IAS 36 para 130, impairment disclosures, mainly fvlcd basis, hierarchy under IFRS 13, climate change, sensitivities

Glencore plc – Annual report – 31 December 2021

Industry: mining

1. Accounting policies (extract 1)

Climate change related considerations

The Group has committed to total emissions (Scope 1, 2 and 3) reductions, relative to 2019, of 15% by 2026 and 50% by 2035 and has an ambition to achieve net zero total emissions by 2050. The accounting related measurement and disclosure items that are most impacted by our commitments, and climate change risk more generally, relate to those areas of the financial statements that are prepared under the historical cost convention and are subject to estimation uncertainties in the medium to long term. Climate change impacts can also introduce more volatility in assets and liabilities carried at fair value. Future changes to the Group’s climate change strategy or realisation of global decarbonisation ambitions quicker than currently anticipated may impact some of the Group’s significant judgements and key estimates and result in material changes to financial results and the carrying values of certain assets and liabilities in future reporting periods. The Group’s current climate change strategy is reflected in the Group’s significant judgements and key estimates, and therefore the Financial Statements, as follows:

(i) Property, plant and equipment and Intangible assets – estimation of the remaining useful economic life of assets for depreciation and amortisation purposes

Property, plant and equipment and intangible assets are depreciated / amortised to estimated residual values over the estimated useful lives of the specific assets concerned, or the estimated remaining life of the associated mine, field or lease, using a straight-line or a units of production over recoverable reserves method. The estimated useful lives of our specific assets and / or operations (and therefore the rate of depreciation / amortisation) aligns with our climate change commitments and ambition. Property, plant and equipment and intangible assets policies are further covered below and within impairment and impairment reversal estimation uncertainties, together with key estimates and sensitivities pertaining to a reasonably possible change in the realisation of global decarbonisation ambitions, which could also change the useful economic lives of the related assets.

(ii) Restoration, rehabilitation and decommissioning provisions – estimation of the timing of closure and rehabilitation activities

A provision for future restoration, rehabilitation and decommissioning costs requires estimates and assumptions to be made around the relevant regulatory framework, the magnitude of the possible disturbance and the timing, extent and costs of the required closure and rehabilitation activities. Many of these rehabilitation and decommissioning events are expected to take place when the underlying commercial reserves are extracted and the operations move into closure mode. Our current estimates of the timing of these closure activities align with the trajectory of our climate change emission reduction commitments and ambition. Sensitivities pertaining to a reasonably possible change in the realisation of global decarbonisation ambitions (i.e. the timing of the restoration, rehabilitation and decommissioning costs) of our fossil fuel related obligations are outlined below in the key estimation uncertainty – restoration, rehabilitation and decommissioning costs.

(iii) Property, plant and equipment and Intangible assets (including the carrying value of goodwill in our coal marketing CGU) – estimation of the valuation of assets and potential impairment charges or reversals

The Group acknowledges that there is a wide range of possible energy transition scenarios, including those aligned with the Paris Agreement goals, that would indicate different outcomes for individual commodities. The decarbonisation transition could result in increasing or decreasing demand for the Group’s various commodities, due to policy, regulatory (including carbon pricing mechanisms), legal, technological, market or societal responses to climate change, which, on the negative side, may result in some or all of a cash-generating unit’s reserves becoming uneconomic to extract and / or our coal marketing CGU no-longer being able to generate returns and realise the benefits of its associated goodwill balance. While not currently the Group’s central planning case, the resilience of the Group’s portfolio to 1.5°C aligned and net zero ambition scenarios have been considered.

We use carbon price scenarios to assess the potential impacts on commodity specific operating cost curves and related supply / demand outcomes, arising from existing and future potential carbon pricing regulation. A key component of this analysis is to understand the potential development of a range of underlying cost curve structures over time and to consider, identify and make reasonable judgments, on the extent to which costs are likely to be passed onto the end-consumer. Our analysis shows that in our Radical Transformation scenario, marginal supply costs would increase by 10% to over 60%, for the range of our most relevant and material commodities. Against a backdrop of generally healthy expected increasing metals demand to support decarbonisation, we anticipate that cost (via carbon) and demand forces (lower supply in the case of coal) will drive those commodity prices higher, such increases being passed through to consumers, resulting in no expected overall materially negative impacts on our business. In fact, first and second quartile (below average) emission intensity producers, where we see the weighted average of our portfolio residing, are likely to see margin expansion. Sensitivities pertaining to a reasonably possible change in the recoverable value of our assets are outlined below in the key estimation uncertainty – impairments and impairment reversals.

Notwithstanding the above, for coal and other fossil fuels, should global decarbonisation ambitions materialise along a Paris-aligned scenario or other more ambitious net zero scenarios, essentially an accelerated displacement of coal and other fossil fuels as an energy source, the potential impact on the current carrying value of these cash generating units is outlined below in the key estimation uncertainty – impairments and impairment reversals (Sensitivity to demand for fossil fuels). It should be noted, that in these scenarios, we would expect to see positive valuation developments within our industrial production portfolio exposed to the metals currently required to deliver such rapid decarbonisation scenarios, including copper, nickel and cobalt.

Critical accounting judgements and key sources of estimation uncertainty (extract)

Critical accounting judgements (extract)

(v) Impact of carbon pricing – refer to climate change related considerations above

Key sources of estimation uncertainty (extract)

(ii) Impairments and impairment reversals (note 7)

Investments in associates and joint ventures, advances and loans, property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an individual asset or a cash-generating unit (CGU) may not be fully recoverable, or at least annually for CGUs to which goodwill and other indefinite life intangible assets have been allocated. Indicators of impairment may include changes in the Group’s operating and economic assumptions, including those arising from changes in reserves or mine planning, updates to the Group’s commodity supply, demand and price forecasts, or the possible impacts from emerging risks such as those related to climate change and the transition to a lower carbon economy. If an asset or CGU’s recoverable amount is less than its carrying amount, an impairment loss is recognised in the consolidated statement of income. For those assets or CGUs which were impaired in prior periods, if their recoverable amount exceeds their carrying amount, an impairment reversal is recorded in the consolidated statement of income. Future cash flow estimates which are used to calculate the asset’s or CGU’s recoverable amount are discounted using asset or CGU specific discount rates and are based on expectations about future operations, using a combination of internal sources and those inputs available to a market participant, which primarily comprise estimates about production and sales volumes, commodity prices (considering current and future prices and price trends including factors such as the current global trajectory of climate change), reserves and resources, operating costs and capital expenditures. Estimates are reviewed regularly by management. Changes in such estimates and in particular, deterioration in the commodity pricing outlook, could impact the recoverable amounts of these assets or CGUs, whereby some or all of the carrying amount may be impaired or the impairment charge reversed (if pricing outlook improves significantly) with the impact recorded in the statement of income.

As noted above and further described below in the ‘impairment or impairment reversals’ accounting policy, the Group carries out, at least annually, an impairment assessment. Following this review, indicators of impairment or impairment reversal were identified for various CGUs, including those due to an improvement in the underlying commodity price environment most influencing the respective operation. The Group assessed the recoverable amounts of these CGUs and as at 31 December 2021, except for those CGUs disclosed in note 7, the estimated recoverable amounts exceeded the carrying values. For certain CGUs where no impairment was recognised, should there be a significant deterioration or improvement in the key assumptions, a material impairment or reversal could result within the next financial year. A summary of the carrying values, the key / most sensitive assumptions and a sensitivity impact of potential movements in these assumptions for each such CGU with limited headroom (relative to its estimated recoverable amount) is shown below. In providing sensitivity analysis (and particularly on commodity price assumptions), a 10% change, representing a typical deviation parameter common in the industry, has generally been provided. Where a higher or lower percentage is reasonably possible on an operational assumption, this has been clearly identified.

Sensitivity to project execution and ramp-up (reasonably possible within the next financial year)

Mutanda

Mutanda’s non-current capital employed is carried at approximately $2,200 million net of an accumulated impairment of $955 million. Following care and maintenance status since 2019, a limited restart of operations commenced in 2021, utilising stockpiles of oxide ore. The valuation includes value attributable to the long-term copper / cobalt sulphide resource potential. The valuation is sensitive to price and eventual commercialisation of the sulphide resources, and deteriorations or improvements in these key assumptions may result in additional impairments or reversals.

The short to long-term copper and cobalt price assumptions were $8,500-$7,000/t and $24-$25/lb respectively. A 10% reduction in the copper and cobalt price assumptions is not expected to result in a further impairment. Should the copper and cobalt assumptions rise by 10% (across the curve), the previously recognised impairment could be reversed in its entirety. Any such adjustment would also be considered in light of the remaining development risks relating to sulphide resources. Similarly, at such time as the sulphides resources may be commercialised, the balance of the historical impairment could be reversed.

Volcan

Volcan’s non-current capital employed is carried at approximately $1,300 million net of an accumulated impairment of $1,903 million. Impairments principally related to value attributable to the future potential of various projects / resources. The valuation is sensitive to price and eventual commercialisation of the projects / resources, and deteriorations or improvements in these key assumptions may result in additional impairments or reversals.

The short to long-term zinc and silver price assumptions were $2,750-$2,400/t and $24-$20/oz respectively. Should the zinc and silver assumptions reduce by 10% (across the curve) or production reduce by 10%, an additional impairment of $470 million or $530 million, respectively, could be recognised. Should the zinc and silver assumptions rise by 10% (across the curve) an impairment reversal of $570 million could be recognised.

Climate change (additional illustrative disclosures)

Based on the current pricing environment, we do not consider there to be a reasonably possible change in key assumptions that would result in a material change in carrying values of any of our coal CGUs in the next financial year. With respect to our oil CGUs, a change in oil refining margin assumptions (across the curve) of $1/bbl is reasonably possible and could result in a $240 million change (increase or decrease) to the carrying value of the Astron Energy CGU.

All other sensitivities below are therefore illustrative of changes in assumptions beyond the next financial year.

Energy fossil fuels industrial operations

Our base case assessment takes into account the short-, medium- and longer-term seaborne coal demand outlook. While we have aligned our operational objectives and resulting emissions with a net zero by 2050 pathway, any such projected global pathway relies on additional efforts by governments, corporations and individuals to shift from a “business as usual” trajectory to a lower emissions trajectory. In particular, economic incentivisation of such shift, whether through carbon pricing and / or incentives to drive accelerated uptake of lower carbon and decarbonisation technologies, could result in different financial results on the same tonnage profile.

Our assessment applies a value in use methodology and assumes that, beyond the next 3 years when shorter term pricing assumptions have been used, through the remaining life of mine, there will continue to be a market for thermal coal at a real Newcastle FOB export price of $83/tonne (6,000 NAR), South African FOB export price of $83/tonne and Colombian CIF price (destination: Rotterdam) of $67/tonne, which represents our best estimate of long term pricing based on our view of projected likely supply and demand fundamentals and the industry cost structure.

Notwithstanding these assumptions, we present illustrative impairments arising under alternate price scenarios which are consistent with our IEA aligned climate scenarios. The IEA scenarios are described below:

IEA’s Stated Policies scenario (STEPS) – the impact of existing policy frameworks and announced policy intentions, subject to the IEA’s assessment of the likelihood of such ambitions being implemented (consistent with our “Current Pathway” scenario);
IEA’s Announced Pledges scenario (APS) – the impact of all major national announcements of 2030 targets and longer term net zero and other pledges, regardless of whether these have been anchored in legislation or nationally determined contributions;
IEA’s Sustainable Development scenario (SDS) – the impact should additional policy mechanisms be implemented sufficient for full alignment with the Paris Goals of less than 2 degrees (consistent with our “Rapid Transition” scenario);
IEA’s Net zero emissions by 2050 scenario (NZE) – a pathway for the global energy sector to achieve net zero emissions by 2050 (consistent with our “Radical Transformation” scenario) and price assumptions for this scenario; and

In addition, for illustrative purposes, we have shown a Complete Displacement Scenario (CDS) – reflecting the impact of fossil fuels being immediately displaced as an energy source and the resulting immediate fall in commodity prices to zero.

Our life of mine planning reflects operating cash flows from Cerrejon and the E&P oil portfolio until 2032, and some South African and Australian mines until 2043 and around 2050, respectively. Overall portfolio production is heavily weighted towards the earlier part of these mine lives and is broadly aligned with the IEA’s SDS outlook for reducing coal demand. We have illustrated this by showing the year in which 50% and 80% of saleable coal would be extracted under the current plan, by 2029 and 2037 respectively.

The sensitivities are presented on price alone and assume no mitigating actions, therefore the impairments in each scenario are likely higher than would transpire. In practice, in a sustained lower price environment, management would alter mine plans to cut operating and capital costs, potentially at the expense of future volumes, in order to reduce the overall NPV impact.

The STEPS, APS, SDS and NZE sensitivity prices adopted are those included in the documentation to the IEA’s World Energy Model 2021, except that IEA thermal coal prices are on a delivered basis. These have been adjusted to FOB pricing on the basis of forward freight costs. Furthermore, in determining the Colombian CIF price, we have used a weighting of the IEA Japan and IEA European prices to take into account that Colombian coal sold from Cerrejon is likely to be delivered to a combination of different markets in the future as coal demand in Europe declines.

The IEA assumes, in each scenario, additional decarbonisation measures leading to declining fossil fuel prices by the years 2030 and 2050, anchored in each case in a 2020 baseline. For the purpose of our climate change sensitivities below, we have assumed linear progression of prices between these points. Our base case thus reflects significantly higher short-term prices informed by more recent market prices than were available in the World Energy Model 2021, and higher longer-term prices than in each of the IEA’s climate scenarios reflecting our assessment of the supply and demand outlook and the industry cost structure.

$151 million of the Oil E&P non-current capital employed relates to Chad upstream oil operations in the “held for sale” classification, shown in note 16.

No impairment is projected for Oil E&P in any of the IEA’s scenarios. Glencore’s central price case for Oil E&P is $60/bbl, hence no adverse impact in the STEPS and APS scenarios which assume higher prices throughout. For the more aggressive price reductions envisaged in the SDS and NZE scenarios ($58/bbl and $38/bbl, respectively, by 2030, such prices having been adjusted to real terms 2021), we assumed $85/bbl in 2022, reducing by $10/bbl each year until the noted long-term price in each scenario was reached. Since 80% of extraction is expected by 2027, the impact of the lower prices on the balance is not projected to result in an impairment.

Other fossil fuel related capital employed NPV sensitivities

1 The change in refining margin by $1/bbl is considered to be a reasonably possible change in our assumptions for Astron Energy within the next financial year.

(iii) Restoration, rehabilitation and decommissioning costs (note 23)

In calculating the appropriate provision for the expected restoration, rehabilitation or decommissioning obligations, cost estimates of the future potential cash outflows based on current studies of the expected rehabilitation activities and timing thereof, are prepared. These forecasts are then discounted to their present value using a risk-free rate specific to the liability and the currency in which they are denominated.

Any changes in the expected future costs or risk-free rate are initially reflected in both the provision and the asset and subsequently in the consolidated statement of income over the remaining economic life of the asset. As the actual future costs can differ from the estimates due to changes in laws, regulations, technology, costs and timing, the provisions including the estimates and assumptions contained therein are reviewed regularly by management. A material change in the provision within the next financial year could arise from changes in risk-free rates. The aggregate effect of changes within the next financial year as a result of revisions to cost and timing assumptions is not expected to be material.

Climate change sensitivities

As noted above, while it is not a reasonably possible change we expect over the next financial year, global ambitions seeking to drive quicker decarbonisation, could result in the timing of restoration, rehabilitation and decommissioning costs related to our coal and oil closure obligations being accelerated. The undiscounted and current carrying value of our closure and monitoring provisions related to these operations is $3,843 million and $1,996 million, respectively. The weighted average maturity of the relevant closure provisions is 17 years. To illustrate the effect of accelerating these cash flows, we have presented a three-year and five-year weighted average acceleration in forecast cash flows of these provisions, which in isolation, would result in an increase to the provision of $217 million and $350 million, respectively.

7. Impairments

1 Impairments recognised during the year are allocated to Glencore’s operating segments as follows: Marketing activities $270 million (2020: $228 million) and Industrial activities $1,568 million (2020: $5,719 million).

As part of a regular portfolio review, Glencore carries out an assessment of whether there are indicators of cash-generating unit (CGU) or asset impairments or whether a previously recorded impairment may no longer be required.

The recoverable amounts of the property, plant and equipment and intangible assets were measured based on fair value less costs of disposal (FVLCD), or in certain cases value in use (VIU). In particular, market pressures relating to investments in Coal mining operations has impacted the availability of an active market for acquiring such operations, and thus the recoverable amounts of our Coal CGUs have been measured using a VIU approach. The FVLCD or VIU of all CGUs are determined by discounted cash flow techniques based on the most recent approved financial budgets, underpinned and supported by the life of asset plans of the respective operations. The valuation models use a combination of internal sources and those inputs available to a market participant, which comprise the most recent reserve and resource estimates, relevant cost assumptions and where possible, market forecasts of commodity price and foreign exchange rate assumptions, discounted using operation specific post-tax real discount rates (unless otherwise indicated) ranging from 6.7% – 15.5% (2020: 6.1% – 13.5%). The valuations generally remain most sensitive to price and a deterioration / improvement in the pricing outlook may result in additional impairments/reversals. The determination of FVLCD used Level 3 valuation techniques for both years. In providing sensitivity analysis (and particularly on commodity price assumptions), a 10% change, representing a typical deviation parameter common in the industry, has been provided. Where a higher percentage is reasonably possible on an operational assumption, that has been clearly identified.

As a result of the regular impairment assessment, the following significant impairment charges were recognised:

2021

Property, plant and equipment and intangible assets

In H1 2021, Koniambo incurred failures at its power plant and suffered a slag leak in line 2 of its metallurgical plant, resulting in a suspension of production. Extensive investigation into the cause of the leak ensued, following which it was determined to target lower throughput, revise certain grade and process recovery assumptions and increase the frequency of major maintenance shut-downs, with the intention of delivering more sustainable long-term operations. These revised changes in volume and cost assumptions and the emergence of higher discounts on non-battery application nickel relative to the LME nickel benchmark price, resulted in a reduction of Koniambo’s estimated recoverable value (Industrial activities segment) to $550 million and an impairment of $1,170 million. The valuation assumed a long-term realised nickel price of approximately $13,700/t and an operation specific discount rate of 9.8%. Further revisions to the operating plans are possible. A 10% reduction in either the long-term realised nickel price or life of mine production could result in the remaining carrying value being fully impaired. A 10% increase in variable operating costs could result in an additional impairment of $170 million. Conversely, a 10% increase in the long-term realised nickel price could result in an impairment reversal of $450 million.
The balance of the impairment charges on property, plant and equipment (none of which were individually material) relate to specific assets where utilisation is no longer required or to projects no longer progressed due to changes in production and development plans. As a result, the full carrying amount of these assets/projects was impaired, with $282 million recognised in our Industrial activities segment.

Investments

Primarily comprises an impairment charge of $331 million in respect of our 49% investment in HG Storage (Marketing activities segment), to an estimated recoverable value of $189 million following a review of the carrying value against valuation benchmarks. The valuation of this investment is not considered to be a significant source of estimation uncertainty as no change in assumptions reasonably possible within the next 12 months would materially affect the carrying value. 2020 primarily comprised an impairment charge in respect of our investment in Century Aluminum ($73 million).

Advances and loans – current and non-current

In 2021, impairment reversals on advances and loans of $98 million (none of which were individually material) were recognised following an improvement in the underlying financial condition of various counterparties, with $63 million recognised in our Marketing activities segment and $35 million recognised in our Industrial activities segment. Of the total $98 million of impairment reversals, $67 million relate to financial assets and $31 million relate to non-financial assets.

VAT receivable – non-current

As a result of continued challenge and non-performance by certain government authorities in settling long outstanding VAT claims, an impairment charge of $151 million was recognised in our Industrial activities segment.

2020

Property, plant and equipment and intangible assets

Volcan is a listed zinc / silver mining entity in Peru, in which the Group acquired a 63% controlling (23% economic) interest at the end of 2017 (Industrial activities segment). The operations primarily comprise two cash-generating units (Yauli and Chungar) and at the time of the acquisition, approximately one third of the value was ascribed to realising the future potential of various projects / resources. Due to the impact Covid-19 had on the long-term outlook of the global economy a review of the life of mine plan and related expansion projects was carried out in Q2 2020.

It was determined that the related risk / confidence levels in deploying capital to longer-term greenfield projects and the probability of approving development and realisation of these projects had reduced. This, along with the shift in long-term zinc pricing, led to an impairment of $2,347 million (and related deferred tax obligations of $716 million were released) to its estimated recoverable value of $1,503 million. The valuation assumed a long-term zinc and silver price of $2,400/t and $20.00/lb, respectively and an operation specific discount rate of 9.2%. As at 31 December 2020, had the zinc and silver price assumptions fallen by 10% (across the curve), a further impairment of $450 million would have been recognised. A 10% reduction in estimated annual production over the life of mine would have resulted in an additional impairment of $540 million.

As a result of persistent operational challenges, further technical analysis resulting in a reduced life of mine forecast, delays in key development projects and cost increases owing to inflation, tax and other regulatory pressures, a decision was made, in Q2 2020, to place the Mopani copper operations in Zambia (Industrial activities segment) on care and maintenance subject to government approval. As a consequence of the operational, technical and cost factors, the Mopani operations were impaired by $1,041 million, to their estimated recoverable value of $861 million, including tax receivables. In January 2021, an agreement was reached to sell Mopani to ZCCM (see note 16).

During H1 2020, pressure on the API 2 European coal market (primary price reference market for our Colombian coal operations) increased as European economies continue to shift to a decarbonised environment, exacerbated by the significant drop in oil and gas prices (supply and demand factors). A review of Prodeco’s operations determined that, in addition to a deteriorating market environment, there were increasing challenges with respect to obtaining several key approvals from government agencies and other key stakeholders. In Q2 2020, an application was therefore made to place Prodeco operations on extended care and maintenance until these conditions improve. In Q4, the application was rejected and it was subsequently decided to relinquish the mining licenses.

Consequently, the full carrying value of the mining operations related to such licenses ($835 million) (Industrial activities segment) were fully impaired (property, plant and equipment – $789 million and non-current advances and loans – $46 million).

As noted above, oil prices were significantly impacted by demand destruction from Covid-19 and the lack of timely effective supply response from OPEC+ and the longer term outlook for oil prices also deteriorated due to updated expectations surrounding decarbonisation. In addition, Covid-19 disrupted and restricted international mobility, which had a particularly significant impact on our workforce arrangements in Chad, resulting in these fields being placed on care and maintenance in March. As a result, in Q2 2020, the Chad oil operations (Industrial activities segment) were impaired by $673 million to their estimated recoverable amount of $145 million. The valuation remained sensitive to Covid-19 related disruptions on international mobility and a timely restart of the operations in a safe and economic manner. Should such restart have been prolonged for an extended period of time, an additional future impairment could have resulted.

In June 2020, it was determined to keep the Lydenburg chrome smelter (Industrial activities segment) on care and maintenance. This decision reflected the challenging operating and market environment across the South African ferrochrome industry, including unsustainably increasing electricity tariffs / supply interruption and other sources of real cost inflation. These macro factors outweigh the significant efforts made over the past years to make the operation more competitive, rendering its estimated fair value as negative. As a result, the entire carrying value of the Lydenburg smelter ($116 million) was impaired.

The global macro-economic impact of Covid-19 on refined petroleum product demand and resulting global refinery overcapacity had a negative effect on refining margins. As a result, Astron (Industrial activities segment) lowered its long term through-the-cycle outlook on refining margins by approximately 30% and the Astron oil refinery was impaired by $480 million to its estimated recoverable amount of $1,015 million, including its related downstream supply business. The operation specific discount rate used in the valuation was a pre-tax nominal discount rate of 12.3%. The valuation remained most sensitive to refining margins and a deterioration in these assumptions could have resulted in additional impairments. As at 31 December 2020, had the margin assumptions fallen by $1/bbl (across the curve), a further $243 million of impairment would have been recognised. Had the discount rate increased by 1%, a further $88 million of impairment would have been recognised.

The balance of the impairment charges on property, plant and equipment (none of which were individually material) relate to specific assets where utilisation is no longer required or to projects no longer progressed due to changes in production and development plans. As a result, the full carrying amount of these assets/projects was impaired, with $62 million recognised in our Industrial activities segment.

In June 2020, it was determined to keep the Lydenburg chrome smelter (Industrial activities segment) on care and maintenance, reflecting the challenging operating and market environment across the South African ferrochrome industry, including unsustainably increasing electricity tariffs / supply interruption and other sources of real cost inflation. These macro factors outweigh the significant efforts made over the past years to make the operation more competitive, rendering its estimated fair value as negative. As a result, the entire carrying value of the Lydenburg smelter ($116 million) was impaired.

The global macro-economic impact of Covid-19 on refined petroleum product demand and resulting global refinery overcapacity has had a negative effect on refining margins. As a result, Astron (Industrial activities segment) has lowered its long term through-the-cycle outlook on refining margins by approximately 30%. As a result, the Astron oil refinery was impaired by $480 million to its estimated recoverable amount of $1,015 million, including its related downstream supply business. The operation specific discount rate used in the valuation was a pre-tax nominal discount rate of 12.3%. The valuation remains most sensitive to refining margins and a deterioration in these assumptions could result in additional impairments. Should the margin assumptions fall by $1/bbl (across the curve), a further $243 million of impairment would be recognised. Should the discount rate increase by 1%, a further $88 million of impairment would be recognised.

The balance of the impairment charges on property, plant and equipment (none of which were individually material) relate to specific assets where utilisation is no longer required or to projects no longer progressed due to changes in production and development plans. As a result, the full carrying amount of these assets/projects was impaired, with $62 million recognised in our Industrial activities segment.

Advances and loans – current and non-current

In 2020, loans of $103 million were impaired in full due to financial difficulties faced by one of the Group’s associates (Marketing activities segment). The balance of the impairment charges on advances and loans classified as non-financial instruments (none of which were individually material) were recognised in our Marketing activities segment ($125 million) and our Industrial activities segment ($115 million), following the restructuring of certain loans and physical advances due to various non-performance factors.

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