IFRIC 5, rehabilitation trust and obligations disclosures

Impala Platinum Holdings Limited – Annual report – 30 June 2018

Industry: mining

1.3 Significant accounting policies (extract)

1.3.12 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

This cost will arise from rectifying the damage caused before production commences. The net present value of future decommissioning cost estimates as at year-end is recognised and provided for in full 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 utilised in calculating 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 1.3.5).

Restoration costs

This cost will arise from rectifying the damage caused after production commences. The net present value of future restoration cost estimates as at year-end is recognised and provided for in full 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 utilised in calculating 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 as incurred.

1.3.5 Property, plant and equipment (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.
  1. PROVISION FOR ENVIRONMENTAL REHABILITATION

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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). These regulations were amended in October 2016 and the current closure cost was calculated in accordance with the new regulations, resulting in an increase in the rehabilitation provision.

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 378 (2017: R1 932) 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 9.0% and 9.7% (2017: between 8.9% and 9.9%) 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 3.3% (2017: 3.1%).

Zimbabwe operations

The discount rate used was 9.3% (2017: 8.1%) 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% (2017: 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 35). 

Pollution Control, Rehabilitation and Closure Trust Fund

The investment in the Impala Pollution Control, Rehabilitation and Closure Trust Fund comprises the following:

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When contributions are made 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, income earned on monies paid to the trust is accounted for as investment income. The trust investments are included under held-to-maturity assets, available-for-sale assets, and cash equivalents.

The Group has control over the trust and the special purpose entity is consolidated in the Group.

12. CASH AND CASH EQUIVALENTS (extract)

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  • This cash has been invested by the Trust.
  1. OTHER FINANCIAL ASSETS (extract)

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Refer note 21 for fair value and financial risk disclosure.

9.1 Held-to-maturity financial assets

The investment is held through the Impala Pollution Control, Rehabilitation and Closure Trust Fund. 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 (2017: 2021) financial year. The investment is restricted for use by the Group by virtue of its nature. (note 15)

  1. AVAILABLE-FOR-SALE FINANCIAL ASSETS

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The Group holds shares listed on the JSE through the Impala Pollution Control, Rehabilitation and Closure Trust Fund (note 15) and a non-material interest in the insurance cell captive. The fair value of these listed shares as at the close of business is the stock exchange quoted prices. The investment is restricted for use by the Group by virtue of its nature.

  1. 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:

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Guarantees to the DMR are in respect of future environmental rehabilitation. In this regard, a provision amounting to R1 225 (2017: R1 099) million has been raised (note 15).

 

 

 

 

 

 

 

 

 

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