Mining cash cost and conversion cost

The table below presents the mining cash cost and cash conversion cost in 2012 and in 2011.

	2012	2011(1) (restated data)	Growth rate
Mining cash cost (in PLN millions)	4,760.8	4,651.1	102.4%
Mining cash cost (in PLN/ton)(2)	353.64	368.84	95.9%
Cash conversion cost (in PLN millions)	582.3	427.0	136.4%
Cash conversion cost (in PLN/ton)(3)	151.77	138.46	109.6%

(1) In connection with the restatement of data in the statement of comprehensive income for 2011, the Group updated its calculation of mining cash cost.
(2) To achieve greater accuracy, the value of mining cash cost per ton of coal was calculated based on values expressed in thousands of PLN and thousands of tons.
(3) Cash conversion cost taking into account KK Zabrze for H2 2011 but without taking into account WKZ Victoria.

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The methodology of calculation and presentation of mining cash cost reflects the cost from the point of view of cash consumption regardless of the period in which it was incurred. The Group calculates mining cash cost by subtracting costs not directly associated with the production of coal and costs not permanently affecting the Group’s financial flows from all costs incurred in the period.

Mining cash cost in 2012 stood at PLN 4,760.8 million, i.e. was PLN 109.7 million (2.4%) higher than in 2011. The increase in mining cash cost was caused primarily by the following factors:

- increase in personnel costs,
- increase in costs of third party services, including mostly:

• drilling and mining services, among other reasons due to a 1,840 m increase in the length of mined pits requiring additional drilling and mining services and a greater number of reconstructions,

• other services, including coal dumping services, services related to the prevention and elimination of threats, IT services and costs of tests, approvals and measurements,

• overhaul services,

- increase in costs of consumption of materials and energy, mainly due to an increase in heading works, a greater length of reconstructions by 1,634 m and an increase in unit fees for electricity, heat and cooling.
 

On a stand-alone basis, mining cash cost in 2012 was PLN 353.64 per ton, i.e. 4.1% higher than in 2011 as a result of both a nominal increase in expenditures on coal production by 2.4% and a greater production of coal in 2012 by 7.1%.

Cash conversion cost is a measure calculated as the sum of costs by type net of the cost of coal feedstock (including the cost of transporting the feedstock) and cost of sales net of depreciation attributable to cost of sales. Unit cash conversion cost is calculated as the value of this measure divided by the volume of coke production available for sale. The increase in cash conversion cost was affected primarily by events related to the merger of KK Zabrze and WZK Victoria into the Group.

The increase in unit cash conversion cost for 2012 compared to 2011 by 9.6% results from taking into account in the calculation for 2012 of the costs of KK Zabrze and WZK Victoria, whereas in 2011 the value of cash conversion cost captured the results of KK Zabrze only for the period from 1 July 2011 to 30 December 2011.