IFRIC 5, rehabilitation trust and obligations disclosures

Impala Platinum Holdings Limited – Annual report – 30 June 2019 

Industry: mining

14. PROVISIONS FOR ENVIRONMENTAL REHABILITATION

impala2

The current rehabilitation cost estimates and financial provisions are made up as follows:

impala3

Estimates and judgements
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management’s best estimate for asset retirement obligations in the period in which they are incurred. Actual costs incurred in future periods can differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life-of-mine estimates and discount rates can affect the carrying amount of this provision.

In particular from 20 November 2015, regulations governing financial provisions for asset retirement obligations was transitioned from the Mineral and Petroleum Resources Development Act (MPRDA) to the National Environmental Management Act (NEMA). Although these regulations allow for a transition period up to February 2020, the current closure cost is already closely aligned with the new regulations, resulting in an increase in the rehabilitation provision in the previous year.

Estimated long-term environmental provisions, comprising pollution control, rehabilitation and mine closure, are based on the Group’s environmental policy taking into account current technological, environmental and regulatory requirements.

Provisions for future rehabilitation costs have been determined, based on calculations which require the use of estimates. The current rehabilitation cost estimate is R2 430 million (2018: R2 378 million). Cash flows relating to rehabilitation costs will occur at the end of the life of the individual items to be rehabilitated.

South African operations
The discount rate is the long-term risk-free rate as indicated by the government bonds which ranged between 8.7% and 9.8% (2018: between 9.0% and 9.7%) at the time of calculation. The net present value of current rehabilitation estimates is based on the assumption of a long-term real discount rate of 3.0% (2018: 3.3%).

Zimbabwe operations
The discount rate used was 9.6% (2018: 9.3%) at the time of calculation. The net present value of current rehabilitation estimates is based on the assumption of a long-term real discount rate of 2.0% (2018: 2.0%).

Guarantees, an insurance policy and the funds in the Impala Pollution Control, Rehabilitation and Closure Trust Fund are available to the Department of Mineral Resources to satisfy the requirements of the National Environmental Management Act with respect to environmental rehabilitation (note 30).

impala4

The income earned on monies contributed to a trust fund created in accordance with statutory requirements, to provide for the estimated cost of rehabilitation during and at the end of the life of the Group’s mines, is accounted for as investment income.

The trust investments are included under FVOCI financial assets, other financial assets, and cash equivalents. The trust is a special purpose entity controlled by the Group and is consolidated accordingly.

Accounting policy
Provision for environmental rehabilitation
These long-term obligations result from environmental disturbances associated with the Group’s mining operations. Estimates are determined by independent environmental specialists in accordance with environmental regulations.

Decommissioning costs
The costs arise from rectifying the damage caused before production commences. The net present value of future decommissioning cost estimates at year-end is recognised and fully provided for in the financial statements. The estimates are reviewed annually to take into account the effects of changes in the estimates. Estimated cash flows have been adjusted to reflect risks and timing specific to the rehabilitation liability. Discount rates that reflect the time value of money are used to calculate the present value.

Changes in the measurement of the liability, apart from unwinding of the discount, which is recognised in profit or loss as a finance cost, are capitalised to the environmental rehabilitation asset (note 2).

Restoration costs
These costs arise from rectifying the damage caused after production commences. The net present value of future restoration cost estimates at year-end is recognised and fully provided for in the financial statements. The estimates are reviewed annually to take into account the effects of changes in the estimates. Estimated cash flows have been adjusted to reflect risks and timing specific to the rehabilitation liability. Discount rates that reflect the time value of money are used to calculate the present value.

Changes in the measurement of the liability, apart from unwinding of the discount, which is recognised in profit or loss as a finance cost, are expensed to profit or loss.

Ongoing rehabilitation cost
The cost of the ongoing current programmes to prevent and control pollution is charged against income when they are incurred.

2. PROPERTY, PLANT AND EQUIPMENT (extract)
Accounting policy (extract)
The present value of decommissioning cost, which is the dismantling and removal of the asset included in the environmental rehabilitation obligation, is included in the cost of the related pre-production assets and changes in the liability resulting from changes in the estimates are accounted for as follows:
• Any decrease in the liability reduces the cost of the related asset. The decrease in the asset is limited to its carrying amount and any excess is accounted for in profit or loss
• Any increase in the liability increases the carrying amount of the related asset. An increase to the cost of an asset is tested for impairment when there is an indication of impairment
• These assets are depreciated over their useful lives.

11. CASH AND CASH EQUIVALENTS (extract)

impala5

* This cash has been invested by the Trust.

6. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (extract)

impala6

7. OTHER FINANCIAL ASSETS (extract)

impala7

7.3 Long-term debt instruments
The investment is held through the Impala Pollution Control, Rehabilitation and Closure Trust Fund and was classified as a held-to-maturity financial asset prior to the adoption of IFRS 9 in the current period. The fund is an irrevocable trust under the Group’s control. The interest rate on interest-bearing investments is 10% on average with a maturity date in the 2021 financial year. The investment is restricted for use by the Group by virtue of its nature (refer note 14).

30. CONTINGENT LIABILITIES AND GUARANTEES (extract)
The following guarantees have been issued by third parties and financial institutions on behalf of the Group to the following holders:

impala8

Guarantees to the DMR are in respect of future environmental rehabilitation. In this regard, a provision amounting to R1 492 million (2018: R1 225 million) has been raised (note 14).