POLISH FINANCIAL SUPERVISION AUTHORITY

Consolidated annual report SRR 2022

(in accordance with § 60 sec. 2 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 consolidated financial

statements according to International Financial Reporting 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

33 847

29 803

7 219

6 511

II.

Profit on sales

4 344

4 710

927

1 029

III.

Profit before income tax

6 489

7 824

1 384

1 709

IV.

Profit for the period

4 774

6 155

1 018

1 345

Profit for the period attributable to shareholders

of the Parent Entity

4 772 6 156 1 018 1 345

VI.

Profit for the period attributable to

non-controlling interest

2 ( 1) - -

VII.

Other comprehensive income

871

217

186

VIII.

Total comprehensive income

5 645

6 372

1 204

1 392

IX.

Total comprehensive income attributable to

shareholders of the Parent Entity

5 643 6 372 1 204 1 392

Total comprehensive income attributable to

non-controlling interest

2 - - -

XI.

Number of shares issued

200 000 000

XII.

Earnings per ordinary share attributable to

shareholders of the Parent Entity

23.86 30.78 5.09 6.73

XIII.

Net cash generated from operating activities

2 464

4 266

526

932

XIV. Net cash used in investing activities ( 2 695) ( 2 526) ( 575) ( 552)

XV.

Net cash used in financing activities

( 446)

( 2 200)

( 95)

( 481)

XVI.

Total net cash flow

( 677)

( 460)

( 144)

( 101)

XVII.

Non-current assets

40 379

36 664

8 610

7 971

XVIII.

Current assets

13 065

11 363

2 786

2 471

XIX.

Total assets

53 444

48 027

11 396

10 442

XX. Non-current liabilities 12 113 11 351 2 584 2 468

XXI.

Current liabilities

9 185

9 538

1 958

2 074

XXII.

Equity

32 146

27 138

6 854

5 900

XXIII.

Equity attributable to shareholders of the Parent Entity

32 089

27 046

6 842

5 880

XXIV.

Equity attributable to non-controlling interest

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

CONSOLIDATED

FINANCIAL STATEMENTS

FOR 2022

Lubin, March 2023

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022

Translation from the original Polish version

Table of contents

CONSOLIDATED STATEMENT OF PROFIT OR LOSS ................................................................................................................ 4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ............................................................................................... 5

CONSOLIDATED STATEMENT OF CASH FLOWS ...................................................................................................................... 6

CONSOLIDATED STATEMENT OF FINANCIAL POSITION ....................................................................................................... 7

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ......................................................................................................... 8

Part 1 – General information .................................................................................................................................................. 9

Note 1.1 Corporate information ................................................................................................................................................. 9

Note 1.2 Basis of preparation and presentation .................................................................................................................... 10

Note 1.3 Impact of new and amended standards and interpretations ............................................................................... 14

Note 1.4 Published standards and interpretations, which are not yet in force and were not applied earlier by the

Group .......................................................................................................................................................................................... 14

Part 2 – Information on segments and revenues .............................................................................................................. 16

Note 2.1 Operating segments................................................................................................................................................... 16

Note 2.2 Financial results of reporting segments................................................................................................................... 19

Note 2.3 Revenues from contracts with customers of the Group – breakdown by products ........................................... 22

Note 2.4 Revenues from contracts with customers of the Group – breakdown by category ............................................ 27

Note 2.5 Revenues from contracts with customers of the Group – geographical breakdown reflecting the location of

end customers ........................................................................................................................................................................... 29

Note 2.6 Main customers .......................................................................................................................................................... 30

Note 2.7 Non-current assets – geographical breakdown ...................................................................................................... 30

Part 3 – Impairment of assets .............................................................................................................................................. 31

Part 4 - Explanatory notes to the statement of profit or loss .......................................................................................... 40

Note 4.1 Expenses by nature .................................................................................................................................................... 40

Note 4.2 Other operating income and (costs) ......................................................................................................................... 41

Note 4.3 Finance income and (costs) ....................................................................................................................................... 42

Note 4.4 Reversal and (recognition) of impairment losses on assets recognised in the statement of profit or loss ...... 42

Part 5 – Taxation .................................................................................................................................................................... 43

Note 5.1 Income tax in the consolidated statement of profit or loss ................................................................................... 43

Note 5.2 Other taxes and charges ........................................................................................................................................... 49

Note 5.3 Tax assets and liabilities ............................................................................................................................................ 50

Part 6 – Involvement in joint ventures ............................................................................................................................... 51

Note 6.1 Joint ventures accounted for using the equity method .......................................................................................... 51

Note 6.2 Loans granted to a joint venture (Sierra Gorda S.C.M.) .......................................................................................... 54

PART 7 – Financial instruments and financial risk management .................................................................................... 56

Note 7.1 Financial Instruments ................................................................................................................................................ 56

Note 7.2 Derivatives .................................................................................................................................................................. 63

Note 7.3 Other financial instruments measured at fair value .............................................................................................. 67

Note 7.4 Other financial instruments measured at amortised cost ..................................................................................... 69

Note 7.5 Financial risk management ....................................................................................................................................... 69

Part 8 – Borrowings and the management of liquidity and capital ................................................................................ 91

Note 8.1 Capital management policy ....................................................................................................................................... 91

Note 8.2 Equity ........................................................................................................................................................................... 92

Note 8.3 Liquidity management policy .................................................................................................................................... 94

Note 8.4 Borrowings .................................................................................................................................................................. 96

Note 8.5 Cash and cash equivalents ...................................................................................................................................... 101

Note 8.6 Liabilities due to guarantees granted..................................................................................................................... 101

Part 9 – Non-current assets and related liabilities .......................................................................................................... 103

Note 9.1 Mining and metallurgical property, plant and equipment and intangible assets ............................................. 103

Note 9.2 Other property, plant and equipment and intangible assets .............................................................................. 109

Note 9.3 Depreciation/amortisation ...................................................................................................................................... 112

Note 9.4 Provision for decommissioning costs of mines and other facilities .................................................................... 112

Note 9.5 Capitalised borrowing costs .................................................................................................................................... 114

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022

Translation from the original Polish version

Note 9.6 Carrying amount of the assets of Group companies representing collateral of repayment of liabilities ....... 114

Note 9.7 Lease disclosures – the Group as a lessee ............................................................................................................. 115

Note 9.8 Assets held for sale (disposal group) and liabilities associated with them ........................................................ 117

Part 10 – Working capital .................................................................................................................................................... 122

Note 10.1 Inventories .............................................................................................................................................................. 122

Note 10.2 Trade receivables ................................................................................................................................................... 124

Note 10.3 Trade and similar payables ................................................................................................................................... 125

Note 10.4 Changes in working capital ................................................................................................................................... 126

Part 11 – Employee benefits ............................................................................................................................................... 128

Note 11.1 Employee benefits liabilities.................................................................................................................................. 128

Note 11.2 Changes in liabilities related to future employee benefits programs .............................................................. 130

Part 12 – Other notes .......................................................................................................................................................... 133

Note 12.1 Related party transactions .................................................................................................................................... 133

Note 12.2 Dividends paid ........................................................................................................................................................ 134

Note 12.3 Other assets ............................................................................................................................................................ 135

Note 12.4 Other liabilities ....................................................................................................................................................... 136

Note 12.5 Assets and liabilities not recognised in the statement of financial position .................................................... 137

Note 12.6 Capital commitments related to property, plant and equipment and intangible assets ............................... 137

Note 12.7 Employment structure ........................................................................................................................................... 137

Note 12.8 Other adjustments in the statement of cash flows ............................................................................................ 137

Note 12.9. Remuneration of key managers .......................................................................................................................... 138

Note 12.10 Remuneration of the entity entitled to audit the financial statements and of entities related to it in PLN

thousands ................................................................................................................................................................................. 140

Note 12.11 Composition of the Group .................................................................................................................................. 141

Note 12.12 Information on the impact of Covid-19 and the war in Ukraine on the Company’s and Group’s operations

................................................................................................................................................................................................... 145

Note 12.13 Risk and hazards associated with climate change ............................................................................................ 147

Note 12.14 Subsequent events .............................................................................................................................................. 149

Part 13 – Quarterly financial information of the Group ................................................................................................. 150

CONSOLIDATED STATEMENT OF PROFIT OR LOSS............................................................................................................... 150

Note 13.1 Expenses by nature ................................................................................................................................................ 151

Note 13.2 Other operating income and (costs) .................................................................................................................... 152

Note 13.3 Finance income/(costs) .......................................................................................................................................... 153

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 2.3

Revenues from contracts with customers

33 847

29 803

Note 4.1

Cost of sales

(27 541)

(23 529)

Gross profit on sales

6 306

6 274

Note 4.1

Selling costs and administrative expenses

(1 962)

(1 564)

Profit on sales

4 344

4 710

Note 6.2

Gain due to the reversal of allowances for

impairment of loans granted to a joint venture

873

2 380

Note 6.2

Interest income on loans granted to a joint venture

calculated using the effective interest rate method

582

494

Profit or loss on involvement in a joint venture

1 455

2 874

Note 4.2

Other operating income, including:

1 881

1 757

other interest calculated using the effective interest

rate method

reversal of impairment losses on financial

instruments

Note 4.2

Other operating costs, including:

( 919)

(1 046)

impairment losses on financial instruments

( 5)

( 13)

Note 4.3

Finance income

148

Note 4.3

Finance costs

( 420)

( 541)

Profit before income tax

6 489

7 824

Note 5.1

Income tax expense

(1 715)

(1 669)

PROFIT FOR THE PERIOD

4 774

6 155

Profit for the period attributable to:

Shareholders of the Parent Entity

4 772

6 156

Non-controlling interest

( 1)

Weighted average number of ordinary shares

(million)

200

Basic/diluted earnings per share (in PLN)

23.86

30.78

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit for the period

4 774

6 155

Note 8.2.2

Measurement of hedging instruments net of the tax

effect

1 354

( 297)

Exchange differences from translation of

statements of operations with a functional currency

other than PLN

( 65)

( 70)

Other comprehensive income, which will be

reclassified to profit or loss

1 289

( 367)

Note 8.2.2

Measurement of equity financial instruments at fair

value through other comprehensive income, net of

the tax effect

( 76)

Actuarial gains/(losses) net of the tax effect

( 342)

562

Other comprehensive income which will not be

reclassified to profit or loss

( 418)

584

Total other comprehensive net income

871

217

TOTAL COMPREHENSIVE INCOME

5 645

6 372

Total comprehensive income attributable to:

Shareholders of the Parent Entity

5 643

6 372

Non-controlling interest

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

CONSOLIDATED STATEMENT OF CASH FLOWS

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2022

Cash flow from operating activities

Profit before income tax

6 489

7 824

Note 9.3

Depreciation/amortisation recognised in profit or loss

2 239

2 123

Note 6.2

Gain due to the reversal of allowances for impairment of loans

granted to a joint venture

( 873)

(2 380)

Note 6.2

Interest on loans granted to a joint venture

( 582)

( 494)

Other interest

120

Impairment losses on property, plant and equipment and intangible

assets

147

378

Other gains on reversal of impairment losses on property, plant and

equipment and intangible assets

( 3)

( 44)

Gains on disposal of property, plant and equipment and intangible

assets

( 108)

( 58)

Note 9.8

Gain on disposal of subsidiaries

( 180)

Exchange differences, of which:

( 661)

( 446)

from investment activities and cash

( 838)

( 744)

from financing activities

177

298

Change in provisions for decommissioning of mines, liabilities

related to future employee benefits programs and other provisions

( 56)

Change in other receivables and liabilities other than working capital

( 133)

610

Change in assets and liabilities due to derivatives

( 353)

(1 921)

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

Exclusions of income and costs, total

( 12)

( 51)

Income tax paid

(1 696)

( 740)

Note 10.4

Changes in working capital, including:

(2 317)

(2 767)

change in trade payables transferred to factoring

( 77)

(1 114)

Net cash generated from operating activities

2 464

4 266

Cash flow from investing activities

Note 9.1.3

Expenditures on mining and metallurgical assets, including:

(3 678)

(3 383)

Note 8.4.2

paid capitalised interest on borrowings

( 214)

( 122)

Expenditures on other property, plant and equipment and intangible

assets

( 440)

( 507)

Expenditures on financial assets designated for decommissioning of

mines and other technological facilities

( 24)

Advances granted on property, plant and equipment and intangible

assets

( 14)

Proceeds from financial assets designated for decommissioning of

mines and other technological facilities

Proceeds from repayment of loans granted to a joint venture (principal)

358

Proceeds from disposal of property, plant and equipment and intangible

assets

394

Proceeds from disposal of subsidiaries

243

Proceeds from disposal of equity instruments measured at fair value

through other comprehensive income

Interest received on loans granted to a joint venture

431

1 259

Other

( 15)

( 8)

Net cash used in investing activities

(2 695)

(2 526)

Cash flow from financing activities

Note 8.4.2

Proceeds from borrowings

677

358

Proceeds from derivatives related to sources of external financing

130

Note 8.4.2

Repayment of received borrowings

( 425)

(2 078)

Note 8.4.2

Repayment of lease liabilities

( 59)

( 67)

Expenditures due to derivatives related to sources of external financing

( 89)

( 79)

Interest paid, including:

( 92)

( 94)

Note 8.4.2

due to borrowings

( 89)

( 85)

Dividends paid to shareholders of the Parent Entity

( 600)

( 300)

Other

Net cash used in financing activities

( 446)

(2 200)

NET CASH FLOW

( 677)

( 460)

Exchange gains/(losses)

( 27)

( 158)

Cash and cash equivalents at beginning of the period

1 904

2 522

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

1 200

1 904

Note 9.8

recognised in assets held for sale (disposal group)

restricted cash

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at

31 December

2022

As at

31 December

2021

ASSETS

Mining and metallurgical property, plant and equipment

22 894

21 564

Mining and metallurgical intangible assets

2 772

2 316

Note 9.1

Mining and metallurgical property, plant and equipment and intangible

assets

25 666

23 880

Other property, plant and equipment

2 746

2 593

Other intangible assets

218

250

Note 9.2

Other property, plant and equipment and intangible assets

2 964

2 843

Note 6.2

Involvement in joint ventures – loans granted

9 603

7 867

Note 7.1

Derivatives

714

595

Note 7.3

Other financial instruments measured at fair value

606

637

Note 7.4

Other financial instruments measured at amortised cost

469

496

Financial instruments, total

1 789

1 728

Note 5.1.1

Deferred tax assets

137

185

Note 12.3

Other non-financial assets

220

161

Non-current assets

40 379

36 664

Note 10.1

Inventories

8 902

6 337

Note 10.2

Trade receivables, including:

1 177

1 009

trade receivables measured at fair value through profit or loss

751

614

Note 5.3

Tax assets

367

364

Note 7.1

Derivatives

796

254

Note 6.2

Involvement in joint ventures – loans granted

447

Note 12.3

Other financial assets

337

172

Note 12.3

Other non-financial assets

286

162

Note 8.5

Cash and cash equivalents

1 200

1 884

Note 9.8

Assets held for sale (disposal group)

734

Current assets

13 065

11 363

TOTAL ASSETS

53 444

48 027

EQUITY AND LIABILITIES

Note 8.2.1

Share capital

2 000

Note 8.2.2

Other reserves from measurement of financial instruments

( 427)

(1 705)

Note 8.2.2

Accumulated other comprehensive income, other than from

measurement of financial instruments

1 812

2 219

Note 8.2.2

Retained earnings

28 704

24 532

Equity attributable to shareholders of the Parent Entity

32 089

27 046

Equity attributable to non-controlling interest

Equity

32 146

27 138

Note 8.4.1

Borrowings, lease and debt securities

5 220

5 409

Note 7.1

Derivatives

719

1 134

Note 11.1

Employee benefits liabilities

2 621

2 306

Note 9.4

Provisions for decommissioning costs of mines and other

technological facilities

1 859

1 242

Note 5.1.1

Deferred tax liabilities

1 151

643

Note 12.4

Other liabilities

543

617

Non-current liabilities

12 113

11 351

Note 8.4.1

Borrowings, lease and debt securities

1 223

455

Note 7.1

Derivatives

434

889

Note 10.3

Trade and similar payables

3 094

2 974

Note 11.1

Employee benefits liabilities

1 699

1 437

Note 5.3

Tax liabilities

1 233

1 453

Provisions for liabilities and other charges

173

207

Note 12.4

Other liabilities

1 329

1 661

Note 9.8

Liabilities associated with disposal group

462

Current liabilities

9 185

9 538

Non-current and current liabilities

21 298

20 889

TOTAL EQUITY AND LIABILITIES

53 444

48 027

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Equity attributable to shareholders of the Parent Entity

Share capital

Other reserves

from

measurement of

financial

instruments

Accumulated

other

comprehensive

income

Retained

earnings

Total

Equity

attributable to

non-controlling

interest

Total equity

As at 31 December 2020

2 000 (1 430) 1 728 18 694 20 992 89 21 081

Transactions with non-controlling interest -

owners

- - - - - 3 3

Note 12.2

Transactions with owners - Dividend - - - ( 300) ( 300) - ( 300)

Profit for the period

- - - 6 156 6 156 ( 1) 6 155

Note 8.2.2

Other comprehensive income

- ( 275)* 491 - 216 1 217

Total comprehensive income

- ( 275) 491 6 156 6 372 - 6 372

Reclassification of the result of disposal of equity

instruments measured at fair value through other

comprehensive income

- - - ( 18) ( 18) - ( 18)

As at 31 December 2021

2 000 (1 705) 2 219 24 532 27 046 92 27 138

Note 12.2

Transactions with owners - Dividend

- - - ( 600) ( 600) - ( 600)

Profit for the period

- - - 4 772 4 772 2 4 774

Note 8.2.2

Other comprehensive income

- 1 278 ( 407) - 871 - 871

Total comprehensive income

- 1 278 ( 407) 4 772 5 643 2 5 645

Changes due to loss of control of subsidiaries

- - - - - ( 37) ( 37)

As at 31 December 2022

2 000 ( 427) 1 812 28 704 32 089 57 32 146

*PLN 18 million due to reclassification resulting from the 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. Group

Consolidated 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 Parent Entity”, “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 in Wrocław, 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 Parent Entity’s principal activities include:

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

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

In addition, the KGHM Polska Miedź S.A. Group (“the Group”) conducts other activities, which are described in Appendix no.

3 to 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.

The consolidated financial statements were prepared under the assumption that the Group’s companies will continue

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 consolidated financial statements the Management Board of the

Parent Entity 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 Group’s

activities. There were neither production stoppages or slowdowns nor any reductions in the scope of services provided.

However COVID-19, 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 Group. 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. The production and financial results of individual segments were

presented in Part 2 Information on segments and revenues, while the impact of the macroeconomic situation on the

activities of the Company and the Group was presented 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.

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

was presented in Note 12.12 of this report.

The KGHM Polska Miedź S.A. Group carries out exploration and the mining of copper, nickel and precious metals based

on concessions given for the Polish deposits to KGHM Polska Miedź S.A., and also based on legal titles held by companies

of the KGHM INTERNATIONAL LTD. Group for the exploration for or mining of these resources in the USA, Canada and Chile.

Detailed information is 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 (point 1.5).

In 2022, the Parent Entity of the Group consolidated 63 subsidiaries and used the equity method to account for the shares

of two joint ventures (Sierra Gorda S.C.M. and NANO CARBON Sp. z o.o. in liquidation).

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

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

financial statements for 2022 and the comparative 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 the KGHM Polska Miedź S.A. Group and the

profit for the period of the Group.

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 consolidated financial statements were authorised for issue and signed by the Management Board of the Parent Entity

on 21 March 2023.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 1.2 Basis of preparation and presentation

These consolidated 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 and investment properties measured at fair value.

Accounting Policies

The accounting policies of the Group which apply to the consolidated financial statements as a whole, as well

as significant estimates and their impact on amounts presented in the consolidated financial statements, are presented

in the following note.

Topic Accounting policies Significant estimates and judgments

Consolidation

principles

The consolidated financial statements include the financial

statements of the Parent Entity

and its subsidiaries.

Subsidiaries are understood as being entities which are

either directly controlled by the Parent Entity or indirectly

through its subsidiaries.

Obtaining control of a subsidiary, which is a business, is

accounted for using the acquisition method.

Subsidiaries are fully consolidated from the date on which

control is obtained to the date on which control is lost.

Balances, incomes

, expenses and unrealised gains

recognised in assets from intra-group transactions, are

eliminated.

Determining whether the Parent

Entity

has control over a company

requires an assessment

as to

whether it has rights to direct

relevant activities of the company.

Determining what constitutes

relevant activities of the company

and by which investor it is controlled

requires a judgment.

Among others, the following factors

are taken into consideration when

assessing the situation and

determining the nature of

relationships: voting rights, relative

voting power, dilution of voting

rights of other Investors and their

ability to appoint members of key

management personnel or members

of the supervisory board.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Fair value

measurement

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 established that categorises the inputs

into three levels:

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

appropriate observable input data is not available.

Unobservable input data reflect assumptions that

would be adopted by market participants in order

to calculate the price of an asset or a liability,

including risk assumptions.

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 presents current estimates

which may be subject to change in

subsequent reporting periods due to

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 a given

instrument should be classified.

Financial

statements of

operations

with a

functional

currency other

than PLN

For purposes of preparing the consolidated financial

statements in the presentation currency of the KGHM Polska

Miedź S.A. Group, i.e. in PLN, individual items of financial

statements of foreign operations whose functional

currencies are other than PLN are translated in the following

manner:

(i) assets and liabilities – at the closing rate, i.e. at the

average exchange rate for that currency announced by

the NBP at the end of the reporting period,

(ii) items of the statement of profit or loss, the statement of

comprehensive income and the statement of cash flows

- at the arithmetical average of average exchange rates

announced for a given currency by the NBP at the end of

each month of a given reporting period. If there is a

significant volatility of exchange rates in a given period,

revenues and costs in the statement of profit or loss and

the statement of comprehensive income are translated

using the exchange rates as at the transaction date.

Exchange differences from the translation of statements of

operations with a functional currency other than PLN are

recognised in other comprehensive income of a given period.

The consolidated financial

statements are presented in PLN,

which is also the functional currency

of the Parent Entity and the Group’s

subsidiaries, with the exception of:

the subsidiary Future 1 Sp. z o.o. and

entities of the subgroup KGHM

INTERNATIONAL LTD. in which

mainly the US dollar (USD) is the

functional currency.

The balance of exchange differences

from the translation of statements of

the aforementioned operations

amounted to:

in 2022 – PLN 2 554 million,

in 2021 – PLN 2 619 million.

(see Note 8.2.2 Changes of other

equity items).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Foreign

currency

transactions

and the

measurement

of items

denominated

in foreign

currencies

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;

• at the average exchange rate set for a given currency,

prevailing on the date of the transaction

for other

transactions.

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 and are

presented in measurement at fair value.

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.

On 1 January 2022, a change was introduced in the KGHM

Polska Miedź S.A. Group 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 Group’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.

For a greater understanding of the data recognised in the consolidated financial statements, the accounting policy

(principles) and important estimates, assumptions and judgments are presented in individual, detailed notes as presented

in the table below. As compared to the reporting period ended on 31 December 2021, there were no significant changes to

the estimation 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note Title

Amount recognised in

the financial statements

Accounting

policies

Important

estimates,

assumptions

and

judgements

2022

2021

2.3

Revenues from contracts with

customers

33 847 29 803 X X

3.1 Impairment of assets (230) (438) X

5.1

Income tax in the statement of profit

or loss

(1 715) (1 669) X

5.1.1 Deferred income tax (533) (186) X X

5.3 Tax assets 367 368 X

5.3 Tax liabilities (1 233) (1 455) X

6.1

Joint ventures accounted for using the

equity method

- - X X

6.2 Loans granted to a joint venture 9 603 8 314 X X

7.2 Derivatives 357 (1 174) X X

7.3

Other financial instruments measured

at fair value

606 637 X X

7.4

Other financial instruments measured

at amortised cost

469 499 X X

8.2

Equity attributable to shareholders of

the Parent Entity

(32 089) (27 046)

8.4.1 Borrowings (6 443) (5 949)

8.5 Cash and cash equivalents 1 200 1 904

8.6 Labilities due to guarantees granted (1 326) (1 022) X X

9.1

Mining and metallurgical property,

plant and equipment and intangible

assets

25 666 23 999 X X

9.2

Other property, plant and equipment

and intangible assets

2 964 3 085 X

9.4

Provisions for decommissioning costs

of mines and other facilities*

(1 893) (1 552) X X

9.7

Lease disclosures – the Group as a

lessee

771 703 X X

9.8

Assets held for sale (disposal group)

and liabilities associated with them

- 734 X

10.1 Inventories 8 902 6 487 X X

10.2 Trade receivables 1 178 1 026 X X

10.3 Trade and similar payables (3 280) (3 201) X X

10.4 Changes in working capital (2 317)

(2 767)

]

X X

11.1 Employee benefits liabilities (4 320) (3 756) X X

12.3 Other assets 843 498 X

12.4 Other liabilities (1 872) (2 310) X

* 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.

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

to all presented periods.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 1.3 Impact of new and amended standards and interpretations

Amendments to standards applied for the first time in the consolidated 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 consolidated financial statements, the aforementioned amendments to the standards

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

to the Group’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 Group’s accounting policy in this regard. In accordance with the current policy,

the Group 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 Group applied amendments to IAS 16 from 1 January 2022. With respect

to the application of transitional provisions, the Group did not identify significant items of property, plant and equipment

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

Note 1.4 Published standards and interpretations, which are not yet in force and were not applied earlier by the

Group

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 Group’s opinion, the first application

of the aforementioned change will not have a significant impact on the consolidated 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 Group in these consolidated financial statements, the presentation of borrowings as at 31

December 2022 would not change.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

• 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, the amount of liabilities it is related to and facts and circumstances, if they

occur, indicating the occurrence of a risk that an entity may not meet the conditions of the covenant within the

deadline indicated after the end of the reporting period.

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

on the Group’s consolidated financial statements as at 31 December 2022. In the Group’s opinion, 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 Group 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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Part 2 – Information on segments and revenues

Note 2.1 Operating segments

The operating segments identified in the KGHM Polska Miedź S.A. Group reflect the structure of the Group, the manner

in which the Group and its individual entities are managed and the regular reporting to the Parent Entity’s Management

Board.

Based on the aggregation of operating segments and taking into account the criteria stipulated in IFRS 8, the following

reporting segments are currently identified within the KGHM Polska Miedź S.A. Group:

Reporting segment

Operating segments

aggregated in a given

reporting segment

Indications of similarity of economic characteristics of

segments, taken into account in aggregations

KGHM Polska Miedź S.A. KGHM Polska Miedź S.A.

Not applicable (it is a single operating and reporting

segment)

KGHM INTERNATIONAL

LTD.

Companies of the KGHM

INTERNATIONAL LTD. Group, in

which the following mines,

deposits or mining areas and

mining enterprises constitute

operating segments: Sudbury

Basin, Robinson, Carlota,

Franke*, DMC, Victoria and Ajax

projects.

Operating segments within the KGHM INTERNATIONAL

LTD. Group are located in North and South America.

The Management Board analyses the results of the

following operating segments: Sudbury Basin, Robinson,

Carlota, Franke*, Victoria and Ajax projects and other. In

addition, the Management Board receives and analyses

reports on the whole KGHM INTERNATIONAL LTD. Group.

Operating segments are engaged in the exploration and

mining of copper, molybdenum, silver, gold, nickel,

platinum and palladium deposits.

The operating segments were aggregated based on the

similarity of long term margins achieved by individual

segments, and the similarity of products, processes and

production methods.

Sierra Gorda S.C.M.

Sierra Gorda S.C.M. (joint

venture)

Not applicable (it is a single operating and reporting

segment)

Other segments

This item includes other Group

companies (every individual

company is a separate

operating segment).

Aggregation was carried out as a result of not meeting the

criteria necessitating the identification of a separate

additional reporting segment.

* Entity sold on 26 April 2022 (Note 9.8).

The following companies were not included in any of the aforementioned segments:

• Future 1 Sp. z o.o., which acts as a holding company with respect to the KGHM INTERNATIONAL LTD. Group,

• Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o., which operate in the structure related to the establishment of

a Tax Group.

These companies do not conduct operating activities which could impact the results achieved by individual segments, and

as a result their inclusion could distort the data presented in this part of the consolidated financial statements

due to significant settlements with other Group companies.

Each of the segments KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M. have their own

Management Board, which reports the results of their business activities to the Management Board of the Parent Entity.

The segment KGHM Polska Miedź S.A. is composed only of the Parent Entity, and the segment Sierra Gorda S.C.M.

is composed only of the joint venture Sierra Gorda S.C.M. Other companies of the KGHM Polska Miedź S.A. Group are

presented below by segment: KGHM INTERNATIONAL LTD. and Other segments.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The SEGMENT KGHM INTERNATIONAL LTD.

Location Company

The United States of America

Carlota Copper Company, Carlota Holdings Company, DMC Mining Services

Corporation, FNX Mining Company USA Inc., Robinson Holdings (USA) Ltd.,

Robinson Nevada Mining Company, Wendover Bulk Transhipment Company

Chile

Aguas de la Sierra Limitada, Minera Carrizalillo SpA, KGHM Chile SpA, Quadra

FNX Holdings Chile Limitada, Sociedad Contractual Minera Franke* , DMC

Mining Services Chile SpA

Canada

KGHM INTERNATIONAL LTD., 0899196 B.C. Ltd., Centenario Holdings Ltd.,

DMC Mining Services Ltd., FNX Mining Company Inc., FRANKE HOLDINGS LTD.,

KGHM AJAX MINING INC., KGHMI HOLDINGS LTD., Quadra FNX Holdings

Partnership, Sugarloaf Ranches Ltd.

Mexico

DMC Mining Services Mexico, S.A. de C.V.

(formerly Raise Boring Mining Services S.A. de C.V.)

Colombia DMC Mining Services Colombia SAS

The United Kingdom DMC Mining Services (UK) Ltd.

Luxembourg Quadra FNX FFI S.à r.l.

OTHER SEGMENTS

Type of activity Company

Support of the core business

BIPROMET S.A., CBJ sp. z o.o., “Energetyka” sp. z o.o., INOVA Spółka z o.o.,

KGHM CUPRUM sp. z o.o. – CBR, KGHM ZANAM S.A., KGHM Metraco S.A.,

PeBeKa S.A., POL-MIEDŹ TRANS Sp. z o.o., WPEC w Legnicy S.A.

Sanatorium-healing and hotel services

Interferie Medical SPA Sp. z o.o.*, INTERFERIE S.A.*, Uzdrowiska Kłodzkie S.A. -

Grupa PGU, Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU, Uzdrowisko Połczyn

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

Investment funds, financing activities

Fundusz Hotele 01 Sp. z o.o., Fundusz Hotele 01 Sp. z o.o. S.K.A., KGHM TFI

S.A., KGHM VII FIZAN in liquidation**, Polska Grupa Uzdrowisk Sp. z o.o.

Other activities

CENTROZŁOM WROCŁAW S.A., CUPRUM Development sp. z o.o., CUPRUM

Zdrowie sp. z o.o. (formerly CUPRUM Nieruchomości sp. z o.o.), KGHM

(SHANGHAI) COPPER TRADING CO., LTD., KGHM Kupfer AG, MERCUS Logistyka

sp. z o.o., MIEDZIOWE CENTRUM ZDROWIA S.A., NITROERG S.A., NITROERG

SERWIS Sp. z o.o., PHU "Lubinpex" Sp. z o.o., PMT Linie Kolejowe Sp. z o.o.,

WMN "ŁABĘDY" S.A., Zagłębie Lubin S.A., OOO ZANAM VOSTOK, KGHM

Centrum Analityki Sp. z o.o.

* Entities sold in the reporting period (Note 9.8).

** Entity liquidated on 22 November 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Location of mining assets of the KGHM Polska Miedź S.A. Group

The Parent Entity and the KGHM INTERNATIONAL LTD. Group (a subgroup) have a fundamental impact on the assets

and the generation of revenues in the KGHM Polska Miedź S.A. Group. The activities of KGHM Polska Miedź S.A.

are concentrated on the mining industry in Poland, while those of the KGHM INTERNATIONAL LTD. Group are concentrated

on the mining industry in the countries of North and South America. The profile of activities of the majority of the remaining

subsidiaries of the KGHM Polska Miedź S.A. Group differs from the main profile of the Parent Entity’s activities.

The Parent Entity’s Management Board monitors the operating results of individual segments in order to make decisions

on allocating the Group’s resources and to assess the financial results achieved.

Financial data prepared for management reporting purposes is based on the same accounting policies as those applied

when preparing the consolidated financial statements of the Group, while the financial data of individual reporting

segments constitutes the amounts presented in appropriate financial statements prior to consolidation adjustments

at the level of the KGHM Polska Miedź S.A. Group, i.e.:

• The segment KGHM Polska Miedź S.A. – comprises data from the separate financial statements of the Parent Entity

prepared in accordance with IFRSs. In the separate financial statements, investments in subsidiaries (including

indirect interest in KGHM INTERNATIONAL LTD.) are measured at cost, including impairment losses,

• The segment KGHM INTERNATIONAL LTD. – comprises consolidated data of the KGHM INTERNATIONAL LTD. Group

prepared in accordance with IFRSs. The involvement in Sierra Gorda S.C.M. is accounted for using the equity method,

• The segment Sierra Gorda S.C.M. – comprises the 55% share of assets, liabilities, revenues and costs of this venture

presented in the separate financial statements of Sierra Gorda S.C.M. prepared in accordance with IFRSs,

• Other segments – comprises aggregated data of individual subsidiaries after excluding transactions and balances

between them.

The Management Board of the Parent Entity assesses a segment’s performance based on adjusted EBITDA and the profit

or loss for the period.

The Group defines adjusted EBITDA as profit/loss for the period pursuant to IFRS, excluding taxes (current

and deferred income tax as well as the mining tax), finance income and costs, other operating income and costs, profit or

loss on involvement in joint ventures, depreciation/amortisation and recognition/reversal of impairment losses on

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

Since adjusted EBITDA is not a measure defined by IFRS, it is not a standardised measure and therefore its method of

calculation may vary between entities, and consequently the presentation and calculation of adjusted EBITDA applied by

the Group may not be comparable to that applied by other market entities.

Revenues from transactions with external entities and inter-segment transactions are carried out at arm’s length.

Eliminations of mutual settlements, revenues and costs between segments were presented in the item “Consolidation

adjustments”.

Unallocated assets and liabilities concern companies which have not been allocated to any segment. Assets which have not

been allocated to the segments comprise cash, trade receivables and deferred tax assets. Liabilities which have

not been allocated to the segments comprise trade liabilities and current tax liabilities.

*TPM – total precious metals

Legend:

KGHM mines

KGHM mining projects

KGHM metallurgical

plants

CANADA

(Ontario, Sudbury Basin)

McCreedy West (Cu, Ni, TPM*)

Victoria (Cu, Ni, TPM)

Regional exploration

CANADA

(British Columbia)

Ajax (Cu, Au)

USA

(Nevada & Arizona)

Robinson (Cu, Au, Mo)

Carlota (Cu)

Regional exploration

CHILE

(Antofagasta & Atakama)

Sierra Gorda (Cu, Mo, Au)

Regional exploration

POLAND

(Lower Silesia)

Polkowice-Sieroszowice (Cu, Ag)

Lubin (Cu, Ag)

Rudna (Cu, Ag)

Głogów Głęboki Przemysłowy

(Deep

Głogów) (Cu, Ag)

Regional exploration

Głogów I & Głogów II smelter/refineries

Legnica smelter/refinery

Cedynia wire rod plant

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 2.2 Financial results of reporting segments

from 1 January 2022 to 31 December 2022

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Sierra Gorda

S.C.M.*

Other

segments

Elimination of data of

the segment

Sierra Gorda S.C.M

Consolidation

adjustments****

Consolidated

financial

statements

Note 2.3 Revenues from contracts with customers, of which: 28 429 3 217 3 974 12 889 (3 974) (10 688) 33 847

- inter-segment 565 - - 10 123 - (10 688) -

- external 27 864 3 217 3 974 2 766 (3 974) - 33 847

Segment result – profit/(loss) for the period 3 533 900 239 ( 51) ( 239) 392 4 774

Additional information on significant

revenues/costs items of the segment

Depreciation/amortisation recognised in profit or loss (1 434) ( 568) ( 937) ( 273) 937 36 (2 239)

(Recognition)/reversal of impairment losses on non-

current assets, including:

207 781 - - - ( 259) 729

reversal of allowances for impairment of loans

granted

213 873 - - - ( 213) 873

As at 31 December 2022

Assets, including:

47 995

15 228

13 563

6 071

(13 563)

(15 850)

53 444

Segment assets 47 995 15 228 13 563 6 071 (13 563) (15 854) 53 440

Assets unallocated to segments - - - - - 4 4

Liabilities, including: 18 320 19 276 13 992 3 446 (13 992) (19 744) 21 298

Segment liabilities 18 320 19 276 13 992 3 446 (13 992) (19 804) 21 238

Liabilities unallocated to segments - - - - - 60 60

Other information

from 1 January 2022 to 31 December 2022

Cash expenditures on property, plant and equipment

and intangible assets – cash flows

2 731 913 1 031 380 (1 031) 94 4 118

Production and cost data

from 1 January 2022 to 31 December 2022

Payable copper (kt) 586.0 56.2 90.8

Molybdenum (million pounds)

0.1

2.9

Silver (t) 1 298.4 2.0 26.7

TPM (koz t) 87.3 55.9 34.3

C1 cash cost of producing copper in concentrate

(USD/lb PLN/lb)**

2.38 10.62

2.14 9.57

1.50 6.69

Segment result - Adjusted EBITDA 5 400 1 001 2 190 274 - - 8 865

EBITDA margin*** 19% 31% 55% 2% - - 23%

* 55% of the Group’s share in Sierra Gorda S.C.M.’s financial and production data.

** Unit cash cost of payable copper production, reflecting 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 is in regard

to payable copper in own concentrate in the case of the segment KGHM Polska Miedź S.A. and payable copper in end products of individual mines of the segment KGHM International Ltd. and the segment Sierra Gorda S.C.M. C1 cost in PLN/lb was calculated using the average

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

*** Adjusted EBITDA to revenues from contracts with customers. For the purposes of calculating the Group’s EBITDA margin (23%), the consolidated revenues from contracts with customers were increased by revenues from contracts with customers of the segment

Sierra Gorda S.C.M. [8 865 / (33 847 + 3 974) * 100]

**** Adjustments arise from consolidation eliminations and financial data of companies unallocated to any segment.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Financial results of reporting segments for the comparable period

from 1 January 2021 to 31 December 2021

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Sierra Gorda

S.C.M.*

Other

segments

Elimination of data of

the segment

Sierra Gorda S.C.M

Consolidation

adjustments****

Consolidated

financial

statements

Note 2.3 Revenues from contracts with customers, of which: 24 618 3 125 4 585 10 329 (4 585) (8 269) 29 803

- inter-segment 408 - - 7 861 - (8 269) -

- external 24 210 3 125 4 585 2 468 (4 585) - 29 803

Segment result – profit/(loss) for the period 5 169 2 632 3 178 ( 140) (3 178) (1 506) 6 155

Additional information on significant

revenues/costs items of the segment

Depreciation/amortisation recognised in profit or loss (1 363) ( 516) ( 777) ( 258) 777 14 (2 123)

(Recognition)/reversal of impairment losses on non-

current assets, including:

1 742 2 200 2 639 ( 216) (2 639) (1 680) 2 046

(recognition)/reversal of impairment losses on

investments in subsidiaries

1 010 - - ( 86) - ( 924) -

(recognition)/reversal of allowances for impairment

of loans granted

752 2 380 - - - ( 752) 2 380

As at 31 December 2021

Assets, including:

43 458

13 646

12 232

6 066

(12 232)

(15 143)

48 027

Segment assets 43 458 13 646 12 232 6 066 (12 232) (15 172) 47 998

Assets unallocated to segments - - - - - 29 29

Liabilities, including:

17 618

18 185

12 844

3 339

(12 844)

(18 253)

20 889

Segment liabilities 17 618 18 185 12 844 3 339 (12 844) (18 299) 20 843

Liabilities unallocated to segments - - - - - 46 46

Other information

from 1 January 2021 to 31 December 2021

Cash expenditures on property, plant and equipment

and intangible assets – cash flows

2 407

1 014

605

490

( 605)

( 21)

3 890

Production and cost data

from 1 January 2021 to 31 December 2021

Payable copper (kt) 577.6 71.7 104.4

Molybdenum (million pounds) - 0.2 8.2

Silver (t) 1 332.2 2.0 31.9

TPM (koz t) 81.3 51.3 30.9

(C1) cash cost of producing payable copper (USD/lb

PLN/lb)**

2.26 8.73 2.01 7.78 0.78 3.01

Segment result - adjusted EBITDA 5 474 1 340 3 167 346 - - 10 327

EBITDA margin*** 22% 43% 69% 3% - - 30%

* 55% of the Group’s share in Sierra Gorda S.C.M.’s financial and production data.

concentrate in the case of the segment KGHM Polska Miedź S.A. and payable copper in end products of individual mines of the segment KGHM International Ltd. and the segment Sierra Gorda S.C.M. C1 cost in PLN/lb was calculated using the average exchange rate by the NBP (arithmetical average of daily

quotations per the NBP’s tables).

*** Adjusted EBITDA to revenues from contracts with customers. For the purposes of calculating the Group’s EBITDA margin (30%) the consolidated revenues from contracts with customers were increased by revenues from contracts with customers of the segment

Sierra Gorda S.C.M. [10 327 / (29 803 + 4 585) * 100]

**** Adjustments arise from consolidation eliminations and financial data of companies unallocated to any segment.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Reconciliation of adjusted EBITDA

from 1 January 2022 to 31 December 2022

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Other

segments

Consolidation

adjustments*

Consolidated

financial

statements

Sierra Gorda

S.C.M. **

Adjusted

EBITDA

(segments, total)

1 2 3 4

(1+2+3+4)

(5+6-4)

Profit/(Loss) for the period

3 533

900

( 51)

392

4 774

239

[-] Profit or loss on involvement in joint ventures - 1 455 - - 1 455 -

[-] Current and deferred income tax, mining tax*** (1 463) ( 122) ( 36) ( 94) (1 715) ( 177)

[-] Depreciation/amortisation recognised

in profit or loss

(1 434) ( 568) ( 273) 36 (2 239) ( 937)

[-] Finance income and (costs)

( 269)

(1 033)

( 45)

1 075

( 272)

( 823)

[-] Other operating income and (costs)

1 299

203

( 568)

962

( 14)

[-] (Recognition)/reversal of impairment losses

on non-current assets recognised in cost of

sales, selling costs and administrative expenses

- ( 36) 1 ( 45) ( 80) -

Segment result - adjusted EBITDA 5 400 1 001 274 ( 11) 6 664 2 190 8 865

* Adjustments arise from consolidation eliminations and financial data of companies unallocated to any segment.

**55% share of the Group in the financial data of Sierra Gorda S.C.M.

***Mining tax concerns only the segment Sierra Gorda S.C.M.

Reconciliation of adjusted EBITDA

from 1 January 2021 to 31 December 2021

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Other

segments

Consolidation

adjustments*

Consolidated

financial

statements

Sierra Gorda

S.C.M. **

Adjusted

EBITDA

(segments, total)

1 2 3 4

(1+2+3+4)

(5+6-4)

Profit/(Loss) for the period 5 169 2 632 ( 140) (1 506) 6 155 3 178

[-] Profit or loss on involvement in joint ventures

2 874

[-] Current and deferred income tax, mining tax*** (1 547) 1 ( 63) ( 60) (1 669) (1 059)

[-] Depreciation/amortisation recognised

in profit or loss

(1 363) ( 516) ( 258) 14 (2 123) ( 777)

[-] Finance income and (costs) ( 476) ( 974) ( 19) 998 ( 471) ( 787)

[-] Other operating income and (costs)

3 088

( 19)

(2 427)

711

( 5)

[-] (Recognition)/reversal of impairment losses

on non-current assets recognised in cost of

sales, selling costs and administrative

expenses

( 7) ( 162) ( 127) ( 3) ( 299) 2 639

Segment result - adjusted EBITDA 5 474 1 340 346 ( 28) 7 132 3 167 10 327

* Adjustments arise from consolidation eliminations and financial data of companies unallocated to any segment.

**55% share of the Group in the financial data of Sierra Gorda S.C.M.

***Mining tax concerns only the segment Sierra Gorda S.C.M.

A detailed description of the results of individual segments is presented in the following sections of 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:

− the segment KGHM Polska Miedź S.A. – in section 8,

− the segment KGHM INTERNATIONAL LTD. – in section 9,

− the segment Sierra Gorda S.C.M. – in section 10.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 2.3 Revenues from contracts with customers of the Group – breakdown by products

Accounting policies

Revenues arising from ordinary operating activities of the Group, 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 Group generates i

ts 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 mine construction services) and other products

(including electricity), merchandise and materials (including steel, petroleum and its derivatives).

The Group recognises revenue from contracts with customers when the Group 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 the majority of sales

transactions

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

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

consideration from contracts with customers as receivables and therefore the Group does not recognise contractual assets.

Moreover, revenues from the sale of services are recognised by the Group

in profit or loss over time if one of the following

criteria is met:

• the customer simultaneously receives and consumes the benefits provided by the Group’s performance to the extent that

it performs its obligations, or

•

the Group satisfies a performance obligation and creates or enhances an asset (for example, work in progress) that the

customer controls as the asset is created or enhanced, or

• the Group satisfies a performance obligation and creates an asset without an alternative use to the Group and the Group

has an enforceable right to payment for performance completed to date.

If the Group recognises revenues on the basis of assessment pursuant to the adopted method of measurement the degree of

advancement, prior to the issue of the invoice, it recognises

due consideration as a contractual asset and transfers it to

receivables at the moment the right to consideration becomes unconditional.

The Group

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 Group

determines (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 Group fulfils its performance obligation and at the same time recognises

revenues.

In trade contracts in which the performance obligation is met at a specified time, the Group 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 silver. Payment dates depend on the evaluation of the recipient’

s credit risk and the possibility of

securing receivables.

The consideration becomes due depending on contractual conditions, that is prior to the realisation of

the delivery (prepayment) by the Group or after the Group meets its performance obligation. If

the Group 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 Group recognises due consideration from the customer as a receivable on

ly after the transfer

of promised products to the customer and the issuance of the invoice.

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 Group’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 determine

d 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 i

nto 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 ent

ity 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. In the realised

contracts of sales to customers in 2022 and 2021, the Group identified a significant financing component in the contract with

Franco Nevada (contract described below in Important estimates, assumptions and judgments).

The Group presents the results of financing (interest costs) separately from revenues from contracts wi

th customers in the

statement of comprehensive income. In the Franco Nevada contract, there is also an element of variable consideration. In such

a situation, the Group recognises revenues by estimating the amount of consideration, to which it will be entitled to in exchange

for transferring the good to the customer and includes a part or all of the amount of variable consideration in the transaction

price only to such an extent to which it is highly probable that there will not be a reversal of a significa

nt part of previously

recognised accumulated revenues at the moment when uncertainty as to the amount of consideration ceases to be.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

In the case of copper and silver products sales transactions 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

correspon

ding 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 w

here 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 revers

al will not be recognised, is not applicable. Changes to the booked 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 accounting 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 Group

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

customer at the moment it is h

anded over to the carrier and loaded aboard a ship (CFR, CIF, CPT and CIP bases). In these

contracts, the Group is also obliged to organise the shipment. In these cases, the Group acts as a principal, as it has control

over the service before its completion and transfer to the customer.

At the same time, the Group allocates a part of the

transaction price to the transport service and recognises these revenues over time.

The Group recognises revenues over time due to realised mine construction services and o

ther geological work. The Group

meets liabilities in time, because the customer simultaneously receives and makes use of economic benefits arising from the

performed service as it is performed, or because components are made which do not have an alternativ

e application for the

Group and simultaneously the Group has an enforceable right to payment. To measure the degree of advancement of

performance obligation, the Group applies a method based on expenses incurred while meeting the performance obligation

on the basis of incurred costs and for other contracts, a method based on results, where the unit cost set in advance is applied

to measure the unit of production (e.g. to measure meters of drilled tunneling).

The contract with Franco Nevada

Performance obligation

The Group realises the streaming arrangement contract, which is a source of financing available on the market for entities

operating in the mining sector.

The contract concerns the sale of half of the production of gold, platinum and palladium contained in the ore extracted during

the lives of the following mines: Morrison, McCreedy West and Podolsky, which are within the CGU Sudbury. Pursuant to the

terms of the contract, Quadra FNX Mining Ltd. received a prepayment in the amount of CAD 400 million. Moreover, in

accordance with the contract, the selling price for one ounce of gold equivalent is the lower of these two amounts: (a) USD 400,

increased by 1% each year beginning from 2011, or (b) the market price of gold. The received prepayment covers the difference

between the market price of ore sold and its fixed selling price. The Group recognised a liability due to the contract in the

amount of prepayment due to the obligation put on the entity to meet the obligation to transfer or be ready to transfer goods

or services in the future. The Group ceases to recognise this contractual obligation and recognises revenues at the moment it

transfers these goods or services to the customer and therefore meets its performance obligation.

Variable consideration

In the contract with Franco Nevada the total transaction price is variable and depends on the amount of the raw material sold,

and this in turn depends on ore extraction in the future throughout the life of the mine (including for example on the size of

the deposit). Therefore, if in subsequent reporting periods the Group changes its judgment regarding the planned amount of

ore to be extracted, and consequently to the amount of raw material sold, the transaction price will also be updated.

The Group recognises amounts related to satisfied performance obligations as revenue or as a decrease of revenue in the

period in which the transaction price was changed.

Significant financing component

In the context of the contract with Franco Nevada, taking into consideration the expected period from the moment when

prepayment is received to the moment when the Group transfers the promised good (the life of the mine, or several decades)

and the nature of this contract, it was determined that the extension of payments over time provides benefits to the Group

due to the financing of deliveries of raw material by the buyer (Franco Nevada), and as a result the contract includes a significant

financing element.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The Group presents the effects of financing (interest costs) separately from revenue from contracts with customers in the

statement of profit or loss. Interest costs are recognised solely to the extent to which the liabilities related to the contract with

Franco Nevada were recognised.

Determination of the transaction price allocated to other performance obligations

If the Group has other performance obligations at the end of the reporting period, it is required to

disclose the transaction

price allocated to these performance obligations (IFRS 15.120-

122). The Group applies a practical expedient and does not

disclose performance obligations which are a part of a contract that has an original expected duration of one

year or less.

Moreover, the Group has long-

term contracts with prices based mainly on a variable consideration, which is not included by

the Group when estimating the transaction price.

Moreover, the Group (via the company DMC) advances long-term contracts

for mine construction, in which it uses a method

based on expenditures to recognise revenues, which meets the criteria for recognising revenues in the amount, that the Group

has a right to invoice. The total transaction price allocated to performance obligations, which remained unsatisfied at the end

of the reporting period, amounted to PLN 899 million, of which the amount of PLN 559 million will be realised in 2023

, the

amount of PLN 149 million will be realised in 2024 and the amount of PLN 191 million will be realised in or after 2025. These

contracts do not have an element of variable consideration.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Revenues from contracts with customers of the Group – breakdown by products

from 1 January 2022 to 31 December 2022

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Sierra Gorda S.C.M.*

Other

segments

Elimination of data of

the segment Sierra

Gorda S.C.M

Consolidation

adjustments

Consolidated

data

Copper

22 207 2 015 3 248 10 (3 248) ( 51) 24 181

Silver

4 341 30 82 - ( 82) - 4 371

Gold

649 313 269 - ( 269) - 962

Services

174 595 - 2 307 - (1 745) 1 331

Energy

35 - - 358 - ( 212) 181

Salt

36 - - - - 23 59

Blasting materials

and explosives

- - - 300 - ( 151) 149

Mining machinery, transport vehicles

and other types of machinery and

equipment

- - - 315 - ( 271) 44

Fuel additives

- - - 159 - - 159

Lead

295 - - - - - 295

Products from other

non-ferrous metals

- - - 179 - ( 4) 175

Steel

- - - 623 - ( 142) 481

Petroleum and its derivatives

- - - 528 - ( 431) 97

Other merchandise and materials

367 - - 7 313 - (7 224) 456

Other products

325 264 375 797 ( 375) ( 480) 906

TOTAL

28 429 3 217 3 974 12 889 (3 974) (10 688) 33 847

* 55% of the Group’s share in revenues of Sierra Gorda S.C.M.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

from 1 January 2021 to 31 December 2021

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL LTD.

Sierra Gorda S.C.M.*

Other

segments

Elimination of data of

the segment Sierra

Gorda S.C.M

Consolidation

adjustments

Consolidated

data

Copper

19 079

2 325

3 756

(3 756)

( 32)

21 380

Silver

3 990

( 95)

3 998

Gold

548

243

212

( 212)

791

Services

143

426

2 089

(1 581)

1 077

Energy

250

( 167)

134

Salt

Blasting materials

and explosives

- -

219 - ( 168) 51

Mining machinery, transport

vehicles and other types of

machinery and equipment

- -

212 - ( 171) 41

Fuel additives

123

Lead

271

Products from other

non-ferrous metals

- - -

114 - ( 4) 110

Steel

604

( 66)

538

Petroleum and its derivatives

325

( 275)

Other merchandise and materials

278

5 703

(5 518)

463

Other products

229

123

522

682

( 522)

( 319)

715

TOTAL

24 618

3 125

4 585

10 329

(4 585)

(8 269)

29 803

* 55% of the Group’s share in revenues of Sierra Gorda S.C.M.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 2.4 Revenues from contracts with customers of the Group – breakdown by category

from 1 January 2022 to 31 December 2022

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL

LTD.

Sierra Gorda

S.C.M.*

Other

segments

Elimination of data

of the segment

Sierra Gorda S.C.M

Consolidation

adjustments

Consolidated

data

Total revenues from contracts with customers

28 429

3 217

3 974

12 889

(3 974)

(10 688)

33 847

Revenues from sales contracts, for which the sales price is

set after the date of recognition of the sales (M+ principle), of

which:

21 767 2 556 3 974 6 259 (3 974) (6 038) 24 544

settled

21 045 1 459 2 068 6 259 (2 068) (6 038) 22 725

unsettled

722 1 097 1 906 - (1 906) - 1 819

Revenues from realisation of long-term contracts for mine

construction

- 555 - 165 - ( 146) 574

Revenues from other sales contracts

6 662 106 - 6 465 - (4 504) 8 729

Total revenues from contracts with customers,

of which:

28 429 3 217 3 974 12 889 (3 974) (10 688) 33 847

in factoring

8 677 - - 390 - ( 304) 8 763

not in factoring

19 752 3 217 3 974 12 499 (3 974) (10 384) 25 084

* 55% of the Group’s share in revenues of Sierra Gorda S.C.M.

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Total revenues from contracts with customers, of which:

33 847

29 803

transferred at a certain moment

32 229

28 592

transferred over time

1 618

1 211

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

from 1 January 2021 to 31 December 2021

Reconciliation items to consolidated data

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL

LTD.

Sierra Gorda

S.C.M.*

Other

segments

Elimination of data

of the segment

Sierra Gorda S.C.M

Consolidation

adjustments

Consolidated

data

Total revenues from contracts with customers

24 618 3 125 4 585 10 329 (4 585) (8 269) 29 803

Revenues from sales contracts, for which the sales price is

set after the date of recognition of the sales (M+ principle),

of which:

19 838 2 690 4 369 4 751 (4 369) (4 648) 22 631

settled

18 952 2 621 1 874 4 751 (1 874) (4 648)

21 676

unsettled

886 69 2 495 - (2 495) -

955

Revenues from realisation of long-term mine construction

contracts

- 403 - 220 - ( 211) 412

Revenues from other sales contracts

4 780 32 216 5 358 ( 216) (3 410) 6 760

Total revenues from contracts with customers,

of which:

24 618 3 125 4 585 10 329 (4 585) (8 269) 29 803

in factoring

8 575 - - 106 - ( 46) 8 635

not in factoring

16 043 3 125 4 585 10 223 (4 585) (8 223) 21 168

* 55% of the Group’s share in revenues of Sierra Gorda S.C.M.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 2.5 Revenues from contracts with customers of the Group – geographical breakdown reflecting the location of end customers

from 1 January 2022 to 31 December 2022

from 1 January 2021 to 31 December 2021

Reconciliation items to consolidated data

KGHM Polska Miedź S.A. Group

KGHM

Polska Miedź S.A.

KGHM

INTERNATIONAL

LTD.

Sierra Gorda S.C.M.*

Other

segments

Elimination of data

of the segment

Sierra Gorda S.C.M.

Consolidation

adjustments

Consolidated

data

Poland

7 158

12 474

( 17)

(10 646)

8 986

7 608

Germany

5 502

101

5 603

3 787

China

2 147

1 595

1 701

(1 701)

3 742

4 158

Italy

2 319

2 348

2 022

Czechia

2 250

2 269

1 828

The United Kingdom

1 676

1 682

1 290

Hungary

1 408

1 419

1 129

The United States of America

997

198

( 7)

( 1)

1 210

2 261

France

896

901

794

Canada

855

( 40)

865

527

Switzerland

790

797

590

Australia

787

1 020

Austria

542

570

457

Thailand

437

442

463

Chile

304

1 231

(1 231)

( 1)

311

201

Turkey

282 - - 15 - - 297

130

Vietnam

231 - - - - - 231

336

Slovakia

178

197

140

Philippines

173

Romania

138

142

258

Slovenia

130

132

150

Mexico

Malaysia

Taiwan

South Korea

( 54)

Belgium

Japan

64 - 786 - ( 786) - 64

139

Bulgaria

Sweden

Denmark

Bosnia and Herzegovina

Lithuania

Estonia

Norway

The Netherlands

127

( 127)

Russia

- - - 6 - - 6

India

( 10)

Brazil

( 38)

Other countries

( 3)

112

TOTAL

28 429

3 217

3 974

12 889

(3 974)

(10 688)

33 847

29 803

*55% of the Group’s share in revenues of Sierra Gorda S.C.M.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 2.6 Main customers

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

exceeded 10% of the sales revenue of the Group.

Note 2.7 Non-current assets – geographical breakdown

As at

31 December 2022

As at

31 December 2021

Poland

25 008

23 545

Canada

1 919

1 577

The United States of America

1 841

1 765

Chile

204

229

Other countries

TOTAL*

28 972

27 210

*non-current assets, excluding: derivatives, other financial instruments, other non-financial assets and deferred tax assets (IFRS 8.33b) in the total amount

of PLN 11 448 million as at 31 December 2022 (PLN 9 813 million as at 31 December 2021).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Part 3 – Impairment of assets

Note 3.1. Impairment of assets as at 31 December 2022

Pursuant to IAS 36, as at 31 December 2022 the Group assessed the occurrence of indications of impairment of its assets.

Key non-current assets of the Group were subjected to the analysis. As a result of the performed evaluation, no indications

of impairment of these assets were identified. Because of the Parent Entity’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 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 Parent Entity’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 Parent Entity’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 Parent Entity’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 global pandemic situation, 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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

TEST FOR THE IMPAIRMENT OF NON-CURRENT ASSETS OF SPA COMPANIES – Segment – Other segments

As at 30 June 2022, new risks were identified to the realisation of forecasted financial results of the Group companies

providing spa services (CGU): 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. Apart from the increase in

prices of electricity, energy carriers, food and other cost items due to inflation pressure, there is also a risk of inability to

effectively transfer these increases into prices for end customers and/or an impact of these costs on provided services.

For the purpose of estimating the recoverable amount, in the conducted test the value in use of the cash generating units,

comprised of property, plant and equipment and intangible assets of all of the aforementioned companies, was measured

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

The recoverable amount of CGUs, estimated as described above, was confirmed by the fair value of a transaction price

of tested assets, which were sold between entities of the Group as part of the reorganisation project realised by the Group

(details on changes in the organisational structure of the Group may be found in Note 12.11 Composition of the Group).

Basic assumptions adopted for impairment testing

Assumption

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

Detailed forecast period*

2nd half of 2022 -

1st half of 2028

2nd half of 2022 -

1st half of 2028

2nd half of 2022 -

1st half of 2028

2nd half of 2022 -

1st half of 2028

Average EBITDA margin

during the detailed

forecast period

12% 13% 12% 13%

EBITDA margin during the

residual period

15% 14% 14% 16%

Capital expenditures

during the detailed

forecast period

PLN 58 million PLN 12 million PLN 12 million PLN 9 million

Average notional discount

rate during the detailed

forecast period**

11.4% 11.3% 11.4% 11.5%

Discount rate during the

residual period**

11.4% 11.7% 11.5% 11.8%

Notional growth rate

following the detailed

forecast period

2.0% 2.0% 2.0% 2.0%

* A 6-year detailed forecast period was adopted instead of a 5-year one, pursuant to the approach applied by KGHM VII FIZAN for the measurement

of portfolio deposits, in order to maintain the comparability over time (the methodology applied in previous periods).

** 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 results of the conducted tests are presented in the following table:

CGU Carrying amount

Recoverable

amount

Impairment loss

Uzdrowiska Kłodzkie S.A. - Grupa PGU 114 102 12

Uzdrowisko Połczyn Grupa PGU S.A 81 55 26

Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU

Uzdrowisko Świeradów - Czerniawa

Sp. z o.o. – Grupa PGU

38 36 2

As a result of the tests conducted, an impairment loss on non-current assets was recognised in the total amount of

PLN 46 million – by comparing the carrying amount with the recoverable amount.

The impairment loss was recognised in the items: “Cost of sales” in the amount of PLN 45 million and in “Other operating

costs” in the amount of PLN 1 million.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The recoverable amount of individual CGUs indicated a significant sensitivity to changes in the adopted discount rate,

the average EBITDA margin, and the growth rate following the forecast period. Moreover, it should be noted that sensitivity

to the change in the level of revenues is reflected in sensitivity to the changes in the EBITDA margin.

Recoverable amount

Average EBITDA margin during the forecast

period

decrease by 2 pp. per test increase by 2 pp.

Uzdrowiska Kłodzkie S.A. - Grupa PGU 60 102 144

Uzdrowisko Połczyn Grupa PGU S.A. 43 55 69

Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU 20 28 35

Uzdrowisko Świeradów - Czerniawa Sp. z o.o. –

Grupa PGU

27 36 45

Average discount rate during the forecast

period

decrease by 1 pp. per test increase by 1 pp.

Uzdrowiska Kłodzkie S.A. - Grupa PGU 119 102 88

Uzdrowisko Połczyn Grupa PGU S.A. 63 55 50

Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU 32 28 24

Uzdrowisko Świeradów - Czerniawa Sp. z o.o. –

Grupa PGU

41 36 32

Growth rate following the forecast period decrease by 1 pp. per test increase by 1 pp.

Uzdrowiska Kłodzkie S.A. - Grupa PGU 92 102 113

Uzdrowisko Połczyn Grupa PGU S.A. 52 55 60

Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU 25 28 30

Uzdrowisko Świeradów - Czerniawa Sp. z o.o. –

Grupa PGU

33 36 39

In order to monitor the risk of further impairment of operating assets in subsequent reporting periods as well as to monitor

the possibility of reversing the impairment loss, it was determined that the recoverable amount would be equal to the

carrying amount of individual companies if the notional discount rate were as presented below:

Uzdrowiska Kłodzkie S.A. - Grupa PGU

10.54%

Uzdrowisko Połczyn Grupa PGU S.A.

8.50%

Uzdrowisko Cieplice Sp. z o.o. - Grupa PGU

10.00%

Uzdrowisko Świeradów - Czerniawa Sp. z o.o. – Grupa PGU

10.75%

EVALUATION OF IMPAIRMENT OF WATER RIGHTS

In the Group, water rights in Chile are annually subjected to impairment testing by comparing their carrying amount

to the recoverable amount, which is set as fair value decreased by costs to sell. The fair value of water rights is classified

under level 2 of the fair value hierarchy, in which fair value measurements are based on significant observable input data,

other than market prices.

For the year ended on 31 December 2022, the Group assessed the factors impacting the recoverable amount of the asset

and concluded that there are no grounds for recognising an impairment loss, as the water price and the estimated

amount of water available for extraction did not change compared to the level of these factors adopted for measurement

as at 31 December 2021. The carrying amount of water rights amounted to PLN 73 million as at 31 December 2022

(as at 31 December 2021: PLN 67 million).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Other impairment losses on assets

Other impairment losses on assets concern:

• fixed assets and intangible assets, PLN 38 million (including PLN 36 million on the segment KGHM

INTERNATIONAL LTD.),

• fixed assets under construction and other intangible assets not yet available for use, PLN 63 million (including

PLN 55 million on the segment KGHM INTERNATIONAL LTD., projects under IFRS 6, which were fully impaired

since the drilling was concluded without confirmation of economic feasibility of explored deposits),

• write-down of inventories, PLN 74 million,

• allowances for impairment of receivables, PLN 9 million.

Information on the item in which impairment losses are recognised in the consolidated statement of profit or loss is

presented in Note 4.4.

Note 3.2. Impairment of assets as at 31 December 2021

TEST FOR THE IMPAIRMENT OF ASSETS OF THE KGHM INTERNATIONAL LTD. GROUP – the Segment KGHM

INTERNATIONAL LTD.

As at 30 June 2021

, as a result of the identification of indications of a possible change in the recoverable amount

of some of the international mining assets of the KGHM INTERNATIONAL LTD. Group, the Parent Entity’s Management

Board performed impairment testing of these assets. The following cash generating units (CGUs) have been selected for

the purpose of evaluation of the recoverable amount of the assets of the KGHM INTERNATIONAL LTD. Group, in which

indications of a possible change in the recoverable amount were identified:

• The Robinson mine,

• The Sudbury Basin, comprising the Morrison mine and the McCreedy mine,

• The pre-operational Victoria project,

• The Ajax project.

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 the Sudbury CGU (this

does not include the Victoria project in the pre-operational phase

, which remains within the KGHM

INTERNATIONAL LTD. Group as a strategic asset),

• 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 recovera

ble amount may be higher than the carrying amount, with the consequent

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

gold, palladium and silver.

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.

In order to determine the recoverable amount of assets of individual CGUs, in the test conducted the fair value (decreased

by estimated costs to sell) was calculated using the DCF method, i.e. the method of discounted cash flows,

for the

following CGUs: Sudbury, Victoria and the value in use for the CGU Robinson.

Basic macroeconomic assumptions adopted for impairment testing as at 30 June 2021 – 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Assumption adopted for impairment testing as at 30 June

2021

Victoria Sudbury Robinson

Mine life / forecast period

Level of copper production during mine life (kt)

249

358

Level of nickel production during mine life (kt)

221

Level of gold production during mine life (koz t)

157

263

Average operating margin during mine life

62%

27%

43%

Capital expenditures to be incurred during mine life

[USD million]

1 530 157 410

Applied discount rate after taxation for assets in the

operational phase*

- 7.5% 7.5%

Applied discount rate after taxation for assets in the pre-

operational phase

10.5% - -

Costs to sell

Level of fair value hierarchy to which the measurement at fair

value was classified

Level 3

* The presented data of the CGU Robinson is post-taxation despite the model of measuring the value in use. The use of pre-taxation data does not

significantly impact the recoverable amount.

Key factors responsible for the modification of technical and economic assumptions adopted for impairment

testing as at 30 June 2021

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:

CGU

Segment

(Part 2)

Carrying amount* Recoverable amount

Reversal of impairment

loss

USD mn PLN mn USD mn PLN mn USD mn PLN mn

Victoria

KGHM

INTERNATIONAL

LTD.

280

1 065

280

1 065

Sudbury

164

Robinson

369

1 404

614

2 335

10**

38**

* The carrying amount of non-current assets decreased by the provision for future decommissioning costs of mines.

**Despite estimating the recoverable amount of CGU Robinson at the level of USD 614 million (PLN 2 335 million), which was higher than the carrying

amount of this CGU’s assets by the amount of USD 245 million (PLN 932 million), the Group reversed, pursuant to IAS 36.117, impairment losses on

assets of this CGU recognised in prior periods in the amount of USD 10 million (PLN 38 million), that is to the level of the carrying amount of assets,

which would be determined (after deducting any accumulated depreciation/amortisation), if there was no recognition of impairment losses on these

assets in prior periods.

As a result of the conducted test, there was a reversal of an impairment loss on the assets of the CGU Robinson in the

amount of PLN 38 million, which decreased the item “Cost of sales”.

The results of tests performed as at 30 June 2021 for the CGU Victoria and the CGU Sudbury confirmed that their

recoverable amounts are equal to their carrying amounts.

Sensitivity analysis of the recoverable amount of CGU Victoria (USD mn)

Recoverable amount

Discount rate 11%

247

Discount rate 10.5% (test)

280

Discount rate 10%

329

Sensitivity analysis of the recoverable amount of CGU Victoria (USD mn)

Recoverable amount

Copper price -0.10 $/lb

275

Copper price (test)

280

Copper price +0.10 $/lb

299

Sensitivity analysis of the recoverable amount of CGU Victoria (USD mn)

Recoverable amount

Nickel price -0.10 $/lb

238

Nickel price (test)

280

Nickel price +0.10 $/lb

336

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Sensitivity analysis of the recoverable amount of CGU Robinson (USD mn)

Recoverable amount

Discount rate 8%

604

Discount rate 7.5% (test)

614

Discount rate 7%

625

Sensitivity analysis of the recoverable amount of CGU Robinson (USD mn)

Recoverable amount

Copper price -0.10 $/lb

564

Copper price (test)

614

Copper price +0.10 $/lb

665

The sensitivity analysis of the recoverable amount of the CGU Sudbury, due to the low carrying amount of assets, was not

presented.

In the second half of 2021, as a result of the identification of indications of a possible change in the recoverable amount

of the CGU Sudbury’s mining assets of the KGHM INTERNATIONAL LTD. Group, the Parent Entity’s Management Board

performed impairment testing of these assets. The key indications to perform impairment testing and indicating that

that the recoverable amount of assets may be lower than their carrying amount, and therefore it may be necessary to

recognise an additional impairment loss, were the decision to abandon mining operations on the additional deposit and

the decrease in efficiency of these assets. Production was halted in two of the mines in the CGU Sudbury, that is Morrison

and Podolsky, and they are maintained without conducting mining operations. Moreover, results of another mine of this

CGU – McCreedy – were below expectations in 2021, mainly due to a significant decrease in metal content in mined ore.

In order to determine the recoverable amount of the CGU Sudbury’s assets, in the test conducted the fair value

(decreased by estimated costs to sell) was calculated using the DCF method, i.e. the method of discounted cash flows.

The basic macroeconomic assumptions adopted for impairment testing as at 31 December 2021, that is metal prices, did

not significantly change as compared to those adopted for impairment testing as at 30 June 2021.

Assumption adopted for impairment testing as at 31 December 2021 Sudbury

Mine life / forecast period

Level of copper production during mine life (kt)

14.8

Level of nickel production during mine life (kt)

3.7

Level of gold production during mine life (koz t)

14.1

Average operating margin during mine life

Capital expenditures to be incurred during mine life

[USD million]

14.28

Applied discount rate after taxation 7.5%

Costs to sell

Level of fair value hierarchy to which the fair value measurement was classified

Level 3

Key factors responsible for the modification of technical and economic assumptions adopted for impairment

testing as at 31 December 2021

Sudbury A decrease in production volume of McCreedy and Morrison/Levack, a decrease in the life of McCreedy

mine to 2026.

Results of the test performed as at 31 December 2021 are presented in the following table:

CGU

Segment

(Part 2)

Carrying amount* Recoverable amount Impairment loss

USD mn PLN mn USD mn PLN mn USD mn PLN mn

Sudbury

KGHM

INTERNATIONAL

LTD.

166

* The carrying amount of non-current assets decreased by the provision for future decommissioning costs of mines.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

As a result of the conducted test, an impairment loss was recognised on the assets of CGU Sudbury in the following items:

“Cost of sales” in the amount of PLN 162 million and “Other operating costs” in the amount of PLN 4 million.

The sensitivity analysis of the recoverable amount of CGU Sudbury was not presented due to the low carrying amount of

assets.

Due to the fact that as at 30 June 2021 the Carlota and Franke mines (assets of the KGHM INTERNATIONAL LTD. Group)

were reclassified to assets held for sale, their recognition and measurement at the moment of reclassification and as at 31

December 2021 were performed pursuant to IFRS 5 (Note 9.8).

EVALUATION OF IMPAIRMENT OF WATER RIGHTS

In the Group, water rights in Chile are annually subjected to impairment testing by comparing their carrying amount

to the recoverable amount, which is set as fair value decreased by costs to sell. The fair value of water rights is classified

under level 2 of the fair value hierarchy, in which fair value measurements are based on significant observable input data,

other than market prices.

For the year ended on 31 December 2021, the Group assessed the factors impacting the recoverable amount of the asset

and concluded that there are no grounds for recognising an impairment loss, as the water price and the estimated

amount of water available for extraction did not change compared to the level of these factors adopted for measurement

as at 31 December 2020. The carrying amount of water rights amounted to PLN 67 million as at 31 December 2021

(as at 31 December 2020: PLN 65 million).

TEST FOR THE IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT OF WPEC w Legnicy S.A. – Segment – Other

segments

In the current period, due to indications of the possibility of changes in the recoverable amount of the property, plant

and equipment and intangible assets of the company WPEC S.A., the company performed impairment testing of these

assets. The main indications to perform impairment testing in the current reporting period were losses on principal

activities, a significant increase in prices of CO

emissions rights and a risk of prolongation of the investment process

related to the gas source in Legnica. As at 31 December 2021, the carrying amount of the property, plant and equipment

and intangible assets of WPEC S.A., decreased by the carrying amount of subsidies and land located in the town of Lubin

and the carrying amount of CO

emission rights, amounted to PLN 106

million. For the purpose of estimating the

recoverable amount, in the conducted test the fair value decreased by estimated costs to sell 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

-3.24% - +3.25%

Capital expenditures during the detailed forecast period

PLN 202 million

Discount rate

3.86% (real rate after taxation)

Growth rate following the forecast period

The recoverable amount of tested property, plant and equipment was determined using an analysis of discounted

forecasted cash flows. The adopted forecast period is 10 years. Extension of the forecast period is justified mainly, among

others, by the significant and long-term impact of expected changes in the regulatory environment and in order to fully

reflect the impact of planned capital expenditures,

The adopted level of capital expenditures during the forecast period mainly concerns the realisation of a task –

Modernisation of a heat supply system for the Legnica city and modernisation of heating networks.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

For the forecast of costs for the years 2022 – 2031, the change in the heat generation technology in Legnica from 2024 and

reduction of transmission losses will have a significant impact, and in particular:

• a decrease in costs of raw materials and production processes of a coal-based economy and the associated

current maintenance, operations, overhauls and shut-downs;

• a decrease in the amount of CO

emissions by approx. 50%;

• reorganisation of employment due the switch to a natural gas-based technology;

• reduction of heat losses in owned transmission infrastructure, related to the on-going modernisation of

transmission infrastructure.

The aforementioned forecast takes into account significant changes in prices of CO

emission rights and energy which took

place in the last period.

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

2022 – 2032 from the yearly level of –PLN 5 million to PLN 8 million.

The EBIT in 2032 in the amount of PLN 8 million is a basis to calculate free cash flows necessary to determine the residual

value, which is estimated to be PLN 115 million.

As a result of the impairment testing of property, plant and equipment and intangible assets, the recoverable amount of

assets was determined to be at the level of PLN 56 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 50 million in the item “Cost of sales”.

The measurement of non-current assets and intangible assets of the company indicated a significant sensitivity

to the adopted discount rates and the measurement of the residual value, which was determined based on EBIT from 2032.

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

Sensitivity analysis of the recoverable amount of property, plant and equipment and intangible assets of WPEC

w Legnicy S.A.

Recoverable amount for a given discount rate

lower by 1 pp per test higher by 1 pp

Discount rate 3.86 % (test)

113

Recoverable amount for a given EBIT in a residual period

lower by 5 % per test higher by 5 %

EBIT in the residual period PLN 8 million (test)

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

the recoverable amount would be equal to the carrying amount of assets if the discount rate fell by 0.91% or if EBIT

increased by 43.2%.

TEST FOR THE IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT OF “Energetyka” sp. z o.o. -

Segment – Other segments

In the current period, due to indications of the possibility of changes in the recoverable amount of property, plant and

equipment and intangible assets of the company “Energetyka” sp. z o.o., the Company performed impairment testing of

these assets. The key indication to perform impairment testing in the current reporting period were the following: worse

than expected economic results and a significant increase in prices of CO

emissions rights. As at 31 December 2021, the

carrying amount of tested non-current assets of “Energetyka” sp. z o.o. amounted to PLN 386 million. For the purpose of

estimating the recoverable amount, in the conducted test the value in use of the CGU

was measured using the DCF

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

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

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 tested property, plant and equipment was determined using an analysis of discounted

forecasted cash flows. The adopted forecast period is 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 property, plant and equipment and intangible assets, the recoverable amount

of tested assets was determined to be at the level of PLN 307 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 79 million in the item “Cost of

sales”.

The measurement of tested non-current assets indicated a significant sensitivity to the adopted levels 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 of assets.

Sensitivity analysis of the recoverable amount of property, plant and equipment 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)

431

307

234

Recoverable amount for a given EBIT in a residual period

lower by 5 % per test higher by 5 %

EBIT in the residual period of PLN 16 million

PLN ( test)

292 307

322

In order to monitor the risk of impairment of operating 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 fell by 0.71 percentage point

or EBIT increased by 26.3%.

Other impairment losses on assets

Other impairment losses on assets concern:

• fixed assets and intangible assets, PLN 49 million,

• fixed assets under construction and other intangible assets not yet available for use, PLN 34 million,

• write-down of inventories, PLN 47 million,

• allowances for impairment of receivables, PLN 13 million.

Information on the item in which impairment losses are recognised in the consolidated statement of profit or loss is

presented in Note 4.4.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

2 398

2 254

Note 11.1

Employee benefits expenses

7 333

6 443

Materials and energy, including:

15 876

11 962

purchased metal-bearing materials 8 859

7 132

External services

2 604

2 200

Note 5.2

Minerals extraction tax

3 046

3 548

Other taxes and charges

786

661

Note 4.4

Reversal of impairment losses on property, plant and

equipment and intangible assets

( 3)

( 42)

Note 4.4

Reversal of write-down of inventories ( 55)

( 88)

Advertising costs and representation expenses

Property and personal insurance

Note 4.4

Impairment losses on property, plant and equipment

and intangible assets

340

Note 4.4

Write-down of inventories 74

Other costs

Total expenses by nature

32 388

27 537

Cost of merchandise and materials sold (+)

792

790

Change in inventories of finished goods and work in

progress (+/-)

(2 008)

(1 544)

Cost of products for internal use of the Group (-) *

(1 669)

(1 690)

Total costs of sales, selling costs and

administrative expenses, of which:

29 503

25 093

Cost of sales

27 541

23 529

Selling costs

560

450

Administrative expenses

1 402

1 114

*The amount is mainly comprised of cost of manufacturing fixed assets by the Group – in particular stripping costs of open-pit

mines.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 4.2 Other operating income and (costs)

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 7.1

Gains on derivatives, of which: 270

383

measurement

109

208

realisation

161

175

Interest income calculated using the effective

interest rate method

Note 7.1

Exchange differences on assets and liabilities other

than borrowings

949

994

Reversal of impairment losses on fixed assets under

construction

Note 4.4

Reversal of impairment losses on financial

instruments

Release of provisions

Gain on disposal of intangible assets

134

Gain on disposal of property, plant and equipment -

Note 9.8

Gain on disposal of subsidiaries

180

Government grants received

Income from servicing of letters of credit and

guarantees

Compensation, fines and penalties received

Compensation received due to the purchase of

electricity for 2020

Other

114

Total other operating income

1 881

1 757

Note 7.1

Losses on derivatives, of which: ( 490)

( 768)

measurement

( 116)

( 141)

realisation

( 374)

( 627)

Note 4.4

Impairment losses on financial instruments

( 5)

( 13)

Fair value losses on financial assets ( 58)

( 39)

Note 4.4

Impairment losses on fixed assets under

construction and intangible assets not yet available

for use

( 64)

( 38)

Provisions recognised

( 27)

( 88)

Financial support granted to municipalities ( 100)

Losses on disposal of property, plant and

equipment

( 26)

Donations granted

( 55)

( 33)

Other

( 94)

( 67)

Total other operating costs

( 919)

(1 046)

Other operating income and (costs)

962

711

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 4.3 Finance income and (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

Note 7.1

Interest on borrowings including:

( 18)

( 94)

leases

( 9)

( 13)

Unwinding of the discount effect on provisions

( 21)

( 15)

Bank fees and charges on drawn borrowings

( 29)

( 25)

Note 7.1

Losses on derivatives, of which:

( 149)

( 80)

measurement

( 1)

realisation

( 149)

( 79)

Note 7.1

Exchange differences on measurement and

realisation of borrowings

( 179)

( 299)

Other

( 24)

( 28)

Total finance costs

( 420)

( 541)

Finance income and (costs)

( 272)

( 471)

Note 4.4 Reversal and (recognition) of impairment losses on assets recognised 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:

130

Note 4.1

reversal of impairment loss on property, plant and

equipment and intangible assets

reversal of write-down of inventories

Note 6.2

gains due to reversal of allowances for

impairment of loans granted to a joint venture

873

2 380

other operating income, of which:

reversal of impairment losses on fixed assets

under construction

Note 4.2

reversal of an allowance for impairment of trade

receivables

Note 4.2

reversal of an allowance for impairment of other

financial receivables

reversal of an allowance for impairment of other

non-financial receivables

Reversal of impairment losses, total

936

2 542

Impairment losses on assets, recognised in:

cost of sales, of which:

( 157)

( 387)

Note 4.1

impairment loss on property, plant and

equipment and intangible assets

( 83)

( 340)

write-down of inventories

( 74)

( 47)

other operating costs, of which:

( 73)

( 51)

Note 4.2

impairment losses on fixed assets under

construction and intangible assets not yet

available for use

( 64)

( 38)

allowance for impairment of non-financial

receivables

( 4)

Note 4.2

allowance for impairment of trade receivables

( 4)

( 5)

Note 4.2

allowance for impairment of other financial

receivables

( 1)

( 8)

Impairment losses, total

( 230)

( 438)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Part 5 – Taxation

Note 5.1 Income tax in the consolidated 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.

On 6 October 2021, an agreement to extend the functioning of Tax Group “PGK KGHM II” by another three tax years, that

is from 2022 to 2024, was signed. It is the second Tax Group founded within the KGHM Polska Miedź S.A. Group. The “PGK

KGHM I” Tax Group operated in the years 2016-2018. Real benefits were noted in the period of operation of the first PGK

KGHM, including the possibility of current utilisation of losses generated by some of the companies within PGK to settle

them with the profits of other companies, and the positive result of an analysis of companies of the Group with respect to

meeting the criteria indicated in the act on corporate income tax were a basis to found a new tax group – PGK KGHM II.

PGK KGHM II is comprised of:

1) KGHM Polska Miedź S.A.

2) Energetyka sp. z o.o.

3) Zagłębie Lubin S.A.

4) Miedziowe Centrum Zdrowia S.A.

5) KGHM CUPRUM sp. z o.o. – Centrum Badawczo-Rozwojowe

6) INOVA Centrum Innowacji Technicznych sp. z o.o.

7) PeBeKa S.A.

8) KGHM ZANAM S.A.

9) POL-MIEDŹ TRANS Sp. z o.o.

10) Mercus Logistyka sp. z o.o.

11) KGHM Metraco S.A.

12) special purpose companies: Future 1 Sp. z o.o., Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o.,

13) KGHM Centrum Analityki Sp. z o.o.

14) Centrum Badań Jakości Sp. z o.o.

15) BIPROMET S.A.

Income tax

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Current income tax

1 369

1 564

Note 5.1.1

Deferred income tax

315

124

Tax adjustments for prior periods 31

( 19)

Income tax

1 715

1 669

In 2022, Group entities paid income tax in the amount of PLN 1 696 million (in 2021: PLN 740 million) to the appropriate

tax offices.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The table below presents differences between income tax from profit before income tax for the Group and the income tax

which could be achieved if the Parent Entity’s tax rate was applied:

Reconciliation of effective tax rate

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Profit before income tax

6 489

7 824

Tax calculated using the Parent Entity’s rate

(2022: 19%, 2021: 19%)

1 233

1 487

Effect of applying other tax rates abroad

( 26)

118

Tax effect of non-taxable income

( 6)

( 19)

Tax effect of expenses not deductible for tax purposes,

including:

713

798

the minerals extraction tax, which is not deductible for

corporate income tax purposes

600 674

Deductible temporary differences in respect of which tax

assets were not recognised

2 10

Utilisation in the period of previously-unrecognised tax losses

( 287)

( 590)

Adjustments of current income tax for prior periods

( 19)

Tax losses and tax credits in the period from which there was

no recognition of deferred tax assets

160 5

Deferred tax on eliminated interest on intra-Group loans

( 81)

( 92)

Other

( 24)

( 29)

Income tax in profit or loss

[the effective tax rate amounted to 26.4% of profit before

income tax (in 2021: 21.3% of profit before income tax)]

1 715

1 669

In Poland, tax bodies are empowered to audit tax declarations for a period of five years, although during this period

companies may offset tax assets with tax liabilities being the income of the State Treasury (including due to current income

tax). In Canada, tax declarations may be audited for a period of three years without the right to offset assets with liabilities

due to current income tax.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022

Translation from the original Polish version

Note 5.1.1 Deferred income tax

Accounting policies Significant estimates, assumptions and judgments

Deferred income 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 tempo

rary 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 other than business combinations, which do not

have an impact either on profit/(loss) before tax or 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 deductible 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 a given entity by the same tax authority.

The assessment of

probability of realising deferred tax

assets with future tax income is based on the budgets

of the com

panies of the Group. Companies of the

Group recognised

deferred tax assets in their

accounting books to the extent that it is probable that

taxable profit will be available against which the

deductible temporary differences can be utilised.

Companies of t

he Group which historically have

generated losses, and whose financial projections

do not foresee the achievement of taxable profit

enabling the deduction of deductible temporary

differences, do not recognise deferred tax assets

in their accounting books.

from 1 January

2022 to 31

December 2022

from 1 January

2021 to 31

December 2021

Deferred net income tax at the beginning of the period, of

which:

( 458)

( 249)

Deferred tax assets 185

193

Deferred tax liabilities ( 643)

( 442)

Deferred income tax during the period: ( 533)

( 186)

Recognised in profit or loss ( 315)

( 124)

Recognised in other comprehensive income ( 218)

( 62)

Exchange differences from translation of balances of deferred

tax assets of statements of operations with a functional

currency other than PLN

( 23)

Deferred net income tax at the end of the period, of which: (1 014)

( 458)

Deferred tax assets 137

185

Deferred tax liabilities (1 151)

( 643)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022

Translation from the original Polish version

Maturities of deferred tax assets and deferred tax liabilities were as follows:

Deferred tax assets

Deferred tax liabilities

As at

31 December

2022

As at

31 December

2021

As at

31 December

2022

As at

31 December 2021

Maturity over the 12 months

from the end of the

reporting period

(1 238)

( 996)

Maturity of up to 12 months

from the end of the

reporting period

106

353

Total

137

185

(1 151)

( 643)

Expiry dates of unused tax losses and tax credits, for which deferred tax assets were not recognised in individual countries,

are presented in the following table:

As at

31 December 2022

As at

31 December 2021

Unused tax

losses

Expiry

date

Unused tax

credits

Expiry date

Unused tax

losses

Expiry date

Unused

tax credits

Expiry date

Luxembourg

158

indefinite

- -

333

indefinite

- -

520

2036-2037

- -

1 359

2034-2037

- -

Chile

indefinite

- -

1 056

indefinite

- -

Canada

1 602

2026-2042

2030-2039

1 443

2026-2040

2030-2039

Other

2025

- -

2025

- -

Total

2 387 60

4 208

As at 31 December 2022, the Group did not recognise a deferred tax asset on deductible temporary differences in the

amount of PLN 3 022 million (as at 31 December 2021: PLN 2 704 million) because there is low possibility that they will be

reversed in the foreseeable future and that taxable income, on which it could be recognised, will be achieved.

As at 31 December 2022, at the level of the consolidated financial statements, there was no recognition of deferred tax

liabilities on taxable temporary differences in the amount of PLN 1 076 million (as at 31 December 2021: PLN 962 million)

related to investments in subsidiaries and shares in joint ventures, as the conditions stipulated in IAS 12.39 were met.

The following tables present deferred income tax assets and liabilities before their compensation at the level of individual

companies of the Group.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022

Translation from the original Polish version

Deferred tax assets (deferred tax assets prior to offsetting with deferred tax liabilities at the level of individual companies of the Group)

As at

31 December

2020

Credited/(Charged)

As at

31 December

2021

Credited/(Charged)

As at

31 December

2022

profit or loss

other

comprehensive

income

exchange

differences from

translation of

balances of

deferred tax

assets of

statements of

operations with a

functional

currency other

than PLN

profit or loss

other

comprehensive

income

exchange

differences from

translation of

balances of

deferred tax

assets of

statements of

operations with a

functional

currency other

than PLN

changes due

to loss of

control of

subsidiaries

Provision for decommissioning of mines and other

technological facilities

253 ( 63) - 1 191

1 - 2 - 194

Measurement of forward transactions other than hedging

instruments

36 35 - - 71

( 27) - - - 44

Difference between the depreciation rates of property, plant

and equipment for accounting and tax purposes

93 ( 5) - - 88

7 - - - 95

Future employee benefits

600 ( 3) ( 132) - 465

- 80 - - 545

Equity instruments measured at fair value

104 - - - 104

- 19 - - 123

Lease liabilities 61 14 - - 75

19 - - 94

Accrued and unpaid interest on borrowings 197 24 - 14 235

45 - 17 - 297

Recognition/reversal of impairment losses on assets 83 ( 25) - - 58

( 17) - - ( 1) 40

Short-term accruals for remuneration 96 17 - - 113

12 - - - 125

Re-measurement of hedging instruments 235 - 70 - 305

- ( 292) - - 13

Liabilities related to fixed fee due to setting mining usufruct 30 5 - - 35

- - - - 35

Employee benefits (holidays) 13 - - - 13

- - - - 13

Unpaid remuneration with surcharges 24 - - - 24

3 - - - 27

Other

172 42 - - 214

( 11) - ( 4) 199

Total

1 997 41 ( 62) 15 1 991

32 ( 193) 19 ( 5) 1 844

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Deferred tax liabilities (deferred tax liabilities prior to offsetting with deferred tax assets at the level of individual companies of the Group)

As at

31 December

2020

(Credited)/Charged

As at

31 December

2021

(Credited)/Charged

As at

31 December

2022

profit or loss

exchange

differences from

translation of

balances of

deferred tax assets

of statements of

operations with a

functional currency

other than PLN

profit or loss

other

comprehensive

income

exchange

differences from

translation of

balances of

deferred tax assets

of statements of

operations with a

functional currency

other than PLN

changes due to

loss of control of

subsidiaries

Measurement of forward transactions other than hedging

instruments

35 15 - 50 ( 9) - - - 41

Difference between the depreciation rates for accounting and tax

purposes, including:

1 514 122 23 1 659 159 - 26 ( 4) 1 840

related to depreciation of right-to-use assets

60 11 - 71 18 - - - 89

Accrued and unpaid interest on loans

470 17 17 504 119 - 20 - 643

Re-measurement of hedging instruments - - - - - 25 - - 25

Equity instruments measured at fair value 37 54 - 91 ( 7) - - - 84

Other

190 ( 43) ( 2) 145 85 - ( 4) ( 1) 225

Total

2 246 165 38 2 449 347 25 42 ( 5) 2 858

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 5.2 Other taxes and charges

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

tax

recognised

in cost of

sold

products

tax

recognised

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

310

* 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 paid by the Parent Entity 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 is accounted

for under manufacturing costs of basic products and is not deductible for corporate income tax purposes.

Other taxes and charges, with a breakdown by geographical location, were as follows:

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Poland

693

572

Real estate tax

268

250

Royalties

122

116

Excise tax

Environmental fees

Costs of surrender of CO

emission allowances

199

109

Contributions to the State Fund for the Rehabilitation of

the Disabled People (PFRON)

Other taxes and charges

Other countries

113

118

Total

806

690

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

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 Group’s liabilities towards the tax office arising from the corporate income tax, including due

to the withholding tax, personal income tax and liabilities due to the minerals extraction tax and the excise tax.

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

As at

31 December 2022

As at

31 December 2021

Current corporate income tax assets

Assets due to other taxes

328

352

Tax assets, of which:

367

368

recognised in assets held for sale (disposal group)

recognised as “deferred tax assets”

367

364

As at

31 December 2022

As at

31 December 2021

Current corporate income tax liabilities

612

881

Liabilities due to other taxes

621

574

Tax liabilities, of which:

1 233

1 455

recognised in liabilities related to disposal group

recognised as “deferred tax liabilities”

1 233

1 453

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Part 6 – Involvement in joint ventures

Accounting policies

The item “involvement in joint ventures” comprises investments in joint ventures accounted for using the equity method

and loans granted to joint ventures.

The Group classifies as investments accounted for using the equity method interests in joint ventures which are joint

contractual arrangements, in which the parties sharing control have the right to the net assets of a given entity. Joint

control occurs when decisions on the relevant activities of joint ventures require the unanimous consent of the parties

sharing control.

Investments are initially recognised at cost. The Group’s share in the profit or loss of entities accounted for using the

equity method (assessed while taking into account the impact of measurements to fair value at the investment’s

acquisition date) from the acquisition date is recognised in profit or loss, while its share in changes of accumulated other

comprehensive income from the acquisition date is recognised in the relevant item of accumulated comprehensive

income.

Unrealised gains and losses on transactions between the investor and the joint venture are eliminated in an amount

proportional to the investor’s share in these profits/(losses), and correspond with the carrying amount of the Group’s

share in this unit. If, at the end of the reporting period, the Group’s share in the unrealised gains on transactions between

the Group and the joint venture exceeds the carrying amount of the investment in this unit, the Group’s share in these

gains is eliminated to the level of the carrying amount of the Group’s interest in this unit. Elimination of unrealised gains,

proportionally to the Group’s share, unsettled in the period in which the transaction occurred, is performed in

subsequent reporting period at the moment the carrying amount of the Group’s interest in this unit exceeds zero.

If there are any indications of a possibility of impairment, an investment is tested for impairment by calculating the

recoverable amount.

Significant estimates, assumptions and judgments

Joint control

The Group classifies Sierra Gorda S.C.M. with its head office in Chile as a joint venture under IFRS 11, in which KGHM

INTERNATIONAL LTD.’s share equals 55%. Classification of Sierra Gorda S.C.M. as a joint venture, despite the 55% share

of the Group, was

made based on analysis of the terms of the agreements between the parties and contractual

stipulations which indicated joint control. Pursuant to the terms of the agreements, all relevant activities of Sierra Gorda

S.C.M. require the unanimous consent of b

oth owners. The Group and other owners have three members each in the

appointed Owners Council.

The Owners Council makes strategic decisions and is responsible for overseeing their execution. Moreover, it approves

the appointment of senior management. In

the reporting period, there were no changes to provisions that were

the basis of classifying the investment as a joint venture.

Pursuant to the Group’s judgment, loans granted to the joint venture Sierra Gorda S.C.M. do not meet the criteria

of recognition as net investments in a joint venture, because the loans’ settlement is planned and probable

in the foreseeable future.

Note 6.1 Joint ventures accounted for using the equity method

During the reporting period, a change in partnership with the KGHM Polska Miedź S.A. Group in the joint venture Sierra Gorda

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

and Sumitomo Corporation to South32 Limited, an Australian mining group with its head office in Perth, was concluded. The

transaction was carried out on the basis of sales agreements entered into on 14 October 2021.

The purchase price includes the amount of USD 1 408 million, payable on the transaction date, and USD 500 million,

depending on the copper prices in the years 2022 - 2025. The new partner of the Group is a globally diversified mining and

metallurgical company with production plants in Australia, South Africa and South America. The company produces among

others aluminium, metallurgical coal, manganese, nickel, silver, lead and zinc.

As at 31 December 2022, none of the agreements regulating the cooperation between the JV partners in the venture Sierra

Gorda S.C.M. have been modified. Sierra Gorda S.C.M. had an off-take agreement signed with the companies Sumitomo

Metal Mining Co., Ltd. and Sumitomo Corporation, pursuant to which they had the right to off-take 50% of the copper

concentrate. The right to off-take 50% of the copper concentrate is not in force with respect to South32 Limited.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Value of the investment in the consolidated statement of financial

position

2022 2021

As at 1 January

Share of profit for the reporting period

239

3 178

Settlement of the Group’s share of unsettled losses from prior years

(accumulated comprehensive losses)

( 183)

(2 920)

Exchange differences from the translation of statements of operations with a

functional currency other than PLN

( 56)

( 258)

As at 31 December

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

The Group’s share (55%) of profit for the reporting

period of Sierra Gorda S.C.M., recognised in the

valuation of the joint venture

239

3 178

Unrecognised share of the Group of the losses of

Sierra Gorda S.C.M.

2022 2021

As at 1 January

(1 283)

(4 203)

Settlement of the Group’s share of unsettled losses from

prior years (accumulated comprehensive losses)

183

2 920

Unrecognised adjustment due to unrealised gains on a

transaction between the Group and the joint venture (sale

of the Oxide project, details in Note 9.8.3)

( 74)

As at 31 December

(1 174)

(1 283)

As at 31 December 2022, the KGHM Polska Miedź S.A. Group’s share of the unsettled accumulated losses of Sierra Gorda

S.C.M amounted to PLN 1 174 million (USD 362 million), as at 31 December 2021: PLN 1 283 million (USD 389 million).

The Group stopped recognising its share of losses of Sierra Gorda S.C.M. at the moment the value of this share exceeded

the carrying amount of the interest in the investment in Sierra Gorda S.C.M. Recognition of the Group’s share of losses of

Sierra Gorda S.C.M. caused the carrying amount of shares in Sierra Gorda S.C.M. to be equal to PLN 0. After reducing the

share to zero, the Group performed an analysis as to whether there is a legal or customary obligation to pay on Sierra

Gorda S.C.M.’s behalf, which would result in an obligation of the Group to recognise a liability for this reason. On the basis

of conducted analyses, the Group does not identify the existence of a legal or customary obligation to pay

on Sierra Gorda S.C.M.’s behalf, which is described in IAS 28.39.

Moreover, the Group analysed the terms of the guarantee granted to Sierra Gorda S.C.M. to secure repayment of an

instalment of the credit facility, which meets the definition of a financial guarantee pursuant to IFRS 9. Details on the

guarantees granted to Sierra Gorda S.C.M. are described in Note 8.6.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Condensed financial data of Sierra Gorda S.C.M. is presented in the table below

As at

31 December 2022

As at

31 December 2021

Non-current assets

22 052

19 848

Current assets, including:

2 608

2 393

Cash and cash equivalents

377

776

Non-current liabilities, including:

23 751

21 768

Borrowings and lease

2 242

1 713

Liabilities due to loans granted by jointly-controlling entities

20 891

19 531

Current liabilities, including:

1 689

1 585

Borrowings and lease

106

Carrying amount of net assets (incorporating the fair value

measurement from date of obtaining joint control)

( 780)

(1 112)

The Group’s share in net assets (55%)

( 429)

( 612)

Total unrecognised accumulated share of losses of Sierra Gorda

S.C.M. (accumulated comprehensive losses)

1 174

1 283

Balance of impairment loss on interest in Sierra Gorda S.C.M.

( 671)

Unrecognised adjustment due to unrealised gains on a

transaction between the Group and the joint venture (sale of the

Oxide project)

( 74)

Value of the investment in the consolidated statement of

financial position

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Revenues from contracts with customers

7 225

8 335

Depreciation/amortisation

(1 704)

(1 413)

Reversal of an impairment loss on property, plant and

equipment

4 799

Interest costs

(1 440)

(1 349)

Other incomes/(costs)

(3 325)

(2 670)

Profit before income tax

756

7 702

Income tax

( 321)

(1 924)

Profit for the period

435

5 778

Exchange differences from the translation of Sierra Gorda S.C.M.’s

net assets to the PLN presentation currency

( 103)

( 469)

Total comprehensive income

332

5 309

Other information on the Group’s involvement in the joint venture Sierra Gorda S.C.M.

As at

31 December

2022

As at

31 December

2021

Group’s share in commitments (investment and operating)

7 153 5 865

Group’s share in the total amount of future lease gross

payments due to lease agreements for mining equipment

459 495

Note 8.6 Guarantees granted by the Group

969 670

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 6.2 Loans granted to a joint venture (Sierra Gorda S.C.M.)

Accounting policies Significant estimates, assumptions and judgments

Loans granted to Sierra Gorda S.C.M. were

classified as credit-

impaired financial assets

due to the high credit risk at the moment of initial

recognition (POCI). POCI loans are measured

at amortised cost using the effective interest rate,

adjusted by the credit risk using the scenario

analysis and available f

ree cash of Sierra Gorda

S.C.M.

e terms of repayment of loans granted to finance operations

abroad, including planned repayment dates, were set in individual

agreements. Pursuant to the schedule, the principal amount

and interest are paid on demand, but not later than 15 December

2024. Due to the implementation of IFRS 9 as at 1 January 2018, the

expected, undiscounted credit loss at the moment of initial

recognition was estimated to amount to PLN 6 105 million (USD 1 754

million per the 3.4813 USD/

PLN exchange rate of NBP dated 29

December 2017).

The repayments of loans by Sierra Gorda S.C.M. depend on that

company’s financial standing. Due to the good financial situation, in

2021

there were first repayments in the total amount of USD 308

million (PLN 1 259 million). Further payments were made in 2022 in

the total amount of USD 193 million (PLN 789 million). Due to the fact

that settling the loan is planned and probable in the foreseeable

future, the loan is not a net investment under IAS 21.15.

Pursuant to the requirements of IFRS 9.5.5.17, the Group performed

impairment testing of the loan. To estimate the expected credit

losses, scenario analysis (IFRS 9.5.5.18) was used, com

prising the

Group’s assumptions on the repayment of the loan granted. The

scenario analysis was based on cash flows

of Sierra Gorda S.C.M.,

estimated on the basis of current market paths of commodities price

forecasts, which were subsequently

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 a

t the level of

6.42%.

Other important assumptions used in the measurement of the loan

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 S.C.M.,

• the form and level of financing Sierra Gorda S.C.M. 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 (sens

itivity analysis of the

carrying amount of the loan is presented in Note 7.5.2.4).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

2022 2021

As at 1 January

8 314 6 069

Repayment of loans (principal and interest)

( 789) (1 259)

Accrued interest

582 494

Note 4.4

Gain due to the reversal of allowances for impairment

873 2 380

Exchange differences from the translation of statements of operation

with a functional currency other than PLN

623 630

As at 31 December

9 603 8 314

The loan granted to Sierra Gorda S.C.M. has a fixed interest rate of 8%.

As at 31 December 2022, the Group estimated the expected cash flows on repayment of receivables due to loans granted

to Sierra Gorda S.C.M., as a result of which an allowance for impairment was reversed in the amount of PLN 837 million (in

the first half of 2022 an allowance for impairment was reversed in the amount of PLN 783 million, and in the second half of

2022 in the amount of PLN 90 million). In the comparable period an allowance for impairment was reversed in the amount

of PLN 2 380 million.

Assumptions adopted for the estimation of cash flows of Sierra Gorda S.C.M. (commodity prices and other key

assumptions) were presented below:

Basic macroeconomic assumptions adopted for cash flow estimation – copper and gold prices

Price paths were adopted on the basis of current market forecasts:

Period

2023

2024

2025

2026

2027

Copper price [USD/t]

8 200 8 500 8 500 8 500 8 500 7 700

Gold price [USD/oz]

1 750 1 750 1 700 1 600 1 550 1 500

Other key assumptions used for estimation of cash flows

Mine life / forecast period

Level of copper production during mine life (kt)

3 781

Level of molybdenum production during mine life (mn lbs)

239

Level of gold production during mine life (koz)

1 151

Average operating margin during mine life

43.97%

Applied discount rate after taxation

(used to calculate the fair value for disclosure purposes in Note 7)

9.75%

Capital expenditures to be incurred during mine life (USD million) 1 573

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

521 90 10 072 709 11 392 615 32 8 366 585 9 598

Loans granted to a joint venture - - 9 603 - 9 603 - - 7 867 - 7 867

Derivatives

- 5 - 709 714 - 10 - 585 595

Other financial instruments measured at

fair value

521 85 - - 606 615 22 - - 637

Other financial instruments measured at

amortised cost*

- - 469 - 469 - - 499 - 499

Current

- 829 1 926 755

3 510

- 632 2 920 249

3 801

Loans granted to a joint venture

447

Trade receivables*

- 751 426 - 1 177 - 627 397 - 1 024

Derivatives

- 41 - 755

796

- 5 - 249

254

Cash and cash equivalents*

- - 1 200 - 1 200 - - 1 904 - 1 904

Other financial assets

- 37 300 - 337 - - 172 - 172

Total 521 919 11 998 1 464 14 902 615 664 11 286 834 13 399

* Including balances of assets and liabilities held for sale regarding 2021, presented in the table below. Detailed information on assets and liabilities held for sale may be found in Note 9.8.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

5 460

700

6 179

5 696

1 056

6 830

Borrowings, lease and debt securities*

- 5 220 - 5 220 - 5 475 - 5 475

Derivatives

700

719

1 056

1 134

Other financial liabilities

- 240 -

240

- 221 -

221

Current

188

4 440

280

4 908

200

3 587

848

4 635

Borrowings, lease and debt securities*

- 1 223 -

1 223

- 474 -

474

Derivatives

154

280

434

848

889

Trade payables*

- 3 076 - 3 076 - 2 919 - 2 919

Similar payables – reverse factoring

- 18 - 18 - 95 - 95

Other financial liabilities*

123

157

159

258

Total

207

9 900

980

11 087

278

9 283

1 904

11 465

*Including balances of assets and liabilities held for sale regarding 2021 presented in tables below. Detailed information on assets and liabilities held for sale may be found in Note 9.8.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

As at 31 December 2021

Financial assets - held for sale (disposal group)

At fair value

through profit or

loss

At amortised cost

Total

Non-current

- 3 3

Other financial instruments measured at amortised cost

- 3 3

Current

13 22 35

Trade receivables

13 2 15

Cash and cash equivalents

- 20 20

Total

Financial liabilities at amortised cost – liabilities related to disposal group

As at 31 December 2021

Non-current

Borrowings, lease and debt securities

Current

Borrowings, lease and debt securities

Trade payables

Other financial liabilities

Total

132

As at 31 December 2021

Financial assets – excluding assets held for sale

(disposal group)

At fair value

through other

comprehensive

income

At fair value

through

profit or loss

At amortised

cost

Hedging

instruments

Total

Non-current

615 32 8 363

585 9 595

Loans granted to a joint venture

- - 7 867

- 7 867

Derivatives

- 10 -

585 595

Other financial instruments measured at

fair value

615 22

- 637

Other financial instruments measured at

amortised cost

- -

496

- 496

Current

- 619 2 898

249 3 766

Loans granted to a joint venture

- - 447

- 447

Trade receivables

- 614 395

- 1 009

Derivatives

- 5 -

249 254

Cash and cash equivalents

- - 1 884

- 1 884

Other financial assets

- - 172

- 172

Total

615 651 11 261

834 13 361

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

As at 31 December 2021

Financial liabilities – excluding liabilities related to

disposal group

At fair value

through profit

or loss

At amortised

cost

Hedging

instruments

Total

Non-current

78 5 630 1 056 6 764

Borrowings, lease and debt securities

- 5 409 - 5 409

Derivatives

78 - 1 056 1 134

Other financial liabilities

- 221 - 221

Current

200 3 521 848 4 569

Borrowings, lease and debt securities

- 455 - 455

Derivatives

41 - 848 889

Trade payables

- 2 879 - 2 879

Similar payables – reverse factoring

- 95 - 95

Other financial liabilities

159 92 - 251

Total

278 9 151 1 904 11 333

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Gains/(losses) on financial instruments recognised in profit/(loss) for the period

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

Note 6.2

Interest income

- 636 - - 636

Note 6.2

Gain due to the reversal of allowances for impairment of loans

granted to a joint venture

- 873 - - 873

Note 4.3

Interest income/(costs)

(60)

Note 4.2

Foreign exchange gains/(losses) other than borrowings

233

767

( 51)

949

Note 4.3

Foreign exchange losses on borrowings

( 179)

Note 4.4

Reversal of impairment losses

Note 4.4

Impairment losses

( 5)

Note 7.2

Revenues from contracts with customers

( 182)

Note 4.2

Note 4.3

Gains on measurement and realisation of derivatives

400 - - - 400

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

( 29)

Note 4.2

Fair value losses on financial receivables

( 58)

Other gains/(losses)

(2)

Total net gain/(loss)

246

2 278

( 321)

( 432)

1 771

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

Note 6.2

Interest income

- 495 - - 495

Note 6.2

Gain due to the reversal of allowances for impairment of loans

granted to a joint venture

- 2 380 - - 2 380

Note 4.3

Interest costs

( 94)

Note 4.2

Foreign exchange gains/(losses) other than borrowings

181

1 358

( 545)

994

Note 4.3

Foreign exchange losses on borrowings

- - ( 299) -

( 299)

Note 4.4

Impairment losses - ( 13) - -

( 13)

Note 4.4

Reversal of impairment losses - 27 - - 27

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

453 - - - 453

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

( 25)

Note 4.2

Fair value losses on financial receivables ( 39) - - -

( 39)

Other losses

( 8)

Total net gain/(loss)

( 253)

4 247

( 971)

(1 651)

1 372

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

- 20 7 787 9 623

- 22 8 193 8 336

Listed shares

422 - - 422

516 - - 516

Unquoted shares

- 99 - 99

Trade receivables

751

627

Derivatives, of which:

357

(1 174)

assets

- 1 510 - 1 510

- 849 - 849

liabilities

- (1 153) - (1 153)

- (2 023) - (2 023)

Received long-term bank and other loans

- (2 560) - (2 560)

- (2 913) - (2 901)

Long-term debt securities

(1 952) - - (2 000)

(2 034) - - (2 000)

Other financial assets

- 37 65 102

- - - -

Other financial liabilities

- ( 34) - ( 34)

- ( 159) - ( 159)

The Group does not disclose the fair value of financial instruments measured at amortised cost (except for 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. (Disclosure of information on fair value is not required when the carrying amount is approximate to

the fair value).

There was no transfer in the Group of financial instruments between individual levels of the fair value hierarchy in the current reporting period.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Methods and measurement techniques used by the Group 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

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.

Loans granted

This item comprises loans measured at fair value, the fair value of which 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.

Other financial assets/liabilities

Receivables/payables due to the settlement of derivatives, whose date of payment falls two working days after the end

of the reporting period, were recognised in this item. These instruments were measured at fair value set per

the reference price applied in the settlement of these transactions.

Currency and currency-interest derivatives

In the case of derivatives on the currency market and currency-interest transactions (CIRS), the forward prices from the

maturity dates of individual transactions were used to determine their fair value. 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 are taken from Reuters. The standard Garman-Kohlhagen model is used to measure European

options on currency markets.

Metals derivatives

In the case of derivatives on the commodity market, forward prices from the maturity dates of individual transactions were

used to determine their fair value. In the case of copper, official closing prices from the London Metal Exchange were used,

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’s 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

Loans granted

Loans granted measured at amortised cost in the statement of financial position are included in this category, because of

the use of unobservable assumptions in the fair value measurement. With respect to estimating the fair value of these

loans, a significant element of the estimation are the forecasted cash flows of Sierra Gorda S.C.M., which are unobservable

input data, and pursuant to IFRS 13 the fair value of these assets is classified to level 3 of the hierarchy. The discount rate

adopted to calculate the fair value of loans measured at amortised cost is 9.75% (as at 31 December 2021: 8%).

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 – in Note 7.5.2.4. As at 31 December 2022, assumptions

adopted for forecasted cash flows which were applied to measurement of fair value are consistent with assumptions

adopted for the calculation of the carrying amount, while the difference between the carrying amount and the fair value

arises from the adoption of different discount rates.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Other financial assets

This item includes receivables due to conditional payments associated with the agreement on the sale of a subsidiary S.C.M.

Franke, which were estimated based on a probabilistic model stipulated in the binding offer and including the discount of

payments for subsequent years.

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.

In the KGHM Polska Miedź S.A. Group, the Parent Entity applies hedge accounting for cash flows. Hedge accounting aims

at reducing volatility in the Parent Entity’s net result, arising from periodic changes in the measurement of transactions

hedging individual types of market risk to which the Parent Entity is exposed. Hedging instruments may be derivatives as

well as bank and other loans in foreign currencies.

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

These plans are prepared based o

n the production capacities for a given period. The Parent Entity 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 Parent Entity 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 Parent Entity from sales of copper, silver and other metals, denominated in USD.

Gains and losses arising from changes in the fair value of the cas

h 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. The Group 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.

Derivatives are no longer accounted for as hedging in

struments when they expire, are sold, terminated or settled,

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

The Parent Entity 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 an

underlying instrument and is measured pursuant to the 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 Parent Entity

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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Important estimates, assumptions and judgments

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 Group 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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Hedging 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 (73) (40) (104)

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

Sold put option (USDPLN)

(1)

(5)

(2)

(7)

Purchased put option (USDPLN)

Purchased call option (USDPLN)

Collars and forwards/swaps (EURPLN)

(1)

(2)

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, silver)

Options – seagull (silver)

(1)

Options – seagull (copper)

(4)

(32)

(36)

TOTAL OPEN DERIVATIVES

714 796 (719) (434) 357

595 254 (1 134) (889) (1 174)

* 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. Group

Consolidated 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 Parent Entity 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 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 June ‘24

Currency - interest rate – CIRS**

1 600

3.81 and 3.94%

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 Parent Entity 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 to

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. Group

Consolidated 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 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):

(220) (385)

realisation of derivatives

(213) (452)

measurement of derivatives

(7) 67

Finance income / (costs):

41 (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)

(361) (2 080)

Statement of other comprehensive income

Impact of 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

1 310 (2 447)

*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” mainly 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, and loans granted measured at fair value through profit

or loss, as they did not pass the contractual cash flow test (SPPI), because in the financing structure at the last stage of the

target recipient of funds, debt is changed into a share, and that is why they were obligatorily classified to this measurement

category.

Shares 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 translation of items expressed in a foreign currency is performed according to the accounting policies described

in Note 1.2.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

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

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).

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

The loan’s fair value is set at the present value of future cash flows, including any change in market risk and credit risk

factors during the loans’ life.

As at

31 December 2022

As at

31 December 2021

Shares of listed companies (Warsaw Stock Exchange

and TSX Venture Exchange), of which:

422

516

TAURON POLSKA ENERGIA S.A.

386

483

GRUPA AZOTY S.A.

Other listed shares

Unquoted shares

Loans granted

Other receivables

Other financial instruments measured at fair value, of which:

606

637

recognised in assets held for sale (disposal group)

recognised as “other financial instruments measured at fair value”

606

637

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 the measurement of unquoted shares is

classified to level 2 (i.e. measurement based on observable data, not deriving from an active market).

The measurement of loans granted is classified to level 2 of the fair value hierarchy.

In 2022 as well as in 2021, there were no dividends from companies in which the Group 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 Group 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 Group 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%

12% -12%

Carrying

amount

Other

comprehensive

income

Other

comprehensive

income

Carrying

amount

Other

comprehensive

income

Other

comprehensive

income

Listed shares

422 60 (60)

516 63 (63)

Sensitivity analysis for significant types of market risk to which the Group 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 7.4 Other financial instruments measured at amortised cost

Accounting policies

Important estimates, assumptions and judgements

The item other 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 and of investments in debt securities is presented in

Note 7.5.1.4.

As at

31 December 2022

As at

31 December 2021

Cash held in the Mine Closure Fund

and Tailings Storage Facility Restoration Fund*

406

427

Other non-current financial receivables

Note 7.1

Total, of which:

469

499

recognised in assets held for sale (disposal group)

recognised as “other financial instruments

measured at amortised cost”

469

496

* 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. This cash was collected by the Parent Entity and the KGHM INTERNATIONAL LTD. Group based on obligations resulting

from law, among others the Law on Geology and Mining and the Waste Act as well as from laws applicable in the United States of America and

Canada.

Financial assets designated for decommissioning mines and restoring tailings storage facilities are exposed to the credit

risk described in Note 7.5.2.5.

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 Group is exposed to the following main financial risks:

• market risks:

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 Group identifies and measures financial risk on an ongoing basis, and also takes actions aimed at minimising its impact

on the financial position.

The Parent Entity manages identified financial risk factors in a conscious and responsible manner, using the adopted

Market Risk Management Policy, the Financial Liquidity Management Policy and the Credit Risk Management Policy.

The process of financial risk management in the Parent Entity is supported by the work of the Market Risk Committee,

the Financial Liquidity Committee and the Credit Risk Committee.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 7.5.1 Market risk

The market risk to which the Group is exposed to is understood as the possible occurrence of negative impact

on the Group's results arising from changes in the market prices of commodities, exchange rates, interest rates, and debt

securities, as well as the share prices of listed companies.

Note 7.5.1.1 Principles and techniques of market risk management

In market risk management (especially commodity and currency risk) the scale and profile of activities of the Parent Entity

and of mining companies of KGHM INTERNATIONAL LTD. is of the greatest significance and impact the results

of the KGHM Polska Miedź S.A. Group.

The Parent Entity actively manages market risk by taking actions and making decisions in this regard within the context

of the KGHM Polska Miedź S.A. Group’s global exposure as a whole.

In accordance with the adopted policy, the goals of the market risk management process in the Group are as follows:

• limit volatility in the financial result;

• increase the probability of meeting budget targets;

• decrease the probability of losing financial liquidity;

• maintain financial health; and

• support the process of strategic decision making related to investing activities, including financing sources.

The objectives of market risk management should be considered as a whole, and their realisation is determined mainly by

the Group’s internal situation and market conditions.

The goals of market risk management at the Group level are achieved through their realisation in individual mining

companies of the Group, with the coordination of these activities at the Parent Entity’s level, in which key tasks related

to the process of market risk management in the Group were centralised (such as coordination of the identification

of sources of exposure to market risk, proposing hedging strategies, contacting financial institutions in order to sign,

confirm and settle derivative transactions, and calculating measurements to fair value).

The primary technique used by the Parent Entity in market risk management is the utilisation of hedging strategies involving

derivatives. Natural hedging is also used. Some other domestic companies of the Group make use of derivatives, however

only the Parent Entity applies hedging strategies, as understood by hedge accounting.

Taking into account the potential scope of their impact on the Group’s results, market risk factors were divided into the

following groups:

Group Market risk Approach to risk management

Note 7.2

Group I – factors

having the greatest

impact on

the Group’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 hedging 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

From the Group’s point of view, this group is comprised of less

significant risks, although sometimes these risks are significant

from an individual entity points of view. Therefore, it is tactically

managed - on an ad-hoc basis, taking advantage of favourable

market conditions.

Note 7.2 Other exchange rates

Note 7.2 Interest rates

In market risk management various approaches are applied for particular, identified exposure groups. The Parent Entity

considers the following factors when selecting hedging strategies or restructuring hedging positions: current and

forecasted market conditions, the internal situation of the Entity, the effective level and cost of hedging,

and the impact of the minerals extraction tax.

The Parent Entity 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 Parent Entity only executes those derivatives which it has the ability to evaluate 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 the market valuation of a given

instrument, the Parent Entity uses information obtained from leading information services, banks, and brokers.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The Market Risk Management Policy in the Group 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). The primary instruments 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 Parent Entity 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 Parent Entity aims to ensure a maximal match between these parameters to minimise the sources

of ineffectiveness.

The Parent Entity quantifies its market risk exposure using a consistent and comprehensive measure. Market risk

management in the Group 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 to market

risk.

One of the measures used as an auxiliary tool in making decisions in the market risk management process in the Parent

Entity 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. EBITDA-at-Risk ratio is calculated for both the KGHM INTERNATIONAL

LTD. Group and the JV Sierra Gorda S.C.M.

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, limits with respect to commitment in

derivatives have been set.

For the Parent Entity limits on metals and currency markets were set at:

• 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 Parent Entity

(for financing the hedging strategy), and up to 85% with respect to instruments representing the rights of the

Parent Entity,

• 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 the 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.

With respect to the risk of changes in interest rates, the Parent Entity 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.

For selected mining companies in the Group, limits were set for commitment in derivatives on the copper and currency

markets at the same levels as those functioning in the Parent Entity, while with respect to transactions on the nickel, silver

and gold markets the limits were set as up to 60% of planned, monthly sales volume from own concentrates.

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 Group 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 Group.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 7.5.1.2 Commodity risk

The Parent Entity is exposed to the risk of changes in the prices of the metals it sells: copper, silver, gold and lead.

Furthermore, the KGHM INTERNATIONAL LTD. Group is exposed to the risk of changes in the prices of copper, gold, nickel,

molybdenum, platinum and palladium.

In the Parent Entity and the KGHM INTERNATIONAL LTD. Group, the price formulas used in physical delivery contracts are

mainly based on average monthly quotations from the London Metal Exchange for copper and other common metals and

from the London Bullion Market for precious metals. Within the commercial policy, the Parent Entity and KGHM

INTERNATIONAL LTD. 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 Group’s benchmark profile, in particular in terms of the reference prices and the quotation

periods.

On the metals market, the Group has a so-called long position, which means it has higher sales than purchases. The analysis

of the Group’s strategic exposure to market risk should be performed by deducting from the volume of metals sold the

amount of metal in purchased materials.

The Group’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]

391 180

619 944

228 764

432 910

628 011

195 101

Silver [t]

1 322

1 347

1 222

1 251

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 Parent Entity (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 Parent Entity (25% in 2021).

As part of the realisation of the strategic plan to hedge the Parent Entity 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 Parent Entity 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 Parent Entity 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.

The condensed tables of open derivatives transactions held by the Parent Entity 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).

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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

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 6 000 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 Parent Entity 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).

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

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

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 2022 and in 2021, neither KGHM INTERNATIONAL LTD. nor any of the mining companies implemented any forward

transactions on the commodity market.

As at 31 December 2022, the risk of changes in metals prices was also related to derivatives embedded in the purchase

contracts for metal-bearing materials entered into by the Parent Entity.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

An analysis of the Group’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

31 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

comprehen

sive

income

Profit or

loss

Other

comprehen

sive

income

Profit or

loss

Other

comprehen

sive

income

Profit or

loss

Other

comprehen

sive

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)

(74)

(1 770)

173

1 701

Derivatives (silver)

224

(192)

(39)

334

Derivatives (gold)

(20)

Embedded derivatives (copper, silver, gold)

(21)

(129)

165

(1)

(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. Group

Consolidated 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 within the KGHM Polska Miedź S.A. Group, the following types

of exposures were identified:

• transaction exposure related to the volatility of cash flows in the base currency;

• exposure related to the volatility of selected items of the statement of financial position in the base (functional)

currency;

• the exposure to net investments in foreign operations as concerns the volatility of consolidated equity in the

Group’s base currency (presentation currency).

The transaction exposure to currency risk derives from cash flow-generating contracts, whose values expressed

in the base (functional) currency depend on future levels of exchange rates of the foreign currencies with respect to the

base currency. 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 exposure to currency risk in the Parent Entity’s business operations are the proceeds from sales

of products (with respect to metals prices, processing and producer margins).

The exposure to currency risk also derives from items in the consolidated statement of financial position denominated

in foreign currencies, which under the existing accounting regulations must be translated, upon settlement or periodic

valuation, including the translation of foreign operations statements, 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 consolidated 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 Parent Entity in 2022.

As part of the realisation of the strategic plan to hedge against market risk, in 2022 the Parent Entity purchased the

following: 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 Parent Entity 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 of the Parent Entity 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).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Hedging against USD/PLN currency risk - open derivatives as at 31 December 2022

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

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

Some of the Group’s Polish companies managed the currency risk related to their core business (among others trade)

by opening transactions in derivatives, among others on the USD/PLN and EUR/PLN markets. The table of open transactions

as at 31 December 2022 and 31 December 2021 is not presented, due to its immateriality for the Group.

As for managing currency risk, the Parent Entity 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).

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]

[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

collar 660.00

- 4.48 5.48 (0.03)

collar 660.00

- 4.69 6.09 (0.05)

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

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

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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The currency structure of financial instruments exposed to currency risk (change in the USD/PLN, EUR/PLN, CAD/PLN

and GBP/PLN exchange rates) of the KGHM Polska Miedź S.A. Group and sensitivity analysis to the risk of changes

in the exchange rates are presented in the tables below. In order to determine the potential changes in the USD/PLN,

EUR/PLN, CAD/PLN and GBP/PLN exchange rates for sensitivity analysis purposes, the Black-Scholes model

(the geometrical Brownian motion) was used.

Financial instruments

Value at risk as at 31 December 2022

total PLN million USD million

EUR million

CAD million

4 - - 1

Trade receivables

776 140 30 5

Cash and cash equivalents

868 163 20 17

Long-term loans granted to joint ventures

9 603 2 182 - -

Other financial assets

234 44 - 12

Derivatives*

357 36 - -

Trade and similar payables

(1 063) (153) (75) (11)

Borrowings

(3 578) (793) (10) (13)

Other financial liabilities

(49) (9) (2) -

*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.

Financial instruments

Value at risk as at 31 December 2021

total PLN million USD million

EUR million

CAD million GBP million

- - 2 -

Trade receivables

515

80 30 4 8

Cash and cash equivalents

1 558

341 20 23 2

Long-term loans granted to joint ventures

7 867

1 938 - - -

Short-term loans granted to joint ventures

447

110 - - -

Other financial assets

150

26 - 12 -

Derivatives*

(1 174)

220 - - -

Trade and similar payables

(1 132)

(167) (87) (16) -

Borrowings

(3 121)

(736) (18) (15) -

Other financial liabilities

(177)

(41) (3) - -

*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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

An analysis of the Group’s sensitivity to the currency risk in 2022 and 2021

Value at

risk

Carrying

amount

31 December

2022

Change in the USD/PLN exchange rate

Change in the EUR/PLN

exchange rate

Change in the CAD/PLN

exchange rate

5.03 (+14%) 3.91 (-11%)

5.18 (+10%) 4.48 (-5%)

3.68 (+13%) 2.88 (-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

profit or loss profit or loss

4 521 - - - - - - - -

Trade receivables

776

1 178

88 - (68) - 15 (6) 2 (2)

Cash and cash equivalents

868

1 200

102 - (79) - 10 (4) 7 (6)

Long-term loans granted to joint

ventures

9 603 9 603

1 372 - (1 065) - - - - -

Other financial assets

234

890

28 - (21) - - - 5 (4)

Derivatives

357 357

(3) (1 197) (6) 1 193 (2) 1 - -

Trade and similar payables

(1 063)

(3 280)

(96)

(37)

(5)

Borrowings

(3 578) (6 443) (499) - 387 - (5) 2 (5) 5

Other financial liabilities

(49)

(211)

(6)

(1)

Impact on profit or loss

986

(773)

(20)

(3)

Impact on other comprehensive income

(1 197) 1 193 - - - -

Value at

risk

Carrying

amount

31 December

2021

Change in the USD/PLN exchange rate

Change in the EUR/PLN

exchange rate

Change in the CAD/PLN

exchange rate

Change in the GBP/PLN

exchange rate

4.57 (+13%)

3.66 (-10%)

5.01 (+9%)

4.37 (-5%)

3.55 (+11%)

2.90 (-9%)

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

profit or loss profit or loss

profit or loss

profit or

loss

615

Trade receivables

515 1 026 41 - (32) - 12 (7) 1 (1) 5 (4)

Cash and cash equivalents

1 558

1 904

175

(138)

(4)

(7)

(1)

Long-term loans granted to joint

ventures

7 867 7 867

997 - (782) - - - - - - -

Short-term loans granted to joint

ventures

447 447

57 - (44) - - - - - - -

Other financial assets

150 671 14 - (11) - - - 4 (3) - -

Derivatives

(1 174)

(646)

527

(7)

Trade and similar payables

(1 132) (3 201) (86) - 67 - (36) 20 (6) 5 - -

Borrowings

(3 121)

(5 949)

(379)

297

(7)

(6)

Other financial liabilities

(177) (479) (21) - 16 - (1) 1 - - - -

Impact on profit or loss

808 - (625) - (31) 18 2 (2) 6 (5)

Impact on other comprehensive income

(646) 527 - - - - - -

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 7.5.1.4 Interest rate risk

In 2022 the Group was exposed to the risk of changes in interest rates due to loans granted to a joint venture, investing

cash, the reverse factoring program and using borrowings.

Positions with variable interest rates expose the Group 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 profit or loss).

Positions with fixed interest rates expose the Group to the risk of fair value changes of a given position, excluding positions

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

1 200 - 1 200 2 333 - 2 333

Loans granted - 20 20 - 22 22

Note 7.1 Borrowings (2 656) (3 787) (6 443) (2 153) (3 796) (5 949)

Similar payables*

(18)

(55) - (55)

In order to effectively manage the working capital and realise mutual payables arising from

binding agreements with suppliers on time, the

Group performed reverse factoring agreements. Consequently, for a part of the portfolio of trade payables, an extension of pa

yment dates

was agreed upon in exchange for additional consideration in the form of

interest. Interest is calculated with a variable rate, based on a fixed

margin increased by a specified reference rate determined for individual currencies.

Details on reverse factoring may be found in Note 8.4.1, Note 10.3 and Note 10.4.

As at 31 December 2022 the Parent Entity 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 Group’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

comprehensive

income

profit or

loss

other

comprehensive

income

profit

or loss

other

comprehensive

income

profit or

loss

other

comprehensive

income

Cash and cash equivalents

18 - (12) -

32 - (11) -

Borrowings

(40) - 27 -

(54) - 21 -

Financial derivatives –

interest rate

- 134 -

(97)

- 186 - (66)

Similar payables

- - - -

Impact on profit or loss

(22) - 15 -

(22) - 10 -

Impact on other

comprehensive income

134

(97)

- 186 - (66)

Impact of the reference rates reform

The Group 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 Group 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. Group

Consolidated 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 Group’s derivatives, because the

CIRS transactions entered into (open cross currency interest rate swaps) and bonds issued by the Group 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 Group 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 Group estimated that the impact of IBOR reform on the financial statements of the Group will

be immaterial.

As at 31 December 2022, the Group held financial instruments based on variable interest rates, which were not yet replaced

by alternative rates.

Type of financial instrument

Carrying amount

as at 31 December

2022

Bank loans

USD LIBOR 1M (528)

WIBOR 1

(63)

Debt securities

WIBOR 6M

(2 002)

Reverse factoring

WIBOR 6M (18)

Derivatives (CIRS for 2029, PLN 1 600 million)

WIBOR 6M (198)

Total

(2 809)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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 (excluding the tax effect).

In hedging relations, only the intrinsic value of the option is designated as a hedging instrument. The time value approximates zero in the horizon of a hedging relation. The hedge’s inefficiency

recognised in the statements of profit or loss in the reporting periods 2021-2022 was immaterial.

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

19 -

16 (21)

92 15 (172) 14

intrinsic value

30 -

- (16)

163 12

- 172

time value

(11) -

- (5)

(71) 3

- (158)

Currency risk (USD)

Options – Sales revenue

402 -

(183) 403

(1)

115

(192)

intrinsic value

193

182

(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)

(241)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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 (excluding 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

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

Cash flow hedging

Commodity risk (copper)

Options*

800

(525)

(2 047)

(1 903)

Commodity risk (silver)

Options*

114

(11)

(30)

Currency risk (USD)

Options*

357

(46)

(260)

(72)

Loans**

(16)

Currency-interest rate risk

CIRS***

(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).

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

Other comprehensive income due to cash flow hedging

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. Group

Consolidated 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 Group’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 sources of exposure to credit risk are:

• 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 Group 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 Group

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 Group

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 overdue period of more than 90 days.

Under the simplified model the Group 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 Group allocates periodically 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 1 195 million was held

in bank accounts and in short-term deposits (in total as at 31 December 2021: PLN 1 904 million).

All entities with which deposit transactions are entered into by the Group operate in the financial sector. Analysis of

exposure to this type of risk indicated that these are solely banks with the highest, medium-high and medium ratings, and

which have an appropriate level of equity and a strong, stable market position. The credit risk in this regard is monitored

through the on-going review of the financial standing and by maintaining an appropriately low concentration levels in

individual financial institutions.

The following table presents the level of concentration of cash and deposits, with the assessed creditworthiness of the

financial institutions*.

Rating level

As at

31 December 2022

As at

31 December 2021

Highest

from AAA to AA- according to S&P and Fitch, and from Aaa

to Aa3 according to Moody’s

10%

22%

Medium-high

from A+ to A- according to S&P and Fitch, and from A1 to A3

according to Moody’s

73%

53%

Medium

from BBB+ to BBB- according to S&P and Fitch, and from

Baa1 to Baa3 according to Moody’s

17%

25%

*Weighed by amount of cash deposited in current accounts and deposits.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

The risk level of a financial institution arising from depositing cash on bank accounts or deposits in the said institution, and

taking into consideration the risk of these instruments, is almost the same, and therefore they are presented jointly.

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 30%, or PLN 354 million (as at 31 December 2021: 41%, or PLN 778 million).

As at

31 December 2022

As at

31 December 2021

Counterparty 1

354

778

Counterparty 2

335

322

Counterparty 3

105

259

Counterparty 4

156

Counterparty 5

121

Other

252

268

Total

1 195

1 904

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 Group 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

impairment loss is insignificant. These assets are classified to Degree 1 of the impairment model.

Nota 7.5.2.2 Credit risk related to derivative transactions

All entities with which derivative transactions (excluding embedded derivatives) are entered into by the Group operate

in the financial sector.

The Group’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)

260

227

(195)

227

Counterparty 2

226

(172)

226

162

(112)

162

Counterparty 3

154

(33)

121

154

113

(437)

(324)

113

Counterparty 4

120

(53)

120

(57)

Other

787

(636)

151

787

279

(1 360)

(1 081)

279

Total

1 547

(1 144)

403

1 547

859

(2 161)

(1 302)

859

Open derivatives*

1 510 (1 110) 400

849 (2 002) (1 153)

Settled derivatives, net

(34)

(159)

(149)

*excluding embedded derivatives

Taking into consideration the receivables due to open derivatives transactions entered into by the Group (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).

In order to reduce cash flows and at the same time to limit credit risk, the Parent Entity 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 formula 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.

Does not concern embedded derivatives.

The Parent Entity 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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Despite the concentration of credit risk associated with derivatives’ transactions, the Parent Entity 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 Group 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

The following Group companies had significant trade receivables as at 31 December 2022: KGHM Polska Miedź S.A. PLN

517 million, the KGHM INTERNATIONAL LTD Group PLN 364 million, CENTROZŁOM WROCŁAW S.A. PLN 67 million, WPEC

w Legnicy S.A. PLN 49 million, NITROERG S.A. PLN 39 million, Metraco S.A. PLN 28 million, „MCZ” S.A. PLN 24 million, WMN

"Łabędy" S.A. PLN 19 million, Energetyka Sp. z o.o. PLN 11 million (as at 31 December 2021: KGHM Polska Miedź S.A. PLN

537 million, the KGHM INTERNATIONAL LTD. Group PLN 219 million, CENTROZŁOM WROCŁAW S.A. PLN 88 million, WPEC

w Legnicy S.A. PLN 39 million, NITROERG S.A. PLN 37 million, „MCZ” S.A. PLN 22 million, Metraco S.A. PLN 14 million, and

WMN “Łabędy” PLN 12 million).

The total net amount of trade receivables of the Group as at 31 December 2022, excluding the fair value of accepted

collateral, up to the amount of which the Group may be exposed to credit risk, amounts to PLN 1 178 million (as at 31

December 2021: PLN 1 026 million).

The Parent Entity 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 Note 2.4.

An inseparable element of the credit risk management process performed by the Parent Entity 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 Parent Entity 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 above forms of collateral and the credit limits received from the insurance company, as at 31

December 2022 the Parent Entity had secured 76% of its trade receivables (as at 31 December 2021, 84%).

Although KGHM INTERNATIONAL LTD. does not use collateral, credit risk connected with trade receivables is subject

to monitoring, and the majority of sales are to proven, long-term customers conducting international activities.

Assessment of concentration of credit risk in the Group:

Sector

concentration

While KGHM Polska Miedź S.A. and KGHM INTERNATIONAL LTD. operate in the same sector, these two

comp

anies are different both in terms of their portfolios of products as well as in terms

of the geographic location and nature of their customers, and consequently this sector concentration

of credit risk is considered to be acceptable.

Other companies of the Group operate in various economic sectors, such as transport, construction,

commerce, industrial production and energy. As a consequence, in the case of most Group companies,

in terms of sectors, there is no concentration of credit risk.

Customers

concentration

As at 31 December 2022 the balance of receivables from the 7 largest customers represented 58%

of trade receivables (2021: 49%). Despite the concentration of this type of risk, it is believed that due to

the availability of historical data and the many years of experience cooperating with its customers, as

well as to the securing used, the level of credit risk is low.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Geographical

concentration

Companies of the Group have been cooperating for many years with a large number of customers,

which affects the geographical diversification of trade receivables. Geographical concentration

of credit risk for trade receivables is presented in the table below.

Trade receivables (net)

As at

31 December 2022

As at

31 December 2021

Poland

40% 59%

Canada

19% 8%

European Union (excluding Poland)

10% 10%

Asia

26% 17%

Other countries

5% 6%

Accounting policies

The Group 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 after the moment of 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 Group’s

entities apply provision matrices, made on

the basis of historical levels of payment of trade receivables, which are

periodically recalibrated in order to update them.

Loss allowance for expected credit losses is measured at the amount equal to expected credit losses during the whole

life of the receivables. The Group 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 in payment, according to ranges presented below as “Important estimates and assumptions”.

Default is defined 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, collateral is also taken into account by allocating

expected recovery rates to the particular types of collateral.

Moreover, forward-

looking information is taken into account 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

Group recognises any deterioration in them in comparison to the previous period, in the ECL calculation the looking

forward factor, which corrects 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 Parent Entity did not note any deterioration of macroeconomic factors as at the end of

the reporting period on 31 December 2022.

Important estimates and assumptions

31 December 2022

31 December 2021

Time frame

Percent of

allowance for

impairment*

Gross

amount of

receivables

Allowance for

impairment in

individual time

frames**

Percent of

allowance for

impairment*

Gross

amount of

receivables

Allowance for

impairment in

individual time

frames**

Not overdue

0.1-2.7

401

(2)

0.2-5.1

373

(3)

<1,30)

0.2-8.1

(1)

0.4-7.8

(1)

<30,60)

5.5-41.4

(1)

3.1-34.2

<60,90)

34.1-72.3

42.9-75.5

Default

100

(35)

100

(32)

Total

466

(39)

435

(36)

*Probability of default is represented in thresholds, calculated individually by Group companies on the basis of real historical data as respects the

number of days of delay, pursuant to the model for calculating expected credit losses adopted by the Group for trade receivables.

**The amount of allowance for impairment includes the recovery due to collateral.

The following table presents the change in trade receivables measured at amortised cost.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

2022

2021

Gross amount as at 1 January

435

444

Change in the balance of receivables

Utilisation of a loss allowance in the period

(14)

Note 10.2 Gross amount as at 31 December

466

435

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

Change in allowance in the period recognised in profit or loss

(3)

Utilisation of a loss allowance in the period

(14)

Note 10.2

Loss allowance for expected credit losses as at 31 December

As at 31 December 2022, disputed receivables amounted to PLN 36 million (as at 31 December 2021, PLN 35 million).

The Group is taking actions aimed at recovering these receivables or explaining the validity of pursuing claims.

Note 7.5.2.4 Credit risk related to loans granted to the joint venture Sierra Gorda S.C.M. (POCI)

Credit risk related to loans granted depends on risk related to the realisation of the joint mining venture in Chile (Sierra

Gorda S.C.M.). These loans, as a result of the impairment recognised at the moment of initial recognition due to credit risk,

were classified as POCI, and are measured at the end of the subsequent reporting periods at amortised cost using the

effective interest rate method and the effective discount rate adjusted by credit risk.

The basis for accruing interest on POCI loans is their gross value less any allowance for impairment at the moment

of initial recognition.

The loan granted does not have collateral limiting the exposure to credit risk, therefore the maximum amount exposed to

potential loss due to credit risk is the gross amount of the loan, less expected credit losses recognised pursuant to IFRS 9.

Changes in the value of POCI loans in the reporting and comparable periods are presented in Note 6.2.

Neither in the reporting period nor in the comparable period was there any expected impairment of POCI loans.

Sensitivity analysis of the fair value of loans due to the change in forecasted cash flows of Sierra Gorda S.C.M.

As at 31 December 2022, the Group 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, being the forecasted

cash flows of Sierra Gorda S.C.M. These cash flows are the most sensitive to changes in copper prices, which implies other

assumptions such as forecasted production and operating margin. Therefore, the Group performed a sensitivity analysis

of the fair value of loans to changes in copper prices.

Because of the significant sensitivity of the forecasted cash flows of Sierra Gorda S.C.M. to changes in copper price,

pursuant to IFRS 13 p.93.f the Group performed a sensitivity analysis of the fair value (level 3) of loans to changes in copper

prices.

Copper prices [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 during mine life

(220 USD/tonne)

7 980 8 280 8 280 8 280 8 280 7 480

Base plus 0.1 USD/lb during mine life

(220 USD/tonne)

8 420 8 720 8 720 8 720 8 720 7 920

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Copper prices [USD/t]

Scenarios – 31 December 2021

2022

2023

2024

2025

2026

Base 8 500 8 000 7 500 7 500 7 500 7 000

Base minus 0.1 USD/lb during mine life

(220 USD/tonne)

8 280 7 780 7 280 7 280 7 280 6 780

Base plus 0.1 USD/lb during mine life

(220 USD/tonne)

8 720 8 220 7 720 7 720 7 720 7 220

Sensitivity analysis of the fair value to

changes in copper price

Classes of financial instruments

Fair value

Base plus 0.1 USD/lb

during mine life

Base minus 0.1 USD/lb

during mine life

Loans granted measured at amortised cost

7 787 8 064 7 465

Loans granted measured at amortised cost

(USD million)

1 769 1 832 1 696

Carrying amount

Sensitivity analysis of the carrying

amount to changes in copper price

Classes of financial instruments

Base plus 0.1 USD/lb

during mine life

Base minus 0.1 USD/lb

during mine life

Loans granted measured at amortised cost

9 603

9 766 9 380

Loans granted measured at amortised cost

(USD million)

2 182 2 219 2 131

The maximum potential carrying amount as at 31 December 2022, assuming that contractual obligations are met, amounts

to USD 2 576 million (PLN 11 339 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 Limited, 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.

Taking into account the above transaction, and the lack of knowledge about the details of the negotiation process,

conditions of the transaction, and the valuation assumptions made by the parties to the transaction, and the fact that the

shares of Sierra Gorda S.C.M. are not listed, it is not justifiable to assess 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).

Nevertheless, the Group made a comparison of the carrying amount of the involvement in the joint venture Sierra Gorda

S.C.M. (i.e. receivable due to a loan and investments in equity instruments) to the transaction price in order to verify that

the total carrying amount of the involvement does not differ substantially from the value that would result from the

transaction price, taking into account: (i) limitations as to the Group'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 Group does not differ significantly from the

value that would be determined by reference to the transaction price.

Note 7.5.2.5 Credit risk related to other financial assets

As at 31 December 2022, the most significant item in other financial assets was cash accumulated on the bank accounts of

the Mine Closure Fund in the amount of PLN 407 million (as at 31 December 2021: PLN 429 million).

All special purpose deposits of the Group, which are dedicated to collection of cash for future decommissioning costs of

mines and other technological facilities and restoration of tailing storage facilities, are carried out by banks with the highest

or medium-high ratings confirming the security of the deposited cash.

The following tables present the level of cash concentration within special purpose funds dedicated to the collection of

cash by the Group for future decommissioning costs of mines and other technological facilities, according to the credit

ratings of financial institutions in which cash is held on special purpose accounts.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Rating level

As at

31 December 2022

As at 31

December 2021

Highest

AAA to AA- according to S&P and Fitch,

and from Aaa to Aa3 according to Moody’s

12%

10%

Medium-high

from A+ to A- according to S&P and Fitch,

and from A1 to A3 according to Moody’s

88%

90%

As at

31 December 2022

As at 31

December 2021

Counterparty 1

358

331

Counterparty 2

Counterparty 3

Total

407

429

Impairment losses on cash accumulated on the bank accounts of special purpose funds: the Mine Closure Fund, 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 Group 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 impairment loss is insignificant. These assets are classified to Degree 1 of

the impairment model.

Moreover, as of 15 July 2022, the Company changed the form of the Tailings Storage Facility Restoration Fund from a bank

account to a bank guarantee.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

In accordance with market practice, the Group monitors the level of financial security, among others on the basis of the

Net Debt/Adjusted EBITDA ratio presented in the table below:

Ratios

Calculations

31 December 2022 31 December 2021

Net Debt/Adjusted 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 7 160

*Net debt does not include reverse factoring liabilities.

** 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 management of liquidity and capital, the Group also pays attention to adjusted operating profit, 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

711

Adjusted operating profit*

5 888

5 915

* Presented amount does not include the profit due to reversal of allowances for impairment of loans granted to a joint venture.

As at the end of the reporting period, in the financial period and after the end of the reporting period, up to the date

of publication of these Consolidated financial statements, the value of the 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. Group

Consolidated 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 at fair value through other

comprehensive income (Note 7.3, Accounting policies) less any deferred tax effect.

Accumulated other comprehensive income

consists of exchange differences from the translation of statements of

operations with a functional currency other than PLN (Note 1.2, Accounting policies) and actuarial gains/losses on post-

employment benefits programs less any deferred tax effect (Part 11, Accounting policies).

Retained earnings are the sum of profit for the current financial year and accumulated profits from previous years,

which have not been paid out as dividends, but were transferred to the reserve capital or were not distributed.

Note 8.2.1 Share capital

As at 31 December 2022 and at the date of signing of these financial statements, the Parent Entity’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 Parent Entity has

not issued preference shares. Each share grants the right to one vote at the general meeting. The Parent Entity does not

have treasury shares. Subsidiaries and joint ventures do not have shares of KGHM Polska Miedź S.A.

In the years ended 31 December 2022 and 31 December 2021, 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 Parent Entity’s shareholder structure as at 31 December 2022, established on the basis of notifications received by the

Parent Entity 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 Parent Entity’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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 8.2.2 Changes of other equity items

Other reserves from measurement of financial

instruments

Investments in

equity instruments

measured at fair

value

through other

comprehensive

income

Other reserves

from

measurement of

future cash flow

hedging financial

instruments

Other

reserves from

measurement

of financial

instruments,

total

Actuarial

gains

/(losses) on

post-

employment

benefits

programs

Exchange

differences from

the translation of

statements of

operations with a

functional currency

other than PLN

Retained

earnings

As at 1 January 2021

( 432)

( 998)

(1 430)

( 962)

2 690

18 694

Transactions with owners - Dividend

( 300)

Profit for the period

6 156

Fair value gains on financial assets measured at fair value through other

comprehensive income

22* - 22 - - -

Note 7.2

Impact of effective cash flow hedging transactions entered into

(2 431)

Note 7.2

Amount transferred to profit or loss due to settlement of hedging instruments

2 064

Note 11.2

Actuarial gains on post-employment benefits

694

Note 1.2

Exchange differences from the translation of statements of operations with a

functional currency other than PLN

- - - - ( 71) -

Note 5.1.1

Deferred income tax

( 132)

Other comprehensive income

( 297)

( 275)

562

( 71)

Total comprehensive income

( 297)

( 275)

562

( 71)

6 156

Reclassification of the result on the disposal of equity instruments measured at fair value

through other comprehensive income

- - - - - ( 18)

As at 31 December 2021

( 410)

(1 295)

(1 705)

( 400)

2 619

24 532

Transactions with owners - Dividend

( 600)

Profit for the period

4 772

Fair value losses on financial assets measured at fair value through other

comprehensive income

( 95) - ( 95) - - -

Note 7.2

Impact of effective cash flow hedging transactions entered into

1 239

Note 7.2

Amount transferred to profit or loss due to settlement of hedging instruments

432

Note 11.2

Actuarial losses on post-employment benefits

( 422)

Note 1.2

Exchange differences from the translation of statements of operations with a

functional currency other than PLN

- - - - ( 65) -

Note 5.1.1

Deferred income tax

( 317)

( 298)

Other comprehensive income

( 76)

1 354

1 278

( 342)

( 65)

Total comprehensive income

( 76)

1 354

1 278

( 342)

( 65)

4 772

As at 31 December 2022

( 486)

( 427)

( 742)

2 554

28 704

*PLN 18 million due to reclassification resulting from the 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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Based on the Act of 15 September 2000, i.e. the Commercial Partnerships and Companies Code, the Parent Entity is required

to create reserve capital for any potential (future) or existing losses, to which no less than 8% of a given financial 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 Group’s entities amounted to PLN 806 million, of

which PLN 667 million relates to the Parent Entity, and is recognised in retained earnings.

Information related to dividends paid may be found in Note 12.2.

Note 8.3 Liquidity management policy

The Management Board of the Parent Entity is responsible for financial liquidity management in the Group and compliance

with adopted policy. The Financial Liquidity Committee is a body supporting the Management Board in this regard.

The management of financial liquidity in the Group is performed in accordance with the Financial Liquidity Management

Policy in the KGHM Group. This document describes processes of managing financial liquidity in the Group, which are

realised by Group companies, while their organisation, coordination and supervision is performed by the Parent Entity by

using appropriate procedures and instruments. The basic principles resulting from this document are:

• assuring the stable and effective financing of the Group’s activities,

• continuous monitoring of the Group’s debt level,

• effective management of working capital, and

• coordination, by the Parent Entity, of processes of financial liquidity management in the Group companies.

Under the liquidity management process, the Group utilises instruments which enhance its effectiveness. One of the

instruments used by the Group 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 Group modified the cash pooling system in order to optimise the process of exchanging currencies by the

domestic companies of the Group. The modified system ensures 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 pool. 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 PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated 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

Maturity period

Total

(without

discounting)

Carrying

amount

Contractual maturities from the

end of the reporting period

up to

3 months

over 3 months

to 12 months

over 1 to

3 years

over

3 years

Borrowings

803

390

946

1 778

3 917

3 697

Debt securities liabilities

174

699

2 093

2 966

2 002

Lease liabilities

165

1 303

1 558

744

Trade payables

3 013

344

3 394

3 210

Similar payables – reverse factoring

Derivatives – currency contracts*

146

Derivatives – commodity contracts –

metals*

13 26 1 - 40

395

Derivatives – interest rates

- - 28 348

376

569

Embedded derivatives

Other financial liabilities

120 38 51 7 216

211

Total

4 024 717 1 917 5 873 12 531

11 035

*Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect.

Overdue liabilities

Overdue period

up to 1 month

over 3 months

to 12 months

over 1 year to

3 years

over

3 years

Total/Carrying

amount

Trade payables

12 3 36 1 52

The above tables 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 Group

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.

Financial liabilities – as at 31 December 2021

Maturity period

Total

(without

discounting)

Carrying

amount

Contractual maturities from the

end of the reporting period

up to

3 months

over 3 months

to 12 months

over 1 to 3

years

over

3 years

Borrowings

118 370 1 518 1 598

3 604

3 303

Debt securities liabilities

561

1 910

2 555

2 001

Lease liabilities

139

1 231

1 451

645

Trade payables

2 749

118

353

3 245

3 106

Similar payables – reverse factoring

Derivatives – currency contracts*

Derivatives – commodity contracts –

metals*

144 611 313 -

1 068

1 514

Derivatives – interest rates

294

314

431

Embedded derivatives

21 - - - 21

Other financial liabilities

242

293

292

Total

3 326

1 324

2 599

5 399

12 648

11 465

*Financial liabilities arising from derivatives are calculated at their intrinsic values excluding the discount effect.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Overdue liabilities

Overdue period

up to 1 month

over 3 months

to 12 months

over 1 year to

3 years

over

3 years

Total/Carrying

amount

Borrowings

7 3 11

Trade payables

21 1 52

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 reco

gnised 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

573

703

Loans

1 987

2 198

Debt securities

2 000

Leases

660

574

Note 7.1

Non-current liabilities due to borrowings

5 220

5 475

Bank loans

690

Loans

447

370

Debt securities

Leases

Note 7.1

Current liabilities due to borrowings

1 223

474

Total borrowings, of which:

6 443

5 949

recognised in liabilities related to the disposal group

recognised as “borrowings, lease and

debt securities”

6 443

5 864

Note 8.5

Free cash and cash equivalents

1 179

1 880

Net debt

5 264

4 069

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

PLN/WIBOR

2 069

2 133

EUR/EURIBOR

EUR/fixed

USD/USD LIBOR

528

(16)

PLN/fixed

794

694

USD/fixed

2 961

3 004

CAD/fixed

Other

Total

6 443

5 949

As at 31 December 2022, the Group’s liabilities due to borrowing, debt securities issued and leases, translated into PLN,

amounted to PLN 6 443 million, or broken down by currencies: USD 793 million, PLN 2 863 million, EUR 10 million, CAD 13

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

million and in other currencies in the amount of PLN 2 million (as at 31 December 2021 liabilities, translated into PLN,

amounted to PLN 5 949 million, or broken down by currencies: USD 736 million, PLN 2 827 million, EUR 18 million, CAD 15

million and in other currencies in the amount of PLN 2 million).

As at 31 December 2022, the balance of trade payables transferred to reverse factoring by the Group amounted

to PLN 18 million (as at 31 December 2021: PLN 95 million).

Trade payables transferred to reverse factoring are presented in the statement of financial position as “Trade and similar

payables” and are in the category of “similar”, as due to the significant judgment of the Group presented in Note 10.4 of

these consolidated financial statements; such a presentation most accurately presents the nature of these transactions.

The structure of debt confirms the effective advancing of the strategy of the Group, aimed at ensuring long term financial

stability by basing the financial structure on diversified and long term financing sources.

Note 8.4.2 Net debt changes

As at

31 December

2021

Cash flows

Accrued

interest

Exchange

differences

Other

changes

As at

31 December

2022

Liabilities due to borrowing

Bank loans

735 530 68 ( 25) (45)* 1 263

Loans

2 568 ( 417) 79 206 ( 2) 2 434

Debt securities

2 001 ( 130) 131 - - 2 002

Leases

645 ( 93) 33 - 159** 744

Total debt

5 949 ( 110) 311 181 112 6 443

Free cash and cash equivalents

1 880 ( 701) - - - 1 179

Net debt

4 069

591

311

181

112

5 264

* Including PLN (60) million at the date of loss of control of subsidiaries.

** Including PLN 165 million due to modification and conclusion of new lease agreements.

As at

31 December

2020

Cash flows

Accrued

interest

Exchange

differences

Other

changes

As at

31 December

2021

Liabilities due to borrowing

Bank loans

1 994 (1 470) 62 150 ( 1) 735

Loans

2 685 ( 388) 79 190 2 2 568

Debt securities

2 000 ( 36) 37 - - 2 001

Leases

656 ( 100) 31 - 58 645

Total debt

7 335 (1 994) 209 340 59 5 949

Free cash and cash equivalents

2 501 ( 621) - - - 1 880

Net debt

4 834 (1 373) 209 340 59 4 069

Reconciliation of cash flows recognised in net debt change to the consolidated statement of cash flows

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

I. Financing activities

104 (1 872)

Proceeds from borrowings 677 358

Repayment of borrowings

( 425) (2 078)

Repayment of lease liabilities

( 59) ( 67)

Repayment of interest on borrowings and debt securities

( 79) ( 70)

Repayment of interest on leases

( 10) ( 15)

II. Investing activities

( 214) ( 122)

Paid capitalised interest on borrowings

( 214) ( 122)

III. Changes in free cash and cash equivalents ( 701) ( 621)

TOTAL (I+II+III)

591 (1 373)

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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Note 8.4.3 Detailed information concerning the main sources of borrowings

As at 31 December 2022, the Group had open credit lines, loans and debt securities with a total balance of available

financing in the amount of PLN 15 386 million, out of which PLN 5 699 million had been drawn (as at 31 December 2021

the Group had open credit lines and investment loans with a total balance of available financing in the amount of PLN

14 505 million, out of which PLN 5 304 million had been drawn).

The structure of financing sources is presented below.

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 by the Parent Entity with a syndicate of banks in 2019 with a maturity of 19 December 2024

and an option to

extend it by a further 2 years (5+1+1). In the years 2020-2021 the Parent Entity

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 Group 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 Parent Entity

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 Parent Entity continuously monitors

the risk of exceeding the level of the financial covenant

stipulated in the credit facili

ty agreement. As at the reporting date, during the financial year and after the reporting date,

up to the publication of these consolidated financial statements, the value of the financial covenant subject to 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 Group 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 th

e form of a revolving credit facility represents a

payment benefitting the Group by gaining access to financing under terms set and accepted by the Group, and not a cost

of financial liabilities incurred under this agreement. Therefore, the unamortised amo

unt 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)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

Investment loans

Loans, including investment loans granted to the Parent Entity 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 Parent Entity invest

ment projects related to modernisation of

metallurgy and development of the Żelazny Most tailings storage facility. The loan’s instalments have a fixed interest

rate.

2. Investment loan in the amount of PLN 1 340 million granted in December 2017 with a fin

ancing period of 12 years.

The Parent Entity

has drawn three instalments under this loan with the payback periods expiring on 28 June 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 through this loan are used to finance the Parent Entity’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 with the European Investment Bank

oblige the Group to comply with the financial covenant and

non-financial covenants commonly stipulated in such types of agreements. Pursuant to contractual terms and conditions,

the Parent Entity

is obliged to report the level of the financial covenant for the reporting periods, i.e. as at 30 June and as

at 31 December. The Parent Entity 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 these consolidated financial statements, the value of the financial covenant

subject to 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

3 528

2 434

2 568

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

100

Other bank loans

Bilateral bank loans in the total amount of PLN 3

255 million, are used for financing working capital and are a supporting

tool in the management of financial liquidity and support financing of advanced investment undertakings. The Group

holds lines of credit in the form of short-term and long-term credit agreements.

The funds under open lines of credit are

available in PLN, USD and EUR, with interest based on a fixed interest rate or variable WIBOR, LIBOR and EURIBOR plus a

margin.

2022 2022 2021

Amount granted

Amount

of the liability

Amount

of the liability

3 255

735

751

Preparatory fee

(2)

Carrying amount of liabilities due to bank loans

735

749

Debt securities

A bond issue program of the Parent Entity 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 took place on 27 June 2019, 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 bond

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 rates

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

15 386

5 699

5 320

Preparation fee which decreases liabilities due to bank loans

(16)

Carrying amount of liabilities due to bank and other loans, debt securities 5 699

5 304

The aforementioned sources ensure the availability of external financing in the amount of PLN 15 386 million. The funds

available for use from these sources fully cover the liquidity needs of 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 bilateral bank loans granted to the Parent Entity in the amount of PLN 3 193 million, are

unsecured.

Repayment of a part of the liabilities of other Group companies due to bilateral bank loans and other loans are secured

amongst others by statements on submitting to an enforcement regime, contractual mortgages, registered pledges

or the assignment of receivables. The carrying amount of guarantees of repayment of external financing as at 31 December

2022 amounted to PLN 243 million, including property, plant and equipment in the amount of PLN 117 million (as at 31

December 2021: PLN 343 million, including property, plant and equipment in the amount of PLN 217 million).

in PLN millions, unless otherwise stated

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101

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).

As at

31 December 2022

As at

31 December 2021

Cash in bank accounts

619

1 151

Other financial assets with a maturity of up to 3 months

from the date of acquisition - deposits

573

744

Other cash

Total cash and cash equivalents, of which:

1 200

1 904

recognised in assets held for sale (disposal group)

recognised as “cash and cash equivalents”

1 200

1 884

Restricted cash

Note 8.4.1

Free cash and cash equivalents

1 179

1 880

As at 31 December 2022, the Group had cash in bank deposits in the amount of PLN 66 million (as at 31 December 2021

PLN 31 million), which are funds in separate VAT accounts, designated for servicing split payments. These funds are

gradually used, mainly to pay the VAT payables to suppliers and other payments mandated by law.

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 Group issued guarantees which meet the definition of contingent liabilities pursuant to IAS 37 and recognises them

in contingent liabilities and guarantees, which meet the definition of financial guarantees under IFRS 9, and which are

measured and recognised as financial instruments pursuant to this standard.

The financial guarantee agreement is an agreement obliging its issuer to make certain payments compensating the holder

of the guarantee for the loss they will incur due to a debtor’s failure to pa

y on the due date, pursuant to the initial

or amended terms of a debt instrument.

At the moment of initial recognition, the Group 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, assumptions and judgements

For the calculation of expected credit losses – ECL - the Group adopts estimates for the rating, PD (probability of default)

and LGD (loss given default) parameters. Calculation of the expected credit losses takes place in the horizon remaining

to the end of the guarantee, while the rating of a guarantee’s beneficiary is adopted as the rating of the entity used for

the purposes of calculating the PD parameter.

As at 31 December 2022, the liabilities of the Group due to guarantees and letters of credit granted amounted to a total of

PLN 1 156 million (as at 31 December 2021, PLN 849 million) and due to promissory note payables amounted to PLN 170

million (as at 31 December 2021, PLN 173 million).

in PLN millions, unless otherwise stated

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

• Sierra Gorda S.C.M. – a corporate guarantee in the amount of PLN 969 million (USD 220 million) set as security on

the repayment of a bank loan drawn by Sierra Gorda S.C.M. (as at 31 December 2021 in the amount of PLN 670

million, or USD 165 million). The guarantee’s validity period falls on September 2024. The carrying amount of the

liability due to a financial guarantee granted was recognised in the amount of PLN 57 million (as at 31 December

2021, PLN 58 million)*,

• other entities, including the Parent Entity:

• PLN 126 million - securing the proper execution by the Parent Entity of future environmental obligations related

to the obligation to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility

(as at 31 December 2021 in the amount of PLN 124 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 up to 1 year,

• PLN 37 million (PLN 30 million and CAD 2 million) securing the obligations related to proper execution of agreements

concluded by the Group (as at 31 December 2021 in the amount of PLN 39 million, or PLN 32 million and CAD 2

million), the guarantee is valid for up to 3 years,

• PLN 2 million - securing obligations related to tax and customs duties, the guarantee is valid indefinitely.

Based on the knowledge held, at the end of the reporting period the Group assessed the probability of payments resulting

from liabilities due to guarantees and letters of credit granted as low.

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

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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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 Group 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, in underground mines: shafts, wells, galleries, drifts, primary chambers), backfilling, drainage

and firefighting pipelines, piezometric holes and electricity, signal and optical fiber cables. Pre-stripping costs in open

pit mines and 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 Group includes discounted decommissioning costs of

fixed assets related to underground and surface 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 and exchange differences 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 perpet

ual usufruct rights to land) are depreciated

by the Group, 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 ore extracted from the deposit or quantity of units produced, and this extraction

or production is not spread evenly through the period of their usage. In particular it relates to buildings and

structures of the mines machines and mining equipment, except for the items of property, plant and equipment

used in metallurgical plants, where their usage results from the useful economic life of the given item of property,

plant and equipment.

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 Group 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 with respect to deposit content:

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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104

For own fixed assets:

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, 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

Pre-stripping costs

Total useful life depends on the expected

individual mine life:

- Robinson

- Carlota

14 years

2 years

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 rate which reflects

its anticipated useful life.

For the property, plant and equipment due to right-to-use 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 and Structures

3-5 years

Computer sets

3 years

Technical

equipment,

machines, motor

vehicles and other

fixed assets

Machines and technical equipment

3-4 years

Motor vehicles

3 years

Equipment and other

5 years

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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105

Accounting policies – intangible assets

Mining and metallurgical intangible assets are mainly comprised of exploration and evaluation assets, and water rights

in Chile.

Exploration and evaluation assets

The following expenditures are classified as exploration and evaluation assets:

• 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 Group 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.

Significant estimates, assumptions and judgments

Significant estimates and

assumptions relating to impairment of mining and metallurgical property, plant and

equipment and intangible assets are presented in Note 3.

The net value of mining and metallurgical property, plant and equipment which are subject to depreciation using the

natural method as at 31 December 2022 amounted to PLN 1 694 million (as at 31 December 2021: PLN 1 169 million).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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106

Mining and metallurgical property, plant and equipment and intangible assets

Property, plant and equipment

Intangible assets

Buildings and

land

Technical

equipment,

machines, motor

vehicles and other

fixed assets

Fixed assets under

construction

Water rights

Exploration and

evaluation assets

Other

Total

As at 31 December 2020

Gross carrying amount

19 711

15 627

5 631

237

2 933

893

45 032

Accumulated depreciation/amortisation

(9 396)

(7 905)

( 302)

(17 603)

Impairment losses

(2 407)

( 637)

( 48)

( 172)

(1 537)

( 28)

(4 829)

Net carrying amount, of which:

7 908

7 085

5 583

1 396

563

22 600

own fixed assets and intangible assets

7 450

7 055

5 583

1 396

563

22 112

leased fixed assets (right-to-use)

458

488

Changes in 2021 net

Settlement of fixed assets under construction

1 320

1 213

(2 533)

Purchase

1 832

224

2 133

Leases – new contracts, modification of existing contracts

Stripping cost in surface mines

537

Self-constructed

687

733

Capitalised borrowing costs

171

173

Note 9.4

Change in provision for decommissioning costs of mines and tailings

storage facilities

( 356) - -

- - -

( 356)

Note 4.1

Depreciation/amortisation, of which:

( 782)

(1 127)

( 15)

(1 924)

own fixed assets and intangible assets

( 757)

(1 115)

( 15)

(1 887)

right-to-use (leased fixed assets)

( 25)

( 12)

( 37)

Note 4.4

(Recognition)/reversal of impairment losses

( 80)

( 82)

( 20)

( 10)

( 2)

( 194)

Exchange differences from the translation of statements of

operations with a functional currency other than PLN

71 50 25

5 107 1

259

Reclassification to assets held for sale

( 176)

Donations and gratuitous receipt of other entities’ assets

268

Liquidation, sale, donations and free of charge transfer

( 3)

( 7)

( 9)

( 6)

( 25)

Other changes

( 6)

( 9)

( 3)

( 98)

( 67)

As at 31 December 2021

Gross carrying amount

21 852

16 851

5 791

253

3 095

1 295

49 137

Accumulated depreciation/amortisation

(10 438)

(8 859)

( 333)

(19 630)

Impairment losses

(2 766)

( 806)

( 61)

( 186)

(1 664)

( 25)

(5 508)

Net carrying amount, of which:

8 648

7 186

5 730

1 431

937

23 999

own fixed assets and intangible assets, of which:

8 191

7 152

5 730

1 431

937

23 508

recognised in assets held for sale (disposal group)

119

recognised as “mining and metallurgical property, plant and

equipment and intangible assets”

8 191 7 152 5 730

67 1 312 937

23 389

leased fixed assets (right-to-use), of which:

457

491

recognised in assets held for sale (disposal group)

recognised as “mining and metallurgical property, plant and

equipment and intangible assets”

457 34 -

- - -

491

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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107

Property, plant and equipment

Intangible assets

Buildings and

land

Technical

equipment,

machines, motor

vehicles and other

fixed assets

Fixed assets

under

construction

Water rights

Exploration and

evaluation assets

Other

Total

As at 31 December 2021

Gross carrying amount

21 852

16 851

5 791

253

3 095

1 295

49 137

Accumulated depreciation/amortisation

(10 438)

(8 859)

( 333)

(19 630)

Impairment losses

(2 766)

( 806)

( 61)

( 186)

(1 664)

( 25)

(5 508)

Net carrying amount, of which:

8 648

7 186

5 730

1 431

937

23 999

own fixed assets and intangible assets, of which:

8 191

7 152

5 730

1 431

937

23 508

recognised in assets held for sale (disposal group)

- - - - 119 - 119

recognised as “mining and metallurgical property, plant and equipment and

intangible assets”

8 191 7 152 5 730 67 1 312 937 23 389

leased fixed assets (right-to-use), of which:

457

491

recognised in assets held for sale (disposal group)

- - - - - - -

recognised as “mining and metallurgical property, plant and equipment and

intangible assets”

457 34 - - - - 491

Changes in 2022 net

Settlement of fixed assets under construction

691 1 750 (2 441) - - -

Purchase

1 901

114

2 037

Leases – new contracts, modification of existing contracts

133

145

Stripping cost in surface mines

367

Self-constructed

1 027

1 097

Capitalised borrowing costs

182

226

Note 9.4

Change in provisions for decommissioning costs of mines and tailings storage

facilities

( 42) - - - - - ( 42)

Note 4.1

Depreciation/amortisation, of which:

( 784)

(1 239)

( 20)

(2 043)

own fixed assets and intangible assets

( 756)

(1 230)

( 20)

(2 006)

right-to-use (leased fixed assets)

( 28)

( 9)

( 37)

Note 4.4

(Recognition)/reversal of impairment losses

( 7)

( 6)

( 55)

( 2)

( 70)

Exchange differences from the translation of statements of operations with a

functional currency other than PLN

77 51 40 6 108 2 284

Liquidation, sale, donations and free of charge transfer

( 5)

( 40)

( 19)

( 5)

( 69)

Settlement from fixed assets under construction into intangible assets

( 38)

As at the date of loss of control of a subsidiary

( 125)

Transfer of mining and metallurgical property, plant and equipment into other

property, plant and equipment

- - ( 197) - - - ( 197)

Other changes

( 3)

( 24)

( 56)

( 4)

As at 31 December 2022

Gross carrying amount

23 383

17 466

6 147

274

3 480

1 411

52 161

Accumulated depreciation/amortisation

(11 463)

(9 449)

( 362)

(21 274)

Impairment losses

(2 838)

( 328)

( 24)

( 201)

(1 803)

( 27)

(5 221)

Net carrying amount, of which:

9 082

7 689

6 123

1 677

1 022

25 666

own fixed assets and intangible assets

8 521

7 652

6 123

1 677

1 022

25 068

leased fixed assets (right-to-use)

561

598

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

108

Note 9.1.1 Mining and metallurgical property, plant and equipment– major 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

Note 9.1.2 Exploration and evaluation assets

Significant expenditures on exploration and evaluation assets are presented in the table below.

Operating segment Description

As at

31 December 2022

As at

31 December 2021

Gross

carrying

amount

Impairment

losses

Gross

carrying

amount

Impairment

losses

KGHM

INTERNATIONAL LTD.

Expenditures related to exploratory

work, mainly within the Victoria project

located in the Sudbury Basin in Canada

2 087 832

1 838 768

KGHM

INTERNATIONAL LTD.

Expenditures related to exploratory

work within the Ajax project

671 671

661 661

Note 9.1.3 Expenses related to mining and metallurgical assets

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Purchase (2 037) (2 133)

Self-constructed fixed assets (1 097) ( 733)

Stripping costs of surface mines ( 367) ( 537)

Costs of external financing ( 226) ( 173)

Change in liabilities due to purchases ( 21) 100

Other 70 93

Total*

(3 678) (3 383)

* Including expenses on exploration and evaluation assets in the amount of PLN 159 million (in 2021: PLN 91 million).

in PLN millions, unless otherwise stated

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109

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. Depreciation is done using the straight-line method.

For individual groups of fixed assets, the following useful lives have been adopted:

The 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:

The 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

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Other property, plant and equipment and intangible assets

Property, plant and equipment

Buildings and land

Technical equipment,

machines, motor

vehicles and other fixed

assets

Fixed assets

under

construction

Intangible assets

Total

As at 31 December 2020

Gross carrying amount

2 782

2 754 288

491

6 315

Accumulated depreciation/amortisation

( 899)

(1 549) -

( 207)

(2 655)

Impairment losses

( 340)

( 178) ( 1)

( 143)

( 662)

Net carrying amount, of which

1 543

1 027 287

141

2 998

own fixed assets and intangible assets

1 377

976 287

141

2 781

leased fixed assets (right-to-use) 166

51 -

217

Changes in 2021 net

Settlement of fixed assets under construction

385

( 468)

Purchase

- 307

138

445

Self-constructed

- 78

Leases – new contracts, modification of contracts

14 -

Note 4.1 Depreciation/amortisation, of which:

( 84)

( 221) -

( 25)

( 330)

own fixed assets and intangible assets

( 83)

( 203) -

( 25)

( 311)

right-to-use (leased fixed assets)

( 1)

( 18) -

( 19)

Note 4.4 (Recognition)/reversal of impairment losses

( 55)

( 81) ( 4)

( 140)

Liquidation, sale, donations and free of charge transfer -

- -

( 18)

Reclassification to assets held for sale ( 2)

- -

( 2)

As at the date of loss of control of a subsidiary -

- -

Other changes

- 11

As at 31 December 2021

Gross carrying amount

2 897

3 058 216

624

6 795

Accumulated depreciation/amortisation

( 993)

(1 676) -

( 230)

(2 899)

Impairment losses

( 404)

( 258) ( 5)

( 144)

( 811)

Net carrying amount, of which:

1 500

1 124 211

250

3 085

own fixed assets and intangible assets, of which:

1 334

1 078 211

250

2 873

recognised in assets held for sale (disposal group)

197

11 2

210

recognised as “other property, plant and equipment and intangible assets”

1 137

1 067 209

250

2 663

leased fixed assets (right-to-use), of which:

166

46 -

212

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

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111

Property, plant and equipment

Buildings and land

Technical equipment,

machines, motor

vehicles and other

fixed assets

Fixed assets under

construction

Intangible assets

Total

As at 31 December 2021

Gross carrying amount

2 897 3 058 216

624

6 795

Accumulated depreciation/amortisation

( 993) (1 676) -

( 230)

(2 899)

Impairment losses

( 404) ( 258) ( 5)

( 144)

( 811)

Net carrying amount, of which:

1 500 1 124 211

250

3 085

own fixed assets and intangible assets, of which:

1 334

1 078

211

250

2 873

recognised in assets held for sale (disposal group)

197 11 2

210

recognised as “other property, plant and equipment and intangible assets”

1 137 1 067 209

250

2 663

leased fixed assets (right-to-use), of which:

166 46 -

212

recognised in assets held for sale (disposal group)

32 - -

recognised as “other property, plant and equipment and intangible assets”

134 46 -

180

Changes in 2022 net

Settlement of fixed assets under construction

267 284 ( 551)

Purchase

- - 218

107

325

Self-constructed

- - 111

111

Leases – new contracts, modification of contracts

4 16 -

Note 4.1 Depreciation/amortisation, of which:

( 94) ( 236) -

( 25)

( 355)

own fixed assets and intangible assets

( 93) ( 218) -

( 25)

( 336)

right-to-use (leased fixed assets)

( 1) ( 18) -

( 19)

Note 4.4 (Recognition)/reversal of impairment losses

( 62) ( 3) ( 1)

( 8)

( 74)

Liquidation, sale, donations and free of charge transfer

- ( 9) -

( 32)

( 41)

Transfer from mining and metallurgical property, plant and equipment to other property, plant and

equipment

- - 197

197

As at the date of loss of control of a subsidiary

( 229) ( 11) ( 2)

( 242)

Other changes

7 18 ( 13)

( 74)

( 62)

As at 31 December 2022

Gross carrying amount

2 919 3 194 176

620

6 909

Accumulated depreciation/amortisation

(1 058) (1 753) -

( 250)

(3 061)

Impairment losses

( 468) ( 258) ( 6)

( 152)

( 884)

Net carrying amount, of which:

1 393 1 183 170

218

2 964

own fixed assets and intangible assets

1 263 1 140 170

2 573

leased fixed assets (right-to-use)

130 43 -

173

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

112

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

Total

2 353

2 214

settled in profit or loss

2 198

2 086

cost of manufacturing

products

2 153 2 043

administrative expenses

selling costs

being part of the

manufacturing cost of assets

155 128

Note 9.4 Provision for decommissioning costs of mines and other 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 o

f operations, which are

made on the basis of ore extraction forecasts (for mining

facilities), and technical-economic studies prepared either

by specialist firms or by the Parent Entity.

In the case of surface mines, certain actions and costs

may influenc

e the scope of restoration work, such as

costs of hauling barren rock, incurred during mine life and

due to its operations, are recognised as operating costs

being an integral part of the production process and are

therefore excluded from costs that are a

basis of

calculating the provision for mine decommissioning.

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 effective 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 in the Parent Entity is

based on the yield on treasury bonds at the end of

the reporting period, with maturities nearest to

the planned financial outflow 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 Parent Entity’s Management on the basis of

the consistency of the adopted assumptions. In

the KGHM INTERNATIONAL LTD. Group – it is the

rate of return on investments in ten- and twenty-

year treasury bills of the US Federal Reserve and

the rate of return on investments in five–year

treasury bonds issued by the governments of

Canada and Chile.

In 2022, the Parent Entity revised its approach to the discount

rates used to estimate environmental provisions. 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 Parent Entity received

and applied for the years 2022-2023 a negative real discount

rate of -5.53% instead of a rate of ”0”. For the subsequent two

measurement periods, that is for 2024 and 2025, the Parent

Entity 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), a risk-free rate of 6.845% (measurement of 10-year

treasury bonds) was adopted, 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 Parent Entity 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 was in the last period, based on quotations of 10-

year treasury bonds, the Parent Entity 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 Parent Entity

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 the current period, for the purpose of the measurement of

the provision for mine decommissioning

and other

technological facilities located in the United States of America

and Canada, a real discount rate at the level of 1.19% to 1.67%

was adopted depending on the mine. In the comparable

period a real discount rate of “0” was adopted due to the

inflation remaining at the level of the nominal discount rate.

With regard to the costs of some activities carried out during

the exploratory work of surface mines,

which at the same

time serve to restore (recultivate) such pits, the Group made

a judgment and recognised that these costs are mostly

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

113

− 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 exc

eeds 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 Parent Entity creates under

separate regulations, i.e. the Act of 9 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 Parent Entity

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 Parent Entity

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 Parent Entity 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 Parent Entity, of which the Parent Entity 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 Parent Entity 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.

current production costs, because these activities primarily

determine the current mine production and revenue

generation, and their restoration is a secondary effect.

Therefore, the costs of such activities are not included in the

measurement of the restoration provision.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

114

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Provisions at the beginning of the reporting period

1 552

1 884

Note 9.1

Changes in estimates recognised in fixed assets

( 42)

( 356)

Reclassification of the balance of the Mine Closure

Fund and Tailings Storage Facility Restoration Fund*

496

Changes due to loss of control of subsidiaries

( 91)

Other

( 22)

Provisions at the end of the reporting period, of

which:

1 893

1 552

- non-current provisions, of which:

1 859

1 531

recognised in liabilities related to disposal group

289

recognised as “provisions for decommissioning

costs of mines and other technological facilities”

1 859

1 242

- current provisions, of which:

recognised in liabilities related to disposal group

recognised as “provisions for liabilities and other

charges”

*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 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 and other

technological facilities

As at

31 December 2022

As at

31 December 2021

increase in discount rate by 1 percentage point

( 341) ( 338)

decrease in discount rate by 1 percentage point

795 4*

*Assuming that the discount rate cannot fall below 0%.

Note 9.5 Capitalised borrowing costs

During the period from 1 January 2022 to 31 December 2022, the Group recognised PLN 228 million of borrowing costs

in property, plant and equipment and intangible assets.

During the period from 1 January 2021 to 31 December 2021, the Group recognised PLN 173 million of borrowing costs

in property, plant and equipment and intangible assets.

The capitalisation rate applied by the Group to determine borrowing costs in 2022 amounted to 4.45%,

in 2021: 2.98%.

Note 9.6 Carrying amount of the assets of Group companies representing collateral of repayment of liabilities

As at

31 December 2022

As at

31 December 2021

Buildings

136 308

Technical equipment and machines

33 38

Land

8 6

Total

177 352

The carrying amount of assets representing collateral of repayment of financial liabilities as at 31 December 2022 amounted

to PLN 177 million, including the carrying amount of assets set as collaterals of repayment of external financing of the

companies of the KGHM Polska Miedź S.A. Group as at 31 December 2022 amounted to PLN 117 million (as at 31 December

2021: PLN 352 million and PLN 217 million, respectively).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

115

Note 9.7 Lease disclosures – the Group as a lessee

Accounting policies

As a lessee, the Group identifies leases in usufruct agreements, inter alia, land, perpetual usufruct right to land, and

transmission easements, as well as technical equipment, machines, and transport vehicles.

The Group 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 Group 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 Group 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 Group recognises each lease component under

the agreement as a lease, separately from non-lease components.

The Group defines the lease period as covering the irrevocable period of the lease agreement, including periods

for which the lease can be extended if it is reasonably certain that the Group will exercise that right, and the periods

for which the lease can be terminated if it is reasonably certain that the Group will not exercise that right.

The right-to-use assets and the measurement policy for these assets are presented in Note 9.1.

The Group 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 payments, 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 given lease

period was set with the assumption that the lessee will terminate the agreement. In fixed lease

payments, the Group

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 Group 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 Group using the

incremental borrowing rate of the lessee because

generally speaking, the interest rate of a lease agreement is not readily determinable.

Important estimates, assumptions and judgments

Identification of non-lease components

In the agreements for the lease of mining machinery, apart from the lease component, the Group identified non-lease

components related to the provision of services other than the lease of assets. To separate the lease and non-lease

components, the Group made a judgment, respectivel

y allocating the remuneration for a given agreement to both

components, based on the relative unit price of the lease component and the total unit price of the non-lease

components.

Estimation of the incremental borrowing rate of the lease

For the purpose of calculating the discount rates under IFRS 16, the Group assumes that the discount rate should reflect

the cost of financing that would be incurred to purchase the leased item. The Group calculates the incremental borrowing

rates, for individual time ranges of lease agreements, on a quarterly basis and this rate is used to measure lease liabilities

arising from lease agreements concluded or modified during a given quarter.

The materiality threshold for leases of low-value of underlying assets is set at PLN 20 000.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

116

Lease disclosures – the Group as a lessee

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Note 9.1

Note 9.2

Depreciation/amortisation cost

Note 4.3 Interest cost

Short-term lease cost

Cost associated with leases of low-value of

underlying assets not recognised as short-term

agreements

Cost associated with variable lease payments not

recognised in the measurement of lease liabilities

Note 8.4.2 Total cash outflows due to leases

100

Note 9.1

Note 9.2

Increase in right-to-use assets

165

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), of which:

771

703

recognised in assets held for sale (disposal group)

recognised as “mining and metallurgical property,

plant and equipment and intangible assets” and

“other property, plant and equipment and

intangible assets”

771

671

Note 8.4.2

Carrying amount of right-to-use liabilities, of

which:

744

645

recognised in liabilities related to disposal group

recognised as “borrowings, lease and debt

securities”

744

629

In 2022, the Group did not enter into sales and leaseback transactions (in 2021 the value of such transactions amounted to

PLN 11 million). These transactions were entered into in order to obtain funds to finance current operating activities of the

Group’s subsidiaries.

As at 31 December 2022, the Group had lease agreements that contained extension options and termination options, and

the estimated value of future cash outflows, to which the Group is potentially exposed and are not included in the

measurement of lease liabilities amount to PLN 19 million and PLN 37 million respectively (as at 31 December 2021: PLN

19 million and PLN 41 million). The Group has lease agreements with guaranteed residual values, but they were included

in the measurement of lease liabilities. Moreover, the Group has not yet started lease agreements, to which it is obliged as

a lessee, and the value of future cash outflows in this respect amounts to PLN 10 million (as at 31 December 2021: PLN 59

million).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

117

Note 9.8 Assets held for sale (disposal group) and liabilities associated with them

Accounting policies

Non-current assets (or disposal groups) are classified by the Group as held for sale, if their carrying amount will be

recovered by the sale transaction rather than by the continued usage, contingent on their availability for immediate sale

in their current condition and maintaining conditions that are customarily applied in the sale of these assets (or disposal

groups) and their sale is highly probable. The sale is understood as highly probable if the Group is determined to fulfil

the plan to sell an asset or a disposal group, actions were undertaken to actively search for a buyer, an asset is offered

at cost, which is rational as compared to its current fair value, and the Group intends to sell an asset in a year from the

classification day. Extension of the period required to conclude the sale by more than 1 year is possible only if the delay

was caused by events or circumstances outside of the Group’s control, and the Group itself may prove that it is

determined to fulfil the plan to sell an asset.

At the moment of reclassification, these assets are measured at the lower of the following values: the carrying amount

or the fair value decreased by costs to sell. The difference between the measurement at fair value is recognised in other

operating costs. At the moment of later measurement, the potential reversal of fair value is recognised in other operating

income.

In the current period, a sale transaction was realised of assets held for sale (disposal group) and liabilities associated with

them of companies S.C.M. Franke, Interferie S.A. and Interferie Medical SPA sp. z o.o. and a reclassification took place of

assets held for sale (disposal group) and liabilities associated with them of Carlota Copper Company to continued

operations. Details are described below.

Note 9.8.1 S.C.M. Franke and Carlota Copper Company

On 26 April 2022 subsidiaries of KGHM International Ltd., Franke Holdings Ltd. and Centenario Holdings Ltd., signed an

agreement for the sale of 100% of the shares of the company Sociedad Contractual Minera Franke, being the owner of the

Franke mine in Chile, to the company Minera Las Cenizas S.A. for the negotiated initial purchase price of USD 25 million.

In accordance with the sale agreement, the negotiated initial purchase price was adjusted by, among others, the change in

net working capital, cash and borrowings between 31 March 2022 and the transaction date. The initial adjusted purchase

price for 100% of the shares of S.C.M. Franke amounted to USD 23 million (payable in cash). The carrying amount of assets

and liabilities that were subject to the sales transaction as at the transaction date amounted to USD 19 million.

Apart from the initial payment (initial purchase price), the pricing mechanism reflects contingent payments in the maximum

amount of USD 45 million. Taking into account the probability of receiving these payments and the period of their

realisation, they were measured at the discounted amount of USD 13 million and recognised in gain on disposal.

Gain on disposal of S.C.M. Franke was recognised in “Other operating income”.

Settlement of the transaction for the sale of S.C.M. Franke

USD mn

PLN mn

Initial purchase price

109

Change in net working capital, cash and borrowings between

31 March 2022 and 26 April 2022

( 2)

( 9)

Initial adjusted purchase price

100

Carrying amount of assets and liabilities that were subject to the sales

transaction

Measurement of contingent payments at the date of disposal

Re-measurement of contingent payments at the reporting date

Gain on disposal

Exchange differences reclassified from other comprehensive income to

gain on disposal

Gain on disposal in the consolidated statement of profit or loss

143

As at 30 June 2022, the criteria set forth in IFRS 5 under which Carlota Copper Company was classified as an asset held for

sale were reassessed. As a result of the analysis conducted, the Management Board of the Parent Entity as at 30 June 2022

reclassified the assets and liabilities of the company back to continued activities, because the sale was not highly probable.

The process of selling the mining assets of Carlota Copper Company was not completed.

In accordance with IFRS 5.27, the recoverable amount of the assets of Carlota Copper Company was determined

immediately following the reclassification. There were no substantial differences compared to the carrying amount as at 30

June 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

118

In November 2022, the process of selling Carlota Copper Company was resumed, however, in the opinion of the

Management Board of the Parent Entity, it is not advanced enough to conclude that the sale is highly probable. Therefore,

as at 31 December 2022, the company's assets and related liabilities are not recognised as held for sale.

The activities of the companies S.C.M. Franke and Carlota Copper Company were presented as part of the segment KGHM

INTERNATIONAL LTD.

The financial data of the above-mentioned companies were presented together with continued operations in the

consolidated statement of profit or loss, in the consolidated statement of cash flows and explanatory notes to these

statements because they do not represent a major line of business and they are not a part of a larger plan to dispose of a

major line of business (IFRS 5.32 a and b).

Financial data of the companies S.C.M. Franke and Carlota Copper Company are presented in the tables below:

Main groups of assets and liabilities classified

to disposal Group

As at

26 April 2022

(sale date – date of

loss of control)

As at

31 December 2021

(presentation under assets and

liabilities classified to disposal

Group)

S.C.M. Franke

Carlota Copper

Company

ASSETS

Mining and metallurgical intangible assets

125

116

Other financial instruments measured

at amortised cost

Non-current assets

127

119

Inventories

Trade receivables, including:

trade receivables measured at fair value through

profit or loss

Tax assets

Other non-financial assets

Cash and cash equivalents

Current assets

133

111

TOTAL ASSETS IN DISPOSAL GROUP

260

230 65

LIABILITIES

Borrowings, leases and debt securities

Provisions for decommissioning costs of mines and

other technological facilities

214

Non-current liabilities

215

Borrowings, leases and debt securities

Trade payables

Employee benefits liabilities

Tax liabilities

Provisions for liabilities and other charges

Other liabilities 18

Current liabilities

TOTAL LIABILITIES IN DISPOSAL GROUP

175

130

231

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

119

Statement of profit or loss of operations

held for sale

from 1 January 2022

to 26 April 2022

from 1 January 2021

to 31 December 2021

S.C.M. Franke

S.C.M.

Franke

Carlota

Copper

Company

Revenues

132

497

209

Costs

( 197)

( 443)

( 111)

Profit/(loss) on operating activities

( 65)

Finance costs

( 1)

( 3)

( 5)

Profit/(loss) before income tax

( 66)

Income tax expense

PROFIT/(LOSS) FOR THE PERIOD

( 66)

Cash flow of operations held for sale

from 1 January 2022

to 26 April 2022

from 1 January 2021

to 31 December 2021

S.C.M. Franke

Carlota Copper

Company

Net cash generated from/(used in) operating

activities, including:

( 40)

( 7)

change in provision for decommissioning of mines

( 6)

( 5)

Net cash used in investing activities

( 5)

( 10)

Net cash generated from/(used in) financing

activities

( 2)

TOTAL NET CASH FLOW

( 14)

( 1)

Note 9.8.2 Interferie S.A. and Interferie Medical SPA Sp. z o.o.

On 21 February 2022, KGHM Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (hereafter: the Fund), with 100% of

its Investment Certificates held by KGHM Polska Miedź S.A., sold all of its directly held shares in the company Interferie

Medical SPA Sp. z o.o. with its head office in Legnica, that is 41 309 shares representing 67.37% of the share capital and the

same percent of votes at the shareholders’ meeting to Polski Holding Hotelowy sp. z o.o. The Fund’s indirect subsidiary –

INTERFERIE S.A. – held the remaining 32.63% of the share capital of the company Interferie Medical SPA Sp. z o.o.

On 28 February 2022, as a result of the settlement of the call for the sale of shares of INTERFERIE S.A. (hereafter “the

company”), announced by Polski Holding Hotelowy sp. z o.o., the portfolio companies of the Fund: Fundusz Hotele 01 Sp. z

o.o. S.K.A. and Fundusz Hotele 01 Sp. z o.o sold all of their shares in the company, that is in total 10 152 625 shares,

representing 69.71% of the share capital and the same percent of votes at the general meeting.

Due to the above, neither the Parent Entity nor any entities of the Group has any shares in the companies: INTERFERIE S.A.

and Interferie Medical SPA Sp. z o.o.

The total sale price for the shares of both companies (payable in cash) amounted to PLN 167 million and exceeded the

value of net assets attributable to the Group by PLN 37 million. The result on the sale (income) was recognised in the item

„Other operating income”.

The activities of the companies Interferie S.A. and Interferie Medical SPA Spółka z o.o. were presented in the segment -

Other segments.

The financial data of the above-mentioned companies were presented together with continued operations in the

consolidated statement of profit or loss, the consolidated statement of cash flows and explanatory notes to these

statements because they do not represent a major line of business and they are not a part of a larger plan to dispose of a

major line of business (IFRS 5.32 a and b).

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

120

Financial data of the companies INTERFERIE S.A. and Interferie Medical SPA Sp. z o.o. are presented in the tables

below:

Main groups of assets and liabilities classified as held for sale

As at

28 February 2022

As at

31 December 2021

ASSETS

Other property, plant and equipment

244

Other property, plant and equipment and intangible assets

244

Non-current assets

244

Inventories

Trade receivables

Tax assets

Other non-financial assets 3

Cash and cash equivalents

Current assets 22

TOTAL ASSETS IN DISPOSAL GROUP

266

263

LIABILITIES

Borrowings, leases and debt securities

Employee benefits liabilities 1

Other liabilities 6

Non-current liabilities

Borrowings, leases and debt securities

Trade payables 6

Employee benefits liabilities

Tax liabilities 4

Other liabilities 5

Current liabilities

TOTAL LIABILITIES IN DISPOSAL GROUP

100

101

Statement of profit or loss of operations held for sale

from 1 January 2022

to 28 February 2022

from 1 January 2021

to 31 December 2021

Revenues

Costs

( 15)

( 68)

Profit/(loss) on operating activities

( 1)

Finance costs

( 2)

Profit/(loss) before income tax

( 1)

Income tax expense

PROFIT/(LOSS) FOR THE PERIOD

( 1)

Cash flow of operations held for sale

from 1 January 2022

to 28 February 2022

from 1 January 2021 to

31 December 2021

Net cash generated from operating activities

Net cash used in investing activities

( 1)

( 11)

Net cash generated from financing activities

TOTAL NET CASH FLOW

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

121

Note 9.8.3 The Oxide project in the KGHM INTERNATIONAL LTD. Group

In the fourth quarter of 2021, an agreement for the sale of the Oxide project, which was held by the subsidiary KGHM Chile

SpA, to Sierra Gorda S.C.M. was concluded between KGHM Polska Miedź S.A. and the second partner in the joint venture

Sierra Gorda S.C.M. – Sumitomo (Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation). On 15 December 2021 the

sales agreement was signed, with the sale date set at 1 January 2022.

As at 31 December 2021 the Oxide project was reclassified from intangible assets not yet available for use (assets related

to exploration and evaluation of mineral resources) to non-current assets held for sale in the amount of PLN 176 million.

The cash inflow from the sale transaction took place on 4 March 2022. The profit on the sale in the amount of PLN 135

million was recognised in the item “Other operating income”.

Pursuant to the accounting policy adopted by the Group, the Group’s share in unrealised profit on the transaction between

the Group and the entity accounted for using the equity method, decreased the profit due to this transaction in

correspondence with the carrying amount of the Group’s interest in this entity. Since as at 31 December 2022 the carrying

amount of the Group’s interest in the joint venture Sierra Gorda S.C.M. amounts to PLN 0, elimination of the unrealised

profit proportionally to the Group’s interest (55%) will be recognised when the carrying amount of the Group’s interest in

Sierra Gorda S.C.M. will be above the level of PLN 0.

Note 9.8.4 KGHM TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH S.A.

As at 31 December 2022, the Group identified the assets and related liabilities of the subsidiary - KGHM TOWARZYSTWO

FUNDUSZY INWESTYCYJNYCH S.A. as 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 assets and liabilities were not separated in

the statement of financial position to separate items "Assets held for sale (disposal group)" and "Liabilities associated with

disposal group".

Note 9.8.5 Property, plant and equipment of Mercus Logistyka Sp. z o.o.

As at 31 December 2022, the Group identified property, plant and equipment of a subsidiary Mercus Logistyka Sp. z o.o. as

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 assets were not separated in the statement of financial position to a separate

item "Assets held for sale (disposal group)".

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

122

Part 10 – Working capital

Note 10.1 Inventories

Accounting policies

Important estimates, assumptions and judgments

The Group 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. Fixed 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 Group 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 significant components, adopted in the

accounting principles of the Parent Entity, 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

as a current maintenance costs of assets are recognized

in profit or loss as they are used up.

In the consolidated financial statements the volume

of those inventories of the KGHM INTERNATIONAL LTD. Group

which arise from the leaching process, is determined based

on the estimated recovery of metal from ore. The nature of

the process of leaching copper from ore limits the precision

of monitoring the level of inventories arising during this

process. In subsequent reporting periods, adjustments are

made to the estimated recovery of copper from the leaching

of ore in a given reporting period to the level of production

achieved in the subsequent period.

As at 31 December 2022 the provisionally-

set value

of inventories amounted to PLN 38 million (as at 31 December

2021, PLN 99 million).

The Group measures inventories at cost, not higher than the

net realisable value. The Group 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 copper inventories will be

made.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

123

As at

31 December 2022

As at

31 December 2021

Materials

2 084

1 562

Half-finished goods and work in progress

4 835

3 494

Finished products

1 777

1 195

Merchandise

206

236

Note 10.4

Total carrying amount of inventories, of which:

8 902

6 487

recognised in assets held for sale (disposal

group)

150

recognised as “inventories”

8 902

6 337

Note 4.4

Write-down of inventories during the reporting

period

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Write-down recognised in cost of sales*

( 79)

( 47)

Write-down reversed in cost of sales**

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

426

216

Maturity of up to 12 months from the end of the

reporting period

8 476

6 271

* Including PLN 44 million due to a write-down recognised in KGHM INTERNATIONAL LTD. in 2022 since the cost was higher than the net realisable

value.

** Including PLN 67 million due to a write-down reversed in KGHM INTERNATIONAL LTD. in 2021 due to the cessation of indications resulting in a

write-down of inventory in previous periods, that is a change in estimates (an increase) of estimated copper production quantities from the heap

leach.

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 and the finished rhenium

product. Moreover, the KGHM INTERNATIONAL LTD. Group has an inventory of ore which will be used in the period of over

12 months concurrently with the higher quality ore extracted in the current period.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

124

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, trade receivables 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 (ECL). 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 between 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 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 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 calculated 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 fo

rmula are obligatorily designated

to the category of financial assets measured at fair value through profit or loss, because these receivables

do not pass the SPPI contractual cash flow test (solely payments of principal and interest) 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 applied M+ pricing formula as well as due

to transferral to factoring. The measurements are carried out indep

endently of each other. The result of both

measurements is recognised in the profit or loss in other operating income/(costs).

The Group 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. Information on currency risk is presented

in Note 7.5.1.3.

The following table presents the carrying amounts of trade receivables and the loss allowances for expected credit losses:

As at

31 December 2022

As at

31 December 2021

Trade receivables measured at amortised cost

- gross value

466

435

Loss allowance for expected credit losses

( 39)

( 36)

Trade receivables measured at amortised cost

- net value

427

399

Trade receivables measured at fair value

751

627

Note 10.4

Total, of which:

1 178

1 026

recognised in assets held for sale (disposal group)

recognised as “trade receivables” and

“other financial instruments measured

at amortised cost”

1 178

1 011

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

125

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 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”.

Moreover, the item “similar liabilities” also includes intra-group trade payables transferred by the debtor to the factor, for

which the debtor received payment from the factor. At the moment of transfer of the liabilities to reverse factoring, the

Parent Entity 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.

Since the reverse factoring is not directly regulated by IFRS, and as a result of the ambiguous nature of transactions, it

was necessary for the Parent Entity to make an important judgment on the presentation of balances of payables

transferred to factoring in the statement of financial position and the presentation of transactions in the statement of

cash flows.

The Parent Entity’s judgement according to which the presentation of these balances in the statement of financial position

under the item „Trade and similar payables” was confirmed by the IFRS Interpretations Committee in December 2020.

The Parent Entity indicates that the actual deadline for t

he 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 Parent Entity 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

3 076

2 919

Current similar payables – reverse factoring

Note 10.4

Trade and similar payables, of which:

3 280

3 201

recognised in liabilities related to disposal group

recognised as “trade and similar payables” and

“other non-current liabilities”

3 280

3 161

In 2022, the factors’ total participation limit in the Group amounted to PLN 1 553 million (including PLN 1500 million in the

Parent Entity). Currently, the Parent Entity 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 Parent Entity, alongside an extension of payment dates of payables by the

Parent Entity to the factor. In the current year, because of the good liquidity situation of the Parent Entity, there were no

reasons to use this form of settlement, and as at 31 December 2022 no liabilities were transferred to the factors and no

trade payables were covered by reverse factoring. In the current financial year, Group companies transferred to the factors

payables in the total amount of PLN 72 million (in the year ended 31 December 2021, the Parent Entity transferred to the

factor payables in the amount PLN 988 million, Group companies transferred payables in the amount of PLN 67 million).

As at 31 December 2022, trade payables in Group companies covered by reverse factoring amounted to PLN 18 million (as

at 31 December 2021, in the Parent Entity - PLN 55 million, in Group companies – PLN 40 million). In the current financial

year, the Group made payments towards the factors in the amount of PLN 150 million (in the financial year ended 31

December 2021: PLN 2 213 million). Interest costs accrued and paid towards the factor in 2022 amounted to PLN 3 million

(in 2021: 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 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 627 million in the current part

(as at 31 December 2021, PLN 186 million and PLN 649 million, respectively).

The Group is exposed to currency risk arising from trade payables and to liquidity risk. Information on currency risk

is presented in Note 7.5.1.3 and on liquidity risk in Note 8.3.1.

The fair value of trade payables approximates their carrying amount.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

126

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, and partially also from investment activities. Moreover, the Parent Entity, as regards

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

The Parent Entity implemented reverse factoring in the period ended on 31 December 2019 (more information may be

found in Note 10.3).

Since market practice with respect to the presentation of reverse factoring transactions in the statement of cash flows

is not uniform, the Management Board had to apply its own judgment in this regard. In the case of these transactions,

the Parent Entity 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 Parent Entity’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 he 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 indicated 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 Parent Entity for the presentation of interest cost of reverse

factoring in the financial activities.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

127

Inventories

Trade

receivables

Trade

payables

Similar

payables

Working

capital

As at 1 January 2022

(6 487) (1 026) 3 106 95 (4 312)

As at 31 December 2022

(8 902) (1 178) 3 262 18 (6 800)

Change in the statement of financial position

(2 415) ( 152) 156 ( 77) (2 488)

Exchange differences from translation of

statements of operations with a functional

currency other than PLN

43 16 ( 17) - 42

Depreciation/amortisation recognised in

inventories

117 - - - 117

Change in liabilities due to purchase of property,

plant and equipment and intangible assets

- - 41 - 41

Reclassification to property, plant and equipment

( 10)

Reclassification from property, plant and

equipment

16 - - - 16

As at a date of loss of control

( 94)

( 20)

( 35)

Adjustments

72 ( 4) 103 - 171

Change in the statement of cash flows

(2 343) ( 156) 259 ( 77) (2 317)

Inventories

Trade

receivables

Trade

payables

Similar

payables

Working

capital

As at 1 January 2021

(4 459) ( 869) 2 498 1 264

(1 566)

As at 31 December 2021

(6 487) (1 026) 3 106

(4 312)

Change in the statement of financial position

(2 028) ( 157) 608 (1 169)

(2 746)

Exchange differences from translation of

statements of operations with a functional

currency other than PLN

41 20 ( 15) -

Depreciation/amortisation recognised in

inventories

91 - - -

Change in liabilities due to purchase of property,

plant and equipment and intangible assets

- - ( 176) 54

( 122)

Change in liabilities due to interest on reverse

factoring

- - - 1

Reclassification to property, plant and equipment

( 37)

Adjustments

95 20 ( 191) 55

( 21)

Change in the statement of cash flows,

including:

(1 933) ( 137) 417

(1 114)

(2 767)

assets held for sale (disposal group) and liabilities

related to disposal group

13 ( 26) ( 34) -

( 47)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

128

Part 11 – Employee benefits

Note 11.1 Employee benefits liabilities

Accounting policies

The Group 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 the date of

settlement for liabilities.

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 (benefits due to jubilee bonuses) are recognised in profit or loss.

Significant 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 discount rate for the Group’s companies 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 ba

lance 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.

Pursuant to IAS 19 paragraph 78,

actuarial assumptions adopted for measurement of employee benefits in the Group

are consistent because they reflect the economic relationships between factors such as inflation, a salary growth rate, a

discount rate and a coal price growth rate.

The additional analysis of assumptions prepared by the Parent Entity

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 for measurement as at 31 December 2022 are presented in Note 11.2.

The sensitivity of future employee benefits liabilities to changes in the assumptions was set based on the amounts

of the Parent Entity’s liabilities (the Parent Entity’s liabilities represent 91% of the Group’s liabilities in the current year

and 88% in the previous year). In the remaining Group companies, due to the immaterial amounts of liabilities in this

regard, t

he impact of changes of the basic parameters adopted for the calculation of provisions on future employee

benefits liabilities in the consolidated financial statements would be immaterial.

Impact of changes in the indicators on the balance of liabilities (the Parent Entity)

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

an increase in the salary growth rate by 1 percentage point

299 228

a decrease in the coal price growth rate and

a decrease in the salary growth rate by 1 percentage point

(227) (177)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

129

Components of the item: employee benefits liabilities

As at

31 December 2022

As at

31 December 2021

Non-current

2 621

2 307

Current

272

161

Note 11.2

Total liabilities due to future employee benefits

programs, of which:

2 893

2 468

recognised in liabilities related to disposal group -

recognised as “employee benefits liabilities” 2 893

2 467

Employee remuneration liabilities

358

297

Social security liabilities

296

272

Accruals (unused annual leave, bonuses, other)

773

719

Other current employee liabilities, of which:

1 427

1 288

recognised in liabilities related to disposal group -

recognised as “employee benefits liabilities” 1 427

1 276

Total employee benefits liabilities

4 320

3 756

Employee benefits expenses

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Remuneration

5 370

4 725

Costs of social security and other benefits

1 784

1 578

Costs of future benefits

179

140

Note 4.1

Employee benefits expenses

7 333

6 443

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

130

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

3 169 585

485 1 966

133

Note 11.1

Total costs recognised in profit or loss

140 25

39 66

Interest costs

41 7

6 26

Current service costs

128 47

33 40

Actuarial gains recognised in profit or loss

( 29) ( 29)

- -

Note

8.2.2

Actuarial gains recognised in other comprehensive income

( 694) -

( 45) ( 628)

( 21)

Benefits paid

( 147) ( 58)

( 37) ( 50)

( 2)

As at 31 December 2021, of which:

2 468 552

442 1 354

120

recognised in liabilities related to disposal group 1 -

1 -

recognised as “employee benefits liabilities” 2 467 552

441 1 354

120

Note 11.1

Total costs recognised in profit or loss 179 52

44 72

Interest costs 88 19

16 49

Current service costs 98 40

28 23

Actuarial gains recognised in profit or loss ( 7) ( 7)

- -

Note

8.2.2

Actuarial (gains)/losses recognised in other comprehensive income 422 -

( 20) 480

( 38)

Benefits paid

( 175) ( 68)

( 33) ( 70)

( 4)

Changes due to loss of control of subsidiaries

( 1) -

As at 31 December 2022, of which: 2 893 536

432 1 836

recognised in liabilities related to disposal group

- -

recognised as “employee benefits liabilities” 2 893 536

432 1 836

As at 31 December

2022 2021 2020 2019

2018

Present value of liabilities due to employee benefits

2 893 2 468 3 169 2 770

2 618

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

131

Main actuarial assumptions (of the Parent Entity) 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%

- 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%

- 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 Parent Entity. 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 (of the Parent Entity) adopted for measurement as at 31 December 2021:

2022 2023 2024 2025

2026 and

beyond

- discount rate

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%

- expected inflation

7.60% 3.60% 2.50% 2.50%

2.50%

- future expected increase in salary

8.00%

6.50%

4.00%

* At the end of 2021, coal prices in individual Divisions of the Parent Entity which are the basis for setting the coal benefit ranged from 887.95 PLN/t

to 983.60 PLN/t. In 2022 an assumption of a 10% increase in coal prices was adopted, 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 increase in the discount

rate, the increase in coal prices and future expected increase in 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.

Actuarial gains/losses as at 31 December 2022 versus assumptions adopted as at 31 December 2021

Change in financial assumptions

( 7)

Change in demographic assumptions

( 40)

Other changes

462

Total actuarial (gains)/losses

415

Actuarial gains/losses as at 31 December 2021 versus assumptions adopted as at 31 December 2020

Change in financial assumptions

( 713)

Change in demographic assumptions

( 111)

Other changes

101

Total actuarial (gains)/losses ( 723)

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

132

Maturity profile of future employee benefits liabilities

Year of maturity:

Total

liabilities

Jubilee

awards

Retirement

and disability

benefits

Coal

equivalent

Other

benefits

2023

272 68 64

129 11

2024

251 54 63

129 5

2025

198 48 22

123 5

2026

189 44 26

114 5

2027

173 42 21

105 5

Other years

1 810 282 234

1 236 58

Total liabilities in the statement of

financial position as at 31 December

2022

2 893 538 430

1 836 89

Maturity profile of future employee benefits liabilities

Year of maturity:

Total

liabilities

Jubilee

awards

Retirement

and disability

benefits

Coal

equivalent

Other

benefits

2022

161 57

39 55 10

2023

191 52

69 66 4

2024

129 41

20 64 4

2025

126 41

20 60 5

2026

125 39

24 57 5

Other years

1 736 324

270 1 052 90

Total liabilities in the statement of

financial position as at 31 December

2021

2 468 554

442 1 354 118

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

133

Part 12 – Other notes

Note 12.1 Related party transactions

The accounting policies and significant estimates and assumptions presented in Parts 2 and 10 are applicable to

transactions entered into with related parties.

The transactions between the Group and related parties include transactions with:

• the joint venture Sierra Gorda S.C.M.,

• entities controlled or jointly controlled by the State Treasury or over which it has significant influence, and

• the management board and the supervisory board (remuneration) – Note 12.9.

Operating income from related entities

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Revenues from sales of products, merchandise and

materials to a joint venture

Interest income on loans granted to a joint venture

582

494

Revenues from other transactions with a joint venture

376

Revenues from other transactions with other related

parties

Total

1 007

597

Purchase from related entities

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Purchase of services, merchandise and materials

Other purchase transactions

Total

Trade and other receivables from related parties

As at

31 December 2022

As at

31 December 2021

From the joint venture Sierra Gorda S.C.M. (loans)

9 603

8 314

From the joint venture Sierra Gorda S.C.M. (other)

From other related parties

Total

9 677

8 383

Trade and other payables towards related parties

As at

31 December 2022

As at

31 December 2021

Towards joint venture

Towards other related parties

Total

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, as at 31 December 2022 and in the period from 1 January to 31 December 2022, the

Group realised 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 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 31 million (as at 31 December 2021: PLN 30 million),

• due to a reverse factoring agreement with the company PEKAO FAKTORING SP. Z O.O. – a payable in the amount of

PLN 18 million, interest costs in the amount of PLN 3 million (as at 31 December 2021, payables in the amount of PLN

68 million and interest costs for the period from 1 January to 31 December 2021 in the amount of PLN 6 million),

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

134

• other transactions and economic operations related to spot currency exchange, depositing cash, granting bank loans,

guarantees, and letters of credit (including documentary letters of credit), running bank accounts, processing of a

documentary collection, servicing of special purpose funds and entering into transactions on the forward currency

market with banks related to the State Treasury,

• due to disposal towards Polski Holding Hotelowy sp. z o.o. of all shares in the company INTERFERIE S.A. and Interferie

Medical SPA sp. z o.o., revenues in the amount of PLN 167 million, details were presented in Note 9.8.2.

State Treasury companies may purchase bonds issued by KGHM Polska Miedź S.A.

The remaining transactions between the Group 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 ordinary, daily economic operations. These transactions concerned the following:

• the purchase of goods (energy, fuels, 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 2 914 million (from 1 January to

31 December 2021: PLN 1 663 million), and, as at 31 December 2022, the unsettled balance of liabilities from these

transactions amounted to PLN 340 million (as at 31 December 2021: PLN 224 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 430 million (from 1 January to 31 December 2021: PLN 146 million), and, as at 31 December

2022, the unsettled balance of receivables from these transactions amounted to PLN 241 million (as at 31 December

2021: PLN 24 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. The Ordinary General Meeting of KGHM Polska Miedź S.A. set a

dividend date for 2020 at 21 June 2021 and a dividend payment date for 2020 at 29 June 2021.

All shares of the Parent Entity are ordinary shares.

As at the date of publication, no decision was made as to the payment of dividend or appropriation of profit for 2022.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

135

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.

As at

31 December 2022

As at

31 December 2021

Other non-current non-financial assets

220

161

Investment property

106

105

Prepayments

Non-financial advances

Receivables due to overpayment of property tax

Other

Other current assets, of which:

623

337

Note 7.1

Financial

337 172

Amounts retained (collateral) due to long-term

construction contracts

Receivables due to guarantees granted

Receivables due to settled derivatives

Receivables due to compensation for energy-intensive

sector due to allocation of the costs of purchasing CO2

emission rights to the price of electricity

Receivables due to settlement of the Franco Nevada

streaming contract

113

Other

Non-financial

286

165

Non-financial advances

108

Receivables due to measurement of long-term contracts

Receivables due to property and personal insurance

Other

Other non-current and current assets, total, of which:

843

498

recognised in assets held for sale (disposal group)

recognised as “other financial assets” and “other non-

financial assets”

835

495

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

136

Note 12.4 Other liabilities

Accounting policies

Other financial liabilities are initially recognised at fair value less transaction costs, and at the end of the reporting period

they are measured at amortised cost.

As at

31 December 2022

As at

31 December 2021

Deferred income, including:

238

355

Liabilities due to Franco Nevada streaming contract

137

210

Trade payables

186

187

Other liabilities

119

Other liabilities – non-current, of which:

543

620

recognised in liabilities related to disposal group

recognised as “other liabilities”

543

617

Special purpose funds*

412

Deferred income, including:

134

147

Trade payables

106

Non-current assets received free of charge

Accruals, including:

976

830

Provision for purchase of property rights related to

consumed electricity

Charges for discharging gases and dusts to the air

391

260

Other accounted costs, proportional to achieved

revenues, which are future liabilities estimated on the

basis of contracts entered into

220

196

Liabilities due to settled derivatives

159

Other financial liabilities

123

Other non-financial liabilities

Other liabilities – current, of which:

1 329

1 690

recognised in liabilities related to disposal group

recognised as “other liabilities”

1 329

1 661

Total – non-current and current liabilities

1 872

2 310

* 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, disclosure in

Note 9.4.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

137

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

366

509

Guarantees received

195

325

Promissory notes receivables

147

134

Other

Contingent liabilities

452

466

Note 8.6

Guarantees and letters of credit

187

179

Note 8.6

Promissory note payables

170

173

Property tax on underground mine workings

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 consolidated statement of financial

position, were as follows:

As at

31 December 2022

As at

31 December 2021

Capital commitments due to the purchase of:

property, plant and equipment

1 390

1 056

intangible assets

Total capital commitments

1 408

1 082

The Group’s share in capital commitments of joint ventures accounted for using the equity method (Sierra Gorda S.C.M.) is

presented in Note 6.1.

Note 12.7 Employment structure

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

White-collar employees

10 650 10 618

Blue-collar employees

23 004 22 884

Total (full-time)

33 654 33 502

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 measurement and realisation of derivatives related

to sources of external financing

19 10

Other

10 ( 9)

Total

29 1

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

138

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

64 - -

Marek Pietrzak 01.01-31.12 1 079 - - 1 079

Marek Świder

15.03-31.12

836 - -

836

Mateusz Wodejko

21.12-31.12

32 - -

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

termination

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 - -

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. Group

Consolidated financial statements for 2022 Translation from the original Polish version

139

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 01.01-31.12 109 149

258

Andrzej Kisielewicz 01.01-31.12 - 149

149

Bogusław Szarek

01.01-31.12

372

149

521

Marek Wojtków 07.10-31.12

- 35

Radosław Zimroz 07.10-31.12 - 35

Piotr Ziubroniewicz 24.11-31.12 - 15

Members of the Supervisory Board not

serving in the function as at 31 December

2022

Piotr Dytko 22.06-07.10 - 44

Jarosław Janas 01.01-21.06 - 71

Robert Kaleta 01.01-07.10 - 115

115

Bartosz Piechota 01.01-21.06 - 71

TOTAL 684 1 374

2 058

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

- 142 142

Katarzyna Krupa 06.07-31.12

- 66 66

Jarosław Janas 01.01-31.12

- 136 136

Józef Czyczerski 01.01-31.12

186 136

322

Przemysław Darowski 01.01-31.12

104 136 240

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

TOTAL

555 1 251 1 806

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

140

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Current employee benefits of other key managers

(in PLN thousands)

3 496 3 934

Based on the definition of key management personnel according to IAS 24 and based on an analysis of the rights

and scope of responsibilities of members of management bodies of the KGHM Polska Miedź S.A. Group arising from

corporate documents and from management contracts, the members of the Board of Directors of KGHM INTERNATIONAL

LTD. and the President of the Board of Directors of KGHM INTERNATIONAL LTD. were recognised as other key managers

of the Group.

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

to it in PLN thousands

from 1 January

2022 to 31

December 2022

from 1 January 2021

to 31 December

2021

Companies of the PricewaterhouseCoopers group, total

5 429

4 376

From the contract for the review and audit of financial

statements and contracts for assurance services, of which:

5 330

4 207

audit of annual financial statements

4 307

3 626

assurance services, of which:

1 023

581

review of financial statements

818

508

other assurance services

205

From realisation of other contracts

169

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

141

Note 12.11 Composition of the Group

% of Group’s share

Company Head office

As at

31 December

2022

As at

31 December

2021

BIPROMET S.A.

Katowice

100

CBJ sp. z o.o.

Lubin

100

CENTROZŁOM WROCŁAW S.A. Wrocław 100 100

CUPRUM Zdrowie sp. z o.o. (formerly CUPRUM Nieruchomości

sp. z o.o.)

Wrocław

100

"Energetyka" sp. z o.o.

Lubin

100

Fundusz Hotele 01 Sp. z o.o.

Wrocław

100

Fundusz Hotele 01 Sp. z o.o. S.K.A.

Wrocław

100

INOVA Spółka z o.o.

Lubin

100

INTERFERIE S.A.

Legnica

69.71

Interferie Medical SPA Sp. z o.o.

Legnica

90.12

KGHM CUPRUM sp. z o.o. – CBR

Wrocław

100

CUPRUM Development sp. z o.o.

Wrocław

100

KGHM Kupfer AG

Weißwasser

100

KGHM VII FIZAN

Wrocław

100

KGHM Metraco S.A.

Legnica

100

KGHM (SHANGHAI) COPPER TRADING CO., LTD.

Shanghai

100

KGHM TFI S.A.

Wrocław

100

KGHM ZANAM S.A.

Polkowice

100

"MIEDZIOWE CENTRUM ZDROWIA" S.A.

Lubin

100

NITROERG S.A.

Bieruń

87.12

NITROERG SERWIS Sp. z o.o.

Wilków

87.12

PeBeKa S.A.

Lubin

100

MERCUS Logistyka sp. z o.o.

Polkowice

100

PHU "Lubinpex" Sp. z o.o.

Lubin

100

Future 1 Sp. z o.o.

Lubin

100

KGHM Centrum Analityki Sp. z o.o.

Lubin

100

Future 3 Sp. z o.o.

Lubin

100

Future 4 Sp. z o.o.

Lubin

100

Future 5 Sp. z o.o.

Lubin

100

Future 7 Sp. z o.o. in liquidation

Lubin

100

PMT Linie Kolejowe Sp. z o.o.

Owczary

100

POL-MIEDŹ TRANS Sp. z o.o.

Lubin

100

Polska Grupa Uzdrowisk Sp. z o.o.

Wrocław

100

Uzdrowisko Cieplice Sp. z o.o.-Grupa PGU

Jelenia Góra

98.85

Uzdrowiska Kłodzkie S.A. - Grupa PGU

Polanica Zdrój

100

Uzdrowisko Połczyn Grupa PGU S.A.

Połczyn Zdrój

100

Uzdrowisko Świeradów-Czerniawa Sp. z o.o.-Grupa PGU

Świeradów Zdrój

99.4

WMN "ŁABĘDY" S.A.

Gliwice

84.98

WPEC w Legnicy S.A.

Legnica

100

Zagłębie Lubin S.A.

Lubin

100

OOO ZANAM VOSTOK

Gay (Russia)

100

TUW Cuprum

Lubin

99.49

100

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

142

% of Group’s share

Company Head office

As at

31 December 2022

As at

31 December 2021

KGHM INTERNATIONAL LTD. Group

KGHM INTERNATIONAL LTD.

Canada

100

KGHM AJAX MINING INC.

Canada

Sugarloaf Ranches Ltd.

Canada

KGHMI HOLDINGS LTD.

Canada

100

Quadra FNX Holdings Chile Limitada

Chile

100

Aguas de la Sierra Limitada

Chile

100

Quadra FNX FFI S.à r.l.

Luxembourg

100

Robinson Holdings (USA) Ltd.

USA

100

Wendover Bulk Transhipment Company

USA

100

Robinson Nevada Mining Company

USA

100

Carlota Holdings Company

USA

100

Carlota Copper Company

USA

100

FNX Mining Company Inc.

Canada

100

DMC Mining Services Ltd. Canada 100 100

Quadra FNX Holdings Partnership

Canada

100

DMC Mining Services Mexico, S.A. de C.V. (formerly Raise

Boring Mining Services, S.A. de C.V.)

Mexico

100

FNX Mining Company USA Inc.

USA

100

DMC Mining Services Corporation

USA

100

Centenario Holdings Ltd.

Canada

100

Minera Carrizalillo SpA

Chile

100

KGHM Chile SpA

Chile

100

FRANKE HOLDINGS LTD.

Canada

100

Sociedad Contractual Minera Franke

Chile

100

0899196 B.C. Ltd.

Canada

100

DMC Mining Services (UK) Ltd.

The United

Kingdom

100

DMC Mining Services Colombia SAS Colombia 100 100

DMC Mining Services Chile SpA

Chile

100

Changes in the organisational structure of the KGHM Polska Miedź S.A. Group

As a result of the reorganisation process of the Group, which was advanced in the second half of 2022, the following events

took place within the portfolio companies of the KGHM VII FIZAN Fund:

• on 20 July 2022, the Extraordinary Shareholders’ Meeting of the direct subsidiary CUPRUM Nieruchomości sp. z o.o.

increased the share capital of this entity 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.;

• from 27 July to 1 August 2022, KGHM VII FIZAN carried out sales to the company CUPRUM Nieruchomości sp. z o.o. of

shares in all portfolio companies of the Fund, 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;

• following the reorganisation, KGHM VII FIZAN acquired from KGHM Polska Miedź S.A., on the Parent Entity’s demand,

100% of Investment Certificates of the Fund for the amount of PLN 367 million and on 22 November 2022, KGHM VII

FIZAN was liquidated.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

143

Diagram of the KGHM Polska Miedź S.A. Group as at 31 December 2022

* Unit excluded from consolidation due to its insignificant impact on the consolidated financial statements.

Parent Enti ty

KGHM Polska Miedź S.A.

PeBeKa S.A.

100%

KGHM CUPRUM sp. z o.o. – CBR

100%

Zagłębie Lubin S.A.

100%

KGHM TFI S.A.

100%

„MIEDZIOWE CENTRUM ZDROWIA” S.A.

100%

CBJ s p. z o.o.

100%

INOVA Spółka z o.o.

100%

KGHM ZANAM S.A.

100%

KGHM (SHANGHAI) COPPER TRADING CO., LTD.

100%

„Energetyka” sp. z o.o.

100%

WPEC w Legnicy S.A.

100%

POL-MIEDŹ T RANS Sp. z o.o.

100%

MERCUS Logistyka sp. z o.o.

100%

PHU „Lubinpex” Sp. z o.o.

100%

BIPROMET S.A.

100%

NITROERG S.A.

87.12%

CENTROZŁOM WROCŁAW S.A.

100%

WMN „ŁAB ĘDY” S.A.

84.98%

KGHM Metraco S.A.

100%

Fundusz Hotele 01 Sp. z o.o.

100%

Fundusz Hotele 01 Sp. z o.o. S.K.A.

100%

Polska Grupa Uzdrowisk Sp. z o.o.

100%

Uzdrow iska Kłodzkie S.A. – Grupa PGU

100%

Uzdrow isko Połczyn Grupa PGU S.A.

100%

Uzdrowisko Cieplice Sp. z o.o. – Grupa PGU

98.85%

Uzdrow isko Świeradów-Czerniawa Sp. z o.o. –

Grupa PGU

99.40%

Futu re 1 Spółka z o.o.

100% (continued on next page)

NITROERG SERWIS Sp. z o.o

87.12%

CUPRUM Zdrowie sp. z o.o.

100%

CUPRUM Development sp. z o.o.

100%

PMT Linie Kolejowe Sp. z o.o.

100%

KGHM Centrum Analityki Spółka z o.o.

100%

Fut ure 3 Spółka z o.o.

100%

Fut ure 4 Spółka z o.o.

100%

Fut ure 5 Spółka z o.o.

100%

OOO ZANAM VOSTOK

100%

TUW Cuprum *

99.49%

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

144

Futu re 1 Spółka z o.o.

100%

KGHM INTERNATIONAL LTD.

100%

FNX Mining Company Inc.

100%

0899196 B.C. Ltd.

100%

CENTENARIO H OLDINGS LTD.

100%

Minera Carrizalillo SpA

100%

KGHM Chile SpA

100%

FRANKE HOLDINGS LTD.

100%

DMC Mining Services Ltd.

100%

Quadra FNX Holdings Partnership

100%

DMC Mining Services Mexico, S.A. de C.V.

100%

FNX Mining Company USA Inc.

100%

DMC Mining Services Corporation

100%

Robinson Holdings (USA) Ltd.

100%

Wendover Bulk Transhipment Company

100%

Robinson Nevada Mining Company

100%

Carlota Holdings Company

100%

Carlota Copper Company

100%

KGHMI HOLDINGS LTD.

100%

Quadra FNX Holdings Chile Limitada

100%

Aguas de la Sierra Limitada

100%

Quadra FNX FFI S.á r.l.

100%

KGHM AJAX MINING INC.

80%

Sugarloaf Ranches Ltd.

80%

KGHM Kupfer AG

100%

DMC Mining Services Colombia SAS

100%

DMC Mining Services (UK) Ltd.

100%

DMC Mining Services Chile SpA

100%

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

145

Note 12.12 Information on the impact of Covid-19 and the war in Ukraine on the Company’s and Group’s

operations

The greatest impact on the operations and results of the KGHM Polska Miedź S.A. Group is from the Parent Entity and, to

a lesser extent, the KGHM INTERNATIONAL LTD. Group.

KEY RISK CATEGORIES

The most significant risk factors related to the COVID-19 pandemic and the war in Ukraine impacting the Company’s and

Group’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 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 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 Group’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 copper in the second quarter of 2022. 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 copper in the third quarter of 2022. The average price of copper in 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 cost of sales, selling costs and administrative expenses.

While individual deviations have been observed in the availability of raw and other materials, at present the KGHM Polska

Miedź S.A. Group is still not experiencing a substantial negative impact of these fluctuations on its operations. Taking into

consideration the continuity of supply of energy carriers (natural gas, coal, coke), at present the KGHM Polska Miedź S.A.

Group is not experiencing any 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 aforementioned limitations on the Group’s

activities, the Parent Entity recorded a negative impact of the price increases on the fuels and energy carriers market, which

ultimately resulted in deviations from budget targets for 2022, on the cost side of KGHM Polska Miedź S.A. Details on the

results of the operating segments may be found in sections 8-11 of 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

146

IMPACT ON THE SPA ACTIVITIES OF THE GROUP

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 PARENT ENTITY AND OTHER COMPANIES OF THE GROUP

The pandemic situation caused by COVID-19 did not have a significant impact on the operations of the Group. At the date

of publication of this report the Management Board of the Parent Entity 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 the Group, while the risk of interruptions to the operational continuity

of the Group in this regard continues to be considered as low.

Despite the high inflation observed in the global economy, resulting in the tightening of the monetary policy, the demand

for the Group‘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 Group 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 KGHM in USD is higher than the amount of borrowings in USD.

With regard to other companies of the KGHM Polska Miedź S.A. Group, the situation in Ukraine in 2022 did not have a

significant impact on the operating results generated by these entities.

PREVENTIVE ACTIONS IN THE GROUP

In KGHM Polska Miedź S.A.

as well as in all international mines of the KGHM Polska Miedź S.A. Group and Sierra Gorda

S.C.M., 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. As a result, the Group’s production of copper,

silver and molybdenum 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 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 Parent Entity are paid on time, while deliveries are sent to customers without major interruptions.

The strategy of diversification of suppliers applied by the entire KGHM Polska Miedź S.A. Group 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

147

The Group is fully capable of meeting its financial obligations. The financial resources held by the Group and the obtained

borrowings guarantee its continued financial liquidity. The financing structure of the Group on the level of the Parent Entity

based on long-term and diversified sources of financing, provided the Company and the Group with long-term financial

stability by maintaining a stable spread of debt maturities and optimising its cost.

Due to the centralisation of the process of obtaining external financing for the needs of the entire Group, in order

to transfer liquidity within the Group, a debt instrument in the form of owners loans is used to support the investment

process, and the Group uses local and international cash pooling to service its daily operations.

Currently, the Parent Entity does not identify a significant risk of 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.

The Group continues to advance its investment projects in accordance with established schedules and therefore does not

identify any increase in risk related 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 Group’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 the 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 and 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 Parent Entity continuously monitors

the international economic situation in order to assess its potential negative impact on the KGHM Polska Miedź S.A. Group

and to take anticipative actions to mitigate this impact.

Note 12.13 Risk and hazards associated with climate change

The KGHM Polska Miedź S.A. Group 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 Group 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 KGHM

POLSKA MIEDŹ S.A. and of the KGHM POLSKA MIEDŹ S.A. Group in 2022, Section 2.6. Risk Management.

The negative impact of climate change on the activities of the Group is analysed using the classification presented below.

The Group 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 Group, 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.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

148

The climate risk related to the transition, to which the Group 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 Group as to the reduction

of its impact on the climate. A detailed description of identified, key climate risks associated with the negative impact of

climate changes on the activities of the Group, including parameters used in their assessment and actions undertaken by

the Group to mitigate their impact, is 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, Section 3.3. Approach to climate risk management.

While assessing the impact of identified climate risks on the Group’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,

• analysis of the 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 significant impact of climate risk on the aforementioned

areas was identified.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

149

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 Parent Entity’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 Parent Entity 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 Parent Entity’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 Parent Entity 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 Parent Entity 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 Parent Entity 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 KGHM Polska Miedź S.A.

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 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 net assets of KGHM TFI S.A. amounted to PLN 2 million. The subsidiary’s

assets and liabilities associated with them were not reclassified to “Assets held for sale (disposal group)” and “Liabilities

associated with disposal group”, details in Note 9.8.4.

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

150

Part 13 – Quarterly financial information of the Group

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

from 1 October 2022

to 31 December 2022

from 1 October 2021

to 31 December 2021

from 1 January

2022 to 31

December 2022

from 1 January 2021

to 31 December

2021

Note 2.3

Revenues from contracts with

customers

8 151 8 068

33 847 29 803

Note 4.1 Cost of sales

(6 898) (6 745)

(27 541) (23 529)

Gross profit

1 253 1 323

6 306 6 274

Note 4.1

Selling costs and administrative

expenses

( 595) ( 484)

(1 962) (1 564)

Profit on sales

658 839

4 344 4 710

Note 6.2

Gains due to the reversal of

allowances for impairment of

loans granted to a joint

venture

90 725

873 2 380

Note 6.2

Interest income on loans

granted to a joint venture

calculated using the effective

interest rate method

105 172

582 494

Profit or loss on involvement in a

joint venture

195 897

1 455 2 874

Note 4.2 Other operating income, including:

24 348

1 881 1 757

other interest calculated using

the effective interest rate

method

13 -

54 1

reversal of impairment losses on

financial instruments

1 9

5 27

Other operating costs, including:

(1 676) ( 268)

( 919) (1 046)

impairment losses on financial

instruments

- ( 10)

( 5) ( 13)

Finance income

537 35

148 70

Note 4.3 Finance costs

( 114) ( 132)

( 420) ( 541)

Profit/(loss) before income tax

( 376) 1 719

6 489 7 824

Note 5.1 Income tax expense

( 117) ( 326)

(1 715) (1 669)

PROFIT/(LOSS) FOR THE PERIOD

( 493) 1 393

4 774 6 155

Profit/(loss) for the period

attributable to:

Shareholders of the Parent Entity

( 494) 1 394

4 772 6 156

Non-controlling interest

1 ( 1)

2 ( 1)

Weighted average number of

ordinary shares (million)

200 200

Basic/diluted earnings per share

(in PLN)

( 2.47) 6.97

23.86 30.78

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

151

Explanatory notes to the consolidated statement of profit or loss

Note 13.1 Expenses by nature

from 1 October 2022

to 31 December 2022

from 1 October 2021

to 31 December 2021

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Depreciation of property, plant

and equipment and amortisation

of intangible assets

663 526

2 398 2 254

Employee benefits expenses

2 009 1 692

7 333 6 443

Materials and energy, including:

4 045 3 110

15 876 11 962

purchased metal-bearing

materials

2 158 1 769

8 859 7 132

External services

800 721

2 604 2 200

Minerals extraction tax

746 1 009

3 046 3 548

Other taxes and charges

249 ( 34)

786 661

Reversal of impairment losses on

property, plant and equipment

and intangible assets

( 2) 3

( 3) ( 42)

Reversal of write-down of

inventories

( 15) ( 31)

( 55) ( 88)

Advertising costs and

representation expenses

34 25

89 72

Property and personal insurance

22 20

80 76

Impairment losses on property,

plant and equipment and

intangible assets

36 319

83 340

Write-down of inventories

34 18

74 47

Other costs

20 28

77 64

Total expenses by nature

8 641 7 406

32 388 27 537

Cost of merchandise and

materials sold (+)

136 215

792 790

Change in inventories of finished

goods and work in progress (+/-)

( 827) 112

(2 008) (1 544)

Cost of products for internal use

of the Group (-)

( 457) ( 504)

(1 669) (1 690)

Total cost of sales, selling costs

and administrative expenses,

of which:

7 493 7 229

29 503 25 093

Cost of sales

6 898 6 745

27 541 23 529

Selling costs

149 120

560 450

Administrative expenses

446 364

1 402 1 114

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

152

Note 13.2 Other operating income and (costs)

from 1 October 2022

to 31 December 2022

from 1 October 2021

to 31 December 2021

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Gains on derivatives, of which: ( 12) 59

270 383

measurement

( 61) ( 31)

109 208

realisation

49 90

161 175

Interest income calculated using

the effective interest rate method

13 -

54 1

Exchange differences on assets

and liabilities other than

borrowings

- 218

949 994

Reversal of impairment losses on

fixed assets under construction

- 2

Reversal of impairment losses on

financial instruments

1 9

5 27

Provisions released

( 36) ( 1)

62 34

Gain on disposal of intangible

assets

( 1) -

134 1

Gain on disposal of property,

plant and equipment

- 8

- 57

Gain on disposal of subsidiaries

7 -

180 -

Government grants received

5 11

19 24

Income from servicing of letters

of credit and guarantees

- -

28 66

Compensation, fines and

penalties received

3 10

66 34

Compensation received due to

the purchase of electricity for

2020

- -

- 39

Other

44 32

114 95

Total other operating income

24 348

1 881 1 757

Losses on derivatives, of which: ( 113) ( 176)

( 490) ( 768)

measurement

( 10) 3

( 116) ( 141)

realisation

( 103) ( 179)

( 374) ( 627)

Impairment losses on financial

instruments

- ( 10)

( 5) ( 13)

Fair value losses on financial

assets

11 34

( 58) ( 39)

Impairment losses on fixed assets

under construction and intangible

assets not yet available for use

( 58) ( 27)

( 64) ( 38)

Exchange differences on assets

and liabilities other than

borrowings

(1 519) -

- -

Provisions recognised

69 ( 45)

( 27) ( 88)

Financial support granted to

municipalities

( 1) -

( 100) -

Losses on disposal of property,

plant and equipment

( 17) -

( 26) -

Donations granted

( 21) ( 15)

( 55) ( 33)

Other

( 27) ( 29)

( 94) ( 67)

Total other operating costs

(1 676) ( 268)

( 919) (1 046)

Other operating income/(costs)

(1 652) 80

962 711

in PLN millions, unless otherwise stated

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

153

Note 13.3 Finance income/(costs)

from 1 October 2022

to 31 December 2022

from 1 October 2021

to 31 December 2021

from 1 January 2022

to 31 December 2022

from 1 January 2021

to 31 December 2021

Exchange differences on

measurement and realisation of

borrowings

438 - - -

Gains on derivatives - realisation 83 35 130 70

Settlement of a transaction

hedging against interest rate risk

due to the issue of bonds with a

variable interest rate

16 -

18 -

Total finance income

537 35

148 70

Interest on borrowings,

including:

( 3) ( 29)

( 18) ( 94)

Leases ( 2) ( 3)

( 9) ( 13)

Unwinding of the discount of

provisions effect

( 6) ( 4)

( 21) ( 15)

Bank fees and charges on

borrowings

( 6) ( 6)

( 29) ( 25)

Losses on derivatives, of which:

( 98) ( 41)

( 149) ( 80)

measurement

- -

- ( 1)

realisation

( 98) ( 41)

( 149) ( 79)

Exchange differences on

measurement and realisation of

borrowings

- ( 44)

( 179) ( 299)

Other

( 1) ( 8)

( 24) ( 28)

Total finance costs

( 114) ( 132)

( 420) ( 541)

Finance income /(costs)

423 ( 97)

( 272) ( 471)

KGHM Polska Miedź S.A. Group

Consolidated financial statements for 2022 Translation from the original Polish version

154

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