................................................................................................................................................................... 74

Note 8.3 Liquidity management policy ........................................................................................................................................................................... 77

Note 8.4 Borrowings .......................................................................................................................................................................................................... 80

Note 8.5 Cash and cash equivalents ............................................................................................................................................................................... 84

Note 8.6 Liabilities due to guarantees granted ............................................................................................................................................................. 85

PART 9 – Non-current assets and related liabilities.................................................................................................................................... 87

Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets .................................................................................. 87

Note 9.2 Other property, plant and equipment and intangible assets .................................................................................................................... 92

Note 9.3 Depreciation/amortisation ............................................................................................................................................................................... 94

Note 9.4 Provision for decommissioning costs of mines and other technological facilities ................................................................................. 94

Note 9.5 Capitalised borrowing costs ............................................................................................................................................................................. 95

Note 9.6 Lease disclosures – the Company as a lessee ............................................................................................................................................... 96

Note 9.7 Non-current assets held for sale and liabilities associated with them ..................................................................................................... 97

PART 10 – Working capital ............................................................................................................................................................................. 98

Note 10.1 Inventories ......................................................................................................................................................................................................... 98

Note 10.2 Trade receivables ............................................................................................................................................................................................. 99

Note 10.3 Trade and similar payables .......................................................................................................................................................................... 100

Note 10.4 Changes in working capital........................................................................................................................................................................... 101

PART 11 – Employee benefits ...................................................................................................................................................................... 103

Note 11.1 Employee benefits liabilities......................................................................................................................................................................... 104

Note 11.2 Changes in liabilities related to future employee benefits programs ................................................................................................. 105

PART 12 – Other notes ................................................................................................................................................................................. 108

Note 12.1 Related party transactions ........................................................................................................................................................................... 108

Note 12.2 Dividends paid ................................................................................................................................................................................................ 109

Note 12.3 Other assets .................................................................................................................................................................................................... 109

Note 12.4 Other liabilities ............................................................................................................................................................................................... 110

Note 12.5 Assets and liabilities not recognised in the statement of financial position ....................................................................................... 110

Note 12.6 Capital commitments related to property, plant and equipment and intangible assets ................................................................. 110

Note 12.7 Employment structure .................................................................................................................................................................................. 111

Note 12.8 Other adjustments in the statement of cash flows ................................................................................................................................. 111

Note 12.9. Remuneration of key managers ................................................................................................................................................................. 112

Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it ............................................ 114

Note 12.11 Disclosure of information on the Company’s activities regulated by the Act on Energy ................................................................ 114

Note 12.12 Information on the impact of COVID-19 and the war in Ukraine on the Company’s operations.................................................. 121

Note 12.13 Risks and hazards associated with climate change ............................................................................................................................... 123

Note 12.14 Subsequent events ...................................................................................................................................................................................... 124

PART 13 - Quarterly financial information of KGHM Polska Miedź S.A. .................................................................................................. 126

SEPARATE STATEMENT OF PROFIT OR LOSS................................................................................................................................................................ 126

Explanatory notes to the statement of profit or loss ............................................................................................................................... 127

Note 13.1 Expenses by nature ....................................................................................................................................................................................... 127

Note 13.2 Other operating income/(costs) .................................................................................................................................................................. 128

Note 13.3 Finance income/(costs).................................................................................................................................................................................. 129

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

SEPARATE STATEMENT OF PROFIT OR LOSS

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Part 2 Revenues from contracts with customers

28 429

24 618

Note 4.1 Cost of sales

(23 157)

(19 441)

Gross profit

5 272

5 177

Note 4.1 Selling costs and administrative expenses

(1 306)

(1 073)

Profit on sales

3 966

4 104

Note 4.2 Other operating income, including:

2 172

4 273

fair value gains on financial assets measured at

fair value through profit or loss

631

1 070

reversal of impairment losses on financial

instruments

213

807

Note 4.2 Other operating costs, including:

( 873)

(1 185)

impairment losses on financial instruments

( 7)

( 4)

Note 4.3 Finance income

148

Note 4.3 Finance costs

( 417)

( 546)

Profit before income tax

4 996

6 716

Note 5.1 Income tax expense

(1 463)

(1 547)

PROFIT FOR THE PERIOD

3 533

5 169

Weighted average number of ordinary shares

(million)

200

Basic/diluted earnings per share (in PLN)

17.67

25.85

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 8.2.2 Profit for the period

3 533

5 169

Note 8.2.2

Measurement of hedging instruments

net of the tax effect

1 354

( 297)

Other comprehensive income which will be

reclassified to profit or loss

1 354

( 297)

Note 8.2.2

Measurement of equity financial instruments at

fair value through other comprehensive income,

net of the tax effect

( 79)

Note 8.2.2 Actuarial gains/(losses) net of the tax effect ( 373)

543

Other comprehensive income, which will not be

reclassified to profit or loss

( 452)

560

Total other comprehensive net income

902

263

TOTAL COMPREHENSIVE INCOME

4 435

5 432

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

SEPARATE STATEMENT OF CASH FLOWS

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Cash flow from operating activities

Profit before income tax

4 996

6 716

Note 9.3

Depreciation/amortisation recognised in profit or loss

1 434

1 363

Interest on investment activities

( 268)

( 289)

Other interest

120

Dividends income

( 29)

( 37)

Profits on the disposal of shares and investment certificates

( 1)

( 25)

Note 6.2

Fair value (gains)/losses on financial assets measured at fair value

through profit or loss

( 600) (1 029)

Note 3.2

Note 9.1

Impairment losses on non-current assets

6 202

Note 6.1

Note 6.2

Reversal of impairment losses on non-current assets

( 213) (1 762)

Exchange differences, of which:

( 231)

from investment activities and cash

( 410)

( 310)

from financing activities

179

338

Change in provisions for decommissioning of mines, liabilities related

to employee benefits and other provisions

( 2) ( 29)

Change in other receivables and liabilities other than working capital

( 165)

Change in assets and liabilities due to derivatives

( 351)

(1 861)

Note 7.2

Reclassification of other comprehensive income to profit or loss due

to the realisation of hedging derivatives

492 2 030

Note 12.8

Other adjustments

114

Exclusions of income and costs, total

247

(1 216)

Income tax paid

(1 575)

( 707)

Note 10.4

Changes in working capital, including:

(1 877)

(2 830)

change in trade payables transferred to factoring

( 55)

(1 154)

Net cash generated from operating activities

1 791

1 963

Cash flow from investing activities

Note 9.1.2

Expenditures on mining and metallurgical assets, including:

(2 689)

(2 381)

paid capitalised interest on borrowings

( 173)

( 112)

Expenditures on other property, plant and equipment and intangible

assets

( 42) ( 26)

Expenditures due to acquisition of shares and investment certificates

( 375)

( 38)

Expenditures on financial assets designated for decommissioning of mines

and other technological facilities

- ( 24)

Loans granted

( 23)

( 20)

Advances granted on property, plant and equipment and intangible assets

( 40)

( 28)

Proceeds from disposal of equity instruments measured at fair value

through other comprehensive income

- 53

Proceeds from disposal of shares and redemption of investment

certificates

367 46

Dividends received

Proceeds from financial assets designated for decommissioning of mines

and other technological facilities

26 -

Note 7.5.2.5

Proceeds from repayment of loans granted (principal)

1 066

1 675

Interest received on loans granted

Other

Net cash used in investing activities

(1 629)

( 607)

Cash flow from financing activities

Proceeds from borrowings

605

205

Proceeds from cash pooling

Proceeds from derivatives related to sources of external financing

130

Note 8.4.2

Repayment of received borrowings

( 352)

(1 889)

Repayment of lease liabilities

( 44)

( 51)

Interest paid, including due to:

( 117)

( 89)

Note 8.4.2

borrowings

( 116)

( 80)

Expenditures due to derivatives related to sources of external financing

( 89)

( 79)

Dividends paid to shareholders of the Company

( 600)

( 300)

Expenditures on cash pooling

( 40)

Other

Net cash used in financing activities

( 506)

(2 091)

NET CASH FLOW

( 344)

( 735)

Exchange differences on cash and cash equivalents

( 3)

( 68)

Cash and cash equivalents at beginning of the period

1 332

2 135

Note 8.5

Cash and cash equivalents at end of the period, including:

985

1 332

restricted cash

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

SEPARATE STATEMENT OF FINANCIAL POSITION

As at

31 December

2022

As at

31 December

2021

ASSETS

Mining and metallurgical property, plant and equipment

21 091

19 744

Mining and metallurgical intangible assets

1 251

1 093

Note 9.1

Mining and metallurgical property, plant and equipment and intangible assets

22 342

20 837

Other property, plant and equipment

104

Other intangible assets

Note 9.2

Other property, plant and equipment and intangible assets

155

158

Note 6.1

Investments in subsidiaries, other than loans granted

3 701

3 691

Note 6.2

Loans granted, including:

8 763

8 249

measured at fair value through profit or loss

3 233

2 959

measured at amortised cost

5 530

5 290

Note 7.2

Derivatives

714

595

Note 7.3

Other financial instruments measured at fair value through other comprehensive

income

483

581

Note 7.4

Other financial instruments measured at amortised cost

432

506

Financial instruments, total

10 392

9 931

Note 12.3

Other non-financial assets

117

Non-current assets

36 707

34 671

Note 10.1

Inventories

7 523

5 436

Note 10.2

Trade receivables, including:

620

600

trade receivables measured at fair value through profit or loss

455

467

Note 5.3

Tax assets

312

301

Note 7.2

Derivatives

796

254

Note 7.1

Cash pooling receivables

588

498

Note 12.3

Other financial assets

322

289

Note 12.3

Other non-financial assets

142

Note 8.5

Cash and cash equivalents

985

1 332

Current assets

11 288

8 787

TOTAL ASSETS

47 995

43 458

EQUITY AND LIABILITIES

Note 8.2.1

Share capital

2 000

Note 8.2.2

Other reserves from measurement of financial instruments

(395)

(1 670)

Note 8.2.2

Accumulated other comprehensive income

(702)

(329)

Note 8.2.2

Retained earnings

28 772

25 839

Equity

29 675

25 840

Note 8.4.1

Borrowings, lease and debt securities

5 000

5 180

Note 7.2

Derivatives

719

1 133

Note 11.1

Employee benefits liabilities

2 394

2 040

Note 9.4

Provisions for decommissioning costs of mines and other technological facilities

1 233

811

Deferred tax liabilities

705

290

Note 12.4

Other liabilities

260

253

Non-current liabilities

10 311

9 707

Note 8.4.1

Borrowings, lease and debt securities

1 124

382

Note 8.4.1

Cash pooling liabilities

321

360

Note 7.2

Derivatives

434

888

Note 10.3

Trade and similar payables

2 819

2 613

Note 11.1

Employee benefits liabilities

1 365

1 130

Note 5.3

Tax liabilities

1 061

1 291

Provisions for liabilities and other charges

110

Note 12.4

Other liabilities

775

1 149

Current liabilities

8 009

7 911

Non-current and current liabilities

18 320

17 618

TOTAL EQUITY AND LIABILITIES

47 995

43 458

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

SEPARATE STATEMENT OF CHANGES IN EQUITY

capital

Other

reserves from

measurement

of financial

instruments

Accumulated

other

comprehensive

income

Retained

earnings

Total equity

As at 1 January 2021

2 000 (1 390) ( 872) 20 988 20 726

Transactions with owners - dividend

- - - ( 300) ( 300)

Profit for the period

- - - 5 169 5 169

Note 8.2.2 Other comprehensive income

- ( 280)* 543 - 263

Total comprehensive income

- ( 280) 543 5 169 5 432

Reclassification of the result on disposal

of equity instruments measured at fair

value through other comprehensive

income

- - - ( 18) ( 18)

As at 31 December 2021

2 000 (1 670) ( 329) 25 839 25 840

Note 12.2 Transactions with owners - dividend

- - - ( 600) ( 600)

Profit for the period

- - - 3 533 3 533

Note 8.2.2 Other comprehensive income

- 1 275 ( 373) - 902

Total comprehensive income

- 1 275 ( 373) 3 533 4 435

As at 31 December 2022

2 000 ( 395) ( 702) 28 772 29 675

*PLN 18 million due to reclassification of the result on disposal of equity instruments measured at fair value through other

comprehensive income was recognised in other comprehensive income.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 1 – General information

Note 1.1 Corporate information

KGHM Polska Miedź S.A. (“the Company”) with its registered office in Lubin at 48 M.Skłodowskiej-Curie Street is a joint stock

company registered at the Regional Court for Wrocław Fabryczna, Section IX (Economic) of the National Court Register,

entry no. KRS 23302, on the territory of the Republic of Poland.

KGHM Polska Miedź S.A. has a multi-divisional organisational structure, comprised of a Head Office and 10 divisions:

3 mines (Lubin Mine Division, Polkowice-Sieroszowice Mine Division, Rudna Mine Division), 3 metallurgical plants (Głogów

Smelter/Refinery, Legnica Smelter/Refinery, Cedynia Wire Rod Division), the Concentrator Division, the Tailings Division, the

Mine-Smelter Emergency Rescue Division and the Data Center Division.

The shares of KGHM Polska Miedź S.A. are listed on the Warsaw Stock Exchange.

The Company’s principal activities include:

– the mining of copper and non-ferrous metals ores; and

– the production of copper, precious and non-ferrous metals.

KGHM Polska Miedź S.A. carries out copper ore mining activities based on concessions given for specific mine deposits, and

also based on mining usufruct agreements and mine operating plans.

KGHM Polska Miedź S.A. is a parent entity of the KGHM Polska Miedź S.A. Group (“Group”).

The separate financial statements were prepared under the assumption of continuing as a going concern during a period

of at least 12 months from the end of the reporting period in an unaltered form and business scope, and there are no

reasons to suspect any intentional or forced discontinuation or significant limitation of its current activities. As at the date

of signing of the financial statements the Management Board of the Company is not aware of any facts or circumstances

that may cast doubt about the going concern in the foreseeable future.

The COVID-19 pandemic and the war in Ukraine did not have a direct, negative impact on individual aspects of the

Company’s business activities. There were neither production stoppages or slowdowns nor any reductions in the scope of

services provided. However the COVID -19 pandemic, in particular the pandemic situation in China, and Russia’s aggression

against Ukraine were reflected in the increased inflation pressure. In 2022, prices of technological materials, energy, fuels

and services increased significantly, which influenced the level of costs generated by the Company. On the other hand, the

uncertainty as to the future global economic situation resulted in the weakening of the PLN and the increase in PLN-

denominated copper prices, which translated into an increase in revenues from sales. As a result, the achieved EBITDA was

at a level similar to the EBITDA achieved in 2021. The production and financial results of individual segments were presented

in the Management Board’s report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group

in 2022.

Detailed information on the Company’s operations during the pandemic and the on-going armed conflict in Ukraine in 2022

was presented in Note 12.12 of this report.

Declaration by the Management Board on the accuracy of the prepared separate financial statements

The Management Board of KGHM Polska Miedź S.A. declares that according to its best judgement the annual separate

financial statements for 2022 and the comparable data have been prepared in accordance with accounting principles

currently in force, and give a true, fair and clear view of the financial position of KGHM Polska Miedź S.A. and the profit for

the period of the Company.

The Management Board’s report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in

2022 presents a true picture of the development and achievements, as well as the condition, of KGHM Polska Miedź S.A.

and the KGHM Polska Miedź S.A. Group, including a description of the basic exposures and risks.

The separate financial statements were authorised for issue and signed by the Management Board of the Company on

21 March 2023.

Note 1.2 Basis of preparation

These separate financial statements have been prepared in accordance with International Financial Reporting Standards

as adopted by the European Union, on the basis of historical cost, except for financial instruments classified as measured

at fair value. These financial statements are the separate financial statements of KGHM Polska Miedź S.A.

pursuant to IAS 27.

In order to fully understand the financial position and results of the Company’s activities as the Parent Entity of the Group,

these separate financial statements should be read jointly with the annual consolidated financial statements of the KGHM

Polska Miedź S.A. Group for the year ended on 31 December 2022. These financial statements are available at the

Company’s website www.kghm.com

from the dates indicated in the regulatory filing on publication dates for the Company’s

annual report and the Group’s consolidated annual report for 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The accounting policies described in this note and in individual notes were applied by the Company in a continuous manner

for all presented periods.

Note 12.11 of these separate financial statements contains information on the Company’s activities regulated by the Act on

Energy, pursuant to article 44 section 2 of the Act dated 10 April 1997. For a greater understanding of the data recognised

in the financial statements, the accounting policy and important estimates, assumptions and judgments are presented in

individual, detailed notes as in the table below. As compared to the period ended on 31 December 2021, there were no

significant changes to the measurement methods. Changes in estimates as at 31 December 2022 as compared to the

aforementioned period arise from changes in assumptions as a result of changes in business circumstances and/or other

variables.

Note Title

Amount recognised in the

financial statements Accounting

policy

Important

estimates,

assumptions

and judgements 2022 2021

Revenues from contracts with

customers

28 429 24 618 x x

5.1

Income tax in the statement of profit

or loss

(1 463) (1 547) x

5.1.1

Deferred income tax in the

statement of profit or loss

(203) (152) x x

5.3

Tax assets

312 301 x

5.3

Tax liabilities

(1 061)

(1 291)

6.1

Investments in subsidiaries

3 701

3 691

6.2

Loans granted*

8 785

8 366

7.2

Derivatives

357

(1 172)

7.3

Other financial instruments

measured at fair value

483 581 x

7.4

Other non-current financial

instruments measured at amortised

cost

432 506 x x

8.2

Equity

(29 675)

(25 840)

8.4

Borrowings

(6 445)

(5 922)

8.5

Cash and cash equivalents

985

1 332

8.6

Labilities due to guarantees granted

(1 609) (1 236) x x

9.1

Mining and metallurgical property,

plant and equipment and intangible

assets

22 342 20 837 x

9.2

Other property, plant and equipment

and intangible assets

155 158 x

9.4

Provision for decommissioning costs

of mines and other facilities**

(1 261) (824) x x

9.6

Lease disclosures – the Company as

a lessee

681 585 x x

10.1

Inventories

7 523

5 436

10.2

Trade receivables

620

600

10.3

Trade and similar payables

(3 005)

(2 800)

10.4

Changes in working capital

(1 877) (2 830) x x

11.1

Employee benefits liabilities

(3 759)

(3 170)

12.3

Other assets

581

420

12.4

Other liabilities

(1 035)

(1 402)

* Amounts include data on long-term and short-term loans. In the statement of financial position short-term loans are recognised

in the item “other financial assets”.

** Amounts include data on non-current and current provisions for decommissioning costs of mines and other technological

facilities. In the statement of financial position, current provisions for decommissioning costs of mines and other technological

facilities are recognised in the item “provisions for liabilities and other charges”.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 1.3 Foreign currency transactions and the measurement of items denominated in foreign currencies

The financial statements are presented in Polish zloty (PLN), which is both the functional and presentation currency of the

Company.

At the moment of initial recognition, foreign currency transactions are translated into the functional currency:

• at the actual exchange rate applied, i.e. at the buy or sell exchange rate applied by the bank in which the transaction

occurs, in the case of the sale or purchase of currencies and the payment of receivables or liabilities, whereby on 1

January 2022, a change was introduced in KGHM Polska Miedź S.A. concerning foreign exchange rates applied to

measure currency sales and purchase transactions as well as payments of receivables and liabilities (including in the

measurement of transactions involving the receipt, granting or repayment of borrowings) on the Company’s currency

bank accounts. To translate these transactions to the functional currency, an average exchange rate prevailing on the

date of the transaction is used, and the prevailing rate on the date of the transaction is the average NBP exchange rate

from the last working day preceding the transaction date. Any change in the applied exchange rates is, pursuant to IAS

8, a change in estimates, and its impact is recognised prospectively for periods beginning on or after 1 January 2022;

• at the average exchange rate set for a given currency, prevailing on the date of the transaction for other transactions.

The exchange rate prevailing on the date of the transaction is the average NBP rate announced on the last working day

preceding the transaction date.

At the end of each reporting period, foreign currency monetary items are translated at the closing rate prevailing on that

date.

Foreign exchange gains or losses on the settlement of foreign currency transactions, and on the measurement of foreign

currency monetary assets and liabilities (other than derivatives), are recognised in profit or loss.

Foreign exchange gains or losses on the measurement of foreign currency derivatives are recognised in profit or loss as a

fair value measurement, provided they do not represent a change in the fair value of the effective cash flow hedge. In such

a case, they are recognised in other comprehensive income in accordance with hedge accounting policies.

Foreign exchange gains or losses on non-monetary items, such as equity instruments classified as financial assets

measured at fair value through other comprehensive income, are recognised in other comprehensive income.

Foreign exchange gains or losses on monetary items measured at fair value through profit or loss (e.g. loans granted

measured at fair value) are recognised as a part of the fair value measurement.

Note 1.4 Impact of new and amended standards and interpretations

Amendments to standards applied for the first time in the separate financial statements for 2022:

• Amendments to IFRS 3 on references to the Conceptual Framework,

• Amendments to IAS 16 on proceeds prior to the intended use of an item of property, plant and equipment,

• Amendments to IAS 37 on cost of fulfilling onerous contracts,

• Annual amendments to IFRS 2018-2020 – amendments to IAS 41, IFRS 1, IFRS 9.

Up to the date of publication of these separate financial statements, the aforementioned amendments to the standards

were adopted for use by the European Union. In the Company’s opinion, the amendments to the standards will be

applicable to the Company’s activities in the scope of future economic operations, transactions or other events, towards

which the amendments to the standards will be applicable.

In particular, the application of amendments to IAS 16 on proceeds prior to the intended use of an item of property, plant

and equipment will result in a change in the Company’s accounting policy in this regard. In accordance with the current

policy, the Company decreased expenditures by the amount of revenues achieved before an item of property, plant and

equipment was brought into use, which incidentally took place during shaft sinking. Pursuant to the amendments, revenues

from sales of products manufactured while an asset is brought to the desired location and condition (e.g. test production),

together with associated costs, should be recognised in profit or loss for the period. Transitional provisions on the

implementation of these amendments are applied retrospectively to items of property, plant and equipment brought into

use on or after the beginning of the earliest presented period. The Company applied amendments to IAS 16 from 1 January

2022. With respect to the application of transitional provisions, the Company did not identify significant items of property,

plant and equipment that would be subject to adjustments on or after 1 January 2021.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 1.5 Published standards and interpretations, which are not yet in force and were not applied earlier by the

Company

Published standards and interpretations which are not yet in force, adopted for use by the European Union:

• IFRS 17 Insurance contracts and amendments to IFRS 17 published in 2020 and 2021, effective on or after

1 January 2023.

• Amendments to IAS 1 and Practice Statement 2 on disclosures of accounting policies, effective on or after

1 January 2023. In this standard, the requirement to disclosure the entity’s „significant” accounting policies was

replaced by the requirement to disclose „material” accounting policies. Information on accounting policies is material

if considered together with other information contained within the financial statements, it could reasonably influence

decisions made by their main users on the basis of these financial statements.

• Amendments to IAS 8 on the introduction of a definition of accounting estimates, effective on or after

1 January 2023. Pursuant to the amended standard, accounting estimates are monetary amounts in financial

statements that are subject to measurement uncertainty. The introduction of this definition will help entities in

distinguishing between amendments to accounting policies and amendments to accounting estimates.

• Amendments to IAS 12 on deferred tax related to assets and liabilities arising from a single transaction, effective on

or after 1 January 2023. This standard introduces clarifications to paragraphs 15 and 24 that the recognition

exemption on deferred tax related to assets and liabilities does not apply to transactions in which equal amounts of

deductible and taxable temporary differences arise on initial recognition. In the Company’s opinion, the first

application of the aforementioned change will not have a significant impact on the separate financial statements.

Published standards and interpretations which are not yet in force, awaiting the adoption for use by the European

Union:

• IFRS 14 Regulatory deferral accounts, effective on or after 1 January 2016, however the European Commission has

decided not to launch the endorsement process of this interim standard and to wait for the final standard.

• Amendments to IFRS 10 and IAS 28 on the sale or contribution of assets between an Investor and its Associate or

Joint Venture (date of entry into force was not specified).

• Amendments to IFRS 16 on lease liabilities in a sale and leaseback, effective on or after 1 January 2024.

• Amendments to IAS 1 on classification of liabilities as current or non-current (including changes due to deferral of

effective date), effective on or after 1 January 2024. The standard introduces changes clarifying conditions necessary

to recognise financial liabilities as non-current. Such recognition will be possible only if the entity has the

unconditional right to defer settlement of a liability for over 12 months after the reporting date and at the same time

the entity’s intent as to the early repayment will not have an impact on this recognition. If the amendments to IAS 1

were applied by the Company in these separate financial statements, the presentation of borrowings as at 31

December 2022 would not change.

• Amendments to IAS 1 on non-current liabilities with covenants, effective on or after 1 January 2024. The

amendments aim to clarify that covenants, whose conditions have to be met by an entity after the reporting date,

and which refer to the rights of an entity to defer settlement of a liability by at least twelve months from the end of

the reporting period, do not have an impact on the classification of liabilities as current or non-current at the end of

the reporting period. However, it will be necessary to disclose information on such covenants in notes to the financial

statements in order to allow users of financial statements to understand the risk that a particular liability may become

due in the period of 12 months from the end of the reporting period. In such a situation, the Standard requires the

disclosure of a description of a covenant’s conditions, the amount of liabilities it is related to and facts and

circumstances, if they occur, indicating the occurrence of risk that an entity may not meet the conditions of the

covenant within the deadline indicated after the end of the reporting period.

The Company intends to apply all of the amendments at their effective dates, except for IFRS 17, which will not have an

impact on the Company’s separate financial statements, in the Company’s opinion as at 31 December 2022, the other

amendments to the standards will be applicable to its activities in the scope of future economic operations, transactions or

other events, towards which the amendments to the standards are applicable, while the Amendments to IAS 1 and Practice

Statement 2 on accounting policies (principles) presented in the financial statements will not have a significant impact on

the scope of accounting policies which will be disclosed by the Company in the financial statements published for the

reporting periods beginning after 1 January 2023.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 2 – Operating segments and information on revenues

Operating segments

Based on an analysis of the Company’s organisational structure, its system of internal reporting and the management

model, it was determined that the Company’s activity constitutes a single operating and reporting segment, which may be

defined as “Production of copper, precious metals and other metallurgical products”.

The core business of the Company is the production of copper and silver. Production is a fully integrated process, in which

the end-product of one stage is the half-finished product used in the next stage. Copper ore extracted in the mines is

transported to concentrators where the enrichment process is carried out. As a result of this process, copper concentrate

is produced, which is then supplied to the metallurgical plants where it is smelted and fire refined into anode copper. Then,

during the process of electrolytic refining, the anode copper is converted into copper cathodes, which are a commercial

product, or a material to produce wire rod.

Anode slimes, which arise from the process of copper electrorefining, is a raw material used to produce precious metals.

Lead-bearing dust which is generated from the smelting processes is used to produce lead. Nickel sulphate and copper

sulphate are recovered from the processing of used electrolyte. Gases generated from the smelting furnaces are used to

produce sulphuric acid. Economic use is also made of smelter slags, which are sold as road-building materials.

Settlements between organisational units are carried out based on measurement of production at cost, and as a result the

internal organisational units (i.e. mines, concentrators, metallurgical plants) in the production cycle do not generate profit

on sales.

The financial data prepared for management accounting purposes is based on the same accounting policies which are used

to prepare the financial statements. The Management Board of the Company, which is responsible for allocating resources

and for the financial results of the Company, regularly reviews financial reports in the process of making major operational

decisions.

The organisational structure of KGHM Polska Miedź S.A. has the Head Office and 10 Divisions, including: mines,

concentrators and metallurgical plants. The Head Office carries out sales of the Company’s basic products, i.e. electrolytic

copper cathodes, wire rod and silver, and support functions, particularly including the management of financial assets,

centralised finance and accounting services, marketing, legal and other services.

The Management Board of the Company assesses a segment’s performance based on Adjusted EBITDA and the profit or

loss for the period. The manner of calculating Adjusted EBITDA is presented in the table “Reconciliation of Adjusted EBITDA”.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Production of main products

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Electrolytic copper (kt), of which:

586.0

577.6

- electrolytic copper from own concentrates (kt)

381.5

381.4

Silver (t)

1 298.4 1 332.2

C1 unit cash cost of production of payable copper in own

concentrate (USD/lb)*

2.38 2.26

C1 unit cash cost of production of payable copper in own

concentrate (PLN/lb)*

10.62 8.73

*C1 cost reflects ore mining and processing costs, transport costs, the minerals extraction tax, administrative expenses during the

mining phase and smelter treatment and refining charges (TC/RC) less by-product value. C1 cost was calculated using the average

exchange rate by the NBP (arithmetical average of daily quotations per the NBP’s tables).

Segment financial results

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Total revenues from contracts with customers, including:

28 429 24 618

Revenues from sales, for which the sales price is set after the date

of recognition of the sales (M+ principle), of which:

21 767 19 837

settled

21 045 18 952

unsettled

722 885

Cost of sales, selling costs and administrative expenses*

(24 463) (20 514)

Depreciation/amortisation recognised in profit or loss

(1 434) (1 363)

(Recognition)/reversal of an impairment loss on non-current

assets, recognised in cost of sales, selling costs and administrative

expenses

- ( 7)

Adjusted EBITDA

5 400 5 474

Profit for the period, including:

3 533 5 169

reversal/(recognition) of impairment losses on non-current

assets

207 1 560

*Cost of products, merchandise and materials sold plus selling costs and administrative expenses.

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Total revenues from contracts with customers, of which:

28 429

24 618

in factoring

8 677

8 575

not in factoring

19 752

16 043

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Revenues from contracts with customers, of which:

28 429

24 618

transferred at a certain moment

27 986

24 262

transferred over time

443

356

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Reconciliation of “Adjusted EBITDA” (which is not defined in IFRSs) with “Profit/(loss) for the period” (which is defined in

IFRSs) and “Profit on sales” is presented in the following tables:

Reconciliation of Adjusted EBITDA

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit for the period

3 533

5 169

[–] Current and deferred income tax

(1 463)

(1 547)

[–] Depreciation/amortisation recognised in profit or loss

(1 434)

(1 363)

[–] Finance income and (costs)

( 269)

( 476)

[–]

Other operating income and (costs)

1 299

3 088

[–] (Recognition)/reversal of an impairment loss on non-current

assets, recognised in cost of sales, selling costs and administrative

expenses

( 7)

[=] Adjusted EBITDA*

5 400

5 474

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit on sales

3 966

4 104

[–] Depreciation/amortisation recognised in profit or loss

(1 434)

(1 363)

[–]

(Recognition)/reversal of an impairment loss on non-current

assets, recognised in cost of sales, selling costs and administrative

expenses

( 7)

[=] Adjusted EBITDA*

5 400

5 474

* The Company defines adjusted EBITDA as profit/loss for the period pursuant to IFRS, excluding income tax (current and deferred),

finance income and (costs), other operating income and (costs), depreciation/amortisation and recognition/reversal of impairment

losses on property, plant and equipment included in the cost of sales, selling costs and administrative expenses.

Segment assets and liabilities

As at

31 December 2022

As at

31 December 2021

Assets

47 995

43 458

Liabilities

18 320 17 618

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Accounting policies

Revenues arising from ordinary operating activities of the Company, i.e. revenues from sales of products, merchandise

and materials, are recognised in the statement of profit or loss as revenues from contracts with customers.

The Company generates its revenues mainly from the sale of: copper, silver and gold. Other, smaller streams of revenues

arise from the sale of services (including distribution of electricity, other utilities and IT services)

and other products,

merchandise and materials (including refined lead, sulphuric acid, heat and electricity as well as other production waste).

The Company recognises revenue from contracts with customers when the Company satisfies a performance obligation

by transferring a promised good or providing a service to a customer, which is when the customer obtains control of that

asset, i.e. the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, as well as

the ability to prevent other entities from directing the use of, and obtaining the benefits from, the asset.

Since in every

case, following the shipment of the promised good and transferring control over it, the Company has an unconditional

right to consideration from the customer, and the only condition of receiving it is time lapse, the Company recognises the

consideration from contracts with customers as receivables and therefore the Company does not recognise contractual

assets.

The Company recognises as a performance obligation every contractual promise

to transfer to a customer a good or

provide a service that is distinct, or a series of distinct goods or services that are substantially the same and that have the

same pattern of transfer to the customer. For each performance obligation, the Company deter

mines (based on

contractual terms), whether the obligation will be performed over time or at a specified moment. In particular, in contracts

for the sale of copper, silver and gold, every measurement unit of a transferred good (e.g. 1 tonne of copper or 1

kg of

silver) is a separate performance obligation. Therefore, for every sale or transfer of goods, constituting a multiplication

of a measurement unit of a transferred product, which is realised at the same time, the Company fulfils its performance

obligation and at the same time recognises revenues.

Apart from contracts for supplying goods with transport services, there are no other contracts including more than one

performance obligation. The attribution of transaction prices to individual performance obligations are made on the basis

of unit sale prices.

In trade contracts in which the performance obligation is met at a specified time, t

he Company uses various payment

conditions

, including prepayments of up to several days before delivery and deferred payments of up to 120 days,

although the deferred payments do not concern sale transactions of silver and gold. P

ayment dates depend on the

evaluation of the recipient’s credit risk and the possibility of securing receivables. The consideration bec

omes due

depending on contractual conditions, that is prior to the realisation of the delivery (prepayment) or after the Company

meets its performance obligation. If the Company receives payment from the customer before it meets its performance

obligation, it recognises it as contractual payables. However, in the case of deferred payments terms,

the Company

recognises due consideration from the customer as a receivable only after the transfer of promised products

to the

customer and the issuance of the invoice.

Revenues from sales of other services, such as distribution of utilities, rentals, leases, sharing IT systems and other are

recognised over time by the Company as it meets its obligations, as the customers

simultaneously receive and gain

economic benefits arising from the Company’s performance and the Company has an uncond

itional right to

consideration.

Revenues from contracts with customers are recognised in the amount of the transaction price, consisting of the amount

of consideration to which – in accordance with the Company’s expectations – it will be given in return for the transfer of

promised goods or services to the customer, excluding consideration collected on behalf of third parties.

The transaction price also reflects the effects of the

time value of money if a contract with a customer contains a

significant financing element, which is determined based on the contractual payment terms, regardless of whether the

promise of financing is explicitly stated in the contract. In determining whether a financing component is significant for a

given agreement, all of the facts and circumstances are taken into consideration, including the eventual difference

between the promised consideration and the cash selling price of the promised goods and services, as well as the total

impact of the following two factors: (i) the estimated period from the moment an entity transfers the promised goods or

services to a customer to the moment the customer pays for these goods or services, and (ii) prevailing interest rates on

a given market. The Company did not identify significant financing components in sales transactions to customers

realised in 2022 and 2021.

In the case of copper and silver products sales transaction for which the price is set after the date

of recognition of a

given sale, at the moment of initial recognition of a transaction an adjustment of revenues from sales is made, arising

from the difference between the forward price of a metal expressed in USD from the date of recognition of a sale in the

period corresponding to the period of settlement of the transaction, and the price from provisional invoice. This

adjustment brings the amount of the transaction to the expected amount as a transaction price at the moment of initial

recognition. This only concerns cases where the change in transaction price arises from a change in the metal’s price. For

these types of variable revenues, the limitation of IFRS 15 on recognising variable consideration only to the amount in

respect of which it is highly probable that a reversal will not be recognised, is not applicable.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Changes to the accounted amount after the moment of recognition do not impact the revenues from sales but are fair

value gains/losses on measurement of receivables pursuant to the accountin

g policies presented in Note 10.2. Sales

revenue is adjusted for the gain or loss on the settlement of future cash flow hedging derivatives, in accordance with the

general principle that the portion of gain or loss on a derivative hedging instrument that is determined to be an effective

hedge is recognised in the same position of profit or loss in which the gain or loss on the hedged item is recognised at

the moment when the hedged item affects profit or loss

Important estimates, assumptions and judgments

The Company recognises revenues from the sale of products, merchandise and materials in profit or loss once, when the

performance obligation is satisfied (in particular in accordance with the applied INCOTERMS principles).In the majority of

contracts, control is transferred to the customer after delivery of the goods, which is also understood as delivery of the

goods to the carrier or to a designated place

(DAP, FCA and EX WORKS bases). In other contracts, control is transferred

to the customer at the moment it is handed over to the carrier and loaded aboard a ship (CFR, CIF, CPT and CIP bases). In

these contracts, the Company is also obliged to organise a shipping service. In these cases, the obligation to sell goods

and the obligation to provide a shipping service are treated as separate services promised in the contract. With respect

to transport services, the Company acts as a principal, as it has control over the service before its completion.

Revenues from sales of other services, such as distribution of utilities, rentals, leases, sharing IT systems and other are

recognised over time by the Company as it meets its obligations, as the customers

simultaneously receive and gain

economic benefits

arising from the Company’s performance and the Company has an unconditional right to

consideration.

As at 1 January 2022, the balance of trade payables due to contracts with customers amounted to PLN 5 million and was

wholly recognised in revenues for 2022. As at 31 December 2022, the balance of trade payables due to contracts with

customers amounted to PLN 9 million.

In 2022, the Company recognised an adjustment to revenues on performance obligations realised in 2021 in the amount

of PLN 19 million, which arose due to the final determination of sales price in 2022.

In 2021, the Company recognised revenues on performance obligations realised in 2020 in the amount of PLN 58 million,

which arose due to the final determination of sales price in 2021.

If the Company has remaining performance obligations as at the end of the reporting period that are unsatisfied, it is

necessary to disclose the transaction price allocated to these obligations (IFRS 15.120). The Company uses a practical

approach and does not disclose performance obligations that are part of contracts with initial period of one year or less.

Moreover, the Company has several long-term contracts, the price of which is based mainly on variable consideration that

the Company does not include in estimating the transaction price.

Revenues from contracts with customers – breakdown by products

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Copper

22 207

19 079

Silver

4 341

3 990

Gold

649

548

Lead

295

271

Services

174

143

Merchandise

232

181

Waste and production materials

132

Other

399

310

TOTAL, including:

28 429

24 618

Impact of derivatives and hedging transactions

on revenues from contracts with customers

( 182)

(1 651)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Sales revenue – geographical breakdown reflecting the location of end customers

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Europe

Poland

7 157

5 896

Germany

5 502

3 702

Italy 2 319

1 999

Czechia

2 250

1 804

The United Kingdom

1 676

1 283

Hungary 1 408

1 123

France

896

790

Switzerland

790

589

Austria

541

428

Romania

138

255

Slovenia

129

147

Slovakia

178

123

Belgium

Bulgaria 29

Denmark

Bosnia and Herzegovina

Estonia 14

Finland 7

Sweden

The Netherlands 7

Other countries (dispersed sale)

North America

The United States of America

997

1 361

Canada 50

South America 7

Australia

787

1 020

Asia

China

2 146

2 875

Thailand

437

463

Vietnam

231

336

Turkey 282

123

Malesia

Taiwan

South Korea 67

Japan

Hong Kong 15

Philippines -

Other countries (dispersed sale)

Africa

TOTAL

28 429

24 618

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Main customers

In the period from 1 January to 31 December 2022 and in the comparable period, revenues from no single customer

exceeded 10% of the sales revenue of the Company.

Non – current assets – geographical breakdown

The property, plant and equipment of KGHM Polska Miedź S.A. are located in Poland.

Cash expenditures on property, plant and equipment and intangible assets

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Cash expenditures on mining and metallurgical assets

(2 689)

(2 381)

Cash expenditures on other property, plant and equipment

and intangible assets

( 42)

( 26)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 3 – Impairment of assets

Note 3.1 Impairment losses on assets as at 31 December 2022

Pursuant to IAS 36, as at 31 December 2022 the Company assessed the occurrence of indications of impairment of the

Company’s assets. Key non-current assets of the Company were subjected to the analysis, including shares in subsidiaries.

As a result of the performed evaluation, no indications of impairment of these assets were identified. Because of the

Company’s market capitalisation remaining below the level of its net assets for a significant part of 2022, this area was

subjected to a further analysis.

Assessment of the risk of impairment of assets of KGHM Polska Miedź S.A. in the context of the market

capitalisation of KGHM Polska Miedź S.A.

In 2022, a general deterioration in sentiment was seen in stock markets due to the substantial uncertainty as to the

development of the global macroeconomic situation in reaction to the start of the armed conflict in Ukraine and the

tangible consequences of the COVID-19 (coronavirus) pandemic. As a result, stock market indices, amongst others,

suffered greatly. In 2022, the share price of KGHM Polska Miedź S.A. fell by 9% compared to the share price at the end

of 2021, and as at 31 December 2022 it amounted to PLN 126.75. During the same period the WIG and WIG 20 indices

fell respectively by 17% and 21%. As a result, the Company’s market capitalisation fell from PLN 27 880 million to

PLN 25 350 million, which means that as at 31 December 2022 it remained 15% below the level of the Company’s net

assets. As at 15 March 2023, the Company’s share price amounted to PLN 113.30 and as a result, the market

capitalisation amounted to PLN 22 660 million and was 24% lower than the level of the Company’s net assets.

Due to the fact that, during a significant part of the reporting period, the Company’s market capitalisation remained

below the carrying amount of its net assets, in accordance with IAS 36 Impairment of assets, the Management Board of

KGHM Polska Miedź S.A. conducted an analysis to determine whether any area of KGHM Polska Miedź S.A.’s activities

could be impaired.

The analysis of the assets located in Poland indicated that not all of the factors which affect the market capitalisation of

KGHM Polska Miedź S.A. are factors which are related to the conducted economic activities.

The drop in share prices affected companies in the majority of sectors, in different economies, and reflected investor

uncertainty as to the future. In particular, the armed conflict in Ukraine caused withdrawal of foreign investors from

areas bordering the war zone, which can be seen not only in the situation on the Warsaw stock exchange, but also on

exchanges in the region, such as in Czechia, Slovakia and Hungary, and also had a significant impact on the weakening

of the PLN versus the USD.

From the point of view of the Company’s operations, the key factor influencing the level of market capitalisation is the

copper price. In December 2021, the average price of copper amounted to 9 550 USD/t, and following the initial

continuation of the upward trend in the first months of 2022 it recorded a significant decline. The minimum was recorded

in July 2022, when the average copper price was at the level of 7 530 USD/t. But over time, as reassuring information as

to the demand for this metal kept coming, prices returned to the trend observed at the start of the year and in December

2022 the average price for copper amounted to 8 367 USD/t. The share prices of companies involved in the mining and

processing of copper are strongly correlated with the price of this metal.

It should be pointed out that in the case of the Polish assets, of significance are PLN-expressed metals prices, which are

also affected by the USD/PLN exchange rate. Fluctuations in the price of copper related to the turbulence on the financial

markets, whose origins may often be found not only in macroeconomics but also in broadly understood geopolitics, are

usually to a large extent offset by changes in the USD/PLN exchange rate, which additionally remains under the influence

of the armed conflict in Ukraine.

Despite the continued uncertainty in the economic environment, KGHM Polska Miedź S.A. maintains full operational

capacity and consistently advances planned production and sales targets. The financial results achieved by the Company

significantly exceed the budget targets, which is also a result of conducted optimisation initiatives and cost discipline

applied in response to macroeconomic conditions.

As a result of the assessment, it was judged that there was no relation between the fall in the share price of KGHM Polska

Miedź S.A. both in terms of the activities of KGHM Polska Miedź S.A. in Poland as well as abroad. The Company realises

production and sales targets in Poland as well as abroad. Consequently, there were no indications identified suggesting

the risk of impairment of the Polish and international production assets, therefore there were no tests for impairment

conducted for these assets as at 31 December 2022.

Due to the uncertainty and the significant volatility of basic economic parameters, including metals prices and currency

exchange rates, and dynamic development of the pandemic situation in Poland and globally, and its impact on the

economic situation, the Company is continuously monitoring the global situation.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 3.2 Impairment losses on assets as at 31 December 2021

Assessment of the risk of impairment of assets of KGHM Polska Miedź S.A. in the context of the market

capitalisation of KGHM Polska Miedź S.A.

The Company’s share price as at 30 December 2021 amounted to PLN 139.40 and was 24% lower compared to the price

as at 30 December 2020. At the end of 2021 WIG and WIG 20 indices were higher than on 30 December 2020 respectively

by 22% and 14%.

As a result, the Company’s market capitalisation decreased from PLN 36 600 million to PLN 27 880 million, which means

that on 31 December 2021 it was at a level 7% higher than the net value of the Company’s assets. Moreover, during 2021

the Company’s market capitalisation was higher than net assets.

The Company continuously monitors the global situation as to its potential impact on KGHM Polska Miedź S.A.

TESTING FOR THE IMPAIRMENT OF THE VALUE OF SHARES IN FUTURE 1 SP. Z O.O.

KGHM Polska Miedź S.A. is involved in Future 1 Sp. z o.o. in the form of loans granted in the amount of PLN 3 548 million

as well as shares. The value of the shares in Future 1 Sp. z o.o. is presented at cost less impairment losses and as at 30

June 2021, before the recognition of the results of impairment testing, amounted to PLN 1 101 million, including PLN

4 770 million at cost and PLN 3 669 million - the impairment loss.

In the reporting period (that is as at 30 June 2021), due to indications of the possibility of changes in the recoverable

amount of shares in the company Future 1 Sp. z o.o., the Company performed impairment testing of these shares. Future

1 Sp. z o.o. is a holding company through which the Company holds shares in KGHM INTERNATIONAL LTD. (main assets

are: the Victoria project in the pre-operational phase, the Robinson mine and less significant CGU Sudbury) and provides

financing for the KGHM INTERNATIONAL LTD. Group and Sierra Gorda S.C.M.

The key indications to perform impairment testing were:

• a change in market forecasts of commodities prices,

• the decision to commence the process of preparing to sell some of the assets located in CGU Sudbury (this does

not include the Victoria project in the pre-operational phase, which remains within the KGHM INTERNATIONAL

LTD. Group),

• a change in technical and economic parameters for the KGHM INTERNATIONAL LTD. Group’s CGU Sudbury mine

assets in terms of production volumes, planned operating costs and capital expenditures during the life of a

mine.

The main indications that the recoverable amount may be high

er than the carrying amount, with the consequent

justification for the reversal of previously recognised impairment losses, were increases in the price paths of copper and

gold.

The main indications that the recoverable amount may be lower than the carrying amount, with the consequent necessity

for the recognition of an additional impairment loss, were as follows:

• a decrease in the price paths for nickel,

• a change in technical and economic parameters of assets of the CGU Sudbury, among others the deferment of

re-commencement of production, lower expected production volume, an increase in the expected capital

expenditures during the life of a mine.

For the purpose of estimating the recoverable amount, in the conducted test the fair value of the CGU was measured

using the DCF method (the method of discounted cash flows). The same method was used in prior years.

The fair value measurement was classified to the level 3 of the fair value hierarchy.

Basic macroeconomic assumptions adopted for cash flow estimation – metal prices

Price paths were adopted on the basis of long-term forecasts available from financial and analytical institutions. A detailed

forecast is being prepared for the period 2022-2026, while for the period 2027-2031 a technical adjustment of prices was

applied between the last year of the detailed forecast and 2032, from which a long-term metal price forecast is used as

follows:

• for copper – 7 000 USD/t (3.18 USD/lb);

• for gold – 1 500 USD/oz;

•

for nickel – 7.25 USD/lb.

Other key assumptions used for cash flow estimation

Assumption Sierra Gorda Victoria Sudbury Robinson

Mine life / forecast period

Level of copper production during mine life (kt)

3 752

249

358

Level of nickel production during mine life (kt)

221

Level of gold production during mine life (koz t)

1 017

157

263

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Average operating margin during mine life

42.6%

62%

27%

43%

Capital expenditures to be incurred during mine life

[USD million]

1 487

1 530 157 410

Key factors responsible for modification of the technical and economic assumptions

Sudbury

The inclusion in production of copper and precious metals mineralisation zones (“700 Zone” and “PM

Zone”) and exclusion of a nickel zone (“Intermain Orebody”).

Deferment of re-commencement of the Levack mine up to 2027 and a decrease of the production

volume.

Results of the test performed as at 30 June 2021 are presented in the following table:

Test elements

PLN million

Discounted future cash flows of the KGHM INTERNATIONAL LTD. Group less by all

of liabilities (including the repayment of loans towards KGHM Polska Miedź S.A.)

1 937

Recoverable amount of other assets 214

Recoverable amount of investment in KGHM INTERNATIONAL LTD.

(Enterprise value) after the repayment of liabilities towards KGHM Polska

Miedź S.A. due to loans granted

2 151

Less receivables due to return payment to capital of Future 1 Sp. z o.o. (40)

Carrying amount of shares in Future 1 Sp. z o.o. (before the test for impairment)

1 101

Recoverable amount of shares in Future 1 Sp. z o.o. (test result)

2 111

Reversal of impairment loss on shares in Future 1

1 010

The reversal of the impairment loss on the shares in the amount of PLN 1 010 million was recognised in the statement of

financial position in other operating activities (Note 4.2).

Sensitivity analysis of the recoverable amount of the shares of Future 1 Sp. z o.o. determined that the key assumptions

adopted for the impairment testing were the assumed price paths and discount rates. The assumptions regarding the price

paths and discount rate were adopted while taking into account the professional judgement of the Management Board as

to the performance of these amounts in the future, and was reflected in the estimated recoverable amounts. For the

purposes of monitoring the risk of impairment of the tested assets in subsequent periods, the following determinations

were made:

• discount rates – adoption at a level higher by 1 percentage point would result in a reversal of the impairment loss

in the total amount of PLN 792 million, and at a level lower by 1 percentage point would result in a reversal of the

impairment loss in the total amount of PLN 1 261 million,

• price paths for copper – the adoption of prices at a level lower by 0.1 USD/lb would result in a reversal of the

impairment loss in the amount of PLN 717 million, and at a level higher by 0.1 USD/lb would result in a reversal

of the impairment loss in the amount of PLN 1 321 million.

• price paths for nickel – the adoption of prices at a level lower by 0.45 USD/lb would result in a reversal of the

impairment loss in the amount of PLN 925 million, and at a level higher by 0.45 USD/lb would result in a reversal

of the impairment loss in the total amount of PLN 1 095 million.

In the second half of 2021, assumptions adopted for estimating cash flows to perform impairment testing of the shares of

Future 1 Sp. z o.o. as at 30 June 2021 for main CGUs did not change significantly, and therefore the Company did not identify

any indications of changes in the recoverable amount of shares of Future 1 Sp. z o.o. as at 31 December 2021 and did not

estimate the recoverable amount of the shares of Future 1 Sp. z o.o. for the second time. As at 31 December 2021, the value

of shares amounted to PLN 2 111 million.

On 22 February 2022, the sale of the 45% share in the company Sierra Gorda S.C.M. by Sumitomo Metal Mining Co., Ltd.

and Sumitomo Corporation to South32, the Australian mining group with its registered head office in Perth was concluded.

The transaction was completed on the basis of sales agreements concluded on 14 October 2021.

Due to a number of factors, such as the lack of knowledge about the details of the negotiation process, the valuation

assumptions made by the buyer and seller, and the fact that shares of Sierra Gorda S.C.M. are not listed, it is not justifiable

to assess in the consolidated financial statements the value of loans by directly referring to the transaction price from the

sale of the 45% interest in Sierra Gorda S.C.M. (i.e. participation in equity and loan receivables) by the seller following the

end of the reporting period.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Nevertheless, the Company made an additional comparison of the carrying amount of its own involvement in the joint

venture Sierra Gorda S.C.M. (i.e. receivables due to a loan and investments in equity instruments) in order to verify that the

total carrying amount does not differ substantially from the value that would result from the transaction price, taking into

account: (i) limitations as to the Company’s ability to obtain full knowledge of the process of reaching the transaction price,

and (ii) differences in the applied discount rates for future expected cash flows obtainable from the JV (i.e. the effective

interest rate for loan measurement according to IFRS 9, versus the rate of return expected by the investor in the valuation

of the transaction price).

In the opinion of the Management Board, the value of loans estimated by the Company and presented in the consolidated

financial statements, which in the current holding structure are recognised as fair value of shares in Future 1 Sp. z o.o. in

the separate financial statements, does not differ significantly from the value that would be determined by reference to

the transaction price.

The Company continuously monitors the global situation and its impact on activities of the KGHM INTERNATIONAL LTD.

Group and will perform re-measurement of involvement in Future 1 Sp. z o.o. if there are any significant changes.

TESTING FOR THE IMPAIRMENT OF THE VALUE OF SHARES IN “ENERGETYKA” SP. Z O.O.

KGHM Polska Miedź S.A. has receivables from the company “Energetyka” sp. z o.o. in the form of return payments to

capital and shares. In the current reporting period, due to indications of the possibility of changes in the recoverable

amount, impairment testing of the equity involvement in shares of “Energetyka” sp. z o.o. was perfor

med. The key

indications to perform impairment testing in the current reporting period were the following: a significant increase in

prices of CO

emissions rights and worse than expected economic results by a given asset, including the impairment of

the value of the investment in shares of WPEC S.A. (a subsidiary of the company “Energetyka” sp. z o.o.).

The carrying amount of shares of “Energetyka” sp. z o.o. as at 31 December 2021 amounted to PLN 299 million. For the

purpose of estimating the recoverable amount, in the conducted test the value in use of the shares was measured using

the DCF method, i.e. the method of discounted cash flows.

Basic assumptions adopted for impairment testing

Assumption Level adopted in testing

Detailed forecast period

2022-2031

Operating margin range during the detailed

forecast period

-0.43% - +2.07%

Capital expenditures during the detailed

forecast period

PLN 313 million

Discount rate*

3.80% (real rate after taxation)

Growth rate following the forecast period

*data is presented after taxation, despite the measurement model of value in use. The application of data before taxation does not have a significant

impact on the recoverable amount.

The recoverable amount of the enterprise was calculated on the basis of the value in use of net assets of the enterprise,

with the adopted forecast period of 10 years. Extension of the forecast period is justified mainly by the significant and long-

term impact of expected changes in the regulatory environment. Moreover, in the detailed forecast period it is necessary

to present the impact of incurred capital expenditures, the increase in their amounts in the first forecast period (for the

years 2022/2023) and the lack of necessity to incur them in similar amounts in subsequent years.

The approved Budget of the Company for the years 2022 – 2026, adjusted due to significant changes in prices of CO

emissions rights and energy which took place recently, is the basis for the preparation of forecasts of revenues and costs,

The adopted level of capital expenditures in the forecast period concerns mainly modernisation and replacement tasks.

As the result of the aforementioned assumptions and with due prudence, the estimated EBIT will increase in the period

2022 – 2024 from the level of -PLN 3 million to PLN 17 million, while from 2025 to 2032 EBIT will be at the yearly level of

PLN 16 million.

As a result of the impairment testing of the shares of “Energetyka” sp. z o.o., the recoverable amount of shares was

determined to be at the level of PLN 117 million, which was lower than the carrying amount of the tested assets, which was

the basis for recognising an impairment loss in the amount of PLN 182 million.

The measurement of shares of “Energetyka” sp. z o.o. indicated a significant sensitivity to the adopted level of discount

rates and a moderate sensitivity to a change in EBIT which is a basis used to determine the residual value.

The following table presents the impact of changes of these parameters on the measurement.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Sensitivity analysis of the recoverable amount of shares of “Energetyka” sp. z o.o.

Recoverable amount for a given discount rate

lower by 1 pp per test higher by 1 pp

Discount rate 3.80 % (test)

241

117

Recoverable amount for a given EBIT in residual period

lower by 5% per test higher by 5%

EBIT in the residual period of PLN 16 million

PLN ( test)

102 117 132

In order to monitor the risk of impairment of assets in subsequent reporting periods, it was determined that the recoverable

amount would be equal to the carrying amount of the assets if the discount rate were to fall by 1.31 percentage point or

EBIT were to increase by 60.2%.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 4 – Explanatory notes to the statement of profit or loss

Note 4.1 Expenses by nature

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 9.3

Depreciation of property, plant and equipment

and amortisation of intangible assets

1 504

1 435

Note 11.1 Employee benefits expenses

4 832

4 249

Materials and energy, including:

13 687

10 242

purchased metal-bearing materials

8 859

7 132

electrical and other energy

1 921

1 230

External services, including:

2 238

1 884

transport

328

278

repairs, maintenance and servicing

699

569

mine preparatory work

617

510

Note 5.2 Minerals extraction tax

3 046

3 548

Note 5.2 Other taxes and charges

487

398

Advertising costs and representation expenses

Property and personal insurance

Reversal of write down of inventories ( 52)

( 20)

Write down of inventories 13

Other costs

Total expenses by nature

25 895

21 901

Cost of merchandise and materials sold (+)

449

339

Change in inventories of products and work in

progress (+/-)

(1 665)

(1 562)

Cost of products for internal use (-)

( 216)

( 164)

Total cost of sales, selling costs and

administrative expenses, including:

24 463

20 514

Cost of sales

23 157

19 441

Selling costs

173

156

Administrative expenses

1 133

917

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 4.2 Other operating income/(costs)

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Gains on derivatives, of which:

268

323

Note 7.1 measurement

108

209

Note 7.1 realisation 160

114

Exchange differences on measurement and

realisation of assets and liabilities other than

borrowings

500

511

Interest on loans granted and other financial

receivables

348

304

Fees and charges on re-invoicing of bank

guarantees costs securing payments of liabilities

Reversal of impairment losses on financial

instruments measured at amortised cost,

including:

213

807

Note 6.2

loans

213

752

Fair value gains on financial assets measured at

fair value through profit or loss, including:

631

1 070

Note 6.2

loans

601

1 056

Reversal of impairment losses on shares in

subsidiaries

1 010

Dividends income

Profit on disposal of shares in subsidiaries

Release of provisions

Refund of excise tax for previous years

Overpayment of property tax 25

Other

112

Total other operating income

2 172

4 273

Losses on derivatives, of which:

( 490)

( 768)

Note 7.1

measurement

( 116)

( 141)

Note 7.1

realisation

( 374)

( 627)

Impairment losses on financial instruments

measured at amortised cost

( 7)

( 4)

Fair value losses on financial assets measured at

fair value through profit or loss, including:

( 87)

( 63)

loans -

( 9)

Financial support granted to municipalities ( 100)

Impairment losses on shares and investment

certificates in subsidiaries

( 182)

Provisions recognised ( 16)

( 58)

Donations granted ( 53)

( 29)

Losses on disposal of property, plant and

equipment (including costs associated with

disposal of fixed assets)

( 22)

( 13)

Compensations, fines and penalties paid and costs

of litigation

( 28)

( 6)

Impairment losses on fixed assets under

construction and intangible assets not yet

available for use

( 6)

( 5)

Other

( 64)

( 57)

Total other operating costs

( 873)

(1 185)

Other operating income / (costs)

1 299

3 088

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 4.3 Finance income/(costs)

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 7.1 Gains on derivatives - realisation

130

Result of the settlement of a transaction hedging

against interest rate risk due to the issue of bonds

with a variable interest rate

Total finance income

148

Interest on borrowings including:

( 48)

( 92)

leases ( 10)

( 8)

Fees and charges on external financing

( 30)

( 28)

Exchange differences on measurement and

realisation of borrowings

( 179)

( 338)

Losses on derivatives, of which: ( 149)

( 80)

Note 7.1 measurement -

( 1)

Note 7.1 realisation ( 149)

( 79)

Unwinding of the discount effect ( 11)

( 8)

Total finance costs

( 417)

( 546)

Finance income /(costs)

( 269)

( 476)

Note 4.4 Reversal / recognition of impairment losses on assets in the statement of profit or loss

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Reversal of impairment losses on assets recognised in:

cost of sales, of which:

reversal of write-down of inventories

other operating income, of which:

213

1 820

reversal of impairment losses on shares in subsidiaries -

1 010

reversal of allowance for impairment of loans measured at

amortised cost

213

752

reversal of allowance for impairment of trade receivables

reversal of allowance for impairment of other financial

receivables

reversal of allowance for impairment of other non-financial

receivables

Reversal of impairment losses, total

265

1 840

Impairment losses on assets recognised in:

cost of sales, of which:

impairment losses on property, plant and equipment and

intangible assets

write-down of inventories

other operating costs, of which:

199

impairment losses on fixed assets under construction and

intangible assets not yet available for use

impairment losses on shares in subsidiaries

182

allowance for impairment of trade receivables

allowance for impairment of other financial receivables

Impairment losses, total

247

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 5 – Taxation

Note 5.1 Income tax in the statement of profit or loss

Accounting policies

Income tax recognised in profit or loss comprises current income tax and deferred income tax.

Current income tax is calculated in accordance with current tax laws.

Income tax

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Current income tax

1 228 1 414

Note 5.1.1

Deferred income tax

203

152

Current tax adjustments for prior periods

( 19)

Income tax

1 463

1 547

In 2022, KGHM Polska Miedź S.A. paid income tax in the amount of PLN 1 575 million (in 2021: PLN 707 million) to the

appropriate tax office. In 2021 as well as in 2022, income tax advances were incurred by the Company using the simplified

formula, that is in the fixed amount calculated on the basis of income achieved in 2020 – for the advances in 2022, and on

the basis of income achieved in 2019 - for the advances in 2021.

The difference between the amount of tax paid by the Company in 2022 and the amount of tax paid in 2021 arises mainly

from the additional income tax paid in 2022 in the amount of PLN 826 million due to the annual settlement of income tax

for 2021, performed as at 30 June 2022.

The table below presents an identification of differences between income tax from profit before tax and the income tax

calculated according to the principles resulting from the Corporate Income Tax Act:

Reconciliation of effective tax rate

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit/(loss) before tax

4 996

6 716

Tax calculated using a rate of 19%

949

1 276

Tax effect of non-taxable income, including:

( 104)

( 494)

reversal of allowances for impairment of loans granted to

subsidiaries

( 94)

( 294)

Tax effect of expenses not deductible for tax purposes, including:

589

794

minerals extraction tax

579

674

impairment losses on shares in subsidiaries and allowances for

impairment of loans

Tax adjustments for prior periods

32 ( 19)

Current tax from settlement of the Tax Group

( 3) ( 10)

Income tax in profit or loss: 29.28% for 2022, 20.03% for 2021

1 463

1 547

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 5.1.1 Deferred income tax

Accounting policies Important estimates, assumptions and judgments

Deferred tax is determined using tax rates and tax laws that are

expected to be applicable when the asset is realised or the

liability is settled based on tax rates and tax laws that have been

enacted or substantively enacted at the end of the reporting

period.

Deferred tax liabilities and deferred tax assets are recognised for

temporary differences between the tax bases of assets and

liabilities and their carrying amounts in the financial statements,

with the exception of temporary differences arising from initial

recognition of assets or liabilities in transactions ot

her than

business combinations, which do not have an impact either on

profit/(loss) before tax nor on the taxable profit/(tax loss) at the

moment they are concluded.

Deferred tax assets are recognised if it is probable that taxable

profit will be available against which the temporary differences

and unused tax losses can be utilised.

Deferred tax assets and deferred tax liabilities are offset if the

Company has a legally enforceable right to

set off current tax

assets and current tax liabilities, and if the deferred tax assets

and deferred tax liabilities relate to income taxes levied on the

Company by the same taxation authority.

The assessment of probability that deferred tax assets

will be realised with future tax income is based on the

Company’s budget. The Company recognises deferred

tax assets in its accounting books to the extent that it

is probable that taxable profit will be available against

which the deductible temporary differences can be

utilised.

Maturities of deferred tax assets/(deferred tax liabilities)

As at 31 December 2022

As at 31 December 2021

Maturity over the 12 months from the end of the reporting

period, net

( 808)

( 666)

Maturity of up to 12 months from the end of the reporting

period, net

103

376

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Deferred tax at the beginning of the period, of which:

( 290)

( 81)

Deferred tax assets

1 482

1 554

Deferred tax liabilities

(1 772)

(1 635)

Deferred tax in the period:

( 415)

( 209)

Recognised in profit or loss

( 203)

( 152)

Recognised in other comprehensive income

( 212)

( 57)

Deferred tax at the end of the period, of which:

( 705)

( 290)

Deferred tax assets

1 280

1 482

Deferred tax liabilities

(1 985)

(1 772)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Deferred tax assets and liabilities

Credited/(Charged)

As at 31

December

2021

Credited/(Charged)

As at

31 December 2022

Deferred tax assets

As at

1 January

2021

profit

or loss

other

comprehensive

income

profit

or loss

other

comprehensive

income

Accrued and unpaid interest on borrowings

( 20)

( 3)

Provision for decommissioning of mines and

other technological facilities

239

( 67)

- 172

- - 172

Measurement of forward transactions other than

hedging instruments as understood by hedge

accounting

- 69

( 27) - 42

Difference between the depreciation rates of

property, plant and equipment for accounting

and tax purposes

- 61

4 - 65

Future employee benefits

540

( 2)

( 126)

412

499

Equity instruments measured at fair value

103

121

Allowances for impairment/reversal of

allowances for impairment of loans

( 31)

- 9

( 6) - 3

Re-measurement of hedging instruments

234

304

( 291)

Lease liabilities

Short-term accruals for remuneration

101

111

Liability related to the fixed fee due to setting

mining usufruct

- 36

- - 36

Recognition/reversal of other impairment losses

on assets

- 17

( 11) - 6

Other

( 1)

107

( 3)

104

Total

1 554

( 15)

( 57)

1 482

( 16)

( 186)

1 280

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

(Credited)/Charged

As at 31

December

2021

(Credited)/Charged

As at 31

December

2022

Deferred tax liabilities

As at 1

January 2021

profit or loss

other

comprehensive

income

Measurement of forward transactions other than

hedging instruments as understood by hedge

accounting

49 ( 10)

- 39

Re-measurement of hedging instruments - -

- -

26 26

Difference between the depreciation rates for

accounting and tax purposes, including:

1 162

1 234 87

- 1 321

difference between the depreciation rates of leases

for accounting and tax purposes

69 19

- 88

Accrued and unpaid interest on loans

291 ( 43)

248 50

- 298

Measurement of financial assets at fair value 35 50

85 ( 7)

- 78

Difference between the carrying amount and tax base of

expenditures on fixed assets under construction and

intangible assets not yet available for use

101 26

127 51

- 178

Other

12 17

29 16

- 45

Total

1 635 137

1 772 187

26 1 985

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 5.2 Other taxes and charges

The following table presents the minerals extraction tax incurred by the Company.

Presentation in the statement

of profit or loss

from 1

January 2022

31 December

2022

from 1

January 2021

31 December

2021

Basis for

calculating tax

Tax rate

from 1

January 2022

31 December

2022

from 1

January 2021

31 December

2021

Minerals

extraction

tax, of

which:

3 046 3 548

tax rate calculated

for every reporting

period*

2 951

3 238

310

tax recognised

in cost of sold

products

tax recognised

in inventories

- copper 2 650 3 012

Amount of copper

in produced

concentrate,

expressed in

tonnes

- silver 396 536

Amount of silver in

produced

concentrate,

expressed in

kilograms

* In accordance with conditions specified by the Act dated 2 March 2012 on the minerals extraction tax and the Act dated 24 February 2022 on

amending the Act on personal income tax, Act on Vocational and Social Rehabilitation and Employment of Persons with Disabilities and the Act on

the minerals extraction tax, which decreased the tax rates by approx. 30% from January to November 2022. In 2022, tax rates for copper ranged

from PLN 5 136.69 to PLN 8 657.15 and for silver from PLN 352.90 to PLN 453.03 (in the comparable period for copper they ranged from PLN 4 926.27

to PLN 9 629.78, while for silver from PLN 369.76 to PLN 449.38).

The minerals extraction tax is calculated from the amount of copper and silver in produced concentrate and depends on

the prices of these metals as well as on the USD/PLN exchange rate. The tax increases costs of basic products and is not

deductible for corporate income tax purposes.

Other taxes and charges:

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Royalties

122

116

Excise tax

Real estate tax

231

214

Other taxes and charges

129*

Total

487

398

*Including costs of surrender of CO

emission allowances in the amount of PLN 56 million.

Note 5.3 Tax assets and liabilities

Accounting policies

Tax assets comprise current income tax assets and the settlement related to VAT.

Assets not

representing financial assets are initially recognised at nominal value and are measured at the end of the

reporting period at the amount due.

Tax liabilities comprise the Company’s liabilities towards the Polish Tax Office arising from the corporate incom

e tax,

including due to the withholding tax, personal income tax and liabilities towards Customs Chamber due to the minerals

extraction tax and the excise tax.

Liabilities not representing financial liabilities are measured at the amount due.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Tax assets

As at

31 December 2022

As at

31 December 2021

VAT receivables

312

301

Tax liabilities

As at

31 December 2022

As at

31 December 2021

Current corporate income tax liabilities

601

838

Other tax liabilities

460

453

Tax liabilities

1 061

1 291

Tax authorities may audit accounting books and tax settlements during the 5 years since the end of the year in which the

tax declarations were submitted and charge the Company with an additional tax together with penalties and interest. In

the Management Board’s opinion, there are no circumstances indicating the possibility that significant tax liabilities may

occur.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 6 – Investments in subsidiaries

Note 6.1 Subsidiaries

Accounting policies Important estimates, assumptions and judgments

In the financial statements of the Company, subsidiaries

are those entities which are directly controlled by the

Company. Investments in subsidiaries are measured at

cost plus any granted non-returnable increases in share

capital, including for the coverage of losses presented in

the financial statements of a subsidiary and as a result of

discounting interest-

free returnable payments, less any

impairment losses. Pursuant to IAS 36, impairment is

measured by comparing the ca

rrying amount with the

higher of the following amounts:

• fair value, decreased by costs to sell; and

• value in use.

The Company controls an entity if it simultaneously:

• has power over the entity it invested in;

• is exposed to variable returns or has

rights to them;

and

• can use its power over the entity to affect the amount

of its returns.

In the Company’s opinion, power over individual entities

recognised as subsidiaries is exercised through ownership of

the majority of the total number of votes in th

e governing

bodies of such entities.

Important estimates, assumptions and judgments related to

the assessment of the risk of impairment were presented in

part 3 of these financial statements.

2022

2021

As at 1 January

3 691

2 848

Acquisition of shares and increases in share capital, of which:

375

KGHM Centrum Analityki sp. z o.o. 7

Cuprum Zdrowie sp. z o.o.

(formerly Cuprum Nieruchomości sp. z o.o.)

368

KGHM ZANAM S.A. -

Reversal of impairment losses on Future 1 Sp. z o.o. -

1 010

Impairment losses - of which:

( 182)

"Energetyka" sp. z o.o. -

( 182)

Repurchase of investment certificates of KGHM VII FIZAN

( 365)

( 31)

Other decreases -

As at 31 December

3 701

3 691

As at 30 June 2022, the Company performed impairment testing of investment certificates of KGHM VII FIZAN, which did

not indicate any impairment (there was no change in the recoverable amount). As a result of repurchase of investment

certificates of KGHM VII FIZAN, as at 31 December 2022 the Company did not hold any other certificates in Closed-End Non-

Public Investment Funds (Fundusz Inwestycji Zamkniętych Aktywów Niepublicznych, FIZAN).

The balance of impairment losses on the investments as at 31 December 2022 amounted to PLN 3 232 million (as at 31

December 2021: PLN 3 272 million). The decrease in the balance of investment losses was a result of the repurchase of

certificates and the liquidation of KGHM VII FIZAN, which the impairment losses concerned. A more detailed description

may be found in Part 3. Change in the balance of impairment loss on the investment in subsidiaries is presented in the

following table.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

2022

2021

As at 1 January

3 272

4 117

Impairment losses, of which:

182

"Energetyka" sp. z o.o. -

182

Reversal of impairment losses, of which: -

(1 010)

Future 1 Sp. z o.o. -

(1 010)

Repurchase of investment certificates of KGHM VII FIZAN ( 40)

( 5)

Other decreases -

( 12)

As at 31 December

3 232

3 272

The balance of impairment losses on the investments as at 31 December 2022 and as at 31 December 2021 by individual

investments in subsidiaries Is presented in the following table

The most significant investments in subsidiaries (direct share)

Entity

Head

Office

Scope of activities

Carrying amount of shares/investment

certificates

as at

31 December 2022

as at

31 December 2021

FUTURE 1 Sp. z o.o. Lubin

management and control of

other companies, including the

KGHM INTERNATIONAL LTD.

Group

2 111

KGHM VII FIZAN Wrocław

cash investing in securities,

money market instruments and

other property rights

365*

CUPRUM Zdrowie Sp. z o.o.

(formerly Cuprum

Nieruchomości sp. z o.o)

Wrocław

management of assets in the

form of, among others,

companies conducting spa

activities

376**

KGHM Metraco S.A. Legnica

trade, agency and representative

services

335

"Energetyka" sp. z o.o. Lubin

generation, distribution and sale

of electricity and heat

117

As at 31 December 2022 and as at 31 December 2021, the % of share capital held as well as the % of voting power in the

above-mentioned subsidiaries was 100%.

* In 2021 (third quarter), within the fund structure, a reorganisation was performed within the Group with respect to

portfolio companies of the KGHM VI FIZAN Fund and the KGHM VII FIZAN Fund, which arose from the need to adjust the

structure of the Funds’ investment portfolios to the statutory requirements. As a result of these actions, the KGHM VI FIZAN

and KGHM VII FIZAN Funds were merged, whereas KGHM VI FIZAN was the acquired fund and KGHM VII FIZAN was the

acquiring fund. As a result of this merger, the carrying amount of the investments in KGHM VII FIZAN as at 31 December

2021 increased to the amount of PLN 365 million (an increase by PLN 110 million).

As at

31 December 2022

As at

31 December 2021

Energetyka sp. z o.o.

388

MCZ S.A.

KGHM Metraco S.A.

Zagłebie Lubin S.A.

Future 1

2 663

KGHM VII FIZAN

Total

3 232

3 272

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

**The process of reorganisation of the KGHM VII FIZAN Fund’s portfolio companies was continued in 2022. The

Extraordinary Shareholders’ Meeting of the direct subsidiary CUPRUM Nieruchomości sp. z o.o. increased the entity’s share

capital by the amount of PLN 368 million. All of the shares in the increased share capital were acquired by KGHM Polska

Miedź S.A. At the same time, the name of the company was changed from CUPRUM Nieruchomości sp. z o.o. to CUPRUM

Zdrowie sp. z o.o. Subsequently, sales transactions were concluded by KGHM VII FIZAN to the company CUPRUM Zdrowie

sp. z o.o. of shares in all of the Fund’s portfolio companies, including four spa companies: Uzdrowiska Kłodzkie S.A. - Grupa

PGU, Uzdrowisko Połczyn Grupa PGU S.A., Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU, Uzdrowisko Świeradów - Czerniawa

Sp. z o.o. – Grupa PGU.

KGHM VII FIZAN acquired from KGHM Polska Miedź S.A., on the Company’s demand, the Fund’s Investment Certificates for

the amount of PLN 367 million and on 19 September 2022 the Investor’s Meeting of KGHM VII FIZAN adopted a resolution

of the dissolution of the Fund. The liquidation of the Fund was completed on 22 November 2022 and on 20 December 2022

the KGHM VII FIZAN Fund was removed from the Register of Funds.

Note 6.2 Receivables due to loans granted

Accounting policies

The Company classifies loans granted to individual categories using the following policies:

Loans measured at amortised cost – to this category, the Company classifies loans that met two conditions: they are in

a business model whose objective is to collect contractual cash flows due to holding assets, and have passed the SPPI

(solely payments of principal and interest) test, that is they are

maintained in order to collect the principal amount and

interest. They are initially recognised at fair value adjusted by costs directly associated with the loan and are measured

at the end of the reporting period at amortised cost using the effective interest rate method, including impairment

calculated using the model of expected credit losses on the basis of discounted cash flows.

POCI loans –the Company classifies as POCI, at the moment of initial recognition, financial assets that are credit-impaired

due to high credit risk at the moment they are granted or if the loans

were purchased at a significant discount. POCI

loans are measured at the end of the reporting period at amortised cost using the effective interest rate adjusted by the

credit risk, including impairment calculated using the model of expected credit losses (ECL)

on the basis of discounted

cash flows in the horizon of the expected repayment of the loan. The loss allowance for ECL is calculated on the basis of

expected credit losses during

the whole life of the instrument. Accumulated changes to the expected credit losses are

recognised as an increase or a reversal of an already recognised loss

allowance for expected credit losses. Currently

presented POCI loans are loans granted (not acquired). Classification was set due to the implementation of IFRS 9 in 2018

due to the recognised impairment at the moment of initial recognition.

The loans measured at fair value through profit or loss – to this category, the Company classifies loans that did not pass

the SPPI (solely payments of principal and interest) test. The fair value of these loans is set at present value of future cash

flows, including the change of market risk and credit risk factors during the loans’ life.

Financial assets, for which the Company has to calculate the expected credit losses pursuant to IFRS 9, are classified to

one of three degrees of a model of impairment. Classification to individual degrees of impairment model

is at the level

of a single financial instrument (a single exposure).

To the degree 2, the Company classifies financial instruments with an identified significant increas

e in credit risk,

understood as a significant increase in probable default in the remaining time of the instrument as compared to the date

of its initial recognition, but there were no objective indicators of impairment. The expected credit losses for the degree

2 are estimated during the entire life of these instruments.

If at the end of the reporting period the analysis proves that for a given financial instrument, since the day of its initial

recognition, there was not a significant increase in credit risk and no default status was granted

, the instrument is

classified to the degree 1 of a model of impairment. For exposures classified to the degree 1, the expected credit losses

are estimated in a horizon of 12 months.

Balances with an identified, objective indication of impairment are included in the degree 3. At the end of the reporting

period, no financial instrument was defaulted (criteria classifying to the degree 3) and therefore,

the Company did not

classify any of the loans granted to the degree 3.

Important estimates, assumptions and judgments

Failed SPPI test - The Company assumes that the solely payments of principal and interest (SPPI) test for loans granted is

not passed if, among others, in the structure of financing the target recipient of funds, debt is changed at the last stage

into an equity investment.

Indications to classify the loan to the degree 2 of impairment model is the occurrence of one of the following:

• for exposition of the borrower’s rating -

at the level of Baa3 (per the Moody’s methodology or a corresponding one for

the S&P/Fitch ratings) or better (investment rating) – a drop in the borrower’s rating by at least 5 levels,

• for exposition of the borrower’s rating - at the level of Ba1 (per the Moody’s methodology or a corresponding one for

the S&P/Fitch ratings) or worse (below investment rating) – a drop in the borrower’s rating by at least 3 levels,

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

• deterioration of operational cash flows forecasts of a borrower – in the time horizon of the exposure, which does

not result in the impossibility of settling the liability arising from a given loan,

• change in conditions of the loan due to the worsening financial position of the borrower, which has an impact of

less than 1% of the value of the loan at the date of change (

a change in the conditions of the loan from reasons

other than the worsening financial position of the borrower are not included in the assessment of occurrence of

a given indication),

• delay in the repayment of over 30 days (after the maturity date of interest or capital).

Balances with an identified, objective indication of impairment are included in the degree 3.

The Company recognises

occurrence of at least one of the following events as an objective indication of default:

• borrower’s rating at the level of Ca (per the Moody’s methodology or a corresponding one for the S&P/Fitch ratings) or

lower,

• deterioration of operational cash flows forecasts of a borrower – in the time horizon of the exposure, which results

in the impossibility of settling the liability arising from a given loan,

• change in conditions of the loan due to the worsening financial position of the borrower, which has an impact of

more than 1% of the value of the loan at the date of change (a change in the conditions of the loan from reasons

other than the worsening financial position of the borrower are not included in the assessment of occurrence of

a given indication),

• delay in the repayment of over 30 days (after the maturity date of interest or capital) – if at the date of analysis the

loan was at stage 2 of calculating the allowance for impairment,

• delay in the repayment of over 90 days (after the maturity date of interest or capital) – if at the date of analysis the

loan was at stage 1 of calculating the allowance for impairment.

In order to calculate expected credit losses (ECL), the Company uses, among others, the following parameters:

• the borrower’s rating - is granted using internal methodology of the Company based on the Moody’s methodology.

The Company granted loans mainly to subsidiaries, of which over 99% of borrowers were assigned ratings between

A2 – Baa2 (in the comparable period: Baa1 – Baa3).

•

the curve of accumulated parameters of PD (parameter of probability of default, used to calculate the expected

credit losses) for a given borrower is set on the basis of market sector quotations of Credit Default Swap contracts

from the Reuters system, which quantify the market expectations as for the potential probability of default in a

given sector and in a given rating. As at 31 December 2022, PD parameters for the adopted ratings were as follows:

A2 to Baa2 ratings according to Moody’s (31 December 2022)

Up to one year 0.69% - 1.39%

1-3 years 1.84% - 3.22%

More than 3 years (at the date of loans’

maturity)

1.84% - 9.92%

Baa1 to Baa3 ratings according to Moody’s (31 December 2021)

Up to one year 0.76% - 1.15%

1-3 years 3.52% - 5.35%

More than 3 years (at the date of loans’

maturity)

3.52% - 15.57%

• the level of the LGD parameter

(loss given default, expressed as the percentage of the amount outstanding) for

the purposes of estimating expected credit losses for loans classified to the stage 1 and 2 is adopted at the level

of 75% (based on estimations from Moody’s Annual Default Study: Corporate Default and Recovery Rates, 1920 –

2016).

As at 31 December 2022 no decision was made whether to demand the repayment of loans with a contractual on-

demand payment clause, including in the period of 12 months from the end of the reporting period, and no joint

decision was made by the owners of Sierra Gorda S.C.M. in this regard.

The Company classifies loans granted to one of the three following categories:

1. Measured at amortised cost, which were determined to be credit-impaired at the moment of initial recognition (POCI),

2. Measured at amortised cost, which were not determined to be credit-impaired at the moment of initial recognition,

3. Measured at fair value through profit or loss.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Loans that at the last stage of cash flows between companies in the Future 1 Sp. z o.o. holding structure or KGHM

INTERNATIONAL LTD. were transferred as loans to a joint venture Sierra Gorda S.C.M., advanced by the KGHM

INTERNATIONAL LTD. Group, were classified as POCI loans (identified allowance for impairment due to a credit risk at the

moment of granting). These loans, pursuant to contractual terms, are paid on demand, but not later than 15 December

2024 and at the end of the reporting period, presented as long-term loan receivables, since at the end of the reporting

period no decision was made whether to demand the repayment of these loans, including in the period of 12 months from

the end of the reporting period, and no joint decision was made by the owners of Sierra Gorda S.C.M. in this regard.

The Company presents, in the category of loans classified as measured at fair value through profit or loss, loans that at the

last stage of cash flows between companies in the Future 1 Sp. z o.o. holding structure or KGHM INTERNATIONAL LTD. were

transferred mainly as increases in share capital of Sierra Gorda S.C.M. The maturity of these loans falls in December 2024.

At the end of the reporting period, the Company performed a measurement of loans classified to level 3 of the fair value

hierarchy (measured at fair value as well as at amortised cost (for disclosure purposes)) designated mainly for financing the

joint venture Sierra Gorda S.C.M. The basis of measuring the level of recoverability of loans at the level of the separate

financial statements of KGHM Polska Miedź S.A. is the estimation of cash flows generated by Sierra Gorda S.C.M and other

significant international production assets, which are subsequently allocated by the Company in individual loans at various

levels of the current financing structure. The estimate of cash flows generated by Sierra Gorda S.C.M. and other mines was

determined on the basis of current forecasts of pricing paths of commodities and current mining plans.

Other important assumptions used in the measurement of loans concern the following:

• the probability of realisation of individual measurement scenarios,

• the level of production,

• the level of costs,

• the level of capital expenditures,

• the external financing of Sierra Gorda,

• the form and level of financing Sierra Gorda by owners,

• taxation at the level of Sierra Gorda S.C.M.,

• the distribution of cash,

Future realisation, or not, of assumptions will depend on many macroeconomic, operational and financial factors, as well

as agreements made between JV partners

The expected repayments of loans were 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 3.69% - 6.64% - for loans measured at amortised cost

• the market interest rate at the level of 5.87% - 9.75% - for loans measured at fair value.

In the period from 1 January to 31 December 2022, the following was recognised:

• gains on reversal of an allowance for impairment of loans granted classified as POCI in the amount of PLN 162

million (USD 37 million translated at exchange rates from the date of recognition of the reversal of an allowance

for impairment);

• for loans measured at fair value – an increase in fair value in the amount of PLN 600 million was recognised, of

which the increase in the fair value due to measurement in the amount of PLN 337 million (USD 83 million) and

exchange differences in the amount of PLN 263 million.

The increase in the fair value of loans is mainly a result of an increase in expected future cash flows of Sierra Gorda S.C.M.

estimated on the basis of current at the end of the reporting period forecasts of price paths of commodities.

In the case of other loans measured at amortised cost, the Company calculated the allowance for impairment on the

basis of the model of expected credit losses.

as at

31 December 2022

as at

31 December 2021

Loans measured at amortised cost –

gross amount

5 603

5 505

Allowances for impairment

( 51)

( 98)

Loans measured at fair value

3 233

2 959

Total, including:

8 785

8 366

- long-term loans

8 763

8 249

- short-term loans

117

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The most significant items are loans granted to companies of the KGHM Polska Miedź S.A. Group, which are connected with

the realisation of mining projects executed by indirect subsidiaries of KGHM Polska Miedź S.A. from the KGHM

INTERNATIONAL LTD. Group. Credit risk related to loans granted was described in Note 7.5.2.5.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 7 – Financial instruments and financial risk management

Note 7.1 Financial Instruments

As at

31 December 2022

As at

31 December 2021

Financial assets:

At fair value

through other

comprehensive

income

At fair

value

through

profit or

loss

amortised

cost

Hedging

instruments

Total

At fair value

through other

comprehensive

income

At fair

value

through

profit or

loss

amortised

cost

Hedging

instruments

Total

Non-current

483 3 238 5 962 709

10 392

581 2 969 5 796 585 9 931

Note 6.2

Loans granted

- 3 233 5 530 -

8 763

- 2 959 5 290 - 8 249

Note 7.2 Derivatives

- 5 - 709

714

- 10 - 585 595

Note 7.3

Other financial instruments

measured at fair value

483 - - -

483

581 - - - 581

Note 7.4

Other financial instruments

measured at amortised cost

- - 432 -

432 - - 506 - 506

Current

- 496 2 060 755

3 311

- 472 2 252 249 2 973

Note 10.2

Trade receivables

- 455 165 -

620

- 467 133 - 600

Note 7.2

Derivatives

- 41 - 755

796

- 5 - 249 254

Note 8.5

Cash and cash equivalents

- - 985 -

985

- - 1 332 - 1 332

Cash pooling receivables*

- - 588 -

588

- - 498 - 498

Note 12.3

Other financial assets

- - 322 -

322

- - 289 - 289

Total

483 3 734 8 022 1 464

13 703 581 3 441 8 048 834 12 904

* Receivables from companies within the KGHM Polska Miedź S.A. Group which indebted themselves in the cash pooling system.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

As at 31 December 2022

As at 31 December 2021

Financial liabilities:

At fair

value

through

profit or

loss

At amortised cost

Hedging

instruments

Total

At fair value

through

profit or

loss

At amortised cost

Hedging

instruments

Total

Non-current

19 5 223 700 5 942

77 5 386 1 056

6 519

Note 8.4

Borrowings, lease and debt

securities

- 5 000 - 5 000

- 5 180 -

5 180

Note 7.2

Derivatives

19 - 700 719

77 - 1 056

1 133

Other financial liabilities

- 223 - 223

- 206 -

206

Current

188 4 401 280 4 869

199 3 466 848

4 513

Note 8.4

Borrowings, lease and debt

securities

- 1 124 - 1 124

- 382 -

382

Note 8.4

Cash pooling liabilities*

- 321 - 321

- 360 -

360

Note 12.4

Other liabilities due to settlement

under cash pooling contracts **

- 29 - 29

- 25 -

Note 7.2

Derivatives

154 - 280 434

40 - 848

888

Note 10.3

Trade payables

- 2 819 - 2 819

- 2 558 -

2 558

Note 10.3

Similar payables – reverse factoring

- - - -

- 55 -

Other financial liabilities

34 108 - 142

159 86 -

245

Total

207 9 624 980 10 811

276 8 852 1 904

11 032

* Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the credit limit of the group of accounts participating in the cash pooling system.

** Other current liabilities towards participants in the cash pooling system to return, after the end of the reporting period, cash transferred by them which were not used by KGHM Polska Miedź S.A. for its own needs.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Gains/(losses) on financial instruments

from 1 January 2022 to 31 December 2022

Financial

assets/liabilities

measured at fair

value through profit

or loss

Financial assets

measured at amortised

cost

Financial liabilities

measured at

amortised cost

Hedging instruments

Total

Note 4.2 Interest income

- 348 - - 348

Note 4.3 Interest income/(costs)

- - ( 90) 60 ( 30)

Note 4.2

Foreign exchange gains/(losses) other than

borrowings

- 549 ( 49) - 500

Note 4.3 Foreign exchange losses on borrowings

- - ( 179) - ( 179)

Note 4.2

Fair value gains/(losses) on financial assets

measured at fair value through profit or loss

544 - - - 544

Note 4.4 Reversal/(recognition) of impairment losses

- 206 - - 206

Note 7.2 Revenues from contracts with customers

- - - ( 182) ( 182)

Note 4.2

Note 4.3

Gains on measurement and realisation of

derivatives

398 - - - 398

Note 4.2

Note 4.3

Losses on measurement and realisation of

derivatives

( 329) - - (310) ( 639)

Note 4.3 Fees and charges on bank loans drawn

- - ( 30) - ( 30)

Other

- - (11) (11)

Total net gain/(loss)

613 1 103 ( 359) ( 432) 925

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

from 1 January 2021 to 31 December 2021

Financial

assets/liabilities

measured at fair

value through profit

or loss

Financial assets

measured at amortised

cost

Financial liabilities

measured at

amortised cost

Hedging instruments

Total

Note 4.2 Interest income

- 304 - - 304

Note 4.3 Interest costs

- - ( 92) - ( 92)

Note 4.2

Foreign exchange gains/(losses) other than

borrowings

- 1 056 ( 545) - 511

Note 4.3 Foreign exchange losses on borrowings

- - ( 338) - ( 338)

Note 4.2

Fair value gains/(losses) on financial assets

measured at fair value through profit or loss

1 007 - - - 1 007

Note 4.4 Reversal/(recognition) of impairment losses

- 803 - - 803

Note 7.2 Revenues from contracts with customers

- - - (1 651) (1 651)

Note 4.2

Note 4.3

Gains on measurement and realisation of

derivatives

393 - - - 393

Note 4.2

Note 4.3

Losses on measurement and realisation of

derivatives

( 848) - - - ( 848)

Note 4.3 Fees and charges on bank loans drawn

- - ( 28) - ( 28)

Other

- - ( 8) - ( 8)

Total net gain/(loss)

552 2 163 (1 011) (1 651) 53

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Fair value measurement

Accounting policies

Important estimates, assumptions and judgements

Fair

value is the price that would be received from

selling an asset or would be paid for a transfer of a

liability in an orderly transaction between market

participants at the measurement date. For financial

reporting purposes, a fair value hierarchy was

estab

lished that categorises the inputs into three

levels. The fair value hierarchy levels are as follows:

Level 1 Value is based on inputs from active markets,

as they are seen as the most reliable source

of data.

Level 2 Value is based on inputs other than from

active markets, which are nevertheless

observable (unbiased, measurable).

Level 3 Value is based on unobservable inputs, used

when it is not possible to acquire data from

the first two measurement levels. It includes

all measurements based on subjective

inputs.

Transfer between levels of the fair value hierarchy

takes place if there is a change of sources of input

data used for fair value measurement, such as:

• active market

• lack of an active market, but there is observable

data on the market,

• subjective input data.

It is acknowledged that transfers between levels of

the fair value hierarchy take place at the end of the

reporting period.

Fair value reflects current estimates which may be subject to

change in subsequent reporting periods due to a change in

market conditions or due to other factors. There are many

methods of measuring fair value, which may result in differences

in fair values. Moreover, assumptions constituting the basis of fair

value measurement may require estimating the

changes in

costs/prices over time, the discount rate, inflation rate or other

significant variables.

Certain assumptions and estimates are necessary to determine

to which level of fair value hierarchy should a fair value of an

instrument be classified.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The fair value hierarchy of financial instruments

As at 31 December 2022

As at 31 December 2021

fair value

carrying

amount

fair value

carrying

amount

Classes of financial instruments

level 1 level 2 level 3

Loans granted measured at fair value

- - 3 233 3 233

- 0 2 959 2 959

Loans granted measured at amortised cost

- 143 5 409 5 552

- 224 5 340 5 407

Listed shares

386 - - 386

484 - - 484

Unquoted shares

- 97 - 97

Trade receivables

- 455 - 455

- 467 - 467

Other financial assets

- 37 - 37

- 10 - 10

Derivatives

- 357 - 357

- (1 172) - (1 172)

Assets

- 1 510 - 1 510

- 849 - 849

Liabilities

- (1 153) - (1 153)

- (2 021) - (2 021)

Long-term bank and other loans

- (2 387) - (2 387)

- (2 669) - (2 656)

Long-term debt securities

(1 952) - - (2 000)

(2 034) - - (2 000)

Other financial liabilities

- (34) - (34)

- (159) - (159)

Discount rate adopted for disclosure of fair value of loans granted measured at amortised cost.

Loans granted measured at amortised cost

Loans per

impairment model

As at 31 December 2022

carrying

amount

Loans per

impairment model

As at 31 December 2021

carrying

amount

discount rate

level 2 level 3

degree

(fixed interest rate)

6.92% x 55

and 2

degree

(fixed interest rate)

6.10% x 151

degree

(variable interest rate)

6.94%

(Wibor 1M)

x 88

degree

(variable interest rate)

1.70%

(Wibor 1M)

x 80

degree

(fixed interest rate)

x 5.87% 3 572

degree

(fixed interest rate)

x 2.29% 3 547

POCI

(fixed interest rate)*

x 9.75% 1 837

POCI

(fixed interest rate)*

x 8.00% 1 629

Total

5 552

Total

5 407

*Real discount rate

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Methods and measurement techniques used by the Company in determining fair values of each class of financial assets or

financial liabilities.

Level 1

Listed shares

Shares are measured based on quotations from the Warsaw Stock Exchange and the TSX Venture Exchange in Toronto.

Long-term debt securities

Long-term debt securities are measured based on quotations from the Catalyst Market of the Warsaw Stock Exchange.

Level 2

Long-term loans granted

The fair value of loans measured at amortised cost was estimated on the basis of contractual cash flows (per the contract)

using the model of discounted cash flows, including the borrower’s credit risk. IBOR current market interest rare acquired

from the Reuters system is used in the discounting process.

Unquoted shares

Unquoted shares are measured using the adjusted net assets. Observable Input data other than the ones from the active

market were used in the measurement (e.g. transaction prices of real estate similar to the one subjected to measurement,

market interest rates of State Treasury bonds and term deposits in financial institutions, and the risk-free discount rate

published by the European Insurance and Occupational Pensions Authority).

Trade receivables

Receivables arising from the realisation of sales under contracts which are finally settled using future prices were measured

using forward prices, depending on the period/month of contractual quoting. Forward prices are from the Reuters system.

For trade receivables transferred to non-recourse factoring, a fair value is assumed at the level of the amount of the trade

receivables transferred to the factor (nominal value from the invoice) less interest, which are the factor’s compensation.

Due to the short term between the transfer of receivables to the factor and their payment, fair value is not adjusted by the

credit risk of the factor and impact of time lapse.

Other financial assets/liabilities

The fair value of receivables/payables due to the settlement of derivatives, whose date of payment falls two working days

after the end of the reporting period was set per the reference price applied in the settlement of these transactions.

Currency and currency-interest derivatives

To determine the fair value of derivatives on the currency market and currency-interest transactions (CIRS), the forward

prices from the maturity dates of individual transactions were used. The forward price for currency exchange rates was

calculated on the basis of fixing and appropriate interest rates. Interest rates for currencies and the volatility ratios for

exchange rates were taken from Reuters. The standard Garman-Kohlhagen model is used to measure options on currency

markets.

Metals derivatives

To determine the fair value of derivatives on the commodity market, forward prices from the maturity dates of individual

transactions were used. In the case of copper, official closing prices from the London Metal Exchange were applied, and

with respect to silver and gold - the fixing price set by the London Bullion Market Association. Volatility ratios and forward

prices for measurement of derivatives at the end of the reporting period were obtained from the Reuters system. Levy

approximation to the Black-Scholes model was used for Asian options pricing on metals markets.

Received long-term bank and other loans

The fair value of bank and other loans is estimated by discounting the cash flows associated with these liabilities in

timeframes and under conditions arising from agreements, and by applying current rates. Fair value differs from the

carrying amount by the amount of the premium paid to acquire the financing.

Level 3

Long-term loans granted

The fair value of loans was estimated using the forecasted cash flows of international assets (Sierra Gorda S.C.M.), which

pursuant to IFRS 13 are unobservable input data, and the fair value of assets determined using the same data is classified

to level 3 of the fair value hierarchy.

Detailed disclosures on the assumptions adopted for the measurement of loans were presented in Note 6.2, while the

sensitivity of the fair value classified to level 3 for loans granted was presented in note 7.5.2.5.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The Company does not disclose the fair value of financial instruments measured at amortised cost (except for long-term

loans granted, long-term bank and other loans received and long-term debt securities) in the statement of financial position,

because it makes use of the exemption arising from IFRS 7.29.

There was no transfer in the Company of financial instruments between levels of the fair value hierarchy in the reporting

period.

Note 7.2 Derivatives

Accounting policies

Derivatives are classified as financial assets/liabilities measured at fair value through profit or loss, unless they have not

been designated as hedging instruments.

Purchases or sales of derivatives are recognised at the transaction date.

Derivatives not designated as hedges, defined as trade derivatives, are initially recognised at fair value and at the end of

the reporting period are measured at fair value, with recognition of the gains/losses on measurement in profit or loss.

The Company applies hedge accounting for cash flows. Hedge accounting aims at reducing volatility in the Company’s

net result, arising from periodic changes in the measurement of transactions hedging individual types of market risk to

which the Company is exposed. Hedging instruments may be derivatives as well as bank and other loans in foreign

currencies.

The designated hedges mostly relate to the future sales transactions forecasted as assumed in the Sales Plan for a given

year. These plans are prepared based on the production capacities for a given period. The Company estimates that the

probability that transactions included in the production plan will occur is very high, as from the historical point of view

sales were always realised at the levels assumed in Sales Plans. Future cash flows arising from interest on bonds issued

in PLN also represent a hedged position.

The Company may use natural currency risk hedging through the use of hedge accounting for bank and other loans

denominated in USD, and designates them as positions hedging foreign currency risk, which relates to future revenues

of the Company from sales of copper, silver and other metals, denominated in USD.

Gains and losses arising from changes in the fair value of the cash flow hedging instrument are recognised in other

comprehensive income, to the extent by which the change in fair value represents an effective hedge of the associated

hedged item. In addition, as a cost of hedging, the Company recognises in other reserves from measurement of financial

instruments a part of the change of the hedging instrument arising from changes in the time value of the option, the

forward element and currency margin. The portion which is ineffective is recognised in profit or loss as other operating

income or costs. Gains or losses arising from the cash flow hedging instrument are recognised in profit or loss as a

reclassification adjustment, in the same period or periods in which the hedged item affects profit or loss.

The Company ceases to account for derivatives as hedging instruments when they expire, are sold, terminated or settled,

or when the goal of risk management for a given relation has changed.

The Company may designate a new hedging relationship for a given derivative, change the intended use of the derivative,

or designate it to hedge another type of risk. In such a case, for cash flow hedges, gains or losses which arose in the

periods in which the hedge was effective are retained in accumulated other comprehensive income until the hedged

item affects profit or loss.

If the hedge of a forecasted transaction ceases to function because it is probable that the forecasted transaction will not

occur, then the net gain or loss recognised in other comprehensive income is immediately transferred to profit or loss

as a reclassification adjustment.

If a hybrid contract has an underlying instrument, which is not a financial asset, the derivative is separated from the

underlying instrument and is measured pursuant to rules for derivatives only, if (i) the economic characteristic and risk

of the embedded instrument are not strictly related to the character of the host contract and its risks, (ii) a separate

instrument, whose characteristics reflect the traits of the embedded derivative, would fulfil the conditions of the

derivatives, and (iii) the combined instrument is not classified to financial assets measured at fair value, whose results

of revaluation are recognised in other income or other operating costs in the reporting period. If an embedded derivative

is separated, the underlying instrument is measured pursuant to appropriate accounting principles. The Company

separates embedded derivatives in commodities transactions with settlement periods in the future, after the date of

recognising a purchase invoice in the books up to the date of final settlement of the transaction.

If a hybrid contract has an underlying instrument, which is a financial asset, the criteria for classification of financial

assets are applied to the whole contract.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Important estimates and assumptions

Assumptions and estimates adopted for the measurement of fair value of derivatives were presented in Note 7.1, in point

„Methods and measurement techniques used by the Company in determining fair values of each class of financial assets

or financial liabilities” and in tables in Note 7.2. below.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Derivatives – open items as at the end of the reporting period

As at 31 December 2022

As at 31 December 2021

Type of derivative

Financial assets Financial liabilities

Total

Financial assets Financial liabilities

Total

Non-current

Current

Non-current

Current

Non-current

Current

Non-current

Current

Hedging instruments (CFH), including:

709

755

(700)

(280)

484

585

249

(1 056)

(848)

(1 070)

Derivatives – Metals (price of copper, silver)

Options – seagull* (copper)

440

(36)

(232)

232

299

(578)

(837)

(1 027)

Options – collar (silver)

108

Options – seagull* (silver)

(1)

(3)

(14)

127

Derivatives – Currency (USDPLN exchange rate)

Options – collar

328

262

(88)

(11)

491

(2)

(6)

(2)

Options – seagull*

(6)

(34)

(36)

(31)

(5)

(7)

Derivatives – Currency-interest rate

Cross Currency Interest Rate Swap CIRS

315

(569)

(254)

162

(431)

(269)

Trade instruments, including:

5 41 (14) (118) (86) 6 3 (72) (39) (102)

Derivatives – Metals (price of copper, silver, gold)

Sold put option (copper)

(13)

(49)

(62)

(57)

(6)

(63)

Purchased put option (copper)

Purchased call option (copper)

QP adjustment swap transactions (copper)

(10)

(5)

Sold put option (silver)

(1)

(2)

(10)

(3)

(13)

Purchased put option (silver)

Purchased call option (silver)

QP adjustment swap transactions (gold)

(14)

(10)

(2)

Derivatives – Currency (USDPLN exchange rate)

Sold put option

(1)

(5)

(2)

(7)

Purchased put option

Purchased call option

Embedded derivatives (price of copper, silver, gold)

Purchase contracts for metal-bearing materials

(43)

(21)

Instruments initially designated as hedging instruments

excluded from hedge accounting, including:

- - (5) (36) (41) 4 2 (5) (1) -

Derivatives – Currency (USDPLN exchange rate)

Options – seagull

(1)

(4)

(5)

(4)

(1)

Derivatives – Metals (price of copper and silver)

Options – seagull (silver)

(1)

Options – seagull (copper)

(4)

(32)

(36)

TOTAL OPEN DERIVATIVES

714 796 (719) (434) 357

595 254 (1 133) (888) (1 172)

* Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The table below presents detailed data on derivative transactions designated as hedging, held by the Company as at

31 December 2022.

Open hedging derivatives

Notional

Average weighted

price /exchange

rate/interest rate

Maturity

settlement

period

Period of profit/loss

impact***

copper [t]

silver [mn ounces]

currency [USD mn]

CIRS [PLN mn]

[USD/t]

[USD/ounce]

[USD/PLN]

[USD/PLN, fixed interest

rate for USD]

Type of derivative

from to

Copper – seagulls*

189 000

8 075 - 9 759

Jan‘23

- Dec‘23

Jan‘23

- Jan‘24

Silver – seagulls*

4.20

26.00 - 42.00

Jan‘23

- Dec‘23

Jan’23

- Jan‘24

Currency – collars

2 640

4.58 - 5.78

Jan’23

- Dec’24

Jan’23

- Jan’25

Currency – seagulls*

315

3.94 - 4.54

Jan‘23

- Dec‘23

Jan‘23

- Jan‘24

Currency – interest rate – CIRS**

400

3.78 and 3.23%

June ‘24

Currency

- interest rate – CIRS** 1 600 3.81 and 3.94%

June ‘29

June ‘29 - July ‘29

* Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging).

** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction.

*** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting

period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost).

However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement.

The table below presents detailed data on derivative transactions designated as hedging, held by the Company as at 31

December 2021.

Open hedging derivatives

Notional

Average weighted

price /exchange

rate/interest rate

Maturity

- settlement

period

Period of profit/loss

impact***

copper [t]

silver [mn ounces]

currency [USD mn]

CIRS [PLN mn]

[USD/t]

[USD/ounce]

[USD/PLN]

[USD/PLN, fixed

interest rate for USD]

Type of derivative

from to from

Copper

– seagulls * 243 000 7 553-9 227

Jan‘22 - Dec‘23 Jan‘22

- Jan‘24

Silver

– collars 6.60 26.36-55.00

Jan’22 - Dec’22 Jan’22

- Jan’23

Silver

– seagulls* 7.80 26.00-42.00

Jan‘22 - Dec‘23 Jan‘22

- Jan‘24

Currency

– collars 240 3.85-4.60

July’22 - Dec’22 July’22

Jan’23

Currency

– seagulls* 630 3.94-4.54

Jan‘22 - Dec‘23 Jan‘22

- Jan‘24

Currency

– interest rate – CIRS** 400 3.78 and 3.23%

June ‘24 June ‘24

Currency

– interest rate – CIRS** 1 600 3.81 and 3.94%

June ‘29 June ‘29

- July ‘29

* Collar structures, i.e. purchased put options and sold call options were designated as hedging under seagull options structures (CFH – Cash Flow Hedging).

** Settlements of interest payments are made periodically, on a half-year basis, until the moment of the realisation of the transaction.

*** Reclassification of profits or losses on a cash flow hedging instrument from other comprehensive income to the statement of profit or loss takes place in the reporting

period in which the hedged position impacts profit or loss (as an adjustment of a hedged position and to other operating income/costs for the settled hedging cost).

However, the recognition of the result on the settlement of the transaction takes place on the date of its settlement.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The impact of derivatives and hedging transactions on the items of the statement of profit or loss and on the items of the

statement of comprehensive income is presented below.

Statement of profit or loss

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Revenues from contracts with customers (reclassification

adjustment)

(182) (1 651)

Other operating income / (costs) (including the reclassification

adjustment):

(222) (445)

realisation of derivatives

(214)

(513)

measurement of derivatives

(8)

Finance income / (costs):

(44)

realisation of derivatives

(19)

(9)

measurement of derivatives

- (1)

interest on borrowings (reclassification adjustment)

60 (34)

Impact of derivatives and hedging instruments

on profit or loss for the period (excluding the tax effect)

(363) (2 140)

Statement of other comprehensive income

Measurement of hedging transactions (effective portion)

1 239 (2 431)

Reclassification to revenues from contracts with customers due to

realisation of a hedged item

182 1 651

Reclassification to finance costs due to realisation of a hedged item

(60) 34

Reclassification to other operating costs due to realisation of a

hedged item (settlement of the hedging cost)

310 379

Impact of hedging transactions (excluding the tax effect)*

1 671

(367)

TOTAL COMPREHENSIVE INCOME

1 308 (2 507)

*Amounts of income tax corresponding to individual items of other comprehensive income are presented in Note 8.2.2.

Note 7.3 Other financial instruments measured at fair value

Accounting policies

The item “Other financial instruments measured at fair value” includes: shares (listed and unquoted) which were not

acquired for trading purposes, for which the option of measurement at fair value through other comprehensive income

was selected in order to limit the volatility of the result.

These assets are initially recognised at fair value increased by transaction costs, and at the end of the reporting period

they are measured at fair value with recognition of gains/losses from measurement in other comprehensive income.

The amounts recognised in accumulated other comprehensive income are not transferred later to profit or loss, while

accumulated gains/losses on a given equity instrument are transferred within equity to retained earnings at the moment

an equity instrument ceases to be recognised. Dividends from such investments are recognised in profit or loss.

The fair value of listed shares is calculated based on the closing price as at the end of the reporting period.

The translations of shares expressed in a foreign currency is performed according to the accounting policies described

in Note 1.3.

Important estimates, assumptions and judgments

The fair value of unquoted shares is calculated using the adjusted net assets method. The application of this method is

due to the specific nature of the assets of companies whose shares are subject to measurement. Observable Input data

other than ones fro

m the active market were used in the measurement (e.g. transaction prices of real estate similar to

the one subjected to measurement, market interest rates of State Treasury bonds and fixed-

term deposits in financial

institutions, and the risk-free discount rate published by the European Insurance and Occupational Pensions Authority).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

As at

31 December 2022

As at

31 December 2021

Shares of listed companies (Warsaw Stock Exchange

and TSX Venture Exchange) of which:

386

484

TAURON POLSKA ENERGIA S.A.

386

483

ABACUS MINING & EXPLORATION

Unquoted shares

Other financial instruments measured at fair value

483

581

The measurement of listed shares is classified to level 1 of the fair value hierarchy (i.e. measurement is based on the prices

of these shares listed on an active market at the measurement date), while of unquoted shares is classified to level 2 (i.e.

measurement based on unobservable data).

In 2022 as well as in 2021, there were no dividends from companies in which the Company had shares classified as other

financial instruments measured at fair value.

In 2022 there were no transfers of accumulated gain or loss within equity in respect of companies in which the Company

holds shares classified as other financial instruments measured at fair value. In 2021, following the sale of shares of the

company PGE EJ1 Sp. z o.o., the result on the sale of these shares was reclassified in the amount of PLN 18 million.

Due to investments in listed companies, the Company is exposed to price risk. Changes in the listed share prices of these

companies resulting from the current macroeconomic situation may have a significant impact on the level of other

comprehensive income and on the accrued amount recognised in equity.

The following table presents the sensitivity analysis of listed companies’ shares to price changes.

As at

31 December

2022

Percentage change of share

price

As at

31 December

2021

Percentage change of share

price

14%

-14%

13%

-13%

Carrying amount

Other

comprehensive

income

Other

comprehensive

income

Carrying amount

Other

comprehensive

income

Other

comprehensive

income

Listed

386 54 (54)

484 58 (58)

Sensitivity analysis for significant types of market risk to which the Company is exposed presents the estimated impact of

potential changes in individual risk factors (at the end of reporting period) on profit or loss and other comprehensive

income.

Potential changes in share prices at the end of the reporting period were determined at the level of standard deviations

from the WIG20 index for a period of 3 calendar years ended on the reporting date.

Note 7.4 Other non-current financial instruments measured at amortised cost

Accounting policies

Important estimates, assumptions and judgements

The item other non-

current financial instruments

measured at amortised cost includes financial assets

designated to cover the costs of decommissioning mines

(accounting policies with respect to the obligation to

decommission mines are presented in Note 9.4) and other

financial assets not classified to other items.

Assets included, in accordance with IFRS 9, in the category

“measured at amortised cost”, are initially recognised at fair

value adjusted by transaction costs, which can be directly

attributed to the purchase of these assets and measured at

amortised cost at the end of the reporting period using

the effective interest rate method, reflecting impairment.

Sensitivity analysis of the risk of changes in interest rates of

cash accumulated on a bank account of the Mine Closure

Fund is presented in Note 7.5.1.4.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

As at

31 December 2022

As at

31 December 2021

Cash held in the Mine Closure Fund and Tailings Storage Facility

Restoration Fund* on separate bank accounts

356

382

Increases in share capital 41

Other financial receivables

Total

432

506

*As of 15 July 2022, the Company changed the form of the Tailings Storage Facility Restoration Fund in the amount of PLN 98 million from a bank account to a bank guarantee.

Details regarding revaluation of the provision for the decommissioning costs of mines and other technological facilities are

described in Note 9.4.

Note 7.5 Financial risk management

In the course of its business activities the Company is exposed to the following main financial risks:

 market risk:

o commodity risk,

o risk of changes in foreign exchange rates,

o risk of changes in interest rates,

o price risk related to investments in shares of listed companies (Note 7.3),

• credit risk, and

• liquidity risk (the process of financial liquidity management is described in Note 8).

The Company’s Management Board manages identified financial risk factors in a conscious and responsible manner, using

the Market Risk Management Policy, the Financial Liquidity Management Policy and the Credit Risk Management Policy

adopted by the Company. Understanding the threats arising from the Company's exposure to risk and maintaining an

appropriate organisational structure and procedures enable an effective achievement of tasks. The Company identifies and

measures financial risk on an ongoing basis, and also takes actions aimed at minimising its impact on the financial position.

The process of financial risk management in the Company is supported by the work of the Market Risk Committee, the

Financial Liquidity Committee and the Credit Risk Committee.

Note 7.5.1 Market risk

The market risk to which the Company is exposed to is understood as the possible occurrence of negative impact on the

Company's results arising from changes in the market prices of commodities, exchange rates and interest rates, as well as

the share prices of listed companies.

Note 7.5.1.1 Principles and techniques of market risk management

The Company actively manages the market risk to which it is exposed.

In accordance with the adopted policy, the goals of the market risk management process are as follows:

 limit volatility in the financial result;

 increase the probability of meeting budget targets;

 decrease the probability of losing financial liquidity;

 maintain the financial health of the Company; and

 support the process of strategic decision making related to investing, including financing sources.

The objectives of market risk management should be considered as a whole, and their realisation is determined mainly by

the Company’s internal situation and market conditions. Actions and decisions concerning market risk management in the

Company should be analysed in the context of the KGHM Polska Miedź S.A. Group’s global exposure to market risk.

The primary technique used in market risk management is the utilisation of hedging strategies involving derivatives. Natural

hedging is also used.

Taking into account the potential scope of their impact on the Company’s results, market risk factors were divided into the

following groups:

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Group

Market risk

Approach to risk management

Note 7.2

Group I – factors

having the greatest

impact on the

Company’s total

exposure to market

risk

Copper price

A strategic approach is applied to this group, aimed at

systematically building up a hedging position comprising

production and revenues from sales for subsequent

periods while taking into account the long-

term cyclical

nature of various markets. A h

edging position may be

restructured before it expires.

Note 7.2 Silver price

Note 7.2 USD/PLN exchange rate

Note 7.2

Group II – other

exposure to market

risk

Prices of other metals

and merchandise

This group is comprised of less significant risks, therefore

it is tactically managed - on an ad-hoc basis, often taking

advantage of favourable market conditions.

Note 7.2

Other exchange rates

Note 7.2

Interest rates

The Company manages market risk by applying various approaches to particular, identified exposure groups.

The Company considers the following factors when selecting hedging strategies or restructuring hedging positions: current

and forecasted market conditions, the internal situation of the Company, the effective level and cost of hedging, and the

impact of the minerals extraction tax.

The Company applies an integrated approach to managing the market risk to which it is exposed. This means a

comprehensive approach to market risk, and not to each element individually. An example is the hedging transactions on

the currency market, which are closely related to contracts entered into on the metals market. The hedging of metals sales

prices determines the probability of achieving specified revenues from sales in USD, which represent a hedged position for

the strategy on the currency market.

The Company executes derivative transactions only if it has the ability to assess their value internally, using standard pricing

models appropriate for a particular type of derivative, and which can be traded without significant loss of value with a

counterparty other than the one with whom the transaction was initially entered into. In evaluating the market value of

given instruments, the Company uses information obtained from leading information services, banks, and brokers.

The Company's internal policy, which regulates market risk management principles, permits the use of the following types

of instruments:

 swaps;

 forwards and futures;

 options; and

 structures combining the above instruments.

The instruments applied may be, therefore, either of standardised parameters (publicly traded instruments) or non-

standardised parameters (over-the-counter instruments). Primarily applied are cash flow hedging instruments meeting the

requirements for effectiveness as understood by hedge accounting. The effectiveness of the financial hedging instruments

applied by the Company in the reporting period is continually monitored and assessed (details in Note 7.2 Derivatives –

accounting policies).

The economic relationship between a hedging instrument and a hedged position is based on the sensitivity of the value of

the position to the same market factors (metals prices, exchange rates or interest rates) and on matching appropriate key

parameters of the hedging instrument and the hedged position (volume/notional amount, maturity date).

The hedge ratio of the established hedging relationship is set at the amount ensuring the effectiveness of the relationship

and is consistent with the actual volume of the hedged position and the hedging instrument. Sources of potential

ineffectiveness of the relationship arise from a mismatch of the parameters of the hedging instrument and the hedged

position (e.g. the notional amount, maturity, base instrument, impact of credit risk). When structuring a hedging transaction,

the Company aims to ensure a maximal match between these parameters to minimise the sources of ineffectiveness.

The Company quantifies its market risk exposure using a consistent and comprehensive measure. Market risk management

is supported by simulations (such as scenario analysis, stress-tests, backtests) and calculated risk measures. The risk

measures being used are mainly based on mathematical and statistical modelling, which uses historical and current market

data concerning risk factors and takes into consideration the current exposure of the Company to market risk.

One of the measures used as an auxiliary tool in making decisions in the market risk management process is EaR - Earnings

at Risk. This measure indicates the lowest possible level of profit for the period for a selected level of confidence (for

example, with 95% confidence the profit for a given year will be not lower than…). The EaR methodology enables the

calculation of profit for the period incorporating the impact of changes in market prices of copper, silver and foreign

exchange rates in the context of budget plans.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Due to the risk of production cutbacks (for example because of force majeure) or failure to achieve planned foreign currency

revenues, as well as purchases of metals contained in purchased materials, the Company has set limits with respect to

commitment in derivatives:

 up to 85% of planned, monthly sales volumes of copper, silver and gold from own concentrates, while: for copper

and silver - up to 50% with respect to instruments which are obligations of the Company (for financing the hedging

strategy), and up to 85% with respect to instruments representing the rights of the Company.

 up to 85% of planned, monthly revenues from the sale of products from own concentrates in USD or of the

monthly, contracted net currency cash flows in case of other currencies. For purposes of setting the limit,

expenses for servicing the debt denominated in USD decrease the nominal amount of exposure to be hedged.

These limits are in respect both of hedging transactions as well as of the instruments financing these transactions. The

maximum time horizon within which the Company decides to limit market risk is set in accordance with the technical and

economic planning process and amounts to 5 years, whereas in terms of interest rate risk, the time horizon reaches up to

the maturity date of the long-term financial liabilities of the Company.

With respect to the risk of changes in interest rates, the Company has set a limit of commitment in derivatives of up to

100% of the debt’s nominal value in every interest period, as stipulated in the signed agreements.

Note 7.5.1.2. Commodity risk

The Company is exposed to the risk of changes in the prices of the metals it sells: copper, silver, gold and lead. The price

formulas used in physical delivery contracts are mainly based on average monthly quotations from the London Metal

Exchange for copper and lead and from the London Bullion Market Association for silver and gold. The Company’s

commercial policy is to set the price base for physical delivery contracts as the average price of the appropriate future

month.

The permanent and direct link between sales proceeds and metals prices, without similar relationships on the expenditures

side, results in a strategic exposure. In turn, operating exposure is a result of possible mismatches in the pricing of physical

contracts with respect to the Company’s benchmark profile, in particular in terms of the reference prices and the quotation

periods.

On the metals market, the Company has a so-called long position, which means it has higher sales than purchases. The

analysis of the Company’s exposure to market risk should be performed by deducting from the volume of metals sold the

amount of metal in purchased materials.

The Company’s strategic exposure to the risk of changes in the price of copper and silver in the years 2021-2022 is

presented in the table below.

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Net Sales Purchase

Copper [t]

344 065

564 969

220 904

365 705

561 495

195 790

Silver [t]

1 298

1 338

1 206

1 249

The notional amount of copper price hedging strategies settled in 2022 represented approx. 25% (44% in 2021) of the total

sales of this metal realised by the Company (it represented approx. 42% of net sales

in 2022 and 67% in 2021).

The notional amount of silver price hedging strategies settled in 2022 represented approx. 24% of the total sales of this

metal realised by the Company (25% in 2021).

As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 strategies hedging the

planned revenues from copper sales were implemented. Seagull hedging strategies were entered into for the period from

January 2023 to December 2023 for a total tonnage of 90 thousand tonnes. Moreover, an open hedging position on the

copper market was restructured for the same period with a total tonnage of 12 thousand tonnes by raising the sold options’

strike price from a seagull structure entered into in 2020.

In 2022, the Company did not implement any hedging strategies on the silver market.

In 2022 QP adjustment swap transactions were entered into on the copper and gold markets with maturities of up to June

2023, as part of the management of a net trading position

As a result, as at 31 December 2022 the Company held open derivatives positions for 193.5 thousand tonnes of copper (of

which: 189 thousand tonnes came from strategic management of market risk, while 4.3 thousand tonnes came from the

management of a net trading position) and 4.2 million troy ounces of silver.

Copper sales less copper in purchased metal-bearing materials.

Applied in order to react to changes in contractual arrangements with customers, non-standard pricing terms as regards metals sales and the

purchase of copper-bearing materials.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at

31 December 2022, entered into as part of the strategic management of market risk, are presented below (the hedged

notional in the presented periods is allocated evenly on a monthly basis).

Hedging against copper price risk – open derivatives as at 31 December 2022

Average weighted option strike price

Average

weighted

premium

Effective hedge

price

sold put option

purchased put

option

sold call

option

Instrument/

option Notional

hedge limited to copper price hedging

participation

limited to

[tonnes]

[USD/t]

1st half of 2023

seagull

18 000

5 200

6 900

8 300

(196)

6 704

seagull

6 000

6 900

10 000

(296)

6 604

seagull

15 000

6 000

9 000

11 400

(248)

8 752

seagull

10 500

6 700

9 286

11 486

(227)

9 059

seagull

45 000

6 000

8 120

9 120

(143)

7 977

2nd half of 2023

seagull

18 000

5 200

6 900

8 300

(196)

6 704

seagull

6 000

6 900

10 000

(296)

6 604

seagull

15 000

6 000

9 000

11 400

(248)

8 752

seagull 10 500 6 700 9 286 11 486 (227) 9 059

seagull 45 000 6 000 8 100 9 600 (172) 7 928

TOTAL 2023

189 000

Hedging against silver price risk – open derivatives as at 31 December 2022

Average weighted option strike price

Average

weighted

premium

Effective

hedge price

sold put option

purchased put

option

sold call option

Instrument/

option

Notional

hedge

limited to

silver price

hedging

participation

limited to

[mn ounces]

[USD/ounce]

2023

seagull 4.20

16.00 26.00 42.00 (1.19) 24.81

TOTAL 2023 4.20

The condensed tables of open derivatives transactions held by the Company on the copper and silver markets as at

31 December 2021, entered into as part of the strategic management of market risk, are presented below (the hedged

notional in the presented periods is allocated evenly on a monthly basis).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Hedging against copper price risk – open derivatives as at 31 December 2021

Average weighted option strike price

Average weighted

premium

Effective hedge price

Sold put option Purchased put option Sold call option

Instrument/

option Notional

hedge

limited to

copper price

hedging

participation

limited to

[tonnes]

[USD/t]

1st half

seagull 30 000 4 600 6 300 7 500 (160) 6 140

seagull 24 000 5 200 6 900 8 300 (196) 6 704

seagull

10 500 6 700 9 286 11 486 (227) 9 059

2nd half

seagull 30 000 4 600 6 300 7 500 (160) 6 140

seagull

24 000

5 200

6 900

8 300

(196)

6 704

seagull 15 000 6 000 9 000 11 400 (248) 8 752

seagull

10 500 6 700 9 286 11 486 (227) 9 059

TOTAL 2022

144 000

1st half

seagull

24 000

5 200

6 900

8 300

(196)

6 704

seagull 15 000 6 000 9 000 11 400 (248) 8 752

seagull

10 500

6 700

9 286

11 486

(227)

9 059

2nd half

seagull

24 000

5 200

6 900

8 300

(196)

6 704

seagull 15 000 6 000 9 000 11 400 (248) 8 752

seagull

10 500

6 700

9 286

11 486

(227)

9 059

TOTAL 2023 99 000

Hedging against silver price risk – open derivatives as at 31 December 2021

Average weighted Option strike price

Average weighted

premium

Effective hedge

price

sold put option

purchased put

option

sold call option

Instrument/

option

Notional

hedge

limited to

silver price

hedging

participation

limited to

[mn

ounces]

[USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce] [USD/ounce]

2022

seagull

3.60

16.00

26.00

42.00

(0.88)

25.12

collar 6.60

- 26.36 55.00* (1.96) 24.40

TOTAL 2022 10.20

2023

seagull 4.20

16.00 26.00 42.00 (1.19) 24.81

TOTAL 2023 4.20

* As part of restructuration the strike price of sold call options was increased from 42 and 43 USD/ounce to 55 USD/ounce.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

An analysis of the Company’s sensitivity to the risk of changes in copper, silver and gold prices in the years 2021-2022

Financial assets and liabilities

as at 31 December 2022

Value at risk

Carrying

amount

December

2022

Change in COPPER price [USD/t]

Change in SILVER price [USD/ ounce]

Change in GOLD price [USD/ ounce]

10 293 (+23%)

6 463 (-23%)

31.69 (+32%)

17.06 (-29%)

2 107 (+15%)

1 524 (-16%)

Profit or

loss

Other

comprehe

nsive

income

Profit or

loss

Other

comprehe

nsive

income

Profit or

loss

Other

comprehe

nsive

income

Profit or

loss

Other

comprehe

nsive

income

Profit or loss Profit or loss

Derivatives (copper)

161 161 (49) (1 026) 17 935

- - - - - -

Derivatives (silver)

50 50 - - - -

(67)

(17)

106

Derivatives (gold)

(10) (10) - - - -

(22)

Embedded

derivatives (copper, silver, gold)

(43) (43) (164) - 161 -

(24)

Impact on profit or loss

(213) - 178 - 2 - (17) - (46) 56

Impact on other comprehensive income

- (1 026) - 935 - (67) - 106 - -

Financial assets and liabilities

as at 31 December 2021

Value at risk

Carrying

amount

31 December

2021

Change in COPPER price [USD/t]

Change in SILVER price [USD/ounce]

Change in GOLD price [USD/ounce]

11 614 (+19%)

7 495 (-23%)

30.52 (+31%)

16.55 (-29%)

2 122 (+17%)

1 523 (-16%)

Profit or

loss

Other

comprehen

sive income

Profit or

loss

Other

comprehe

nsive

income

Profit or

loss

Other

comprehen

sive income

Profit or

loss

Other

comprehe

nsive

income

Profit or loss Profit or loss

Derivatives (copper)

(1 096) (1 096)

(74)

(1 770) 173 1 701

- - - - - -

Derivatives (silver)

224

- - -

(192)

(39)

334

- -

Derivatives (gold)

- - -

(20) 20

Embedded derivatives (copper, silver, gold)

(21) (21)

(129)

- 165 -

(1) - 1 - (11) 11

Impact on profit or loss

(203)

338

(38)

(31)

Impact on other comprehensive income

(1 770)

1 701

(192)

334

In order to determine the potential changes in metals prices for purposes of sensitivity analysis of commodity risk factors (copper, silver, gold), the mean reverting Schwarz model (the

geometrical Ornstein-Uhlenbeck process) was used.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 7.5.1.3 Risk of changes in foreign exchange rates

Regarding the risk of changes in foreign exchange rates, the following types of exposures were identified:

 transaction exposure related to the volatility of cash flows in the base currency; and

 exposure related to the volatility of selected items of the statement of financial position in the base (functional)

currency.

The transaction exposure to currency risk derives from cash flow-generating contracts, the value of which expressed in the

base (functional) currency depend on future levels of exchange rates of the foreign currencies with respect to the base

currency (for KGHM Polska Miedź S.A. it is the Polish zloty). Cash flows exposed to currency risk may possess the following

characteristics:

 denomination in the foreign currency – cash flows are settled in foreign currencies other than the functional

currency; and

 indexation in the foreign currency – cash flows may be settled in the base currency, but the price (i.e. of a metal)

is set in a different foreign currency.

The key source of transaction exposure to currency risk in the Company’s business operations are the proceeds from sales

of products (with respect to metals prices, processing and producer margins).

The Company’s exposure to currency risk also derives from items in the statement of financial position denominated in

foreign currencies, which under the existing accounting regulations must be translated, upon settlement or periodic

valuation, by applying the current exchange rate of the foreign currencies versus the base (functional) currency. Changes

in the carrying amounts of such items between valuation dates result in the volatility of profit or loss for the period or of

other comprehensive income.

Items in the statement of financial position which are exposed to currency risk include in particular:

 trade receivables and trade payables related to purchases and sales denominated in foreign currencies;

 financial receivables due to loans granted in foreign currencies;

 financial liabilities due to borrowings in foreign currencies;

 cash and cash equivalents in foreign currencies; and

 derivatives on metals market.

As for the currency market, the notional amount of settled transactions hedging revenues from metals sales amounted to

approx. 20% (in 2021: 28%) of the total revenues from sales of copper and silver realised by the Company in 2022.

As part of the realisation of the strategic plan to hedge the Company against market risk, in 2022 the following were

purchased: put options on the currency market for USD 205 million of planned sales revenues with maturities from April

2022 to December 2022, collar option structures on the currency market for USD 400 million of planned sales revenues

with maturities from August 2022 to December 2022, and collar structures for USD 2 640 million with maturities from

January 2023 to December 2024.

In addition, as part of on-going management of the currency risk, short-term forward sale transactions were entered into

for the planned current cash flows, aimed at hedging against risk connected with USD/PLN rate fluctuations. Forward

transactions were settled in the third quarter of 2022.

As a result, as at 31 December 2022 the Company held an open position on the currency market for the notional amount

of USD 2 955 million (USD 1 050 million as at 31 December 2021), and Cross Currency Interest Rate Swap (CIRS) transactions

for the notional amount of PLN 2 billion, hedging revenues from sales in the currency as well as the variable interest of

issued bonds.

The condensed table of open transactions in derivatives on the currency market as at 31 December 2022 is presented

below (the hedged notional in the presented periods is allocated evenly on a monthly basis).

Hedging against USD/PLN currency risk – open derivatives as at 31 December 2022

Notional

Average weighted option strike price

Average weighted

premium

Effective

hedge price

Instrument/

option

sold put option

purchased put

option

sold call option

hedge

limited to

exchange rate

hedging

participation

limited to

[ USD mn]

[USD/PLN] [USD/PLN] [USD/PLN]

[PLN per USD 1]

[USD/PLN]

2023

seagull 135.00

3.30 4.00 4.60

(0.00)

4.00

seagull 180.00

3.30 3.90 4.50

0.03

3.93

collar 660.00

- 4.48 5.48

(0.03)

4.45

collar 660.00

- 4.69 6.09

(0.05)

4.64

TOTAL 2023 1 635.00

2024

collar

660.00

4.48

5.48

(0.00)

4.48

collar

660.00

- 4.69 6.09

(0.01)

4.68

TOTAL 2024 1 320,00

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Hedging against USD/PLN currency risk – open derivatives as at 31 December 2021

Hedging against currency-interest rate risk connected with the issue of bonds with a variable interest rate in PLN

– open derivatives as at 31 December 2022 and as at 31 December 2021

Instrument/

option

Notional

Average interest rate Average exchange rate

[PLN mn]

[fixed interest rate for USD]

[USD/PLN]

2024

CIRS 400

3.23% 3.78

2029

CIRS 1 600

3.94% 3.81

TOTAL 2 000

As for managing currency risk, the Company applies natural hedging by borrowing in the currency in which it has revenues.

As at 31 December 2022, following their translation to PLN, the bank loans and the investment loans which were drawn in

USD amounted to PLN 3 435 million (as at 31 December 2021: PLN 2 980 million).

The currency structure of financial instruments exposed to currency risk (changes in the USD/PLN, EUR/PLN and GBP/PLN

exchange rates) is presented in the table below. An analysis for other currencies is not presented due to the immateriality.

Financial instruments

Value at risk

as at 31 December 2022

Value at risk

as at 31 December 2021

total

PLN million

USD

million

EUR

million

GBP

million

total

PLN million

USD

million

EUR

million

GBP

million

Trade receivables 337 52 23 -

282 36 21 8

Cash and cash equivalents 688 136 19 -

1 061 241 16 1

Loans granted

8 687 1 974 - -

8 169 2 012 - -

Cash pooling receivables 588 134 - -

498 123 - -

Other financial assets

80 18 - -

182 45 - -

Derivatives* 357 36 - -

(1 172) 220 - -

Trade and similar payables (767) (124) (48) -

(834) (140) (58) -

Borrowings

(3 450) (780) (3) -

(3 053) (734) (16) -

Other financial liabilities (46) (8) (2) -

(193) (42) (5) -

* Transactions on the commodities market which are denominated in USD and translated to PLN at the exchange rate as at the end of the reporting period are

presented in the item “derivatives”, in the column “USD million”, while the column “total PLN million” also includes the fair value of derivatives which are

denominated solely in PLN.

An analysis of the Company’s sensitivity to the currency risk as at 31 December 2022 and 31 December 2021 is presented

in the tables on the next page. In order to determine the potential changes in the USD/PLN, EUR/PLN and GBP/PLN

exchange rates for sensitivity analysis purposes, the Black-Scholes model (the geometrical Brownian motion) was used.

Notional

Option strike price

Average weighted

premium

Effective

hedge price

Instrument/

option

sold put option

purchased put

option

sold call option

hedge

limited to

exchange rate

hedging

participation

limited to

[ USD mn]

[USD/PLN] [USD/PLN] [USD/PLN] [PLN per USD 1]

[USD/PLN]

half

seagull 67.5

3.30 4.00 4.60

(0.01)

3.99

seagull 90

3.50 3.90 4.50

0.04

3.94

purchased put option 180

- 3.75 -

(0.04)

3.71

half

seagull

67.5

3.30

4.00

4.60

(0.01)

3.99

seagull

3.30 3.90 4.50

0.03

3.93

collar

240

- 3.85 4.60

(0.04)

3.81

TOTAL 2022 735

2023

seagull

135

3.30

4.00

4.60

(0.00)

4.00

seagull

180

3.30 3.90 4.50

(0.03)

3.93

TOTAL 2023 315

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

An analysis of the Company’s sensitivity to the currency risk in the years 2021-2022

Value at

risk

Carrying

amount

December

2022

Change in USD/PLN exchange rate

Change in EUR/PLN

exchange rate

Change in GBP/PLN

exchange rate

5.03 (+14%)

3.91 (-11%)

5.18 (+10%)

4.48 (-5%)

6.05 (+14%)

4.71 (-11%)

Financial assets and liabilities

as at 31 December 2022

profit or loss

other

comprehensive

income

profit or loss

other

comprehensive

income

profit or loss profit or loss

Trade receivables

337

620

(26)

(5)

Cash and cash equivalents

688

985

(66)

(4)

Loans granted

8 687 8 763

1 241

(963)

Cash pooling receivables

588

(65)

Other financial assets

1 237

(9)

Derivatives

357

(3)

(1 197)

(6)

1 193

Trade and similar payables

(767)

(2 819)

(78)

(23)

Borrowings

(3 450)

(6 445)

(491)

381

(2)

Other financial liabilities

(46)

(394)

(5)

(1)

Impact on profit or loss

877 -

(690) -

(6) 2 - -

Impact on other comprehensive income

(1 197)

1 193

Value at

risk

Carrying

amount

December

2021

Change in USD/PLN exchange rate

Change in EUR/PLN

exchange rate

Change in GBP/PLN

exchange rate

4.57 (+13%)

3.66 (-10%)

5.01 (+9%)

4.37 (-5%)

6.15 (+12%)

4.98 (-9%)

Financial assets and liabilities

as at 31 December 2021

profit or

loss

other comprehensive

income

profit or loss

other

comprehensive

income

profit or loss profit or loss

[PLN mn] [PLN mn]

Trade receivables

282

600

(14)

(5)

(4)

Cash and cash equivalents

1 061 1 332

124

(97)

(4)

(1)

Loans granted

8 169 8 249

1 035 - (812) - - - - -

Cash pooling receivables

498

(50)

Other financial assets

182

1 376

(18)

Derivatives

(1 172) (1 172)

(646)

527

Trade and similar payables

(834) (2 613)

(72) - 56 - (24) 13 - -

Borrowings

(3 053)

(5 922)

(378)

296

(7)

Other financial liabilities

(193)

(476)

(22)

(2)

Impact on profit or loss 801 -

(620) -

(18) 9 6 (5)

Impact on other comprehensive income

(646)

527

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 7.5.1.4 Interest rate risk

In 2022 the Company was exposed to the risk of changes in interest rates due to loans granted, investing free cash,

participating in a cash-pooling service and borrowing.

Positions with variable interest rates expose the Company to the risk of changes in cash flow from a given position as a

result of changes in interest rates (i.e. it has an impact on the interest costs or income recognised in the profit or loss).

Positions with fixed interest rates expose the Company to the risk of fair value changes of a given position, excluding items

measured at amortised cost, for which the change in fair value does not affect their measurement and profit or loss.

The main items which are exposed to interest rate risk are presented below:

As at

31 December 2022

As at

31 December 2021

Cash flow

risk

Fair value

risk

Total

Cash flow

risk

Fair value

risk

Total

Cash and cash equivalents

1 356 - 1 356 1 733 - 1 733

Note 6.2

Loans granted

76 3 233 3 309 80 2 959 3 039

Note 7.1

Borrowings

(2 530) (3 594) (6 124) (1 985) (3 577) (5 562)

Cash pooling receivables

588 - 588 498 - 498

Cash pooling liabilities

(321) - (321) (360) - (360)

As at 31 December 2022 the Company had CIRS transactions (Cross Currency Interest Rate Swap) with maturities falling in

June 2024 and June 2029, in the notional amount of PLN 2 billion, hedging both the sales revenues in the currency, as well

as the variable interest rate of issued bonds. The open hedging position as at 31 December 2022 and as at 31 December

2021 is presented in the table in Note 7.5.1.3.

An analysis of the Company’s sensitivity to interest rate risk, assuming changes in interest rates for the balance sheet items

in PLN, USD and EUR (presented in basis points, bps) is presented in the following table. An expert method including

recommendations of the ARMA model was used to determine the potential volatility of interest rates.

31 December 2022

change in interest rate

31 December 2021

change in interest rate

+150 bps

(PLN, USD, EUR)

-100 bps

(PLN, USD, EUR)

+250 bps (PLN)

+150 bps (USD, EUR)

-100 bps (PLN)

-50 bps (USD, EUR)

profit or

loss

other

comprehensi

ve income

profit or loss

other

comprehens

ive income

profit

or loss

other

comprehensiv

e income

profit or loss

other

comprehensive

income

Cash and cash equivalents*

20 - (14) - 33 - (12) -

Borrowings

(38) - 25 - (95) - 35 -

Cash pooling

4 - (3) - (1) - 1 -

Loans granted measured at

fair value

(299) -

237

- (106) - 37 -

Derivatives – interest rate

- 134 - (97) - 186 - (66)

Impact on profit or loss

(313) - 245 - (169) - 61 -

Impact on other

comprehensive income

- 134 - (97) - 186 - (66)

*Presented amounts include cash accumulated in special purpose funds: Mine Closure Fund and Social Fund

Impact of the reference rates reform

The Company uses financial instruments based on variable interest rates, which fall under the reference rates reform. As

a result of the reform, publication of certain IBOR rates ceased from 1 January 2022 and the next ones will cease to be

published from 30 June 2023.

The Company identified agreements which include clauses based on LIBOR and which will be changed once the reference

rates are superseded. These are mainly borrowing and factoring agreements. In 2022 some of the bilateral financing

agreements were annexed in order to introduce SOFR or CME Term SOFR rates. Negotiations are underway with other

financial institutions aimed at replacing LIBOR rates with an alternative benchmark.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

On 7 July 2022, an Act on crowdfunding for business and support for borrowers, which is a basis to change the WIBOR and

WIBID rates applicable to instruments in PLN, was adopted. As a result of legislative changes in September 2022, the

Steering Committee of the National Work Group for reform of the reference rates selected WIRON as the target Risk-Free

Rate (RFR) for the Polish financial market. Details on the replacement of current rates by an alternative one will be published

in 2023, and the publication of old WIBOR and WIBID rates will end in 2025.

Until 2025, the IBOR reform will not have an impact on the interest rate applied in the Company’s derivatives, because the

CIRS transactions entered into (open cross currency interest rate swaps) and bonds issued by the Company are based on

the WIBOR reference rate. In the case of this benchmark, until 2025 we are in the transitional period, during which

adjustments to transactions entered into before the reform will not be required. After 2025, the IBOR reform may have an

impact on cash flow hedging of variable interest of issued bonds (Tranche B) in the amount of PLN 1.6 billion, based on

WIBOR 6M, that is CIRS transactions (cross currency swap) with maturity falling in 2029. The Company applied temporary

exemptions from application of specific requirements of hedge accounting under IFRS 9 due to the IBOR reform and

adopted an assumption that it may continue the hedge relationships. The notional amounts of hedging instruments to

which these exemptions apply are disclosed in the following table.

As at 31 December 2022, the Company estimated that the impact of IBOR reform on the financial statements will be

immaterial.

As at 31 December 2022, the Company held financial instruments based on variable interest rates, which were not yet

replaced by alternative rates.

Type of instrument

Carrying amount

as at 31 December 2022

Loans granted

WIBOR 1M

Bank loans

USD LIBOR 1M (528)

Debt securities

WIBOR 6M

(2 002)

Derivatives (CIRS for 2029, PLN 1 600 million)

WIBOR 6M (198)

Total

(2 640)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 7.5.1.5 Impact of hedge accounting on the financial statements

The following table contains information on changes in the fair value of instruments, as well as corresponding changes in the fair value of hedged positions during the reporting period, being

the basis for recognising the effective and ineffective portions of changes in the fair value of hedging instruments in the years 2021-2022 (net of the tax effect).

As at 31 December 2022

from 1 January 2022

to 31 December 2022

from 1 January 2022

to 31 December 2022

As at 31 December 2021

from 1 January 2021

to 31 December 2021

from 1 January 2021

to 31 December 2021

Balance of other comprehensive income

due to cash flow hedging for relations

Change in the value of

hedged item

Balance of other comprehensive income

due to cash flow hedging for relations

relation type

risk type

instrument type – hedged item

remaining in hedge

accounting

for which hedge

accounting was

ceased

Change in the value of

hedging instrument

remaining in

hedge accounting

for which hedge

accounting was ceased

Change in the value

of hedged item

Change in the

value of hedging

instrument

Cash flow hedging

Commodity risk (copper)

Options – Sales revenue

(21) (11)

(327) 255

(1 357) - 979 (981)

intrinsic value

152 -

- 325

(1 027) - - (976)

time value

(173) (11)

- (70)

(330) - - (5)

Commodity risk (silver)

Options – Sales revenue

(21)

(172)

intrinsic value

(16)

163

172

time value

(11) -

- (5)

(71) 3 - (158)

Currency risk (USD)

Options – Sales revenue

402 -

(183) 403

(1) - 115 (192)

intrinsic value

193 -

- 182

23 - - (114)

time value

209

221

(24)

(78)

Loans – Sales revenue

(64)

(80)

intrinsic value

- (64)

- -

- (80) - -

Currency-interest rate risk

Options – Sales revenue

(569) -

154 (137)

(431) - 406 (371)

intrinsic value

(569) -

- (137)

(431) - - (371)

Options – Finance income/costs

315 -

(181) 152

162 - (332) 300

intrinsic value

315 -

- 152

162 - - 300

Total, including:

146 (75)

(521) 652

(1 535) (65) 996 (1 230)

Total intrinsic value

121 -

- 506

(1 110) (68) - (989)

Total time value

25 (75)

- 146

(425) 3 - (241)

The inefficiency of the hedging which was recognised in profit or loss in the reporting periods 2021-2022 was immaterial.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The table below presents information on the impact of hedge accounting on profit or loss and other comprehensive income (net of the tax effect).

from 1 January 2022 to 31 December 2022

from 1 January 2021 to 31 December 2021

relation type

risk type

instrument type

Profits or (losses) due to

hedging recognised in

other comprehensive

income

Amount reclassified from other

comprehensive income to the statement

of profit or loss as a reclassification

adjustment, due to realisation of a

hedged item in the period

Profit or (loss) due to

hedging recognised in

other comprehensive

income

Amount reclassified from other

comprehensive income to the

statement of profit or loss as a

reclassification adjustment, due to

realisation of a hedged item in the

period

Cash flow hedging

Commodity risk (copper)

Options*

800

(525)

(2 047)

(1 903)

Commodity risk (silver)

Options* 26 114 (11) (30)

Currency risk (USD)

Options*

357 (46) (260) (72)

Loans**

- (16) - (16)

Currency-interest rate risk

CIRS***

56 41 (113) (43)

Total

1 239 (432) (2 431) (2 064)

Item of the statement of profit or loss which includes a reclassification adjustment:

* revenues from contracts with customers, other operating income and (costs),

** revenues from contracts with customers,

*** revenues from contracts with customers, other finance income and (costs).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The following table contains information on changes in other comprehensive income (excluding the tax effect) in the period in connection with the application of hedge accounting in 2021

and 2022.

2022

2021

Effective value *

Cost of hedging **

Total

Effective value *

Cost of hedging **

Total

Other comprehensive income – transactions hedging

against commodity and currency risk – as at 1 January

(1 178) (422) (1 600)

(735) (498) (1 233)

Impact of measurement of hedging transactions (effective

part)

1 124 115 1 239

(2 128) (303) (2 431)

Reclassification to profit or loss due to realisation of hedged

item

122 310 432

1 685 379 2 064

Other comprehensive income – transactions hedging

against commodity and currency risk – as at 31 December

68 3 71

(1 178) (422) (1 600)

* Effective portions of changes in the fair value of hedging instruments due to hedged risk - intrinsic value of option.

** Time value of option + CCBS (Cross Currency Basis Swap).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 7.5.2 Credit risk

Credit risk is defined as the risk that the Company’s counterparties will not be able to meet their contractual liabilities and

involves three main areas:

 the creditworthiness of the customers with whom physical sales transactions are undertaken;

 the creditworthiness of the financial institutions (banks/brokers) with whom, or through whom, hedging

transactions are undertaken, as well as those in which free cash and cash equivalents are deposited; and

 the financial standing of subsidiaries - borrowers.

In particular, the Company is exposed to credit risk due to:

 cash and cash equivalents and deposits;

 derivatives;

 trade receivables;

 loans granted (Note 6.2);

 guarantees granted (Note 8.6); and

 other financial assets.

Accounting policies

The Company recognises impairment loss on expected credit losses on financial assets measured at amortised cost.

Expected credit losses are credit losses weighed by the default probability. The Company applies the following models

for designating impairment losses:

- the simplified model – for trade receivables,

- the general (basic) model – for other financial assets.

Under the general model the Company monitors changes in the level of credit risk related to a given financial asset and

classifies financial assets to one of three stages of determining impairment losses – based on observations of changes in

the level of credit risk compared to an instrument’s initial recognition. In particular, the following are monitored: the credit

rating and the financial condition of the customer and the payment delay period. Depending on which degree

it is

classified to, an impairment loss is estimated for a 12-month period (degree 1) or in the horizon of lifetime (degree 2 and

degree 3). The absolute indicator of default is an over

due period of more than 90 days. The detailed principles of

classification of loans granted to individual degrees of loss allowance for expected credit losses was described in note

6.2.

Under the simplified model the Company does not monitor changes in the level of credit risk during an instrument’s life

and estimates the expected credit loss over the time horizon of maturity of the instrument based on historical data

respecting the repayments of receivables.

Note 7.5.2.1 Credit risk related to cash, cash equivalents and bank deposits

The Company periodically allocates free cash in accordance with the requirements to maintain financial liquidity and limit

risk and in order to protect capital and maximise interest income.

As at 31 December 2022, the total amount of free and restricted cash and cash equivalents of PLN 985 million (as at 31

December 2021, PLN 1 332 million) was held in bank accounts and in short-term deposits. The detailed structure of cash

and cash equivalents is presented in note 8.5.

All entities with which deposit transactions are entered into by the Company operate in the financial sector. These are solely

banks registered in Poland or operating in Poland as branches of foreign banks, which belong to European, American and

Chinese financial institutions with medium-high and medium ratings, an appropriate level of equity and a strong, stable

market position. Credit risk in this regard is continuously monitored through the on-going review of the financial standing

and by maintaining an appropriately low level of concentration of resources in individual financial institutions.

The following table presents the level of concentration of cash and deposits, with the assessed creditworthiness of the

financial institutions*:

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Rating level

As at

31 December 2022

As at

31 December 2021

Medium-high

from A+ to A- according to S&P and Fitch, and from A1 to A3

according to Moody’s

85%

71%

Medium

from BBB+ to BBB- according to S&P and Fitch, and from

Baa1 to Baa3 according to Moody’s

15%

29%

*Weighed by amount of deposits.

As at 31 December 2022 the maximum single entity share of the amount exposed to credit risk arising from cash and bank

deposits amounted to 36%, or PLN 354 million (as at 31 December 2021: 58%, or PLN 778 million).

As at

31 December 2022

As at

31 December 2021

Counterparty 1

354

778

Counterparty 2

335

255

Counterparty 3

120

Counterparty 4

104

Other

158

Total

985

1 332

Impairment losses on cash and cash equivalents were determined individually for each balance of a given financial

institution. External bank ratings were used to measure credit risk. The analysis determined that these assets have a low

credit risk at the reporting date. The Company used a simplification permitted by the standard and the impairment loss

was determined on the basis of 12-month credit losses. The calculation of impairment determined that the amount of the

impairment loss is insignificant. These assets are classified to Degree 1 of the impairment model.

Note 7.5.2.2 Credit risk related to derivatives transactions

All entities with which derivative transactions are entered into by the Company operate in the financial sector

The Company’s credit exposure related to derivatives by main counterparties is presented in the table below.

As at

31 December 2022

As at

31 December 2021

Financial

receivables

Financial

liabilities

Fair

value

Exposure

to credit

risk

Financial

receivables

Financial

liabilities

Fair

value

Exposure

to credit

risk

Counterparty 1 260 (250) 10 260

227 (195)

227

Counterparty 2 226 (172) 54 226

162

(112)

162

Counterparty 3 154 (33) 121 154

113 (437)

(324)

113

Counterparty 4

120 (53) 67 120

(57)

Other 787 (636) 151 787

279 (1 358) (1 079) 279

Total 1 547 (1 144) 403 1 547

859 (2 159) (1 300) 859

Open derivatives*

1 510 (1 110) 400

849 (2 000) (1 151)

Settled derivatives, net

37 (34) 3

10 (159) (149)

*excluding embedded derivatives

Taking into consideration the receivables due to open derivatives transactions entered into by the Company (excluding

embedded derivatives) as at 31 December 2022 and net receivables

due to settled derivatives, the maximum single entity

share of the amount exposed to credit risk arising from these transactions amounted to 17%, or PLN 260 million (as at 31

December 2021: 26%, or PLN 227 million).

Does not concern embedded derivatives in purchase contracts for metal-bearing materials.

The Company offsets receivables and liabilities due to settled derivatives, for which the future flows are known at the end of the reporting period,

pursuant to the principles of net settlements of cash flows adopted in framework agreements with individual customers.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

In order to reduce cash flows and at the same time to limit credit risk, the Company carries out net settlements (based on

standard framework agreements entered into with its customers, regulating the trade of financial instruments, meaning

ISDA or based on a template of the Polish Bank Association). Moreover, the resulting credit risk is continuously monitored

by reviewing the credit ratings and is limited by striving to diversify the portfolio while implementing hedging strategies.

Despite the concentration of credit risk associated with derivatives’ transactions, the Company has determined that, due to

its cooperation solely with renowned financial institutions, as well as continuous monitoring of their ratings, it is not

materially exposed to credit risk as a result of transactions concluded with them.

The following table presents the structure of ratings of the financial institutions with whom the Company had derivatives

transactions, representing exposure to credit risk.

Rating level

As at

31 December 2022

As at

31 December 2021

Medium-high

from A+ to A- according to S&P and Fitch, and from A1 to

A3 according to Moody’s

84%

98%

Medium

from BBB+ to BBB- according to S&P and Fitch, and from

Baa1 to Baa3 according to Moody’s

16%

Note 7.5.2.3 Credit risk related to trade receivables

For many years, the Company has been cooperating with a large number of customers, which affects the geographical

diversification of trade receivables. The majority of sales go to EU countries.

Trade receivables (net)

As at

31 December 2022

As at

31 December 2021

Poland 60% 73%

European Union (excluding Poland)

15%

12%

Asia

22%

13%

Other countries

Accounting policies

The Company applies the simplified model of calculating the allowance for impairment of trade receivables (regardless

of their maturity). The expected credit loss on trade receivables is calculated at the closest ending date of the reporting

period following the recognition of a receivable in the statement of financial position and is updated at every subsequent

reporting period ending date. In order to estimate the expected credit loss on trade receivables, the Company applies a

provision matrix, made on the basis of historical levels of payment of trade receivables, which is periodically recalibrated

in order to update it.

Loss allowance for expected credit losses is measured at the amount equal to expected credit losses during the whole

life of the receivabl

es. The Company adopted an assumption that the receivable risk is characterised by the number of

days of delay and this parameter determines the estimated PD, i.e. the probability of a delay in payment of trade

receivables by at least 90 days. For the purpose of estimating PD, 5 risk groups have been selected based on the criteria

of number of days of delays in payment, according to ranges presented below as “Important estimates and assumptions”.

The Company defines default as being a failure by a customer to meet its liabilities after a period of 90 days from the due

date. In order to estimate the loss allowance for expected credit losses, the Company takes into account also collaterals

by allocating expected recovery rates to the particular types of collaterals.

Moreover, the Company takes into account forward-

looking information in the applied parameters of the model for

estimating expected losses, by adjusting the base coefficients of default probability. This means that if as a result of

analysis of macroeconomic data, such as for example: current GDP dynamics, inflation, unemployment rate, or WIG index,

the Company recognises any deterioration in them in comparison to the previous period, in the ECL calculation the

looking forward factor, which corrects the risk connected with any decrease in receivables recovery, is taken into account.

Despite the growing inflation, alongside the favourable performance of among others the GDP, unemployment rate, and

also forecasts of these indicators, the Company did not

note any deterioration of macroeconomic factors as at the end

of the reporting period, that is on 31 December 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

The following table presents the change in trade receivables measured at amortised cost.

2022

2021

Gross amount as at 1 January

134

101

Change in the balance of receivables

Note 10.2

Gross amount as at 31 December

166

134

The following table presents the change in the estimation of expected credit losses on trade receivables measured at

amortised cost.

2022

2021

Loss allowance for expected credit losses as at 1 January

Allowance utilised

(9)

Note 10.2

Loss allowance for expected credit losses as at 31 December

The Company limits its exposure to credit risk related to trade receivables by evaluating and monitoring the financial

condition of its customers, setting credit limits, requiring collateral and non-recourse factoring. The terms of factoring

agreements entered into meet the criteria of removing receivables from the books at the moment of their purchase by the

factor. As at 31 December 2022, the amount of receivables transferred to factoring, for which payment from factors was

not received, amounted to PLN 4 million (as at 31 December 2021: PLN 17 million). Information on the amount of revenues

from sales subjected to factoring in the financial period is presented in part 2.

An inseparable element of the credit risk management process performed by the Company is the continuous monitoring

of receivables and the internal reporting system.

Buyer’s credit is only provided to proven customers.

In the case of new customers, an effort is made to ensure that sales

are based on prepayments or trade financing instruments which transfer the credit risk to financial institutions.

The Company makes use of the following forms of collateral:

• registered pledges, bank guarantees, promissory notes, notarial enforcement declarations, corporate guarantees,

cessation of receivables, mortgages and documentary collection;

• ownership rights to goods to be transferred to the buyer only after payment is received;

• a receivables insurance contract, which covers receivables from entities with buyer’s credit which have not provided

strong collateral or have provided collateral which does not cover the total amount of the receivables.

Taking into account the aforementioned forms of collateral and the credit limits received from the insurance company, as

at 31 December 2022 the Company had secured 76% of its trade receivables (as at 31 December 2021: 84%).

The total net value of the Company’s trade receivables as at 31 December 2022, excluding the fair value of collaterals,

up to the value of which the Company may be exposed to credit risk, amounts to PLN 620 million (as at 31 December 2021:

PLN 600 million).

The concentration of credit risk in the Company is related to the terms of payment allowed to key clients. Consequently, as

at 31 December 2022 the balance of receivables from the Company’s 7 largest clients, in terms of trade receivables

at the end of the reporting period, represented 64% of the balance of trade receivables (as at 31 December 2021: 69%).

Despite the concentration of this type of risk, the Company believes that due to the available historical data and the many

years of experience in cooperating with its clients, as well as to securities used, the level of credit risk is low.

Important estimates and assumptions

31 December 2022

31 December 2021

Time frame

Percent

(allowance for

impairment)

Gross amount of

receivables

Allowance for

impairment in

individual time

frames

Gross amount of

receivables

Allowance for

impairment in

individual time

frames

Not overdue

0.69

(1)

<1,30)

<30,60)

30.42

<60,90)

64.83

Default

100

Total

(1)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 7.5.2.4 Credit risk related to other financial assets

As at 31 December 2022, the major items in other financial assets were:

• cash accumulated in the special purpose Mine Closure Fund in the amount of PLN 358 million (as at 31 December 2021:

PLN 384 million, including the bank account of the Tailings Storage Facility Restoration Fund);

• receivables due to cash pooling in the amount of PLN 588 million (as at 31 December 2021: PLN 498 million). Credit risk

in this regard is continuously monitored through the review of the financial standing and assets of the subsidiaries

participating in the cash pooling.

The account of the special purpose fund, used to accumulate cash in order to cover the costs of decommissioning of mines

is managed by a bank with a medium-high rating (principles of credit risk management connected with allocation of cash

in financial institutions are described in Note 7.5.2.1).

Impairment losses on cash accumulated on the bank account of the Mine Closure Fund was determined based on an

external bank rating. The analysis determined that these assets have a low credit risk at the reporting date. The Company

used a simplification permitted by the standard and the impairment loss was determined on the basis of 12-month credit

losses. The calculation of impairment determined that the amount of expected impairment loss is insignificant.

Note 7.5.2.5 Credit risk related to loans granted

Entities which were granted loans do not have ratings assigned to them by independent rating agencies. The following table

presents a structure of ratings of entities which were granted loans by the Company, per the internal methodology of the

Company:

Rating level

As at

31 December 2022

As at

31 December 2021

Medium-high

from A+ to A- according to S&P and Fitch,

and from A1 to A3 according to Moody’s

99%

Medium

from BBB+ to BBB- according to S&P and Fitch,

and from

Baa1 to Baa3 according to Moody’s

100%

Loans granted measured at amortised cost

The Company estimates expected credit losses related to loans granted measured at amortised cost in accordance with

the general approach.

Loans granted do not have collaterals limiting the exposure to credit risk, therefore the maximum amount exposed to loss

due to credit risk is the gross amount of the loans, less expected credit losses recognised pursuant to IFRS 9.

The following tables present the change in the gross amount of loans granted measured at amortised cost.

Total

Degree 1

Medium

rating

Degree 2

Medium

rating

POCI

Medium

rating

Gross amount as at 1 January 2022

5 505

213

3 664

1 628

increase in the amount of loan (granting a loan)

repayment*

(776)

(121)

(466)

(189)

modification of terms to the agreement

(21)

exchange differences

417

284

121

interest accrued using the effective interest rate

297

162

115

reversal of loss allowance recognised at the

moment of initial recognition of a loan

162 - - 162

other changes

(2)

(1)

Gross amount as at 31 December 2022

5 604

145

3 622

1 837

*of which: PLN 742 million concerns the repayment of principal amount and PLN 34 million concerns the repayment of interest.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Total

Degree 1

Medium

rating

Degree 2

Medium

rating

POCI

Medium

rating

Gross amount as at 1 January 2021

5 352

601

3 254

1 497

increase in the amount of loan (granting a loan) 20 20 - -

repayment

(1 178)

(448)

(730)

modification of terms to the agreement 2 2 - -

exchange differences

357

260

interest accrued using the effective interest rate

295

150

116

reversal of loss allowance recognised

at the moment of initial recognition of a loan

657 - - 657

Gross amount as at 31 December 2021

5 505

213

3 664

1 628

There were no transfers of loans between degrees of impairment in any of the presented reporting periods.

The following tables present the change in the loss allowances for expected credit losses for loans measured at amortised

cost.

Total

Degree 1 Degree 2 POCI

Loss allowance for expected credit losses as at

1 January 2022

98 2 96

changes in risk parameters

(50)

exchange differences

Loss allowance for expected credit losses as at

31 December 2022

52 2 50

Total Degree 1 Degree 2 POCI

Loss allowance for expected credit losses as at

1 January 2021

179 5 98

changes in risk parameters

(94)

(3)

(10)

(81)

exchange differences

Loss allowance for expected credit losses as at

31 December 2021

98 2 96

Loans measured at amortised cost

(Note 6.2)

Carrying amount Degree 1 Degree 2 POCI

As at 1 January 2021 5 173 596 3 156 1 421

As at 31 December 2021 / 1 January 2022 5 407 211 3 568 1 628

As at 31 December 2022 5 552 143 3 572 1 837

In 2022 and 2021 no loans were reclassified to degree 3 of the measurement.

For loans measured at amortised cost (excluding POCI), interest is accrued on the gross value using the IRR rate set at the

moment of initial recognition of the loan.

For POCI loans, interest is accrued on the gross value less any allowance for impairment recognised at the moment of initial

recognition, an IRR rate adjusted by credit risk defined at the moment of the loan’s initial recognition (CEIR, credit-adjusted

effective interest rate).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Loans granted measured at fair value

The carrying amount of loans measured at fair value as at 31 December 2022 amounted to PLN 3 233 million. As at 31

December 2021, the carrying amount was PLN 2 959 million. More disclosures on the fair value measurement were

presented in Note 7.1.

The loans granted do not have collaterals limiting exposure to credit risk, therefore the Company estimates the maximum,

potential losses due to credit risk in the amount of 100% of their current fair value, i.e. USD 734 million (PLN 3 233 million),

of which the amount of USD 634 million is due to the nominal value of loans granted.

The following table presents changes in the carrying amount of loans granted measured at fair value during the period.

2022

2021

Carrying amount as at 1 January 2 959

2 477

Loan repaid

(324)

(547)

Note 4.2

Fair value gains

601

1 056

Note 4.2

Fair value losses

(9)

Loss on realisation of instruments (2)

(18)

Other changes (1)

Carrying amount as at 31 December 3 233

2 959

Sensitivity analysis of the fair value of loans due to the change in forecasted cash flows of Sierra Gorda

As at 31 December 2022 and in the comparable period, the Company classified the measurement to fair value of loans

granted to level 3 of the fair value hierarchy because of the utilisation in the measurement of a significant unmeasurable

parameter, begin the forecasted cash flows of Sierra Gorda S.C.M. More disclosures on the main assumptions (including

unobservable input data) assumed for the calculation of cash flows of Sierra Gorda were presented in the consolidated

financial statements in Note 7.5.2.4.

Because of the significant sensitivity of the forecasted cash flows of Sierra Gorda S.C.M. to changes in the copper price,

pursuant to IFRS 13 para. 93.f the Company performed a sensitivity analysis of the fair value (level 3) of loans to changes in

copper prices.

Copper price [USD/t]

Scenarios 31 December 2022

2023

2024

2025

2026

2027

Base

8 200 8 500 8 500 8 500 8

500

7 700

Base minus 0.1 [USD/lb]

7 980

8 280

7 480

Base plus 0.1 [USD/lb]

8 420

8 720

7 920

Scenarios 31 December 2021

2022

2023

2024

2025

2026

Base

8 500

8 000

7 500

7 000

Base minus 0.1 [USD/lb]

8 280

7 780

7 280

6 780

Base plus 0.1 [USD/lb]

8 720

8 220

7 720

7 220

Fair value

Carrying

amount

31 December

2022

[PLN million]

Fair value

Carrying

amount

31 December

2021

[PLN million]

Fair value

Classes of

financial

instruments

[PLN million]

Base plus 0.1

[USD/lb]

Base minus

0.1 [USD/lb]

[PLN million]

Base plus 0.1

[USD/lb]

Base minus

0.1 [USD/lb]

Loans granted

measured at

fair value

3 233 3 233 3 475 2 912

2 959 2 959 3 239 2 753

Loans granted

measured at

amortised cost

5 090 5 408 5 140 5 030

5 340 5 176 5 375 5 290

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Concentration risk

The Company estimates the concentration risk to be at the level of 100%, since receivables due to loans granted are intra-

group loans (Note 12.1), and 97% of the balance are loans granted to subsidiaries Future 1 Sp. z o.o., Quadra FNX FFI s.a.r.l

and Quadra FNX Holding Chile Limitada, and the majority of which was transferred to finance the joint venture Sierra Gorda;

2% of the balance are loans granted to KGHM INTERNATIONAL LTD., and 1% of the balance are loans granted to companies

in Poland. Detailed information on the loan granting transactions are presented in Note 6.2.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 8 – Borrowings and the management of liquidity and capital

Note 8.1 Capital management policy

Capital management in the Company is aimed at securing funds for business development and maintaining the appropriate

level of liquidity.

The Company monitors the Group’s level of financial security, among others using the Net Debt/EBITDA ratio presented in

the table below, which was calculated on the basis of data presented in the Consolidated financial statements of the KGHM

Group.

Ratios

Calculations

31 December 2022 31 December 2021

Net Debt/EBITDA relation of net debt to adjusted EBITDA

0.8

0.6

Net Debt*

borrowings, debt securities and lease

liabilities less free cash and its

equivalents

5 264 4 069

Adjusted EBITDA**

profit on sales plus

depreciation/amortisation recognised

in profit or loss and impairment losses

on non-current assets

6 675 7 131

*Net debt does not include reverse factoring liabilities and cash pooling liabilities in connection with the utilisation of resources

under the system by KGHM Polska Miedź S.A.

** Adjusted EBITDA for the period of 12 months ended on the last day of the reporting period, excluding EBITDA of the joint venture

Sierra Gorda S.C.M.

In the process of managing liquidity and capital, the Group also pays attention to adjusted operating profit, calculated on

the basis of data from the Consolidated financial statements of the KGHM Polska Miedź S.A. Group, which is the basis for

calculating the financial covenant and which is comprised of the following items:

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit on sales

4 344

4 710

Interest income on loans granted to a joint venture

582

494

Other operating income and costs

962

726

Adjusted operating profit*

5 888

5 930

*Presented amount does not include gains on reversal of allowances for impairment of loans granted to a joint venture.

As at the reporting date, in the financial period and after the reporting date, up to the date of publication of these financial

statements, the value of a financial covenant subject to the obligation to report as at 30 June 2022 and 31 December 2022,

met the conditions stipulated in the credit agreements.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 8.2 Equity

Accounting policies

Share capital is recognised at nominal value.

Other reserves from the measurement of financial instruments arise from the measurement of cash flow hedging

instruments (Note 7.2, Accounting policies) and the measurement of financial assets measured at fair value through other

comprehensive income (Note 7.3, Accounting policies) less any deferred tax effect.

Accumulated other comprehensive income consists of actuarial gains/losses on post-employment benefits less any

deferred tax effect (Part 11, Accounting policies).

Retained earnings are the sum of profit for the current year and accumulated profits from previous years, which has not

been paid out as dividends, but increased the reserve capital or was not distributed.

Note 8.2.1 Share capital

As at 31 December 2022 and at the date of signing of these financial statements, the Company’s share capital, in accordance

with the entry in the National Court Register, amounted to PLN 2 000 million and was divided into 200 000 000 shares,

series A, fully paid, each having a face value of PLN 10. All of the shares are bearer shares. The Company has not issued

preference shares. Each share grants the right to one vote at the general meeting. The Company does not have treasury

shares.

In the reporting and in the comparable periods, there were no changes in either registered share capital or in the number

of issued shares. Additionally, in 2022 and 2021, there were no changes in the ownership of significant blocks of shares of

KGHM Polska Miedź S.A.

The Company’s shareholder structure as at 31 December 2022, established on the basis of notifications received by the

Company pursuant to art. 69 of the Act on public offerings and conditions governing the introduction of financial

instruments to organised trading, and on public companies, is shown in the following table:

shareholder

number of

shares/votes

total nominal

value of shares

(PLN)

percentage held

in share

capital/total

number of votes

State Treasury 63 589 900 635 899 000 31.79%

Nationale-Nederlanden Otwarty Fundusz Emerytalny 10 104 354 101 043 540 5.05%

Aviva Otwarty Fundusz Emerytalny Aviva Santander 10 039 684 100 396 840 5.02%

Other shareholders 116 266 062 1 162 660 620 58.14%

Total 200 000 000 2 000 000 000 100.00%

On 5 January 2023 the Company was informed of the merger of the companies Powszechne Towarzystwo Emerytalne

Allianz Polska Spółka Akcyjna (PTE Allianz Polska S.A.) and Aviva Powszechne Towarzystwo Emerytalne Aviva Santander

Spółka Akcyjna. As a result of the merger, the total number of shares of KGHM Polska Miedź S.A. recorded on the accounts

of the funds managed by PTE Allianz Polska S.A.: Allianz Otwarty Fundusz Emerytalny, Allianz Polska Dobrowolny Fundusz

Emerytalny and Drugi Allianz Polska Otwarty Fundusz Emerytalny amounted to 12 241 453, representing 6.12% of the

Company’s share capital.

The Company’s shareholder structure as at the date of signing of these financial statements is presented in the following

table:

shareholder

number of

shares/votes

total nominal

value of shares

(PLN)

percentage held

in share

capital/total

number of votes

State Treasury 63 589 900 635 899 000 31.79%

Powszechne Towarzystwo Emerytalne Allianz Polska

Spółka Akcyjna*

12 241 453 122 414 530 6.12%

Nationale-Nederlanden Otwarty Fundusz Emerytalny 10 104 354 101 043 540 5.05%

Other shareholders 114 064 293 1 140 642 930 57.04%

Total 200 000 000 2 000 000 000 100.00%

*Total number of shares recorded on the accounts of funds managed by Powszechne Towarzystwo Emerytalne Allianz Polska Spółka Akcyjna:

Allianz Otwarty Fundusz Emerytalny, Allianz Polska Dobrowolny Fundusz Emerytalny and Drugi Allianz Polska Otwarty Fundusz Emerytalny

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 8.2.2 Changes of other equity items in the period

Other reserves from measurement of financial

instruments

Retained earnings

Investments in

equity

instruments

measured at

fair value

through other

comprehensive

income

Other reserves

from

measurement

of cash flow

hedging

financial

instruments

Total other

reserves from

measurement

of financial

instruments

Accumulated

other

comprehensive

income

Reserve capital

created in

accordance with

the Commercial

Partnerships and

Companies Code,

art. 396

Reserve

capital

created

from profit

accordance

with the

Company’s

Statutes

Profit/(loss)

from

years

As at 1 January 2021

( 392) ( 998) (1 390) ( 872) 667 18 085 2 236

Dividend paid - - - - - - ( 300)

Transfer of profit for the period to reserve capital - - - - - 1 479 (1 479)

Reclassification of the result of disposal of equity instruments

measured at fair value through other comprehensive income

- - - - - - ( 18)

Total comprehensive income, of which:

17 ( 297) ( 280) 543 - - 5 169

Profit for the period

- - - - - - 5 169

Other comprehensive income

17 ( 297) ( 280) 543 - - -

Reclassification of the result of disposal of equity instruments

measured at fair value through other comprehensive income

18 - 18 - - - -

Loss on the sale of equity instruments

( 1) - ( 1) - - - -

Note 7.2 Impact of effective cash flow hedging transactions entered into

- (2 431) (2 431) - - - -

Note 7.2

Amount transferred to profit or loss in connection with realisation

of derivatives

- 2 064 2 064 - - - -

Note 11.2 Actuarial gains on post-employment benefits

- - - 670 - - -

Note 5.1.1 Deferred income tax

- 70 70 ( 127) - - -

As at 31 December 2021

( 375) (1 295) (1 670) ( 329) 667 19 564 5 608

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Other reserves from measurement of financial

instruments

Retained earnings

Investments in

equity

instruments

measured at

fair value

through other

comprehensive

income

Other reserves

from

measurement of

cash flow

hedging

financial

instruments

Total other

reserves from

measurement

of financial

instruments

Accumulated

other

comprehensive

income

Reserve capital

created in

accordance with

the Commercial

Partnerships and

Com

panies Code,

art. 396*

Reserve

capital

created from

profit in

accordance

with the

Company’s

Statutes

Profit/(loss)

from previous

years

As at 1 January 2022

( 375) (1 295) (1 670) ( 329) 667 19 564 5 608

Dividend paid - - - - - - ( 600)

Transfer of profit for the period to reserve capital

- - - - - 4 569 (4 569)

Total comprehensive income, of which:

( 79) 1 354 1 275 ( 373) - - 3 533

Profit for the period

- - - - - - 3 533

Other comprehensive income

( 79) 1 354 1 275 ( 373) - - -

Change in fair value of investments in equity instruments

( 97) - ( 97) - - - -

Note 7.2

Impact of effective cash flow hedging transactions entered

into

- 1 239 1 239 - - - -

Note 7.2

Amount transferred to profit or loss in connection with

realisation of derivatives

- 432 432 - - - -

Note 11.2 Actuarial losses on post-employment benefits

- - - ( 460) - - -

Note 5.1.1 Deferred income tax

18 ( 317) ( 299) 87 - - -

As at 31 December 2022

( 454) 59 ( 395) ( 702) 667 24 133 3 972

*Based on the Act of 15 September 2000, i.e. the Commercial Partnerships and Companies Code, the Company is required to create reserve capital for any potential (future) or existing losses, to which no less than 8%

of a given year’s profit is transferred until the reserve capital has been built up to no less than one-third of the registered share capital. The reserve capital created in this manner may not be employed otherwise than

in covering the loss reported in the financial statements.

As at 31 December 2022 the statutory reserve capital in the Company amounted to PLN 667 million, and is recognised in retained earnings in the item reserve capital created in accordance with art. 396 of the

Commercial Partnerships and Companies Code.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Information related to dividends paid may be found in Note 12.2.

Note 8.3 Liquidity management policy

The Management Board is responsible for the management of financial liquidity in the Company, and it is performed based

on the approved, appropriate Policy. The Financial Liquidity Committee is a body supporting the Management Board.

The basic principles resulting from the Financial Liquidity Management Policy are:

• assuring the stable and effective financing of the Company’s activities,

• investment of financial surpluses in safe financial instruments,

• limits for individual financial investment categories,

• limits for the concentration of funds in financial institutions,

• a required investment level rating for banks in which the funds are deposited, and

• effective management of working capital.

Under the liquidity management process, the Company utilises instruments which enhance its effectiveness. One of the

instruments used by the Company to deal with on-going operating activities is cash pooling - locally in PLN, USD and EUR

and internationally in USD and CAD. The Cash Pooling service is aimed at optimising the management of cash resources,

limiting interest costs, the effective financing of current working capital needs and the support of short-term financial

liquidity in the Group.

In 2022 the cash pooling system was modified in order to optimise the process of exchanging currencies by the domestic

companies of the KGHM Polska Miedź S.A. Group. The modification of these services introduced the daily and automatic

consolidation of the currency liquidity of the domestic companies of the KGHM Polska Miedź S.A. Group at the level of the

Company. Consolidation is performed through the daily (automatic) conversion into PLN of the positive and negative

balances in EUR and USD on the accounts of the companies participating in the cash pooling system. In order to support

current liquidity and to optimise these services, the Company entered into an overdraft facility agreement with the bank in

which the cash pooling system operates in the amount of PLN 200 million with availability to 15 May 2023 and the possibility

of utilisation in the following currencies: PLN, USD and EUR.

In 2022, as part of the management of the special purpose fund called Tailings Storage Facility Restoration Fund, created

in July 2013 in accordance with article 137 of the Act dated 14 December 2012 on waste, the Company altered the form of

securing the fund, from cash-based to being based on bank guarantees (non-cash), in order to free up the cash accumulated

in this fund and to reduce the costs of its servicing.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 8.3.1 Contractual maturities for financial liabilities

Financial liabilities – as at 31 December 2022

Contractual maturities from the end of the reporting period

Maturity period

Total

(without

discounting)

Carrying

amount

Financial liabilities

up to 3 months

over 3

to 12 months

over 1

to 3 years

over

3 years

Borrowings

776 327

840

1 706 3 649

3 435

Debt securities liabilities

- 174

699

2 093 2 966

2 002

Lease liabilities

22 58

156

1 160 1 396

687

Cash pooling payables**

321 -

- 321

321

Other liabilities due to settlement under cash pooling contracts***

29 -

- 29

Trade payables

2 801 4

344 3 175

3 005

Derivatives – currency contracts*

- 2

- 3

146

Derivatives – commodity contracts – metals*

13 26

- 40

395

Derivatives – interest rates

- -

348 376

569

Embedded derivatives

43 -

- 43

Other financial liabilities

108 35

6 184

179

Total

4 113 626

1 786

5 657 12 182

10 811

*Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect.

** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the cash pooling’s credit limit.

*** Other current financial liabilities due to the return of cash deposits towards all participants in cash pooling which presented a positive balance at the end of the reporting period.

Overdue financial liabilities as at 31 December 2022

Overdue period

up to 1 month

over 1 month

to 3 months

over 3 months

to 12 months

over

1 year

Total /

Carrying amount

Trade payables 1 - 8 4 13

The tables above regarding maturities do not include financial guarantees in the amount of PLN 969 million, which are due if there is a breach in contractual terms by parties to which the

guarantees were granted and toward which the Company cannot postpone payments, that is they must be paid on demand within 3 months. Details on financial guarantees and their

maturity dates were described in Note 8.6.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Financial liabilities – as at 31 December 2021

Contractual maturities from the end of the reporting period

Maturity period

Total

(without

discounting)

Carrying

amount

Financial liabilities

up to 3 months

over 3

to 12

months

over 1

to 3 years

over

3 years

Borrowings

93 316 1 410 1 469

3 288 2 980

Debt securities liabilities

- 84 561 1 910

2 555 2 001

Lease liabilities

20 48 126 1 082

1 276 580

Cash pooling payables** 360 - - -

360 360

Other liabilities due to settlement under cash pooling contracts*** 25 - - -

25 25

Trade payables

2 504 13 25 353

2 895 2 745

Similar payables – reverse factoring

2 53 - -

55 55

Derivatives – currency contracts*

- - - -

- 55

Derivatives – commodity contracts – metals*

144 611 313 -

1 068 1 514

Derivatives – interest rates

- - 20 294

314 431

Embedded derivatives

21 - - -

21 21

Other financial liabilities

234 11 10 10

265 264

Total

3 403 1 136 2 465 5 118

12 122 11 031

*Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect.

** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the cash pooling’s credit limit.

*** Other current financial liabilities due to the return of cash deposits towards all participants in cash pooling which presented a positive balance at the end of the reporting period.

Overdue financial liabilities – as at 31 December 2021

Overdue period

up to 1 month

over 1 month

to 3 months

over 3 months

to 12 months

over

1 year

Total /

Carrying amount

Trade payables 21 8 7 6 42

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 8.4 Borrowings

Accounting policies

Liabilities arising from borrowings are initially recognised at fair value, less (in the case of payment) or plus (in the case

of accrual) transaction costs which are an integral part of the financing drawn, and are measured at amortised cost at

the reporting date using the effective interest rate method. Accrued interest is recognised in finance costs, unless it is

capitalised through property, plant and equipment or intangible assets.

Note 8.4.1 Net debt

As at

31 December 2022

As at

31 December 2021

Bank loans*

528 596

Loans

1 859 2 060

Debt securities

2 000 2 000

Leases

613 524

Total non-current liabilities due to borrowings

5 000 5 180

Bank loans**

666 ( 3)

Loans

382 327

Cash pooling liabilities***

321 360

Debt securities

2 1

Leases

74 57

Total current liabilities due to borrowings

1 445 742

Total borrowings

6 445 5 922

Free cash and cash equivalents

971 1 318

Net debt

5 474 4 604

* In 2021 presented amounts include the preparation fee paid in the amount PLN 13 million which decreases financial liabilities

due to bank loans.

** In 2021 presented amounts include the preparation fee paid in the amount PLN 3 million which decreases financial liabilities

due to bank loans.

*** Liabilities of KGHM Polska Miedź S.A. towards the Group companies within the credit limit in the group of accounts participating

in the cash pooling system

Liabilities due to borrowings, debt securities and leases – breakdown by currency (translated into PLN) and by type

of interest rate

As at

31 December 2022

As at

31 December 2021

USD/LIBOR

528

( 16)

EUR/EURIBOR

PLN/WIBOR*

2 323

2 301

USD/fixed

2 907

2 996

EUR/fixed

PLN/fixed

672

567

Total

6 445

5 922

* The amount includes KGHM Polska Miedź S.A.’s liabilities towards Group companies due to cash pooling in the amount of PLN

321 million (PLN 300 million in 2021) within the credit limit.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

As at 31 December 2022, the Company’s liabilities due to borrowing, issued debt securities, leases and cash pooling

amounted to PLN 6 445 million, or USD 780 million, PLN 2 995 million and EUR 3 million (as at 31 December 2021 liabilities

amounted to PLN 5 922 million, or USD 734 million, PLN 2 868 million and EUR 16 million).

The structure of debt changed in comparison to 2021 in terms of an increase in current liabilities, which are affected by the

current and scheduled repayments of principals of bank and other loans drawn. Apart from this, and pursuant to the

adopted strategy, borrowing is aimed at ensuring long term financial stability whose structure is based on diversified and

long term financing sources.

Note 8.4.2 Net debt changes

As at

1 January

2022

Cash flows

Accrued

interest

Exchange

differences

Other

changes

As at

31 December

2022

Liabilities due to borrowing

Bank loans

593

550

( 25)

1 194

Loans

2 387

( 425)

206

2 241

Debt securities

2 001 ( 130) 131

- -

2 002

Leases

581

( 71)

149*

687

Cash pooling liabilities

360 ( 44) 5

- -

321

Total debt

5 922

( 120)

300

181

162

6 445

Free cash and cash equivalents

1 318

( 347)

971

Net debt

4 604

226

300

181

162

5 473

*A conclusion and modification of lease agreements.

Liabilities due to borrowing

As at

1 January

2021

Cash flows

Accrued

interest

Exchange

differences

Other

changes

As at

31 December

2021

Bank loans

1 860 (1 476)

59 150 -

593

Loans

2 461

( 339)

191

2 387

Debt securities

2 000 ( 36)

37 - -

2 001

Leases

510

( 76)

122*

581

Cash pooling liabilities

284

360

Total debt

7 115

(1 851)

195

341

122

5 922

Free cash and cash equivalents

2 120

( 802)

1 318

Net debt

4 995

(1 049)

195

341

122

4 604

*A conclusion and modification of lease agreements.

Currency risk and interest rate risk are related to borrowings. A description of exposures to financial risks may be found

in Note 7.5.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Reconciliation of cash flows recognised in net debt change to the statement of cash flows

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Financing activities

Proceeds from borrowings

605

205

Proceeds from/(Expenditures on) cash pooling

( 40)

Repayment of borrowings

( 352)

(1 889)

Repayment of lease liabilities

( 44)

( 51)

Repayment of interest on borrowings and debt securities

( 107)

( 72)

Repayment of interest on leases

( 9)

( 8)

Investing activities

Paid capitalised interest on borrowings

( 173)

( 112)

TOTAL

( 120)

(1 851)

Note 8.4.3 Detailed information concerning the main sources of borrowings

As at 31 December 2022, the Company had open credit lines, investment loans and debt securities with a total balance of

available financing in the amount of PLN 15 136 million, out of which PLN 5 437 million had been drawn (as at 31 December

2021 the Company had open credit lines, investment loans and debt securities with a total balance of available financing in

the amount of PLN 14 191 million, out of which PLN 4 997 million had been drawn).

The structure of financing sources is presented below.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Unsecured, revolving syndicated credit facility

A credit facility in the amount of USD 1 500 million (PLN 6 603 million), obtained on the basis of a financing agreement

concluded with a syndicate of banks in 2019 with a maturity of 20 December 2024

and an option to extend it by a further

2 years (5+1+1). In the years 2020-

2021 the Company received consent from Syndicate Members to extend the term of

the agreement by 2 years in total, i.e. to 20 December 2026. The limit of

available financing during the extension period

will amount to USD 1 438 million (PLN 6 330 million).

The funds acquired through this credit facility are used to finance

general corporate purposes. Interest is based on LIBOR plus a bank margin, depending on the net debt/EBITDA ratio.

The credit facility agreement obliges the Company to comply with the financial covenant and non-

financial covenants.

Financing parameters meet the standard conditions of these types of transactions. Pursuant to contractual terms and

conditions, the Company is obliged to report the level of financial covenant

for the reporting periods, i.e. as at 30 June

and as at 31 December. The Company continuously monitors

the risk of exceeding the levels of the financial covenant

stipulated in the credit facility agreement. As at the reporting date, during the financial y

ear and after the reporting date,

up to the publication of this Report, the value of the financial covenant resulting in the obligation to report as at 30 June

2022 and as at 31 December 2022, complied with the provisions of the agreement.

In 2022, the Company altered the judgement regarding the recognition of a preparatory fee and determined

that the

preparatory fee paid due to the signing of a borrowing agreement in the form of a revolving credit facility represents a

payment benefitting the Company by gaining

access to financing under terms set and accepted by the Company, and not

a cost of financial liabilities incurred under this agreement. Therefore

, the unamortised amount of the preparatory fee

was recognised as an asset and was reclassified in the statement of financial position under accruals (respectively short-

and long-term) and continues to be settled on a straight-line basis in the financial result for

the period to the end of the

life of the revolving syndicated credit facility agreement.

2022 2022 2021

Amount granted

Amount

of the liability

Amount

of the liability

6 603

528

Preparatory fee

(14)

Carrying amount of liabilities due to bank loans

528

(14)

Investment loans

Loans granted by the European Investment Bank in the total amount of PLN 3 340 million.

1. Investment loan in the amount of

PLN 2 000 million, with three instalments drawn and the payback periods expiring

on 30 October 2026, 30 August 2028 and 23 May 2029 and utilised to the

maximum available amount. The funds

acquired through this loan were used to finance Company investment projects related to modernisation of metallurgy

and development of the Żelazny Most tailings storage facility. The loan’s instalments have a fixed interest rate.

Investment loan in the amount of PLN 1 340 million granted by the European Investment Bank in December 2017 with

a financing period of 12 years. The Company has drawn three instalments under this loan with the payback periods

expiring on 28 Ju

ne 2030, 23 April 2031 and 11 September 2031. The unutilised part of the loan in the amount of PLN

440 million, by which the amount of financing granted to the Parent Entity was increased in June 2021, is available until

April 2023. The funds acquired thro

ugh this loan are used to finance the Company’s projects related to development

and replacement at various stages of the production process. The loan’s instalments have a fixed interest rate.

The loan agreements oblige the Company to comply with the financial covenant and non-

financial covenants commonly

stipulated in such types of agreements. Pursuant to contractual terms and conditions, the Company is obliged to report

the level of the financial covenant for the reporting periods, i.e. as at 30 June and a

s at 31 December. The Company

continuously monitors the risk of exceeding the levels of the financial covenant stipulated in the loan agreements.

As at the reporting date, during the financial year, and after the reporting date, up to the publication of this Report, the

value of the financial covenant resulting in the obligation to report as at 30 June 2022 and as at 31 December 2022,

complied with the provisions of the loan agreements.

2022 2022 2021

Amount granted

Amount

of the liability

Amount

of the liability

3 340

2 241

2 387

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Other bank loans

Bank loans in the total amount of PLN 3

193 million are used for financing working capital and supporting the

management of current financial liquidity. The Company holds lines of credit in the form of credit agreements.

These are

working capital facilities and credit accounts with availability of up to 4

years. The funds under open lines of credit are

available in USD, EUR and PLN with interest based on a fixed interest rate or variable LIBOR, EURIBOR and WIBOR plus a

margin.

2022 2022 2021

Amount granted

Amount

of the liability

Amount

of the liability

3 193

666

609

Preparatory fee

(2)

Carrying amount of liabilities due to bank loans

666

607

Debt securities

A bond issue program was established on the Polish market by an issue agreement on 27 May 2019.

The issue with a nominal value of PLN 2

000 million, under which bonds were issued with a maturity of 5 years in the

amount of PLN 400

million and a redemption date of 27 June 2024 as well as bonds with a maturity of 10 years in the

amount of PLN 1 600 million and a redemption date of 27 June 2029.

The nominal value of one bond is PLN 1 000, and the issue price is equal to the nominal value.

The bonds’ interest rate is

based on variable WIBOR plus a margin.

The funds from the issue of the bonds are used to finance general corporate purposes.

2022 2022 2021

Nominal value of

the issue

Amount

of the liability

Amount

of the liability

2 000

2 002

2 001

Total bank and other loans, debt securities

5 437

4 997

Preparation fee which decreases liabilities due to bank loans

(16)

Carrying amount of liabilities due to bank and other loans, debt securities 5 437

4 981

The aforementioned sources ensure the availability of external financing in the amount of PLN 15 136 million. The funds

available for use from these sources cover the liquidity needs of the Company and the Group.

The syndicated credit in the amount of USD 1 500 million (PLN 6 603 million), the investment loans in the amount of PLN

3 340 million, and other bank loans in the amount of PLN 3 193 million, are unsecured.

Note 8.5 Cash and cash equivalents

Accounting policies

Cash and cash equivalents include mainly cash in bank accounts and deposits with maturities of up to three months from

the date of their placement (the same applies to the statement of cash flows). Cash is measured at its nominal amount

plus interest, including a loss allowance for expected credit losses (Note 7.5.2.1).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

As at

31 December 2022

As at

31 December 2021

Cash in bank accounts

418

593

Other financial assets with a maturity of up to 3 months from the

date of acquisition – deposits

567

739

Total cash and cash equivalents

985

1 332

Restricted cash

Free cash and cash equivalents

971

1 318

As at 31 December 2022, the Company had cash in bank deposits in the amount of PLN 25 million (as at 31 December 2021

PLN 7 million), which are funds in separate VAT accounts, designated for servicing split payments. These funds are gradually

used to pay the VAT payables to suppliers.

Note 8.6 Liabilities due to guarantees granted

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

Accounting policies

The Company 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.

At the moment of initial recognition, the Company recognises the financial guarantee at its fair value, in the following

items of the statement of financial position:

• financial assets measured at amortised cost (other financial assets),

• other liabilities (deferred income).

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.

Important estimates and assumptions

For the calculation of expected credit loss, the Company adopts estimates for the rating, PD (probability of default) and

LGD parameters (loss given default) similarly as for the loans granted (Note 6.2). 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 2022, the Company held liabilities due to guarantees granted in the total amount of PLN 1 609 million.

The most significant items secure the following obligations:

Sierra Gorda S.C.M. – securing the performance of concluded agreements in the amount of PLN 969 million (as at 31

December 2021, PLN 670 million):

• PLN 969 million (USD 220 million) - a corporate guarantee (financial) securing repayment of a Revolving Credit

Facility, with maturity of the guarantee to September 2024. The recognised balance sheet valuation of the liability

due to the financial guarantee granted amounts to PLN 57 million (as at 31 December 2021: PLN 58 million),

other entities:

• PLN 126 million - securing the proper execution by the Company 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 2021 in the amount of PLN 124 million), the guarantee is valid for up to 1 year,

• PLN 461 million (USD 90 million, CAD 18 million) - securing the restoration costs of the Robinson mine, the

Podolsky mine and the Victoria project (as at 31 December 2021 in the amount of PLN 402 million, or USD 90

million, CAD 12 million), the guarantee is valid for up to 1 year,

• PLN 14 million - securing claims on behalf of Marshal of the Voivodeship of Lower Silesia to cover costs related to

collecting and processing waste, the guarantee is valid to 6 March 2023,

• PLN 2 million - securing obligations related to tax and customs duties, the guarantee is valid indefinitely,

• PLN 7 million (PLN 2 million and CAD 2 million) - securing the obligations related to proper execution of

agreements concluded by KGHM Polska Miedź S.A. and Group companies (as at 31 December 2021 in the amount

of PLN 10 million, or PLN 3 million and CAD 2 million), the guarantee is valid for up to 3 years,

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

• PLN 30 million - securing the obligations drawn by Brokerage House due to settlements of transactions on the

markets run by Towarowa Giełda Energii S.A, the guarantee was valid until 31 December 2022.

Based on the knowledge held, at the end of the reporting period the Company assessed the probability of payments

resulting from contingent liabilities as low.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

PART 9 – Non-current assets and related liabilities

Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets

Accounting policies – property, plant and equipment

The most important property, plant and equipment of the Company is property, plant and equipment related to the

mining and metallurgical operations, comprised of land, buildings, water and civil engineering structures, such as:

primary mine tunnels (including shafts, wells, galleries, drifts, primary chambers), backfilling, drainage and firefighting

pipelines, piezometric holes and electricity, signal and optical fibre cables. Machines, technical equipment, motor

vehicles and other movable fixed assets, as well as right-to-use assets recognised in accordance with IFRS 16 Leases,

including perpetual usufruct rights to land, are also included in mining and metallurgical property, plant and equipment.

Property, plant and equipment, excluding usufruct right-to-use assets, are recognised at cost less accumulated

depreciation and accumulated impairment losses. In the initial cost of items of property, plant and equipment the

Company includes discounted decommissioning costs of fixed assets related to mining and other facilities which, in

accordance with binding laws, will be incurred following the conclusion of activities. Principles of recognition and

measurement of decommissioning costs are presented in Note 9.4.

An asset’s carrying amount includes costs of significant components, regular major overhauls and significant periodic

repairs, the performance of which determines further use of the asset.

Costs are increased by borrowing costs (i.e. interest, exchange differences and fees representing an adjustment to

interest cost) that were incurred for the purchase or construction of a qualifying item of property, plant and equipment.

Right-to-use assets are initially measured at cost, which comprises the initial lease liability and all lease payments paid

on the date the lease began and before that date, less any lease incentives received, any initial direct costs incurred by

the lessee and an estimate of costs which will be incurred by the lessee due to the disassembly or removal of a base

asset or renovation of the site in which it was placed.

The perpetual usufruct right to land is measured at the amount of the liability on the perpetual usufruct right to land,

which is measured using the perpetual rent method and all lease payments paid on the date the lease began or before

that date (including payments for acquisition of this right on the market).

After the initial recognition, a right-to-use asset, excluding the perpetual usufruct right to land measured using the

perpetual rent method, is measured at cost decreased by accumulated depreciation/amortisation and accumulated

impairment losses, adjusted by the updated measurement of lease liabilities.

Items of property, plant and equipment (excluding land and perpetual usufruct rights to land) are depreciated by the

Company, pursuant to the model of consuming the economic benefits from the given item of property, plant and

equipment:

• using the straight-line method, for items which are used in production at an equal level throughout the period of

their usage,

• using the units of production method, for items in respect of which the consumption of economic benefits is

directly related to the quantity of units produced, and this production is not spread evenly through the period of

their usage. In particular it relates to machines and mining equipment in gas-steam blocks.

The useful lives, and therefore the depreciation rates of fixed assets used in the production of copper, are adapted to

the plans for the closure of operations, and in the case of right-to-use assets to the earlier of these two dates – either to

the useful life end date or to the lease end date, unless the ownership of an asset is transferred to the Company before

the end of the lease, in which case depreciation rates are adjusted to the estimated useful life end date.

For individual groups of fixed assets, the following useful lives have been adopted, estimated based on the anticipated

useful lives of mines and metallurgical plants:

For own fixed assets:

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Group

Fixed assets type

Total useful lives

Buildings and land

Land

Not subject to depreciation

Buildings:

- buildings in mines and metallurgical plants,

- sheds, reservoirs, container switchgears

40-100 years

20-30 years

Primary mine tunnels

22-90 years

Pipelines:

- backfilling to transfer sand with water,

- technological, drainage, gas and firefighting

6-9 years

22-90 years

Electricity, signal and optical fibre cables

10-70 years

Technical equipment,

machines, motor

vehicles and other fixed

assets

Technical equipment and machines:

- mining vehicles, mining roof support

- conveyor belts, belt weigher

- switchboards, switchgears

4-10 years

10-66 years

4-50 years

Motor vehicles:

- underground electric locomotives,

- mining vehicles, railway vehicles, tankers,

transportation platforms

- trolleys, forklift, battery-electric truck

- cars, trucks, special vehicles

- underground diesel locomotives

20-50 years

7-35 years

7-22 years

5-22 years

10-20 years

Other fixed assets, including tools and equipment

5-25 years

For right-to-use fixed assets:

Group

Type of right-to-use

Total period of use

Buildings and land

Perpetual usufruct right to land measured

using the perpetual rent method

Not subject to depreciation

Transmission easements

6-54 years

(period of depreciation depends on

the period of depreciation of an

asset in respect of which a

transmission easement was

established)

Land

5-30 years

Buildings – warehouses

22 years

Other buildings

3-5 years

Structures

3 years

Computer sets

3 years

Technical equipment,

machines, motor

vehicles and other fixed

asset

Machines and technical equipment

3-4 years

Motor vehicles

3 years

Equipment and other

5 years

The Company performs regular reviews of its property, plant and equipment in terms of the adequacy of applied useful

lives to current operating conditions.

The individual significant parts of a fixed asset (significant components), whose useful lives are different from the useful

life of the given fixed asset as a whole are depreciated separately, applying a depreciation rates which reflects its

anticipated useful life.

Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that their carrying

amount may not be recoverable.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

An impairment loss is recognised as the amount by which the carrying amount of the given asset or cash-generating

unit exceeds its recoverable amount.

For the purpose of impairment analysis, assets are grouped at the lowest level at which they generate cash inflows,

independently from other assets (cash-generating units). Cash-generating units are determined separately, each time

an impairment test is to be performed.

If an impairment test indicates that the recoverable amount (i.e. the higher of: the fair value decreased by costs to sell

and its value in use) of a given asset or cash-generating unit is lower than its carrying amount, an impairment loss is

recognised as the difference between the recoverable amount and the carrying amount of a given asset or cash-

generating unit. The impairment loss is allocated to individual assets within the cash-generating units, proportionally to

the share of an individual asset’s carrying amount in the carrying amount of the entire unit. If such an allocation is made,

the carrying amount of the asset may not be lower than the highest of the three following values: fair value decreased

by costs to sell, value in use and zero.

Accounting policies – intangible assets

Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets.

Exploration and evaluation assets are measured at cost less accumulated impairment losses.

The following expenditures are recognised in the cost of the asset:

• geological projects;

• obtaining environmental decisions;

• obtaining concessions and mining usufruct for geological exploration;

• work related to drilling (drilling; geophysical and hydrogeological research; geological, analytical and geotechnical

services; etc.);

• the purchase of geological information;

• the preparation of geological documentation and its approval;

• the preparation of economic and technical assessments of resources for the purpose of making decisions regarding

applying for mine operating concessions; and

• equipment usage costs (property, plant and equipment) used in exploratory work.

Expenditures on exploration and evaluation assets are measured at cost less accumulated impairment losses and are

recognised as intangible assets not yet available for use.

The Company is required to test an individual entity (project) for impairment when:

• the technical feasibility and commercial viability of extracting mineral resources is demonstrable; and

• the facts and circumstances indicate that the carrying amount of exploration and evaluation assets may exceed

their recoverable amount.

Any potential impairment losses are recognised prior to reclassification resulting from the demonstration of the

technical and economic feasibility of extracting the mineral resources.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Property, plant and equipment

Intangible assets

Buildings and

land

Technical

equipment,

machines, motor

vehicles and other

fixed assets

Fixed assets under

construction

Exploration

and evaluation

assets

Other Total

As at 1 January 2021

Gross carrying amount

12 548 13 492 5 393 344 547 32 324

Accumulated depreciation/amortisation

(5 321) (6 931) - - ( 94) (12 346)

Impairment losses

( 1) ( 11) ( 7) ( 118) ( 4) ( 141)

Net carrying amount

7 226 6 550 5 386 226 449 19 837

Changes in 2021 net

Settlement of fixed assets under construction

1 304 1 090 (2 394) - - -

Purchases

- - 2 020 49 226* 2 295

Leases – new contracts, modification of contracts

24 97 - - - 121

Self-constructed

- - 66 1 - 67

Capitalised borrowing costs

118

119

Change in provisions for decommissioning costs of mines and

tailings storage facilities

( 333) - - - - ( 333)

Depreciation/amortisation, of which:

( 377) (1 007) - - ( 11) (1 395)

own fixed assets

( 350) ( 991) - - ( 11) (1 352)

leased fixed assets

( 27) ( 16) - - - ( 43)

Recognition of impairment losses

- ( 7) ( 11) - ( 2) ( 20)

Utilisation of impairment losses - - 9 - 6 15

Other changes

( 1) ( 7) ( 9) - 148 131

As at 31 December 2021

Gross carrying amount

13 505 14 250 5 194 394 921 34 264

Accumulated depreciation/amortisation

(5 661) (7 516) - - ( 104) (13 281)

Impairment losses

( 1) ( 18) ( 9) ( 118) - ( 146)

Net carrying amount, of which:

7 843 6 716 5 185 276 817 20 837

own fixed assets and intangible assets

7 363 6 612 5 185 276 817 20 253

leased fixed assets

480 104 - - - 584

*Purchase of the CO

emission rights

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Property, plant and equipment

Intangible assets

Buildings and

land

Technical

equipment,

machines, motor

vehicles and other

fixed assets

Fixed assets under

construction

Exploration

and evaluation

assets

Other Total

As at 1 January 2022

Gross carrying amount

13 505 14 250 5 194 394 921 34 264

Accumulated depreciation/amortisation

(5 661) (7 516) - - ( 104) (13 281)

Impairment losses

( 1) ( 18) ( 9) ( 118) - ( 146)

Net carrying amount

7 843 6 716 5 185 276 817 20 837

Changes in 2022 net

Settlement of fixed assets under construction

658 1 419 (2 077) - - -

Purchases

- - 2 416 71 19 2 506

Leases – new contracts, modification of contracts

132 18 - - - 150

Self-constructed

- - 72 2 - 74

Capitalised borrowing costs - - 179 - 2 181

Change in provisions for decommissioning costs of mines and

tailings storage facilities

16 - - - - 16

Depreciation/amortisation, of which:

( 408) (1 039) - - ( 14) (1 461)

own fixed assets

( 405) (1 016) - ( 14) (1 435)

leased fixed assets

( 3) ( 23) - ( 26)

Recognition of impairment losses

- - ( 4) - ( 2) ( 6)

Utilisation of impairment losses - 4 6 - 2 12

Other changes

- ( 32) ( 13) - 78 33

As at 31 December 2022

Gross carrying amount

14 278 15 086 5 771 467 1 020 36 622

Accumulated depreciation/amortisation

(6 036) (7 986) - - ( 118) (14 140)

Impairment losses

( 1) ( 14) ( 7) ( 118) - ( 140)

Net carrying amount, of which:

8 241 7 086 5 764 349 902 22 342

own fixed assets and intangible assets

7 660 6 987 5 764 349 902 21 662

leased fixed assets

581 99 - - - 680

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 9.1.1 Mining and metallurgical property, plant and equipment– fixed assets under construction

As at

31 December 2022

As at

31 December 2021

Deposit Access Program

3 318 2 796

Construction of the SW-4 shaft 589 565

Investment activity related to the development and operation of

the Żelazny Most Tailings Storage Facility

280 424

Damówka pumping station with a backwater pipeline in the

Tailings Division

145 131

BAT As – Installation for arsenic and mercury removal from gases

before Solinox installation

117 113

Modernisation of the tankhouse at Głogów I Copper Smelter and

Refinery – reconstruction of the roof and walls of the tankhouse

96 89

Note 9.1.2 Expenses related to mining and metallurgical assets

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Purchase

(2 506) (2 295)

Change in liabilities due to purchase

27 54

Other

( 210) ( 140)

Total

(2 689) (2 381)

Note 9.2 Other property, plant and equipment and intangible assets

Accounting policies

Other property, plant and equipment are recognised at cost less accumulated depreciation and accumulated

impairment losses. The policy regarding impairment is presented in Note 9.1. Depreciation is done using the straight-

line method.

For individual groups of fixed assets, the following useful lives have been adopted:

Group

Total useful lives

Buildings

25-60 years

Technical equipment and machines

4-15 years

Motor vehicles

3-14 years

Other fixed assets

5-10 years

Intangible assets presented as “other intangible assets” include in particular: acquired property rights not related to

mining operations and software. These assets are measured at cost less any accumulated amortisation and impairment

losses. Intangible assets are amortised using the straight-line method over their anticipated useful lives. The useful lives

of the main groups of intangible assets are as follows:

Group

Total useful lives

Acquired property rights

not related to mining activities

5-50 years

Software 2-5 years

Other intangible assets 40-50 years

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Property, plant and equipment

Intangible

assets

Buildings and

land

Technical

equipment,

machines, motor

vehicles and

other fixed

assets

Fixed assets

under

construction

Other

intangible

assets

Total

As at 1 January 2021

Gross carrying amount

245 14 199 515

Accumulated depreciation/amortisation

(38)

(176) - (134) (348)

Net carrying amount as at 1 January 2021

69 14 65 167

As at 31 December 2021

Gross carrying amount

252 9 209 528

Accumulated depreciation/amortisation

(39)

(182) - (149) (370)

Net carrying amount as at 31 December 2021

70 9 60 158

own fixed assets and intangible assets 18

70 9 60 157

leased fixed assets 1

- - - 1

Net changes in 2022

Settlement of fixed assets under construction

(32)

Purchase

- 34 6 40

Liquidation -

(11) - - (11)

Other changes -

11 - 1 12

Depreciation/amortisation, of which: (1)

(26) - (16) (43)

property, plant and equipment and intangible assets (1)

(26) - (16) (43)

As at 31 December 2022

Gross carrying amount 66

266 10 216 558

Accumulated depreciation/amortisation (41)

(197) - (165) (403)

Net carrying amount, of which: 25

69 10 51 155

own fixed assets and intangible assets 24

69 10 51 154

leased fixed assets 1

- - - 1

As at 31 December 2022 and 31 December 2021 the Company did not have any assets pledged as security for liabilities.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 9.3 Depreciation/amortisation

Property, plant and equipment

Intangible assets

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

Note 4.1 Depreciation/amortisation

1 474 1 408

30 27

recognised in profit or loss

1 407 1 338

27 25

cost of manufacturing

products

1 375 1 309

25 23

administrative expenses

32 29

2 2

being part of the

manufacturing costs of assets

67 70

3 2

Note 9.4 Provision for decommissioning costs of mines and other technological facilities

Accounting policies

Important estimates, assumptions and judgments

The provision for future decommissioning costs of mines and

other technological facilities is recognised based

on the estimated expected costs of decommissioning of such

facilities and of restoring the sites to their original condition

following the end of operations. Estimation of this provision is

based on specially-

prepared studies using ore extraction

forecasts (for mining facilities), and technical-economic studies

prepared either by specialist firms or by the Company.

The amount of provision represen

ts the estimated future

decommissioning costs of mines discounted to present value.

Revaluation of this provision is made in two stages:

1) estimation of the costs of decommissioning mines to the

current value in connection with the change in prices using

the price change indices of construction-assembly production

published by the Central Statistical Office.

discounting of the decommissioning costs to the current

value using real

discount rates calculated based on the

nominal interest rates and the inflation rate (quotient of the

nominal rate and the inflation rate), whereby:

• the nominal interest rate is based on the yield on

treasury bonds at the end of the reporting period, with

maturities nearest to the planned financial outflows

and if there are no treasury bonds with maturities

close to the planned financial outflows - the nominal

interest rate is determined by

the professional

judgment of the Company's Management on the basis

of the consistency of the adopted assumptions,

• the inflation rate is based on the forecast of future

inflation used in the calculation of future employee

benefits liabilities.

A change in the discount rate

or in the estimated

decommissioning cost adjusts the value of the relevant item of a

fixed asset, unless it exceeds the carrying amount of the item of

a fixed asset (any surplus above this amount is recognised in

other operating income).

The increase in the provision due to the time lapse is recognised

in finance costs.

The provision for decommissioning costs of mines and other

technological facilities includes the balance of the Mine Closure

Fund and Tailings Storage Facility Restoration Fund, which the

Company creates under separate regulations, i.e. the Act of 9

In 2022, the Company revised its

approach to the

discount rates used to estimate a provision.

At the end of the reporting period, with a bond yield of

+/- 6.845% and inflation of +/- 13.1% (at the end of the

comparable period: respectively +/-3.6% and +/-7.6%),

the Company received and applied for the years 2022-

2023 a negative real discount rate of -5.53% instead of

a rate of ”0” in line with the previous approach.

For the subsequent two measurement periods, that is

for 2024 and 2025, the Company adopted inflation

rates at the level of the NBP’s forecast, that is 5.9% and

3.5%, respectively, and

for subsequent periods,

following the NBP’s forecast -

at the level of 2.5%, in

line with the long-term inflation target.

Moreover, for the first 10 years of measurement of the

provision (that is to 2032), the Company adopted a

risk-free rate of 6.845% (measurement of 10-year

treasury bonds) due to the fact that it is the only

publicly available information on the risk-free rate for

the subsequent 10 years, and pursuant to the adopted

judgment, this rate was

not modified. The Company

will adjust the risk-

free rate to the level of this rate

announced at every subsequent end of the reporting

period in order to measure the provision at those

days.

In turn, taking

into account the high volatility of the

risk-

free rate that took place in the last period, based

on quotations of 10-

year treasury bonds, the

Company applied a professional judgment to

determine this rate for the estimation of provisions

falling after a period of 10 years from the end of the

annual reporting

period based on the historical

observation of the ratio of the risk-

free rate to the

assumed inflation target. As a result of the judgement,

the Company adopted the risk-free rate of 3.5% for the

estimation of provision for 10 years from the end of

the annual reporting period, which translated into a

real discount rate of 0.98%.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

June 2011 Geological and Mining Law and the Act of 14

December 2012 on waste, respectively. The role of the Funds is

to secure cash for the future realisation by the Company of its

obligations related to the closure, decommissioning and

restoration of mines and tailings storage facilities, by collecting

them in the manner provided for by the laws.

In the case of the Mine Closure Fund, the Company has

separated a bank cash account to which it transfers cash

equivalent to 3% of the depreciation charges on fixed assets of

mines, determined in accordance with the provisions of the

Income Tax Act. Details on the credit risk related to the cash

accumulated on the separate account of Mine Closure Fund are

presented in Note 7.5.2.4.

In the case of Tailings Storage Facility Restoration Fund, in July

2022 the Company changed the form of securing the funds of

this Fund, replacing a separate bank account with financial

guarantees issued by the bank on demand of the Company, of

which the Company is also a beneficiary. As at 31 December

2022, the amount of guarantees was PLN 98 million, and their

value is updated on an annual basis. The Company strives to fully

secure funds for the restoration of individual tailings storage

facilities in the year, for which the liquidation and restoration

schedule provides for the closure of a given tailings storage

facility, by systematic increasing the value of these guarantees.

As at

31 December 2022

As at

31 December 2021

Provisions at the beginning of the reporting period

824

1 192

Note 9.1

Changes in estimates recognised in fixed assets

( 333)

Mine Closure Fund and Tailing Storage Facility Restoration

Fund*

428

Utilisation

( 5)

Other

( 2)

( 35)

Provisions at the end of the reporting period, including:

1 261 824

- non-current provisions

1 233

811

- current provisions

*Change in the presentation: to the presentation together with the non-current part of the provision for decommissioning costs of mines and other

facilities, which is a result of the change in judgment as to the period of expected cash outflows from the fund.

Impact of the change in discount rate on the provision for decommissioning costs of mines

As at

31 December 2022

As at

31 December 2021

increase in discount rate by 1 percentage point

(258)

( 263)

decrease in discount rate by 1 percentage point

700

*Assuming that the discount rate cannot fall below the level of 0%.

Note 9.5 Capitalised borrowing costs

During the period between 1 January 2022 to 31 December 2022, the Company recognised PLN 181 million of borrowing

costs in property, plant and equipment and intangible assets (during the period from 1 January 2021 to 31 December 2021:

PLN 119 million).

The capitalisation rate applied by the Company to determine borrowing costs in 2022 amounted to 4.56% (in 2021: 3.07%).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Note 9.6 Lease disclosures – the Company as a lessee

Accounting policies

As a lessee, the Company identifies leases in usufruct agreements, inter alia, land, perpetual usufruct right to land, and

transmission easements, buildings and constructions as well as technical equipment and machines.

The Company applies a uniform lease accounting model, which assumes that the lessee recognises the right-to-use

assets and lease liabilities related to all lease agreements, including exemptions. The Company does not recognise lease

assets and liabilities in relation to:

• short-term leases - for agreements without the option to purchase an asset, concluded for a period shorter than 12

months from the commencement of the agreement, including agreements concluded for an indefinite period with

a short notice period if there is no reasonable certainty that the Company will not make use of termination,

• leases in respect of which the underlying asset has a low value.

In the case of an agreement that is or includes a lease, the Company recognises each lease component under

the agreement as a lease, separately from non-lease components.

The lease period covers the irrevocable period of the lease agreement, including periods

for which the lease can be extended if it is reasonably certain that the lessee will exercise that right, and the periods

for which the lease can be terminated if it is reasonably certain that the lessee will not exercise that right.

The right-to-use assets and the measurement policy for these assets are presented in Note 9.1.

The Company initially measures the lease liability at the present value of lease payments due to be paid as at the date

of initial recognition, which include: fixed lease pay

ments, variable lease payments which are dependent on an index

or rate, amounts which the lessee is expected to pay under the guaranteed residual value, the strike price call option if

it is reasonably certain that the lessee will exercise the option, and penalties for terminating the lease if the lease period

was set with the assumption that the lessee will terminate the agreement. In fixed lease payments, the Company also

includes payments for the exclusion of land from forestry and agricultural production, if they relate to land used under

lease agreements.

The lease payments exclude variable payments made by the lessee to the lessor for the right to use the underlying asset

during the lease period, which depend on external factors other than payments based on a rate or index. After the date

the lease began, the Company measures the carrying amount of lease liabilities by:

• an increase due to interest on lease liabilities,

• a decrease due to paid lease payments,

• an update due to reassessment or modification of a lease agreement.

Lease liabilities are presented in Note 8.

Lease rate - lease payments are discounted by the Company using the incremental borrowing rate of the lessee because

generally speaking, the interest rate of a lease agreement is difficult to determine.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

Lease disclosures – the Company as a lessee

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 9.1 Depreciation/amortisation cost

26 43

Note 4.3 Interest cost

10 8

Short-term lease cost

9 8

Cost associated with variable lease payments not

recognised in the measurement of lease liabilities

- 3

Note 8.4.2 Total cash outflows due to leases

71 76

Note 9.1 Increase in right-to-use assets

38 121

As at

31 December 2022

As at

31 December 2021

Note 9.1

Note 9.2

Carrying amount of right-to-use assets (division by

underlying assets in notes, pursuant to references)

681 585

Note 8.4.2 Carrying amount of right-to-use liabilities

575 581

As at 31 December 2022, the Company had lease agreements that contained extension options and termination options,

and the estimated value of future cash outflows, to which the Company is potentially exposed and are not included in the

measurement of lease liabilities amounted to PLN 10 million and PLN 36 million respectively. The Company has lease

agreements containing guaranteed residual values, which have been included in the measurement of lease liabilities. In

addition, the Company has not yet commenced lease agreements, to which it is obliged as a lessee, and the value of future

cash outflows on this account is PLN 4 million.

Note 9.7 Non-current assets held for sale and liabilities associated with them

As at 31 December 2022, the Company identified the shares of KGHM TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH S.A.

in the amount of PLN 3 million as assets held for sale, due to the fulfilment of the criteria set in IFRS 5 (i.e. they are available

for immediate sale in their current state, the sale is highly probable, and it is expected that it will take place within 1 year

from the date of classification as held for sale). Due to their insignificant value, these shares were not separated in the

statement of financial position to a separate item "Non-current assets held for sale" and are included in this statement

under the item "Investments in subsidiaries".

As at 31 December 2021, the Company did not have any non-current assets held for sale.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

PART 10 – Working capital

Note 10.1 Inventories

Accounting policies

The Company measures inventories at cost, not higher than the sales price less costs of completing production and costs to sell.

Any differences in the value of finished goods constitutes a write-down and is recognised in the costs of sold products.

The costs of inventories of finished goods, half-finished goods and work in progress include costs directly related to the production

and variable and fixed indirect costs of production, assigned respectively. Fixe

d indirect costs of production are allocated on the

basis of the normal level of production capacity utilisation.

The valuation of the inventory component disposal is made according to the weighted average purchase price and the weighted

average actual production cost.

The Company also classifies as inventories stand-by spare parts that do not meet the criteria for recognition as property, plant and

equipment in accordance with IAS 16 par. 7 and in accordance with the principles of capitalization of signif

icant components,

adopted in the accounting principles of the Company, where a materiality threshold of at least PLN 300 thousand has been set, for

which the spare parts are analysed in terms of meeting the capitalization criteria of IAS 16. In relation to above, stand-

by spare

parts are in particular recognised as inventories, the value of which is insignificant or are not replaced at regular intervals, or which,

after their installation, due to the failure of a spare part in an item of property, plant and equipment, will not contribute to obtain

higher economic benefits from further use of this component, than those assumed at the moment of initial recognition of the

component and putting it into use. The costs of such stand-by spare parts are recognised in profit or loss as they are used up, as

current maintenance costs of assets.

Important estimates, assumptions and judgments

The Company measures inventories at cost, not higher than the net realisable value. The net realisable value is the estimated sales

price achieved during ordinary course of business activities less estimated costs of completing production/performing a service

and the estimated, necessary costs to sell. The potential difference in the amounts represents a write-

down of inventories of

copper, silver and other products (at various processing stages)

, up to the net realisable value is recognised in the cost of

manufacturing of sold products in the period, in which the write-down was recognised.

The Company determines the net sales price of copper at the end of the reporting period on the basis of forward LME (London

Metal Exchange) curve for the metal, set for months in which the sale of metal inventories will be made.

As at

31 December 2022

As at

31 December 2021

Materials

1 503

1 124

Half-finished goods and work in progress

4 495

3 260

Finished goods

1 444

965

Merchandise

Total net carrying amount of inventories

7 523

5 436

Write-down of inventories in the financial period

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Write-down recognised in cost of sales

Write-down reversed in cost of sales

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

Maturities of inventories

As at

31 December 2022

As at

31 December 2021

Maturity over the 12 months from the end of the reporting

period

Maturity of up to 12 months from the end of the reporting

period

7 447

5 356

As at 31 December 2022 and in the comparable period, the value of inventories with a maturity of over 12 months mainly includes

stand-by inventories of materials and spare parts to maintain production continuity, packages of spare parts under contractual

obligations and the finished rhenium product.

Note 10.2 Trade receivables

Accounting policies

Trade receivables are initially recognised at the transaction price, unless the receivables contains a significant financial component

subject to separation and therefore the receivables are initially recognised at fair value. After initial recognition, receiv

ables are

measured as follows:

• receivables not transferred to non-recourse factoring and not based on the M+ pricing formula:

at amortised cost while

taking into account the loss allowance for expected credit losses (trade receivables with maturity dates of less than 12

months are not discounted),

• receivables transferred to non-recourse factoring:

at fair value through profit or loss, where the fair value is determined in

the amount of their carrying amount less the factor’s compensation, which include, among others, interest costs and risk

assumption costs. Because of the short duration betwe

en the transferral of receivables to the factor and its payment and

due to the low credit risk of the counterparty (factor), the fair value of these receivables does not include an adjustment by

the impact of these factors. Receivables transferred to non-recourse factoring are obligatorily designated to the category of

financial assets measured at fair value through profit or loss, because they were classified to a business model in which cash

flows are realised solely by selling financial assets.

• receivables based on the M+ pricing formula:

at fair value through profit or loss, where the fair value is set as the nominal

value (i.e. at the price in the invoice), adjusted by the impact of market and credit risks. Adjustment due to the market risk is

calculate

d as the difference between the current market price for a given pricing period in the future (the period in which

there will be a final determination of the settlement price) and the receivables’ price recognised in the accounting books

(multiplied by the sales volume). Adjustment due to the credit risk is calculated analogously to the calculation of expected

credit losses for trade receivables measured at amortised cost. Receivables based on the M+ pricing formula are obligatorily

designated to the category of financial assets measured at fair value through profit or loss, because these assets do not pass

the SPPI (solely payments of principal and interest) test because of the element of variable price after the date of initial

recognition of the receivables.

Receivables measured at fair value may be measured based on the M+ pricing formula as well as due to the transfer to factoring.

The measurements are carried out independently of each other. The result of both measurements is recognised in the profit or

loss in other operating income/(costs).

The Company is exposed to the credit risk and currency risk related to trade receivables. Credit risk management and assessment of

the credit quality of receivables is presented in Note 7.5.2.3. while information on the currency risk is presented in Note 7.5.1.3.

The following table presents the carrying amounts of trade receivables and the loss allowance for expected credit losses:

as at

31 December 2022

as at

31 December 2021

Trade receivables measured at amortised cost

- gross value

166

134

Loss allowance for expected credit losses

( 1)

Trade receivables measured at amortised cost

- net value

165

133

Trade receivables measured at fair value

455

467

Total

620

600

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

100

Note 10.3 Trade and similar payables

Accounting policies

Trade and similar payables are initially recognised at fair value less transaction cost and are measured at amortised cost at the

end of the reporting period.

Accrued interest due to repayment of payables at a later date, in particular payables transferred to reverse factoring, is recognised

in profit or loss, in the item “finance costs”.

Important estimates, assumptions and judgments

Trade and similar payables presented in the statement of financial position also contain trade payables transferred to reverse

factoring, which are in the category of “similar”.

At the moment of transfer of the liabilities to reverse factoring, the Company recognises payables towards the factor, who

due to

the subrogation of receivables, from the legal point of view, assumes the rights and obligations common for trade payables.

The Company analysed the key IFRS requirements related to the issue and in the Company’s opinion the presentation of balances

of liabilities transferred to factoring in the statement of financial position and the reflection of reverse factoring transactions in the

statement of cash flows in the Company’s financial statements are consistent with the requirements of IFRS, and in particular with

the opinion of the International Financial Reporting Standards Interpretations Committee on the presentation of reverse factoring

transactions in the statement of financial position and statement of cash flows, published in December 2020.

In terms of the judgement applied related to the presentation of reverse factoring, the Company indicates that the actual deadline

for the payment of trade payables covered by reverse factoring agreements is longer (up to 180 days) than the deadline for the

payment of other trade payables which are not transferred to factoring, which usually amounts to 60 days, and it

may indicate a

change in the nature of these payables from trade to debt. However, this feature was assessed by the Company as insufficient to

consider that the nature of the payables changed completely when the trade payables were transferred to reverse factoring. Apart

from the above criterion, no other terms of payables covered by reverse factoring differ from the terms of other trade payables.

As at

31 December 2022

As at

31 December 2021

Non-current trade payables

186

187

Current trade payables

2 819

2 558

Similar payables – reverse factoring

Trade and similar payables

3 005

2 800

In 2022, the factors’ total participation limit amounted to PLN 1 500 million (in 2021: 1 500 million). Currently, the Company has two

agreements for the provision of factoring services which was implemented in 2019 in order to make it possible for suppliers to receive

repayment of receivables faster, as part of the standard procurement process executed by the Company, alongside an extension of

payment dates of payables by the Company to the factor. In the current year, because of the good liquidity situation of the Company,

there were no reasons to use this form of settlement, and as at 31 December 2022 no liabilities were transferred to the factors and

therefore no trade payables were covered by reverse factoring (in the year ended 31 December 2021, liabilities in the amount of PLN

988 million were transferred to the factor; the value of trade payables covered by reverse factoring as at 31 December 2021 amounted

to PLN 55 million); in the current year, there were payments towards the factors in the amount of PLN 55 million (in the year ended

31 December 2021 in the amount of PLN 2 187 million). Interest costs accrued and paid towards the factor in 2022 amounted to PLN

0.5 million (in the year ended 31 December 2021 the interest costs accrued and paid amounted to PLN 9 million).

Repayment dates of receivables due to reverse factoring do not exceed 12 months, and consequently all payables transferred to

reverse factoring are presented as short-term.

The item trade and similar payables contains payables due to the purchase and construction of fixed and intangible assets which, as

at 31 December 2022, amounted to PLN 185 million in the non-current part and PLN 975 million in the current part (as at 31 December

2021, respectively PLN 186 million and PLN 910 million).

The Company is exposed to currency risk arising from trade and similar payables and to liquidity risk. Information on currency risk is

presented in Note 7.5.1.3 and on liquidity risk in Note 8.3.

The fair value of trade and similar payables approximates the carrying amount.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

101

Note 10.4 Changes in working capital

Accounting policies

Cash flows arising from interest on reverse factoring transactions are presented in cash flows from financing activities. The actually

repaid principal amounts of receivables transferred to reverse factoring to a factor are presented in cash flows from operating

activities. Moreover, the Company, as regards the changes in working capital in the statement of cash flows, presented a separate

line “Change in trade payables transferred to factoring” for the purposes of clear and transparent presentation.

Important estimates, assumptions and judgments

Due to the lack of uniform market practice with respect to the presentation of reverse factoring transactions in the statement of

cash flows, the Management Board had to apply its own judgment in this regard. The Company had to make an assessment as to

whether expenses related to payments towards the factor should be classified to cash flows from operating activities or to cash

flows from financing activities in the statement of cash flows. Pursuant to

IAS 7.11, an entity should present cash flows from

operating, investing and financing activities in a manner which is most appropriate to its business, because it provides information

that allows users of financial statements to assess the impact of those

activities on the financial position of the entity and the

amount of its cash and cash equivalents.

Due to the above, in the Company’s view:

• presentation of the repayment of the principal amounts of receivables in the reverse factoring in cash flows from operating

activities is compliant with the objective of individual transaction elements and consistent with the presentation of these

transactions in the statement of financial position. When legal subrogation of receivables is made by the factor, from a legal

standpoint, the factor assumes the rights and responsibilities characteristic for trade receivables. Only cash flows from the

repayment

of principal amounts of receivables from liabilities due to the purchase and construction of fixed assets and

intangible assets are presented under investing activities (more information may be found in Note 10.3),

• however, the financial aspect related to the factoring transaction is reflected

in the presentation of interest in financing

activities. This is consistent with recognising this interest in financing costs in the statement of profit or loss pursuant to the

accounting policy adopted by the Company for the presentation of interest cost of reverse factoring in the financial activities.

Inventories

Trade

receivables

Trade

payables

Similar

payables

Working

capital

As at 1 January 2022

(5 436)

( 600) 2 745

55 (3 236)

As at 31 December 2022

(7 523)

( 620) 3 004

- (5 139)

Change in the statement of financial position

(2 087)

( 20) 259

( 55) (1 903)

Depreciation/amortisation recognised in inventories

- -

- 60

Liabilities due to purchase of property, plant and

equipment and intangible assets

- ( 34)

Adjustments

- ( 34)

- 26

Change in the statement of cash flows

(2 027)

( 20)

225

( 55)

(1 877)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

102

Inventories

Trade

receivables

Trade

payables

Similar

payables

Working

capital

As at 1 January 2021

(3 555)

( 351) 2 232

1 264 ( 410)

As at 31 December 2021

(5 436)

( 600) 2 745

55 (3 236)

Change in the statement of financial position

(1 881)

( 249) 513

(1 209) (2 826)

Depreciation/amortisation recognised in inventories

- -

- 57

Liabilities due to purchase of property, plant and

equipment and intangible assets

- ( 116)

54 ( 62)

Liabilities due to interest on reverse factoring

- -

1 1

Adjustments

- ( 116)

55 ( 4)

Change in the statement of cash flows

(1 824)

( 249) 397

(1 154) (2 830)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

103

PART 11 – Employee benefits

Accounting policies

The Company is obliged to pay specified benefits following the period of employment (retirement benefits due to one-off

retirement-disability rights, post-mortem benefits and the coal equivalent) and other long-term benefits (jubilee bonuses), in

accordance with the Collective Labour Agreement.

The amount of the liabilities due to both of these benefits is estimated at the end of the reporting period by an independent actuary

using the projected unit credit method.

The present value of liabilities from these benefits is determined by discounting estimated future cash outflow using the yield on

treasury bonds expressed in the

currency of the future benefits payments, with maturities similar to those of the liabilities due to

be paid.

Actuarial gains and losses from the measurement of specified benefits following the period of employment are recognised in

other comprehensive income in the period in which they arose. Actuarial gains/losses from the measurement of other benefits

(for example benefits due to jubilee bonuses) are recognised in profit or loss.

Important estimates and assumptions

The carrying amount of the liability due to future employee benefits is equal to the present value of the liabilities due to defined

benefits. The amount of the liability depends on many factors, which are used as assumptions in the actuarial method. Any changes

to the assumptions may impact the carrying amount of the liability. Discount rates are one of the basic parameters for measuring

the liability. At the end of the reporting period, based on the opinion of an independent actuary, an appropriate discou

nt rate for

the Company is used for setting the present value of estimated future cash outflow due to these benefits. In setting the discount

rate for the reporting period, the actuary applies yields of State Treasury bonds available at the balance sheet date, with maturities

approximate to the average maturities of measured liabilities.

Other macroeconomic assumptions used to measure liabilities due to future employee benefits, such as the inflation rate or the

minimum salary, are based on current market conditions.

In accordance with IAS 19 par. 78, the actuarial assumptions adopted for the purpose of measurement of employee benefits in the

Company are consistent, as they reflect the economic relations between such factors as inflation, salary growth rate, discount rate

and coal price growth rate. The additional analysis of assumptions p

repared by the Company determined that the balance of

provisions achieved using the adopted assumptions as to the salary growth and coal price growth could be achieved using the

alternative paths of price growth of 6.0% and coal price growth of 6.25%. Taking into account the adopted finance discount rate of

6.75% it should be noted that the assumptions adopted for the measurement are consistent, pursuant to IAS 19 paragraph 78.

The assumptions used to measurement as at 31 December 2022 are presented in Note 11.2.

Impact of changes in the indicators on the balance of liabilities

As at

31 December 2022

As at

31 December 2021

an increase in the discount rate by 1 percentage point

(231)

( 242)

a decrease in the discount rate by 1 percentage point

278

308

an increase in the coal price growth rate and the salary growth rate by

1 percentage point

299

228

a decrease in the coal price growth rate and the salary growth rate by

1 percentage point

(227)

( 177)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022

Translation from the original Polish version

104

Note 11.1 Employee benefits liabilities

As at

31 December 2022

As at

31 December 2021

Non-current

2 394

2 040

Current

237

130

Liabilities due to future employee benefits programs

2 631

2 170

Employee remuneration liabilities

494

422

Accruals (unused annual leave, bonuses, other)

634

578

Employee liabilities

1 128

1 000

Total employee benefits liabilities

3 759

3 170

Employee benefits expenses

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Remuneration

3 387

2 992

Costs of social security and other benefits

1 296

1 142

Costs of future benefits

149

115

Note 4.1 Employee benefits expenses

4 832

4 249

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

105

Note 11.2 Changes in liabilities related to future employee benefits programs

Total

liabilities

Jubilee

awards

Retirement

and disability

benefits

Coal equivalent

Other

benefits

As at 1 January 2021

2 848

445

408 1 965 30

Note 11.1 Total costs recognised in profit or loss

115

32 66 2

Interest costs

5 26 0

Current service costs

104

27 40 2

Actuarial gains recognised in profit or loss

( 26)

- - -

Note 8.2.2 Actuarial gains recognised in other comprehensive income

( 670)

( 41) ( 627) ( 2)

Benefits paid

( 123)

( 42)

( 30) ( 50) ( 1)

As at 31 December 2021

2 170

418

369 1 354 29

Note 11.1

Total costs recognised in profit or loss

149

35 73 2

Interest costs

13 49 1

Current service costs

22 24 1

Actuarial gains recognised in profit or loss

( 6)

- - -

Note 8.2.2

Actuarial (gains)/losses recognised in other comprehensive income

460

( 17) 479 ( 2)

Benefits paid

( 148)

( 51)

( 26) ( 70) ( 1)

As at 31 December 2022

2 631

406

361 1 836 28

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

106

As at 31 December

2022 2021 2020

2019 2018

Present value of liabilities due to employee benefits

2 631 2 170 2 848

2 492 2 376

Main actuarial assumptions adopted for measurement as at 31 December 2022:

2023 2024 2025 2026 2027 and beyond

- discount rate

6.75% 6.75% 6.75% 6.75% 6.75%

- coal price growth rate*

87.90% 5.90% 3.50% 2.50% 2.50%

- rate of growth of the lowest salary

19.60% 5.70% 5.00% 4.00% 4.00%

- expected inflation

13.10% 5.90% 3.50% 2.50% 2.50%

- future expected increase in salary

16.00% 9.00% 5.00% 4.00% 4.00%

* The increase in coal prices in 2023 was presented as an average for all Divisions of the Company. At the end of 2022, coal prices in individual Divisions which are the basis for setting the benefit ranged from 996.60 PLN/t to 1 792.00 PLN/t.

In 2023 there will be an adjustment of coal prices to a uniform level of 2 150 PLN/t, and in 2024 and subsequent years the coal price growth rate was adopted at the level of expected inflation.

Main actuarial assumptions adopted for measurement as at 31 December 2021:

2022 2023 2024 2025 2026 and beyond

- discount rate

3.60% 3.60% 3.60% 3.60% 3.60%

- coal price growth rate*

10.00% 3.60% 2.50% 2.50% 2.50%

- rate of growth of the lowest salary

7.50% 5.10% 4.00% 4.00% 4.00%

- expected inflation

7.60% 3.60% 2.50% 2.50% 2.50%

- future expected increase in salary

8.00% 6.50% 4.00% 4.00% 4.00%

* At the end of 2021, coal prices in individual Divisions of the Company which are the basis for setting the coal benefit ranged from 887.95 PLN/t to 983.60 PLN/t. An assumption was adopted on a 10% increase of coal prices in 2022, and in

2023 and subsequent years the coal price growth rate was adopted at the level of expected inflation.

The change in actuarial gains/losses was caused by a change in the assumptions in respect of the discount rate, coal prices and future expected changes of salary.

For purposes of reassessment of the liabilities at the end of the current period, the parameters assumed were based on available forecasts of inflation, analysis of coal prices rates and of the lowest

salary rates, and also based on the anticipated profitability of long-term treasury bonds.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

107

Actuarial gains/losses adopted for measurement as at 31 December 2022 versus individual assumptions adopted

as at 31 December 2021

Change in financial assumptions

Change in demographic assumptions

(36)

Other changes

452

Total actuarial (gains)/losses

454

Actuarial gains/losses adopted for measurement as at 31 December 2021 versus individual assumptions adopted

as at 31 December 2020

Change in financial assumptions

( 700)

Change in demographic assumptions

( 101)

Other changes

105

Total actuarial (gains)/losses

( 696)

Maturity profile of future employee benefits liabilities

Year of maturity:

Total

liabilities

jubilee

awards

retirement

and disability

benefits

oal

equivalent

post-

mortem

benefits

2023

236

51 54 129

2024

228

40 57 129

2025

177

35 17 123

2026

169

32 21 114

2027

155

31 17 105

Other years

1 666

217 195 1 236

Total liabilities in the statement of

financial position as at 31 December 2022

2 631

406 361 1 836

Maturity profile of future employee benefits liabilities

Year of maturity:

Total

liabilities

jubilee

awards

etirement

and disability

benefits

coal

equivalent

post-

mortem

benefits

2022

129

42 30

55 2

2023

169

39 63

66 1

2024

109

29 15

64 1

2025

107

30 15

60 2

2026

106

28 19

57 2

Other years

1 550

250 227

1 052 21

Total liabilities in the statement of

financial position as at 31 December 2021

2 170

418 369

1 354 29

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

108

PART 12 – Other notes

Note 12.1 Related party transactions

The accounting policies and important estimates and assumptions presented in Note 10 are applicable to transactions

entered into with related parties.

Operating income from related parties

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

From subsidiaries

900

1 736

From other related parties

Total

928

1 797

In 2022, dividends incomes from subsidiaries amounted to PLN 29 million (in the comparable period: PLN 37 million).

As at

31 December 2022

As at

31 December 2021

Trade and other receivables from related parties

9 724

9 150

From subsidiaries, including:

9 667

9 092

loans granted

8 784

8 366

From other related parties

Payables towards related parties

1 662

1 571

Towards subsidiaries

1 605

1 513

Towards other related parties

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Purchases from related entities

9 994

7 782

Purchase of products, merchandise, materials and other

purchases from subsidiaries

9 994

7 782

The State Treasury is an entity controlling KGHM Polska Miedź S.A. at the highest level. The Company makes use of the

exemption to disclose a detailed scope of information on transactions with the Polish Government and entities controlled

or jointly controlled by the Polish Government, or over which the Polish Government has significant influence (IAS 24.25).

Pursuant to the scope of IAS 24.26, in the period from 1 January to 31 December 2022, the Company concluded the following

transactions with the Polish Government and entities controlled or jointly controlled by the Polish Government, unusual

due to their nature or amount:

• due to an agreement on setting mining usufruct for the extraction of mineral resources and for the exploration for and

assessment of mineral resources – balance of payables as at 31 December 2022 in the amount of PLN 229 million (as

at 31 December 2021: PLN 228 million); including payables due to mining usufruct for the extraction of mineral

resources recognised in costs in the amount of PLN 35 million (as at 31 December 2021: PLN 30 million),

• due to a reverse factoring agreement with the company PEKAO FAKTORING Sp. z o.o. – as at 31 December 2022, the

Company had no payables (as at 31 December 2021, payables in the amount of PLN 28 million and interest costs for

2021 in the amount of PLN 6 million),

• banks related to the State Treasury executed the following transactions and economic operations on the Company’s

behalf: spot currency exchange, depositing cash, cash pooling, granting bank loans, guarantees and letters of credit

(including documentary letters of credit), processing of a documentary collection, running bank accounts, servicing of

business credit cards, servicing of special purpose funds and entering into transactions on the forward currency market.

State Treasury companies may purchase bonds issued by KGHM Polska Miedź S.A.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

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Other transactions between the Company and the Polish Government and with entities controlled or jointly controlled by

the Polish Government, or over which the government has significant influence, were within the scope of normal, daily

economic operations. These transactions concerned the following:

• the purchase of materials, merchandise and services to meet the needs of current operating activities. In the period

from 1 January to 31 December 2022, the turnover from these transactions amounted to PLN 3 050 million (from 1

January to 31 December 2021: PLN 1 687 million), and, as at 31 December 2022, the unsettled balance of liabilities from

these transactions amounted to PLN 254 million (as at 31 December 2021: PLN 166 million),

• sales to Polish State Treasury Companies. In the period from 1 January to 31 December 2022, the turnover from these

sales amounted to PLN 163 million (from 1 January to 31 December 2021: PLN 193 million), and, as at 31 December

2022, the unsettled balance of receivables from these transactions amounted to PLN 193 million (as at 31 December

2021: PLN 9 million).

Note 12.2 Dividends paid

In accordance with Resolution No. 6/2022 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 21 June 2022

regarding the appropriation of profit for the year ended 31 December 2021, the profit in the amount of PLN 5 169 million

was appropriated as follows: as a shareholders dividend in the amount of PLN 600 million (PLN 3.00 per share) and transfer

of PLN 4 569 million to the Company’s reserve capital. The Ordinary General Meeting of KGHM Polska Miedź S.A. set the

dividend date for 2021 at 7 July 2022 and the dividend payment date for 2021 at 14 July 2022.

In accordance with Resolution No. 7/2021 of the Ordinary General Meeting of KGHM Polska Miedź S.A. dated 7 June 2021

regarding the appropriation of profit for the year ended 31 December 2020, the profit in the amount of PLN 1 779 million

was appropriated as follows: as a shareholders dividend in the amount of PLN 300 million (PLN 1.50 per share) and transfer

of PLN 1 479 million to the Company’s reserve capital created in accordance with art. 396 § 1 of the Commercial Partnerships

and Companies Code.

All shares of the Company are ordinary shares.

As at the date of publication, no decision was made on the dividend payout or allocation of profit for 2022.

Note 12.3 Other assets

Accounting policies

Receivables not constituting financial assets are initially recognised at nominal value, and at the end of the reporting

period they are measured in the amount receivable.

Accounting policies concerning financial assets were described in Note 7.

As at

31 December 2022

As at

31 December 2021

Other non-current non-financial assets

117

Non-financial advances

Receivables due to overpayment of property tax

Prepayments

Other

Other current assets

464

366

Note 7.1

Other current financial assets

322

289

Receivables due to guarantees granted

Receivables due to settled derivatives

Receivables due to compensation for energy-

intensive sector due to allocation the costs of

purchasing CO2 emission rights to the price of

electricity

Receivables due to payments for letters of credit

Loans granted

117

Other

135

100

Other current non-financial assets

142

Non-financial advances

111

Prepayments

Other

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

110

Note 12.4 Other liabilities

Accounting policies

Other financial liabilities are initially recognised at fair value less transaction cost, and at the end of the reporting period

they are measured at amortised cost.

As at

31 December 2022

As at

31 December 2021

Trade payables

186 187

Other

74 66

Other liabilities – non-current

260 253

Special purpose funds*

- 410

Accruals, including:

517 397

provision for purchase of property rights related to

consumed electricity

83 98

charge for discharging of gases and dusts to the air

391 260

Liabilities due to the settlement of the Tax Group

12 13

Deferred income

41 29

Other liabilities due to settlements under cash pooling

contracts

29 25

Other

176 275

Other liabilities – current

775 1 149

*Change in the presentation to the presentation together with the non-current part of Provision for decommissioning costs of mines and other

facilities, which is a result of change in judgment as to the period of expected cash outflows from the fund.

Note 12.5 Assets and liabilities not recognised in the statement of financial position

The value of contingent assets and liabilities and other liabilities not recognised in the statement of financial position were

determined based on estimates.

As at

31 December 2022

As at

31 December 2021

Contingent assets

373

485

Guarantees received

115

250

Promissory note receivables

253

207

Other

Contingent liabilities

701

644

Note 8.6 Guarantees granted

641

566

Real estate tax on mine tunnels

Other

Other liabilities not recognised in the statement of

financial position

Liabilities towards local government entities due to

expansion of the tailings storage facility

Note 12.6 Capital commitments related to property, plant and equipment and intangible assets

Capital commitments incurred in the reporting period, but not yet recognised in the statement of financial position, were

as follows (as at 31 December of a given year):

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

111

As at

31 December 2022

As at

31 December 2021

Capital commitments due to the purchase of:

property, plant and equipment

2 676

2 025

intangible assets

126

Total capital commitments

2 802

2 053

Note 12.7 Employment structure

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

White-collar employees

4 909

4 838

Blue-collar employees

13 771

13 682

Total (full-time)

18 680

18 520

Note 12.8 Other adjustments in the statement of cash flows

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Losses on disposal of property, plant and equipment and

intangible assets

Income tax (expenses)/proceeds from the tax group

companies

( 9)

Other

Total

114

Accounting policies

In cash flows from operating activities in the statement of cash flows, the Company presents receivables due to cash

pooling and other liabilities due to settlements within cash pooling agreements in the item “change in other receivables

and liabilities”. Receivables due to cash pooling are receivables from Group companies, which at the end of the reporting

period incurred a debt within the cash pooling agreement. Other liabilities due to settlement within cash pooling

agreements are liabilities of the Company towards participants in the cash pooling system to repay, after the end of the

reporting period, of cash transferred by them, which were not used by the Company for its own needs.

Within cash flows from financing activities, the Company presents proceeds and expenses due to cash pooling and they

represent the Company’s debt towards participants in the cash pooling system, that is cash which the Company uses for

its own needs.

Important estimates, assumptions and judgments

The cash pooling system was implemented in the KGHM Polska Miedź S.A. Group to actively manage the current

shortages and surpluses of cash on bank accounts of companies participating in the system to possibly the most

efficiently manage the cash and limits of debt with high volatility and liquidity. KGHM Polska Miedź S.A., as a participant

in the system as well as a coordinator in the system, does not treat this activity as an investment activity established in

order to invest free cash and gener

ate profits, but solely as supporting Group companies in managing their current

shortages and surpluses.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

112

Note 12.9. Remuneration of key managers

from 1 January 2022 to 31 December 2022

Remuneration of members of

the Management Board

(in PLN thousands)

Period

when

function

served

Remuneration

for the period

of service as a

member of the

Management

Board

Remuneration

after the period

of service as a

member of the

Management

Board

Benefits due to

termination of

employment

Total

earnings

Members of the Management

Board serving in the function

as at 31 December 2022

Tomasz Zdzikot 01.09-31.12

373

- -

373

Mirosław Kidoń 10.12-31.12

- -

Marek Pietrzak 01.01-31.12

1 079

- -

1 079

Marek Świder 15.03-31.12

836

- -

836

Mateusz Wodejko 21.12-31.12

- -

Members of the Management

Board not serving in the function

as at 31 December 2022

Marcin Chludziński 01.01-11.10

1 939

- 435

2 374

Adam Bugajczuk 01.01-31.08

1 667

- -

1 667

Paweł Gruza 01.01-09.08

1 604

- 163

1 767

Andrzej Kensbok 01.01-06.12

1 679

- 298

1 977

Katarzyna Kreczmańska-Gigol -

277 -

277

Jerzy Paluchniak 01.09-11.10

120

- -

120

Radosław Stach -

277 -

277

Dariusz Świderski 01.01-21.02

148

600 14

762

TOTAL -

9 541

1 154 910 11 605

from 1 January 2021 to 31 December 2021

Remuneration of members

of the Management Board

(in PLN thousands)

Period

when

function

served

Remuneration

for the period of

service as a

member of the

Management

Board

Remuneration

after the period

of service as a

member of the

Management

Board

Benefits due to

termination of

employment

Total

earnings

Members of the

Management Board serving

in the function

as at 31 December 2021

Marcin Chludziński

01.01-31.12

2 220

Adam Bugajczuk 01.01-31.12 1 886 - - 1 886

Paweł Gruza 01.01-31.12 1 881 - - 1 881

Andrzej Kensbok 16.04-31.12 698 - - 698

Marek Pietrzak 26.10-31.12 177 - - 177

Dariusz Świderski 15.05-31.12 603 - - 603

Members of the

Management Board not

serving in the function

as at 31 December 2021

Katarzyna Kreczmańska-

Gigol

01.01-15.04 1 193 - 475 1 668

Radosław Stach 01.01-15.04 1 189 - 41 1 230

TOTAL 9 847 - 516 10 363

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

113

from 1 January 2022 to 31 December 2022

Remuneration of members of the

Supervisory Board

(in PLN thousands)

Period when

function

served

Current employee

benefits

Current benefits

due to serving in

the function

Total

earnings

Members of the Supervisory Board

serving in the function

as at 31 December 2022

Agnieszka Winnik -Kalemba

01.01-31.12

- 164 164

Katarzyna Krupa

01.01-31.12

- 149 149

Wojciech Zarzycki

22.06-31.12

- 78

Józef Czyczerski

01.01-31.12

203 150 353

Przemysław Darowski

01.01-31.12

- 149 149

Andrzej Kisielewicz

01.01-31.12

- 149 149

Bogusław Szarek

01.01-31.12

372 149 521

Marek Wojtków

07.10-31.12

- 35 35

Radosław Zimroz

07.10-31.12

- 35 35

Piotr Ziubroniewicz

24.11-31.12

- 15 15

Members of the Supervisory Board

not serving in the function

as at 31 December 2022

Piotr Dytko

22.06-07.10

- 44 44

Jarosław Janas

01.01-21.06

- 71 71

Robert Kaleta

01.01-07.10

- 115 115

Bartosz Piechota

01.01-21.06

- 71

TOTAL

575 1 374 1 949

from 1 January 2021 to 31 December 2021

Remuneration of members of the

Supervisory Board

(in PLN thousands)

Period when

function

served

Current employee

benefits

Current benefits

due to serving in

the function

Total

earnings

Members of the Supervisory Board

serving in the function

as at 31 December 2021

Agnieszka Winnik -Kalemba

01.01-31.12

142

Katarzyna Krupa 06.07-31.12 - 66

Jarosław Janas 01.01-31.12 - 136 136

Józef Czyczerski 01.01-31.12 186 136 322

Przemysław Darowski 01.01-31.12 - 136 136

Robert Kaleta 06.07-31.12 - 66 66

Andrzej Kisielewicz 01.01-31.12 - 144 144

Bartosz Piechota 01.01-31.12 - 136 136

Bogusław Szarek 01.01-31.12 265 136

401

Members of the Supervisory Board

not serving in the function

as at 31 December 2021

Katarzyna Lewandowska 01.01-20.04 - 42 42

Marek Pietrzak 01.01-25.10 - 111 111

TOTAL 451 1 251 1 702

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

114

Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it

(in PLN thousands)

PricewaterhouseCoopers Polska Spółka z ograniczoną odpowiedzialnością Audyt Sp.k. (PwC) performed audits of financial

statements of KGHM Polska Miedź S.A. for 2021 and 2022.

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

PricewaterhouseCoopers Polska Spółka z ograniczoną

odpowiedzialnością Audyt Sp.k.

1 580

1 125

audit of annual financial statements

850

728

assurance services, of which:

730

397

review of financial statements

550

324

other assurance services

180

Other companies of PricewaterhouseCoopers Polska

169

Note 12.11 Disclosure of information on the Company’s activities regulated by the Act on Energy

Note 12.11.1 Introduction

KGHM Polska Miedź S.A. meets the definition of an “energy enterprise” under the Act on Energy. Pursuant to article 44 of

the Act on Energy, the Company is required to prepare, on the basis of the Company’s accounting records, information

about its regulated activities. The scope of information concerning regulated activities, pursuant to article 44 of the

aforementioned Act, constitute the Company’s business activities in:

• distribution of electricity;

• distribution of gaseous fuels; and

• trade in gaseous fuels.

Note 12.11.2 Description of regulated activities

KGHM Polska Miedź S.A. conducts the following types of energy-related activities:

- Distribution of electricity – an activity which consists of distributing the electricity, used to meet the needs of clients

conducting business activities;

- Trade in gaseous fuels – an activity which consists of trading in nitrogen-enriched natural gas and is conducted to

meet the needs of clients engaged in business activities; and

- Distribution of gaseous fuels – an activity which consists of distributing nitrogen-enriched natural gas by utilising the

distribution grids located in the Legnica and Głogów municipalities in order to meet the needs of clients conducting

business activities.

Note 12.11.3 Basic principles of regulatory accounting

Regulatory accounting is a specific type of accounting, if compared to the accounting carried out in accordance with the

Accounting Act of 29 September 1994, conducted by an entrepreneur for its regulated activities including energy activities.

In addition to the accounting principles which were described in these financial statements and were the basis for the

keeping of the accounting records and for preparation of the Company’s financial statements, KGHM Polska Miedź S.A.

applies the following accounting policies for the purposes of regulatory accounting:

Causality principle

The allocation of particular revenue and costs is made in accordance with a given assets’ intended purpose and utilisation

of assets to meet the needs of a specified type of activity or service, with the causality principle governing the recognition

of items of revenue and costs in specified types of activity and with the principle of consistency between recognition by

types of activity of items of revenue and costs, which stems from the fact that these items reflect different aspects of the

same events.

Objectivity and non-discrimination principle

The allocation of assets, liabilities, equity, revenue and costs is done objectively and is not aimed at making profits or

incurring losses.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

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115

Continuation and comparability principle

The methods and principles used in preparing the report on regulatory accounting are applied in a continuous manner.

This report was prepared using the same principles for the current and comparable periods.

Transparency and consistency principle

The methods applied in preparing the report on regulatory accounting are transparent and consistent with the methods

and principles applied in other calculations performed for regulatory purposes and with the methods and principles applied

in preparing the financial statements.

Materiality principle (feasibility principle)

The Company permits certain simplifications in measurement, recognition and allocation of items of assets, liabilities,

equity, revenue and costs as long as it does not significantly distort the true picture of the financial position and assets

presented in the financial statements on regulated activities.

Note 12.11.4 Detailed principles of regulatory policy – methods and principles governing the allocation of assets,

liabilities, equity, costs and revenues

The Company prepares financial information on its regulated activities by overlapping the regulated activities’ structure

with the Company’s organisational structure. The Company applies, in a continuous manner, various methods for the

allocation of revenue, costs, assets and liabilities to specific types of regulated activities. The following methods were used:

• specific (direct) identification method – applied if a direct identification of value is possible, for example the level

of revenue from certain activities,

• direct allocation method (e.g. the purchase cost of production fuel) – this method is applied if there is a direct cause-

and-effect relationship between the consumed resource and the corresponding cost,

• indirect allocation method on the basis of a predetermined allocation key, this method is used among others, to

allocate cost in a situation where no direct cause-and-effect relationship between the utilised resource and the cost

item exists and there is a need to use a cost driver (an allocation key) which enables linkage of items with their

respective cost. The most commonly used allocation keys are:

• revenue key – value of revenue is the allocation key;

• production key – production units are the allocation key;

• power key – the installed power of machines and equipment is used for the allocation of indirect

costs;

• cost key – the value of costs is the allocation key;

• mixed keys, which combine elements of several different keys; and

• other keys appropriate for a specific case.

Assets

In the statement of financial position of KGHM Polska Miedź S.A. for the current and comparable periods, the following

items of assets of regulated activities were recognised:

Non-current assets:

1.Fixed assets,

2.Fixed assets under construction,

Current assets:

1. Trade receivables.

Other items of assets in the Company’s statement of financial position were allocated to other activities due to the lack of

a link between these items and regulated activities, or because the share of these items in regulated activities is immaterial.

Fixed assets

The identification and allocation of specific items of fixed assets to regulated activities takes place when these items of fixed

assets are brought into use. Based on the key consumption for energy carriers, being the quantitative share in sales of the

energy carrier in the total volume of the purchased energy carrier less losses, the percentage in the carrying amount of

fixed assets used in the energy activities is established.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

116

Share =

Volume of energy carriers sold externally in the reporting period x 100%

Total volume of purchased energy carrier for the reporting period – losses

Fixed assets under construction

The allocation of fixed assets under construction to regulated activities is achieved by the detailed identification of

expenditures on fixed assets under construction which are related to regulated activities, based on the analysis of

accounting records. The remaining expenditures on fixed assets under construction are recognised in other activities of the

Company.

The Company recognises the full amount of deferred tax assets due to other deductible temporary differences under other

activities, due to their immaterial share in regulated activities.

Trade receivables

Allocation of receivables in specific types of regulated activities is done on the basis of detailed identification of revenues

from specific types of regulated activities, by analysing the accounting records with respect to unsettled sales invoices. The

remaining amount of trade receivables is recognised in other activities. The Company recognises the full amount of other

receivables (i.e. apart from trade receivables) in other activities due to their immaterial share in regulated activities.

Equity and liabilities

In the statement of financial position, the following items were recognised in equity and liabilities for the current and

comparable periods with respect to regulated activities:

Equity

Liabilities

I. Non-current liabilities:

1. Deferred tax liabilities;

2. Future employee benefits liabilities.

II. Current liabilities:

1. Future employee benefits liabilities.

The full amount of other items of liabilities are recognised by the Company in other activities, due to their immaterial share

in regulated activities.

Equity

The Company allocates equity to regulated activities as an item offsetting the assets and liabilities.

Deferred tax liabilities

With respect to regulated activities, deferred tax liabilities were identified arising from taxable temporary differences

between the depreciation of property, plant and equipment and intangible assets for tax purposes and their carrying

amount.

The allocation of deferred tax liabilities due to the depreciation of property, plant and equipment and the amortisation of

intangible assets, with respect to regulated activities, is performed through the use of indicators set for property, plant and

equipment and intangible assets. The Company allocates all deferred tax liabilities arising from other taxable temporary

differences to other operating activities.

Non-current and current liabilities due to future employee benefits

Liabilities due to future employee benefits are allocated to individual types of regulated activities using a revenue key

through the indirect allocation method.

Revenues from sales

Following an analysis of revenues in terms of their allocation to individual types of regulated activities, the Company

identified groups of operations which met the following conditions:

• revenues from the sale of electricity – distribution;

• revenues from the sale of nitrogen-enriched natural gas – distribution; and

• revenues from the sale of nitrogen-enriched natural gas – trade.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

117

Revenues from sales are allocated to individual types of regulated activities using the individual identification method.

Operating costs

Following an analysis of costs in terms of their allocation to individual types of regulated activities, the following types of

operating costs were identified:

• costs of electricity distribution services and the distribution of natural gas;

• the value of the sold merchandise related to trade in natural gas; and

• administrative expenses associated with electricity sold.

Costs of sales, selling costs and administrative expenses are allocated to separate types of regulated activities based on the

Company's account of the actual costs.

Income tax

The amount of income tax presented in the statement of profit or loss for individual types of regulated activities is set as a

multiple of the financial result and the effective tax rate. The amount of current income tax decreases or increases deferred

income tax, which is calculated from the difference between the carrying amount and the taxable amount of the respective

assets of regulated activities.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

118

Statement of financial position pursuant to article 44 of the Act on Energy

Company in

total

Principal

activities

Energy

activities,

of which:

Electricity Gas

As at 31 December 2022

Distribution

Trade Distribution

ASSETS

Property, plant and equipment

21 195 21 070 125

121

- 4

Intangible assets

1 302

Other non-current assets

14 210

Non-current assets

36 707

36 582

125

121

Inventories

7 523

Trade receivables

620

600

Other current assets

3 145

Current assets

11 288

11 268

TOTAL ASSETS

47 995

47 850

145

128

EQUITY AND LIABILITIES

Equity

29 675

29 543

132

116

Deferred tax liabilities

705 695 10

- -

Employee benefits liabilities

2 394

2 391

Provisions for decommissioning

costs of mines and other

technological facilities

1 233 1 233 -

- -

Other non-current liabilities

5 979

Non-current liabilities

10 311

10 298

Employee benefits liabilities

1 365

Other current liabilities

6 644

Current liabilities

8 009

TOTAL LIABILITIES

18 320

18 307

TOTAL EQUITY AND LIABILITIES

47 995

47 850

145

129

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

119

Company

in total

Principal

activities

Energy

activities,

of which:

Electricity

Gas

As at 31 December 2021

Distribution Turnover Distribution

ASSETS

Property, plant and equipment

19 842

19 721

121

118

Intangible assets

1 153

Other non-current assets

13 676

13 676 - - - -

Non-current assets

34 671

34 550

121

118

Inventories

5 436

Trade receivables

600

587

Other current assets

2 751

Current assets

8 787

8 774

TOTAL ASSETS

43 458

43 324

134

126

EQUITY AND LIABILITIES

Equity

25 840

25 717

123

115

Deferred tax liabilities

290

282

Employee benefits liabilities

2 040

2 037

Provisions for decommissioning costs

of mines and other technological

facilities

811

811 - - - -

Other non-current liabilities

6 566

6 566 - -

Non-current liabilities

9 707

9 696

Employee benefits liabilities

1 130

Other current liabilities

6 781

Current liabilities

7 911

TOTAL LIABILITIES

17 618

17 607

TOTAL EQUITY AND LIABILITIES

43 458

43 324

134

126

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

120

Statement of profit or loss pursuant to article 44 of the Act on Energy

Company

in total

Principal

activities

Energy

activities, of

which:

Electricity

Gas

from 1 January 2022

to 31 December 2022

Distribution Trade Distribution

Revenues from contracts

with customers

28 429

28 323 106 35 62 9

Cost of sales

(23 157)

(23 022)

( 135)

( 40)

( 93)

( 2)

Gross profit

5 272

5 301

( 29)

( 5)

( 31)

Selling costs and administrative

expenses

(1 306)

(1 306) - - - -

Profit on sales

3 966

3 995

( 29)

( 5)

( 31)

Other operating income and costs

1 299

Finance income/(costs)

( 269)

Profit before income tax

4 996

5 025

( 29)

( 5)

( 31)

Income tax expense

(1 463)

(1 453)

( 10)

( 9)

( 1)

Profit for the period

3 533

3 572

( 39)

( 14)

( 31)

Company

in total

Principal

activities

Energy

activities,

of which:

Electricity

Gas

from 1 January 2021

to 31 December 2021

Distribution

Trade Distribution

Revenues from contracts with customers

24 618

24 552

Cost of sales

(19 441)

(19 358)

( 83)

( 44)

( 38)

( 1)

Gross profit

5 177

5 194

( 17)

( 1)

( 20)

Selling costs and administrative

expenses

(1 073) (1 073) -

Profit on sales

4 104

4 121

( 17)

( 1)

( 20)

Other operating income and costs

3 088

Finance income/(costs)

( 476)

Profit before income tax

6 716

6 733

( 17)

( 1)

( 20)

Income tax expense

(1 547)

(1 538)

( 9)

( 8)

( 1)

Profit for the period

5 169

5 195

( 26)

( 9)

( 20)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

121

Note 12.12 Information on the impact of COVID-19 and the war in Ukraine on the Company’s operations

KEY RISK CATEGORIES

The most significant risk factors related to the COVID-19 pandemic and the war in Ukraine impacting the Company’s

activities are:

• increased absenteeism amongst employees of the core production line as a result of subsequent waves of

infection by the SARS-CoV-2 virus,

• further increase in the prices of fuels and energy carriers,

• interruptions in the supply chain and the availability of materials (e.g. steel), fuels and energy on international

markets,

• interruptions and logistical restrictions as regards international transport,

• restrictions in certain sales markets, a drop in demand and optimisation of inventories of raw materials and

finished products amongst customers,

• the global economic slowdown,

• potential exceptional legal changes,

• volatility in copper, silver and molybdenum prices,

• volatility in the USD/PLN exchange rate,

• volatility in electrolytic copper production costs, including in particular due to the minerals extraction tax, changes

in the value of purchased copper-bearing materials consumed and volatility in prices of energy carriers and

electricity,

• the increase in prices of materials and services due to the observed high inflation, and

• the general uncertainty on financial markets and the economic effects of the crisis.

Evaluation of the key categories of risk which are impacted by the coronavirus pandemic and/or the war in Ukraine is

performed by the on-going monitoring of selected information in the areas of production, sales, supply chains, personnel

management and finance, in order to support the verification and assessment process of the current financial and

operating situation of KGHM Polska Miedź S.A.

IMPACT ON THE METALS MARKET AND SHARES PRICE

From the Company’s point of view, an effect of the COVID-19 pandemic and the war in Ukraine is an increase in market risk

related to volatility in metals prices and market indices. The Company’s share price at the end of 2022 increased by 45%

compared to the price at the end of the third quarter of 2022, decreased by 9% compared to the end of 2021 and at the

close of trading on 30 December 2022 amounted to PLN 126.75. During the same periods the WIG index increased by 14%

and fell by 17%, while the WIG20 index increased by 30% and fell by 21%. As a result of changes in the share price of KGHM,

the Company’s capitalisation decreased from PLN 27.88 billion at the end of 2021 to PLN 25.35 billion at the end of 2022.

After a stable first half of 2022, when the average price of copper amounted to 9 761 USD/t, the price decreased by 18.6%

compared to the average price of cooper in the second quarter of 2022. However, from November 2022, an upward trend

was recorded and in the fourth quarter of 2022 the average price of copper increased by 3.3.% compared to the average

price of cooper in the third quarter of 2022. The average price of copper in the entire year of 2022 amounted to 8 797

USD/t, which was at the level assumed in the budget.

IMPACT ON THE FUELS AND ENERGY CARRIERS MARKETS AND ON THE AVAILABILITY OF RAW AND OTHER MATERIALS

The potential continuation of increases in prices of fuels and energy carriers may still be the main factor generating a

further increase in the Company’s cost of sales, selling costs and administrative expenses.

While individual limitations have been observed in the availability of raw and other materials, at present KGHM Polska

Miedź S.A. is still not experiencing a substantial negative impact of these limitations on its operations. Taking into

consideration the continuity of supply of energy carriers (natural gas, coal, coke), at present KGHM Polska Miedź S.A. is not

experiencing a negative impact from the suspension of Russian natural gas, coal and coke deliveries, and is fully capable of

maintaining the continuity of the core production business and other production processes.

KGHM Polska Miedź S.A., as one of the largest electricity consumers in the country, has been diversifying its demand for

electricity for many years according to an effective strategy developed over the years, which includes self-generation. The

purchase is realised under bilateral contracts, framework agreements with many suppliers and on the Polish Power

Exchange (these contracts are not financial instruments under IFRS). The policy for the purchase of electricity and gaseous

fuel has been advanced for years under the Standing Commission for the purchase of electricity, gaseous fuel and property

rights.

Nevertheless, regardless of the lack of a significantly negative impact of the above-described restrictions on the Company's

operations, KGHM recorded a negative impact of the increase in prices on the fuel and energy carriers market, which

ultimately caused deviations in the realisation of the budget assumptions for 2022 on the cost side of KGHM Polska Miedź

S.A. Details on the operating results of the segments can be found in the Management Board’s report on the activities of

KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group in 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

122

IMPACT ON THE SPA ACTIVITIES OF EQUITY INVESTMENTS OF THE COMPANY

The increased number of patients with the SARS-CoV-2 virus omicron variant recorded at the start of 2022, and in

subsequent months the war in Ukraine, caused a temporary decline in the number of reservations and customer stays in

the spa facilities. Nonetheless, beginning at the turn of April and May 2022, the situation systematically improved and

stabilised. Starting from 16 May 2022, the state of pandemic was rescinded and was replaced by the state of pandemic

threat, which remains in force until rescinded. In the fourth quarter of 2022 no direct negative impact of COVID-19 was

recorded on the functioning of the market in which these companies operate. Therefore, the financial forecasts of these

companies for 2023 and subsequent years do not assume restrictions of their operations or any temporary suspensions in

the operations of their spa facilities.

The spa companies involved in curative activities, which are financed from public funds, take advantage of the protection

arising from the law on particular solutions aimed at protecting consumers of natural gas due to the situation on the natural

gas market. The protection provided by this law will be in force to the end of 2023. The financial obligations of the spas to

their creditors and lessors in the fourth quarter of 2022 were regulated on time, while the improved results, despite the

higher-than-expected costs of electricity, natural gas and debt servicing, had a positive impact on meeting the conditions

included in the investment loan agreement with the bank Pekao S.A.

As a result of the funds received from the 2.0 Shield for Large Enterprises from the Polish Development Fund (PDF, Polski

Fundusz Rozwoju S.A.) for periods in which the operations were shut down, in August 2022 Uzdrowisko Połczyn Grupa PGU

S.A. and Uzdrowiska Kłodzkie S.A. – Grupa PGU settled the obtained support and received permission for remission of the

loan. Other companies which received subsidies under the PDF’s Financial Shield program for the Small and Medium-sized

Enterprises sector are awaiting the decision of the PDF as to the settlement of the support.

IMPACT ON THE ACTIVITIES OF THE COMPANY

The pandemic situation caused by COVID-19 did not have a significant impact on the operations of the Company. At the

date of publication of this report the Management Board of KGHM Polska Miedź S.A. estimates the risk of loss of going

concern caused by COVID-19 to still be low.

The geopolitical situation associated with the direct aggression of Russia against Ukraine and the implemented system of

sanctions does not currently limit the operations of KGHM Polska Miedź S.A., while the risk of interruptions to the

operational continuity of the Company in this regard continues to be still considered as low.

Despite the high inflation observed in the global economy, resulting in the tightening of the monetary policy, the demand

for the Company‘s key products did not deteriorate significantly in the fourth quarter of 2022. The metal prices were

characterised by an upward dynamic resulting, among others, from the depreciation of the US dollar. In addition, the easing

of the "zero COVID" policy by the Chinese authorities gave rise to the expectation of increased consumption of metals in

China in 2023, which also had a positive impact on the increase in metal prices at the end of 2022.

In the following year, the main sources of risk for economic development will be the high level of inflation and Russia’s

aggression against Ukraine, which may result in an economic slowdown in key industries for metal consumption (e.g.

construction). Currently, it is not possible to estimate the impact of these factors on the potential net result, however the

situation is continuously being monitored and simultaneously possible mitigation measures are being used.

In terms of the availability of capital and the level of debt, the Company holds no bank loans drawn from institutions

threatened with sanctions.

With respect to exchange differences (the measurement of balance sheet items denominated in foreign currencies), a

weakening of the PLN may increase foreign exchange gains (unrealised) due to the fact that the amount of the loans granted

by the Company in USD is higher than the amount of borrowings in USD.

PREVENTIVE ACTIONS IN THE COMPANY

In KGHM Polska Miedź S.A. thanks to the implementation of a variety of preventative measures there were no production

stoppages which would have been directly attributable to the pandemic and the war in Ukraine, and the copper production

in 2022 was higher than the level assumed in the budget.

For years, KGHM Polska Miedź S.A. has applied procedures related to the monitoring of repayment of receivables. The

timeliness of payments by customers is subject to daily reporting, while any recorded interruptions in cash flows from

customers are immediately explained. In terms of sales, currently the majority of the Company’s customers do not report

significantly negative impact from the previous waves of the pandemic on their activities, thanks to which the trade

receivables towards the Company are paid on time, while deliveries are sent to customers without major interruptions.

The strategy of diversification of suppliers applied by the Company and the use of alternative solutions at the present time

effectively mitigate the risk of interruptions in the supply chains of raw and other materials.

At the same time, KGHM Polska Miedź S.A. is fully capable of meeting its financial obligations. The financial resources held

by the Company and the obtained borrowings guarantee its continued financial liquidity. The financing structure based on

long-term and diversified sources of financing, provided the Company with long-term financial stability by maintaining a

stable spread of debt maturities and optimising its cost. Currently, the Company also does not identify a significant risk of

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

123

a breach in the financial terms (so-called “covenants”) contained in external financing agreements, related to the COVID-19

pandemic and the war in Ukraine.

KGHM Polska Miedź S.A. continues to advance its investment projects in accordance with established schedules and

therefore does not identify any risk to their continuation due to the effects of the coronavirus pandemic and the war in

Ukraine.

During the reporting period there were no interruptions in the continuity of the Company’s operations caused by infections

of this virus amongst the employees and no substantially higher level of absenteeism amongst employees was recorded.

In the Company, the process continued of implementing a comprehensive business continuity management system, which

also enables a detailed breakdown of the scope of actions undertaken as regards managing corporate risk in terms of the

risk of a catastrophic impact and the small probability of their occurrence.

Taking into consideration the risk of appearance of new mutations of the SARS-CoV-2 virus and the next wave of the COVID-

19 pandemic observed in China, there is still uncertainty as to the potential development of the pandemic situation in the

world, in particular as to the consequence of its impact on the economic and social situation in Poland and globally. From

the start of the COVID-19 pandemic, China maintained a restrictive “zero covid” policy, and in the fourth quarter of 2022 it

decided to lift most of the restrictions. The expected economic recovery, given the improved pandemic situation so far, was

slowed down by Russia’s aggression against Ukraine with an impact on food security, high prices of energy and the Producer

Price Index, as well as problems with access to synthetic fertilizers. With respect to stability in the continuity of energy

carriers supply chains, the directions of energy-climate geopolitics will be of importance, especially in the context of gaining

independence by European countries from Russian deliveries of natural gas and coal and the effects of the plan adopted

by the EU Member States to reduce natural gas consumption in winter. The Company continuously monitors the

international economic situation in order to assess its potential negative impact on KGHM Polska Miedź S.A. and to take

anticipative actions to mitigate this impact.

Note 12.13 Risks and hazards associated with climate change

KGHM Polska Miedź S.A. is a conscious and responsible participant in the energy transition, and adaptation to climate

changes and the management of climate risk are of key importance to it. The Company continuously evaluates the risk

associated with the climate and the impact on its operations under the process of Corporate Risk Management of the KGHM

Polska Miedź S.A. Group, which was described in more detail in the Management Board’s report on the activities of the

Company and the KGHM Polska Miedź S.A. Group in 2022.

The negative impact of climate change on the activities of KGHM Polska Miedź S.A. is analysed using the classification

presented below.

The Company is exposed to physical climate risk, arising from specified events, in particular related to violent and chronic

weather phenomena resulting from changes in the climate, such as storms, floods, fires or heat waves, as well as permanent

changes in weather patterns, which could impact the operations of the Company, among others, through disruptions in the

supply chain, the continuity of the core business and an increase in operating costs directly related to the core business as

well as through more difficult working conditions.

The climate risk related to the transition, to which the Company is exposed, arises from the need to adapt the economy to

gradual climate change. This risk category comprises questions related to legal requirements, technological progress

towards a low-carbon economy and changes in demand and supply for certain products and services, whose production is

associated with the climate risk as well as the growing expectations of stakeholders regarding the Company as to the

reduction of its impact on the climate.

A detailed description of identified, key climate risks associated with negative impact of climate changes on the activities of

KGHM Polska Miedź S.A., including parameters used in their assessment and actions undertaken by the Company to

mitigate their impact, is presented in the Management Board’s report on the activities of the Company and the KGHM

Polska Miedź S.A. Group in 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

124

While assessing the impact of identified climate risks on the Company’s activities, in particular the volatile costs of CO

emission rights, the increase in costs of electricity, costs associated with research and additional expenditures on

development of internal energy sources, the following areas were subjected to detailed assessment:

• adopted periods of economic utility of fixed assets and their residual values,

• existence of indications of the possibility of impairment of property, plant and equipment and intangible assets,

• assumptions which are a part of the measurement of loans granted,

• revaluation of the provision for future decommissioning costs of mines and other technological facilities,

• revaluation of provisions for additional costs of sales, selling costs and administrative expenses,

• liabilities and liabilities due to guarantees associated with potential fines and environmental penalties.

As a result of the aforementioned work, as at 31 December 2022 no material impact of climate risk on the aforementioned

areas was identified.

Note 12.14 Subsequent events

Notification on a crossing of the 5% threshold in the total number of votes

On 6 January 2023, the Management Board of KGHM Polska Miedź S.A. announced that the Company received a notification

from Powszechne Towarzystwo Emerytalne Allianz Polska S.A. dated 5 January 2023.

According to the notification received, Powszechne Towarzystwo Emerytalne Allianz Polska S.A. which manages Allianz

Polska Otwarty Fundusz Emerytalny („Allianz OFE”), which in turn manages Allianz Polska Dobrowolny Fundusz Emerytalny

(„Allianz DFE”) as a result of a merger performed on 30 December 2022, with the company Aviva Powszechne Towarzystwo

Emerytalne Aviva Santander Spółka Akcyjna which manages Drugi Allianz Polska Otwarty Fundusz Emerytalny („Drugi

Allianz OFE”), the interest held in the share capital and the total number of votes in the Company on the accounts of Allianz

OFE, Allianz DFE and Drugi Allianz OFE crossed the threshold of 5%.

Prior to the merger, in total on the accounts of Allianz OFE and Allianz DFE there were 1 741 592 shares, representing 0.87%

of the Company’s share capital and granting the right to 1 741 592 of the votes amounting to 0.87% of the total number of

votes at the Company’s General Meeting.

On the account of Drugi Allianz OFE there were 10 499 861 shares, representing 5.25% of the Company’s share capital and

granting the right to 10 499 861 of the votes amounting to 5.25% of the total number of votes at the Company’s General

Meeting.

Following the merger, in total on the accounts of Allianz OFE, Allianz DFE and Drugi Allianz OFE there was an increase to 12

241 453 shares, representing 6.12% of the Company’s share capital and granting the right to 12 241 453 of the votes

amounting to 6.12% of the total number of votes at the Company’s General Meeting.

Annexes signed to bank guarantees

On 3 February 2023, BNP Paribas Bank Polska S.A., at the Company’s request, issued annexes to bank guarantees issued

pursuant to art 137 section 2 of the Act of 14 December 2012 on waste (unified text: Journal of Laws of 2022, item 699). In

order to create a tailings storage facility restoration fund, which increased the total value of guarantees from the amount

of PLN 98 million to PLN 120 million, with maturity falling on 15 February 2024.

Drawing of an instalment of the unsecured, revolving syndicated credit facility

On 6 February 2023, the Company drew an instalment of the unsecured, revolving syndicated facility under the agreement

signed on 20 December 2019 with the syndicate of banks. The liability in the amount of USD 50 million (or PLN 219 million

per the NBP exchange rate from the drawing date) was drawn for the period of 2 weeks, and after that period it was

extended by 1 month. The credit facility’s interest is based on LIBOR rate plus a margin.

Issuance of a bank guarantee to secure liabilities

On 14 February 2023, at the Company’s request, a bank guarantee was issued to secure liabilities arising from a surety

agreement signed between KGHM Polska Miedź S.A., Dom Maklerski Banku Ochrony Środowiska S.A. and Izba

Rozliczeniowa Giełd Towarowych S.A., aimed at assuring by the Company the liabilities of Dom Maklerski due to the

settlement of transactions to purchase electricity at the Polish Power Exchange (Towarowa Giełda Energii), up to the total

amount of PLN 150 million, with maturity falling on 31 March 2023.

Loan granted by the Company to KGHM INTERNATIONAL LTD.

On 23 February 2023, a loan agreement was entered into between KGHM Polska Miedź S.A. and KGHM INTERNATIONAL

LTD. in the amount of USD 105.5 million (PLN 473 million, 4.4879 USD/PLN) for the advancement of the Victoria project.

The loan’s interest was set at arm’s length. The agreement expires on 31 December 2033.

Drawing of an instalment from the European Investment Bank

On 6 March 2023, the Company drew an instalment of the investment loan from the European Investment Bank under the

agreement signed on 11 December 2017. The liability in the amount of USD 99 million, which is the equivalent of the

available financing in the amount of PLN 440 million, was drawn for the period of 12 years. Funds acquired under this

instalment are used to continue investment projects advanced by the Company.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

125

Conclusion of an agreement for sale of shares of KGHM TFI S.A.

On 13 March 2023, KGHM Polska Miedź S.A. concluded an Agreement for the sale of 100% of the shares of KGHM

TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH SPÓŁKA AKCYJNA (“Shares”) with Agencja Rozwoju Przemysłu S.A. (“Buyer”).

The carrying amount of shares as at 31 December 2022 amounted to PLN 3 million. The sale of the Shares was contingent

on meeting the conditions precedent, among others no objections raised by the Polish Financial Supervision Authority. The

ownership rights to the Shares will be transferred to the Buyer at the moment an appropriate entry is made in the Share

Register. The sale of the Shares is the last stage of the reorganisation under the Group’s structure, which comprised the

liquidation of closed-end, non-public investment funds. KGHM TFI S.A. has not managed any funds since 20 December 2022,

that is from the date of deregistration of the KGHM VII FIZAN fund. As at the end of the reporting period, the value of sold

shares of KGHM TFI S.A. amounted to PLN 3 million. Due to the insignificant value, these assets were not reclassified in the

Company’s statement of financial position to “Assets held for sale”.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

126

PART 13 - Quarterly financial information of KGHM Polska Miedź S.A.

SEPARATE STATEMENT OF PROFIT OR LOSS

from

1 October 2022

31 December 2022

from

1 October 2021

31 December 2021

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

Revenues from contracts with

customers

6 646

6 648

28 429

24 618

Cost of sales

(5 628)

(5 448)

(23 157)

(19 441)

Gross profit

1 018

1 200

5 272

5 177

Selling costs and administrative

expenses

( 425)

( 346)

(1 306)

(1 073)

Profit on sales

593

854

3 966

4 104

Other operating income, including:

( 5)

301

2 172

4 273

fair value gains on financial

assets measured at fair value

through profit or loss

( 175)

( 243)

631

1 070

reversal of impairment losses on

financial instruments

273

213

807

Other operating costs, including:

( 896)

( 410)

( 873)

(1 185)

impairment losses on financial

instruments

( 1)

( 7)

( 4)

Finance income

537

148

Finance costs

( 90)

( 134)

( 417)

( 546)

Profit/(Loss) before income tax

139

646

4 996

6 716

Income tax expense

( 144)

( 329)

(1 463)

(1 547)

PROFIT/(LOSS) FOR THE PERIOD

( 5)

317

3 533

5 169

Weighted average number of

ordinary shares (million)

200

Basic/diluted earnings per share

(in PLN)

( 0.03)

1.59

17.67

25.85

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

127

Explanatory notes to the statement of profit or loss

Note 13.1 Expenses by nature

from

1 October 2022

31 December 2022

from

1 October 2021

31 December 2021

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

Depreciation of property, plant and

equipment and amortisation of

intangible assets

387

356

1 504 1 435

Employee benefits expenses

1 344

1 097

4 832 4 249

Materials and energy, including:

3 446

2 681

13 687 10 242

Purchased metal-bearing materials

2 158

1 769

8 859 7 132

Electrical and other energy

415

284

1 921 1 230

External services, including:

684

545

2 238 1 884

Transport

328 278

Repairs, maintenance and servicing

217

181

699 569

Mine preparatory work

201

128

617 510

Minerals extraction tax

746

1 009

3 046 3 548

Other taxes and charges

140

( 74)

487 398

Advertising costs and representation

expenses

80 63

Property and personal insurance

39 35

Reversal of write-down of inventories

( 12)

( 1)

( 52) ( 20)

Write-down of inventories

13 41

Other costs

21 26

Total expenses by nature

6 790

5 668

25 895 21 901

Cost of merchandise and materials sold

(+)

118

127

449 339

Change in inventories of products

and work in progress (+/-)

( 790)

(1 665) (1 562)

Cost of products for internal use (-)

( 65)

( 45)

( 216) ( 164)

Total cost of sales, selling costs and

administrative expenses, including:

6 053

5 794

24 463 20 514

Cost of sales

5 628

5 448

23 157 19 441

Selling costs

173 156

Administrative expenses

379

305

1 133 917

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

128

Note 13.2 Other operating income/(costs)

from

1 October 2022

31 December 2022

from

1 October 2021

31 December 2021

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

Gains on derivatives, of which: ( 12) 9 268 323

measurement

( 62) ( 21) 108 209

realisation 50 30 160 114

Exchange differences on assets and

liabilities other than borrowings

- 135 500 511

Interest on loans granted and other

financial receivables

94 79 348 304

Fees and charges on re-invoicing of costs

of bank guarantees securing payments of

liabilities

1 1 31 68

Reversal of impairment losses on financial

instruments measured at amortised cost,

including:

31 273 213 807

loans

31 270 213 752

Fair value gains on financial assets

measured at fair value through profit or

loss, including:

( 175) ( 243) 631 1 070

loans

( 192) ( 256) 601 1 056

Reversal of impairment losses on shares in

subsidiaries

- - - 1 010

Dividends income

Profit on the disposal of shares in

subsidiaries

2 13 2 25

Release of provisions

2 7 12 22

Refund of excise tax for previous years 1 - 1 5

Overpayment of property tax

24 8

25 8

Other

27 19

112 83

Total other operating income

( 5) 301 2 172 4 273

Losses on derivatives, of which: ( 115) ( 176) ( 490) ( 768)

measurement

( 11) 3 ( 116) ( 141)

realisation ( 104) ( 179) ( 374) ( 627)

Impairment losses on financial

instruments measured at amortised cost

( 1) 7 ( 7) ( 4)

Exchange differences on assets and

liabilities other than borrowings

( 796) - - -

Fair value losses on financial assets

measured at fair value through profit or

loss, including:

( 6) 21 ( 87) ( 63)

loans

- -

- ( 9)

Financial support granted to municipalities ( 1) - ( 100) -

Impairment losses on shares and

investment certificates in subsidiaries

- ( 182) - ( 182)

Provisions recognised 74 ( 28) ( 16) ( 58)

Donations granted

( 20) ( 13) ( 53) ( 29)

Compensations, fines and penalties paid

and costs of litigation

( 8) ( 5) ( 28) ( 6)

Losses on disposal of property, plant and

equipment (including costs associated

with disposal of fixed assets)

( 8) 1 ( 22) ( 5)

Impairment losses on fixed assets under

construction and intangible assets not yet

available for use

( 3) ( 6) ( 6) ( 13)

Other

( 12) ( 29) ( 64) ( 57)

Total other operating costs

( 896) ( 410) ( 873) (1 185)

Other operating income and (costs)

( 901) ( 109) 1 299 3 088

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

129

Note 13.3 Finance income/(costs)

from

1 October 2022

31 December 2022

from

1 October 2021

31 December 2021

from

1 January 2022

31 December 2022

from

1 January 2021

31 December 2021

Exchange differences on

borrowings

436 -

- -

Gains on derivatives - realisation

83 35

130 70

Result of the settlement of a

transaction hedging against

interest rate risk due to the issue

of bonds with a variable interest

rate

18 -

Total income

537 35

148 70

Interest on borrowings

( 30)

( 48)

( 92)

leases

( 3)

( 2)

( 10)

( 8)

Bank fees and charges on

borrowings

( 6) ( 7)

( 30) ( 28)

Exchange differences on

measurement and realisation of

borrowings

- ( 54)

( 179) ( 338)

Losses on derivatives, of which:

( 98) ( 41)

( 149) ( 80)

measurement

- -

- ( 1)

realisation

( 98) ( 41)

( 149) ( 79)

Unwinding of the discount effect

( 3) ( 2)

( 11) ( 8)

Total costs

( 90) ( 134)

( 417) ( 546)

Finance income/(costs)

447 ( 99)

( 269) ( 476)

KGHM Polska Miedź S.A.

Separate Financial Statements for 2022 Translation from the original Polish version

130

SIGNATURES OF ALL MEMBERS OF THE MANAGEMENT BOARD

These financial statements were authorised for issue on 21 March 2023.

President

of the Management Board

Tomasz Zdzikot

Vice President

of the Management Board

Mateusz Wodejko

Vice President

of the Management Board

Marek Pietrzak

Vice President

of the Management Board

Mirosław Kidoń

Vice President

of the Management Board

Marek Świder

SIGNATURE OF PERSON RESPONSIBLE FOR ACCOUNTING

Executive Director

of Accounting Services Centre

Chief Accountant

Agnieszka Sinior