Mining concessions, development costs, property, plant and equipment, net

12 Months Ended

Dec. 31, 2018

Disclosure of detailed information about property, plant and equipment [line items]

Disclosure of property, plant and equipment [text block]

11.

Mining concessions, development costs, property, plant and equipment, net

(a)

Below is presented the movement:

	Balance as of January 1, 2017		Additions		Disposals			Sales			Reclassifications and transfers			Balance as of December 31, 2017		Additions		Disposals			Sales			Reclassifications and transfers			Balance as of December 31, 2018
	US$(000)		US$(000)		US$(000)			US$(000)			US$(000)			US$(000)		US$(000)		US$(000)			US$(000)			US$(000)			US$(000)

Cost
Lands		22,958		-		-			-			(268	)		22,690		783		(462	)		-			(1,250	)		21,761
Mining concessions		198,009		2		-			(15,000	)		(31,138	)		151,873		-		-			-			-			151,873
Development costs		652,392		69,335		-			(10,107	)		431			712,051		32,059		(2,656	)		-			1,805			743,259
Buildings, constructions and other		1,109,167		835		(387	)		(28,751	)		198,387			1,279,251		-		(2,837	)		-			66,207			1,342,621
Machinery and equipment		986,032		2,579		(3,749	)		(50,097	)		(5,742	)		929,023		-		(182	)		(9,205	)		38,830			958,466
Transportation units		10,416		11		(190	)		(1,079	)		788			9,946		42		(138	)		(510	)		1,545			10,885
Furniture and fixtures		14,047		31		(157	)		(487	)		468			13,902		-		-			(193	)		(403	)		13,306
Units in transit		30,051		2,822		-			-			(28,124	)		4,749		11		-			-			(2,078	)		2,682
Work in progress		105,788		173,333		-			(190	)		(177,809	)		101,122		67,096		(3,450	)		-			(108,106	)		56,662
Stripping activity asset (e)		124,467		18,282		(13,573	)		-			1,271			130,447		11,279		-			-			-			141,726
Mine closure costs		247,889		10,594		-			(17,195	)		-			241,288		61,239		-			-			(18,365	)		284,162
		3,501,216		277,824		(18,056	)		(122,906	)		(41,736	)		3,596,342		172,509		(9,725	)		(9,908	)		(21,815	)		3,727,403
Accumulated depreciation and amortization:
Lands		-		-		-			-			1,249			1,249		-		-			-			(1,249	)		-
Mining concessions		77,466		8		-			(13,845	)		(23,390	)		40,239		10		-			-			-			40,249
Development costs		241,636		30,886		-			(7,910	)		(1,490	)		263,122		35,433		-			-			(2	)		298,553
Buildings, construction and other		455,678		73,314		(115	)		(28,208	)		6,168			506,837		84,244		-			-			562			591,643
Machinery and equipment		558,061		74,744		(2,662	)		(41,595	)		(6,099	)		582,449		93,722		(177	)		(8,659	)		(1,978	)		665,357
Transportation units		8,792		837		(114	)		(1,057	)		(68	)		8,390		745		(85	)		(436	)		(15	)		8,599
Furniture and fixtures		9,172		1,109		(152	)		(236	)		(13	)		9,880		644		-			(187	)		(214	)		10,123
Stripping activity asset		18,729		16,343		-			-			6,623			41,695		28,820		-			-			3			70,518
Mine closure costs		141,275		25,254		-			(8,408	)		-			158,121		10,350		-			-			-			168,471
		1,510,809		222,495		(3,043	)		(101,259	)		(17,020	)		1,611,982		253,968		(262	)		(9,282	)		(2,893	)		1,853,513
Provision for impairment of long-lived assets:
Mine closure costs		10,990		17,916		-			(8,785	)		-			20,121		-		(5,693	)		-			(1,221	)		13,207
Development costs		9,487		2,864		-			(2,198	)		-			10,153		-		-			-			-			10,153
Mining concessions, development costs, property, plant and other		9,905		840		-			(6,214	)		-			4,531		-		(2,837	)		-			1,221			2,915
		30,382		21,620		-			(17,197	)		-			34,805		-		(8,530	)		-			-			26,275

Net cost		1,960,025													1,949,555													1,847,615

(b)

Impairment of long-lived assets

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 2018, as a result of the derecognition of assets in Shila mining unit, the Company recorded a reversal in the provision for impairment for US$2.8 million. The provision was initially recorded in 2016.

During 2018, La Zanja recorded a reversal for the impairment provision for US$5,693,000 (as of December 31, 2017, the Company recorded a provision for US$21,620,000) as a result of the analysis of the recoverable amount. The main factors considered in the impairment analysis were reserves and mining useful lives. The recoverable amounts of La Zanja are based in Managements estimations of the value in use.

During 2017, 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 a reversal of impairment losses by US$7.4 million, US$7.1 million and US$2.7 million, respectively, see note 1(e).

Key assumptions

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



Production volumes



Commodity prices



Discount rate

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:

	2019	2020-2023
	US$	US$

Gold	1,250 /Oz	1,300 /Oz
Silver	16 /Oz	17 /Oz
Copper	6,750 /MT	7,000 /MT
Lead	2,100 /MT	2,100 /MT

Discount rate: In calculating the value in use, pre-tax discount rates of

7.29%, 7.83%, and 13.32%

were applied to the pre-tax cash flows of Buenaventura, La Zanja, and El Brocal, 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.

(c)

The book value of assets held under finance leases, and assets under trustworthy equity (see note 1(d)), amounted to US$337.3 million as of December 31, 2018 (US$522.0 million as of December 31, 2017) and is presented in various items of property, plant and equipment. During the year 2018 and 2017 no acquisitions of assets under lease agreements were made. Leased assets are pledged as security for the related finance lease liabilities.

(d)

During 2018, no finance costs were capitalized. During 2017, US$5.8 million were capitalized and is presented under investing activities in the consolidated statements of cash flows, using an average rate of 4.19 percent.

(e)

In mid-2016, a landslide occurred in the west wall of the Tajo Norte; consequently, it was decided not to mine this area due to stability and operational design issues. According to the distribution of reserves, this area (Phase 10) contained 5.5 MT of ore and 9.2 MT of waste valued at US$13,573,000, which were withdrawn from the reserves in the year 2017.

Minera Yanacocha SRL and subsidiary [Member]

Disclosure of detailed information about property, plant and equipment [line items]

Disclosure of property, plant and equipment [text block]

10.

Property, plant and equipment, net

(a)

Below is presented the movement in cost:

	Opening balance		Additions		Sales and disposals			Transfer/Other changes			Final balances
	US$(000)		US$(000)		US$(000)			US$(000)			US$(000)

Year 2018
Cost-
Land		9,459		-		-			-			9,459
Land improvements		36,454		-		-			-			36,454
Building and constructions		297,798		-		-			530			298,328
Machinery and equipment		286,865		-		(72,442	)		30,137			244,560
Leach pads		1,722,786		-		-			484			1,723,270
Vehicles		11,024		-		(1,171	)		68			9,921
Furniture and fixtures		2,556		-		-			-			2,556
Other equipment		57,773		-		(265	)		1,416			58,924
Work in progress		400,410		117,636		-			(73,358	)		444,688
Mining rights		37,521		-		-			-			37,521
Asset retirement and mine closure		507,123		27,275		-			-			534,398
Stripping activity asset		148,487		-		-			-			148,487
Mine development		722,355		-		-			38,292			760,647

		4,240,611		144,911		(73,878	)		(2,431	)		4,309,213

Accumulated depreciation and amortization
Land improvements		35,143		440		-			-			35,583
Building and constructions		240,348		7,631		-			-			247,979
Machinery and equipment		249,975		20,887		(66,607	)		-			204,255
Leach pads		1,621,266		34,736		-			-			1,656,002
Vehicles		11,024		2		(1,171	)		-			9,855
Furniture and fixtures		2,556		-		-			-			2,556
Other equipment		55,914		828		(220	)		-			56,522
Mining rights		29,457		-		-			-			29,457
Asset retirement and mine closure		356,345		67,663		-			-			424,008
Stripping activity asset		143,252		2,806		-			-			146,058
Mine development		639,450		17,034		-			-			656,484

		3,384,730		152,027		(67,998	)		-			3,468,759

Net cost		855,881										840,454

	Opening balance		Additions		Sales and disposals			Transfer/Other changes			Final balances
	US$(000)		US$(000)		US$(000)			US$(000)			US$(000)

Year 2017
Cost-
Land		9,459		-		-			-			9,459
Land improvements		36,454		-		-			-			36,454
Building and constructions		236,551		-		(42	)		61,289			297,798
Machinery and equipment		379,164		-		(92,299	)		-			286,865
Leach pads		1,670,835		-		-			51,951			1,722,786
Vehicles		11,024		-		-			-			11,024
Furniture and fixtures		2,556		-		-			-			2,556
Other equipment		57,773		-		-			-			57,773
Work in progress		483,225		51,624		-			(134,439	)		400,410
Mining rights		37,521		-		-			-			37,521
Asset retirement and mine closure		409,797		97,326		-			-			507,123
Stripping activity asset		148,487		-		-			-			148,487
Mine development		701,156		-		-			21,199			722,355

		4,184,002		148,950		(92,341	)		-			4,240,611

Accumulated depreciation and amortization
Land improvements		35,053		90		-			-			35,143
Building and constructions		235,340		5,020		(12	)		-			240,348
Machinery and equipment		329,965		8,431		(88,421	)		-			249,975
Leach pads		1,588,205		33,061		-			-			1,621,266
Vehicles		11,003		21		-			-			11,024
Furniture and fixtures		2,556		-		-			-			2,556
Other equipment		55,645		269		-			-			55,914
Mining rights		29,457		-		-			-			29,457
Asset retirement and mine closure		337,173		19,172		-			-			356,345
Stripping activity asset		142,170		1,082		-			-			143,252
Mine development		622,604		16,846		-			-			639,450

		3,389,171		83,992		(88,433	)		-			3,384,730

Net cost		794,831										855,881

Additions to work in progress in 2018 are primarily related to the Quecher Main project.

The depreciation and amortization expense for the year ended December 31, 2018 was recorded as Cost applicable to sales in the consolidated statement of comprehensive income.

(b)

Impairment of long-lived assets -

n accordance with the accounting policies and processes, each asset or Cash Generating Unit “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. The Company has two CGU’s: Yanacocha mine and Conga project.

In December 2017 and 2018, the Company performed a formal evaluation of its cash generating units and concluded that there were no impairment indicators at December 31, 2018 and 2017, respectively.

In December 2016, the Company determined that an impairment indicator existed as a result of the updated long-term mining and closure plans and the related increases in estimated future closure costs that resulted in an increase to the asset retirement cost asset.

As a result of the recoverable amount analysis performed during 2016, the Company recorded an impairment loss related to Yanacocha mine of US$889.5 million (US$872.2 million and US$17.3 million related to property, plant and equipment and intangible assets, respectively).

In assessing whether impairment was required, the carrying value of the asset or CGU was 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 Company’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 was estimated based on estimated 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 reflects current market assessments of the time value of money and the risks specific to the CGU.

Estimates included quantities of recoverable minerals, production levels, operating costs and capital requirements and sourced from the planning process, including the LOM plans, one-year budgets and CGU-specific studies.

Key assumptions used for the impairment testing as of December 31, 2016:

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

Production volumes.

Commodity prices.

Discount rate.

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines were 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 Company’s process for the estimation of proved and probable reserves and resource estimates.

Commodity prices: Forecasted commodity prices were based on management’s estimates and were 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.

Estimated prices for the current and long-term periods that have were used to estimate future revenues were as follows:

	Current		Long-term
	US$		US$

Gold (per ounce)		1,221		1,300

Discount rate: In calculating the value in use, a pre-tax discount rate of 7.1% was applied to the pre-tax cash flows. This discount rate was derived from the Company’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU.

Sociedad Minera Cerro Verde S.A.A. [Member]

Disclosure of detailed information about property, plant and equipment [line items]

Disclosure of property, plant and equipment [text block]

Property, plant and equipment, net

The changes in cost and accumulated depreciation accounts as of December 31, 2018 and 2017 are shown below:

	January 1, 2017		Additions		Adjustments			Disposals			Transfers			December 31, 2017		Additions		Adjustments			Disposals			Transfers			December 31, 2018
	US$(000)		US$(000)		US$(000)			US$(000)			US$(000)			US$(000)		US$(000)		US$(000)			US$(000)			US$(000)			US$(000)

Cost
Land		23,683		-		-			-			784			24,467		-		-			-			196			24,663
Buildings and other constructions		2,376,961		-		(13,532	)		(1,169	)		7,782			2,370,042		-		41,089			(9,644	)		48,090			2,449,577
Machinery and equipment		4,442,180		-		13,532			(4,540	)		102,336			4,553,508		-		(41,089	)		(19,426	)		201,057			4,694,050
Transportation units		19,110		-		-			(261	)		1,708			20,557		-		-			(32	)		2,726			23,251
Furniture and fixtures		949		-		-			-			-			949		-		-			-			-			949
Other equipment		24,671		-		-			(34	)		340			24,977		-		-			(11	)		525			25,491
Construction in progress and in-transit units		88,766		173,845		-			-			(112,950	)		149,661		288,861		-			-			(252,594	)		185,928
Stripping activity asset (see Note 2(j))		324,759		153,623		-			-			-			478,382		177,327		-			-			-			655,709
Asset retirement costs (see Note 11(b))		137,376		2,661		(3,710	)		-			-			136,327		2,724		(32,017	)		-			-			107,034
		7,438,455		330,129		(3,710	)		(6,004	)		-			7,758,870		468,912		(32,017	)		(29,113	)		-			8,166,652

Accumulated depreciation
Buildings and other constructions		144,862		86,391		(457	)		(1,169	)		-			229,627		96,623		5,184			(9,514	)		-			321,920
Machinery and equipment		1,237,979		283,250		457			(4,349	)		-			1,517,337		292,656		(5,184	)		(18,483	)		-			1,786,326
Transportation units		10,865		1,593		-			(237	)		-			12,221		1,784		-			(33	)		-			13,972
Furniture and fixtures		802		32		-			-			-			834		24		-			-			-			858
Other equipment		13,953		2,474		-			(27	)		-			16,400		2,406		-			(10	)		-			18,796
Stripping activity asset		209,065		76,262		-			-			-			285,327		112,875		-			-			-			398,202
Asset retirement costs		13,189		5,511		-			-			-			18,700		4,976		-			-			-			23,676
		1,630,715		455,513		-			(5,782	)		-			2,080,446		511,344		-			(28,040	)		-			2,563,750
Net cost		5,807,740													5,678,424													5,602,902

(a)

As of December 31, 2018 construction in progress primarily relates to the mine maintenance truck shop (US$

90.6

million), the purchase of stators for ball mills (US$

24.3

million), the purchase of used haul trucks from PT Freeport Indonesia (a related party) (US$

17.2

million) and phase I of the tailing drain expansion (US$

11.9

million).