BUENAVENTURA MINING CO INC | CIK:0001013131 |

 

		Balance as of January 1, 2016			Additions			Disposals			Sales			Reclassifications of assets held for sale			Reclassifications and transfers			Balance as of December 31, 2016			Additions			Disposals			Sales			Reclassifications and transfers			Balance as of December 31, 2017
		US$(000)			US$(000)			US$(000)			US$(000)						US$(000)			US$(000)			US$(000)			US$(000)			US$(000)			US$(000)			US$(000)
Cost
Lands			22,454			162			-			(6)			78			270			22,958			-			-			-			(268)			22,690
Mining concessions			198,009			-			-			-			-			-			198,009			2			-			(15,000)			(31,138)			151,873
Development costs			541,763			82,865			-			-			31,192			(3,428)			652,392			69,335			-			(10,107)			431			712,051
Buildings, constructions and other			1,018,956			581			-			(20)			10,458			79,192			1,109,167			835			(387)			(28,751)			198,387			1,279,251
Machinery and equipment			827,225			46,152			(6,569)			(2,844)			9,425			112,643			986,032			2,579			(3,749)			(50,097)			(5,742)			929,023
Transportation units			10,649			174			(341)			(396)			357			(27)			10,416			11			(190)			(1,079)			788			9,946
Furniture and fixtures			13,429			89			(61)			(88)			359			319			14,047			31			(157)			(487)			468			13,902
Units in transit			26,291			15,797			-			-			-			(12,037)			30,051			2,822			-			-			(28,124)			4,749
Work in progress			68,123			210,915			(352)			-			1,037			(173,935)			105,788			173,333			-			(190)			(177,809)			101,122
Stripping activity asset (e)			106,838			17,631			-			-			-			(2)			124,467			18,282			(13,573)			-			1,271			130,447
Mine closure costs			187,603			34,532			-			-			25,754			-			247,889			10,594			-			(17,195)			-			241,288
			3,021,340			408,898			(7,323)			(3,354)			78,660			2,995			3,501,216			277,824			(18,056)			(122,906)			(41,736)			3,596,342
Accumulated depreciation and amortization:
Mining concessions			77,450			16			-			-			-			-			77,466			8			-			(13,845)			(23,390)			40,239
Development costs			199,211			18,225			-			-			25,596			(1,396)			241,636			30,886			-			(7,910)			(241)			264,371
Buildings, construction and other			381,441			65,050			-			(9)			8,598			598			455,678			73,314			(115)			(28,208)			6,168			506,837
Machinery and equipment			475,941			81,753			(5,378)			(827)			6,640			(68)			558,061			74,744			(2,662)			(41,595)			(6,099)			582,449
Transportation units			7,932			1,103			(250)			(365)			358			14			8,792			837			(114)			(1,057)			(68)			8,390
Furniture and fixtures			7,577			1,156			(60)			(22)			319			202			9,172			1,109			(152)			(236)			(13)			9,880
Stripping activity asset			12,916			5,813			-			-			-			-			18,729			16,343			-			-			6,623			41,695
Mine closure costs			99,993			22,417			-			-			19,335			(470)			141,275			25,254			-			(8,408)			-			158,121
			1,262,461			195,533			(5,688)			(1,223)			60,846			(1,120)			1,510,809			222,495			(3,043)			(101,259)			(17,020)			1,611,982
Provision for impairment of long-lived assets:
Mine closure costs			4,080			-			-			-			6,910			-			10,990			17,916			-			(8,785)			-			20,121
Development costs			3,803			-			-			-			5,684			-			9,487			2,864			-			(2,198)			-			10,153
Mining concessions, development costs, property, plant and other			3,372			-			-			-			6,533			-			9,905			840			-			(6,214)			-			4,531
			11,255			-			-			-			19,127			-			30,382			21,620			-			(17,197)			-			34,805
Net cost			1,747,624																		1,960,025															1,949,555

 

In accordance with its accounting policies and processes, each asset or CGU is evaluated annually at year end, to determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate of the recoverable amount is performed.

 

In assessing whether impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar transactions are taking place. Consequently, the recoverable amount for each CGU is estimated based on discounted future estimated cash flows expected to be generated from the continued use of the CGUs using market based commodity price and exchange assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements, and its eventual disposal, based on the latest life of mine (LOM) plans. These cash flows were discounted using a real pre-tax discount rate that reflected current market assessments of the time value of money and the risks specific to the CGU.

 

The estimates of quantities of recoverable minerals, production levels, operating costs and capital requirements are obtained from the planning process, including the LOM plans, one-year budgets and CGU-specific studies.

 

During 2017, the subsidiary La Zanja recorded an impairment loss related to its mining property for US$21,620,000. The principal factor in the impairment loss was the depletion of its reserves.

 

As a result of the sale of the mining units of Breapampa and Recuperada, as well as the sale of the assets of the Shila Paula mining unit, the Group recorded in 2017 a reversal of impairment losses by US$7.4 million, US$7.1 million and US$2.7 million, respectively, see note 1(e).

 

During 2016, the Group recorded an impairment loss with respect to its Shila-Paula mining unit for US$2,043,000. As a result of the recoverable amount analysis performed as of December 31, 2015, the Group recognized impairment losses for its mining units La Zanja by US$3,803,000 and Breapampa by US$7,452,000.

 

Key assumptions

The determination of value in use is most sensitive to the following key assumptions:

 

 

Production volumes: Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines agreed by management as part of planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

 

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of the Group’s process for the estimation of proved and probable reserves and resource estimates.

 

Commodity prices: Forecast commodity prices are based on management’s estimates and are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for the different qualities and type of commodities, or, where appropriate, contracted prices were applied. These prices are reviewed at least annually.

 

Estimates prices for the current and long-term periods that have been used to estimate future cash flows are as follows:

 

		2018				2019 - 2022
		US$				US$
Gold			1,300.00	/Oz			1,300.00	/Oz
Silver			17.00	/Oz			18.00	/Oz
Copper			6,000.00	/MT			6,000.00	/MT
Lead			2,250.00	/MT			2,250.00	/MT
Zinc			2,750.00	/MT			2,600.00	/MT

 

Discount rate: In calculating the value in use, pre-tax discount rates of 8.33%, 9.30% and 5.89% were applied to the pre-tax cash flows of Buenaventura, El Brocal and La Zanja, respectively. These discount rates are derived from the Group’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on its interest bearing borrowings the Group is obliged to service. The beta factors are evaluated annually based on publicly available market data.