Impala Platinum Holdings Limited – Annual report – 30 June 2020
15.1 Provisions for environmental rehabilitation
1 Rehabilitation done mainly consists of concurrent rehabilitation of shaft infrastructure at Impala and Zimplats open cast rehabilitation.
The current rehabilitation cost estimates and financial provisions are made up as follows:
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 29).
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 which were formerly included in fair value through other comprehensive income (FVOCI) financial assets and other financial assets, were liquidated and invested in cash and cash equivalents. The trust funds will be transferred from cash and cash equivalents to a more cost effective structure which will reduce the overall annual cost of providing guarantees and optimise the investment strategy over the life of the expected future rehabilitation liability.
The trust is a special purpose entity controlled by the Group and is consolidated accordingly.
15.2 Provision for restructuring
During the current period, a section 189 process was initiated as 9 Shaft is close to its end of life.
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.
The life-of-mine estimates are impacted by mineral reserve estimations (note 2.1.2).
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). The current closure cost is closely aligned with the new regulations.
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 936 million (2019: R2 430 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 9.5% and 11.4% (2019: between 8.7% and 9.8%) 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 4.2% (2019: 3.0%).
The US$ discount rate used was 7.3% (2019: 9.6%) at the time of calculation. The net present value of current rehabilitation estimates is based on the assumption of a US$ long-term real discount rate of 2.0% (2019: 2.0%).
The discount rate used was 2.0% at the time of the calculation. The net present value of current rehabilitation estimates is based on the assumption of a long-term discount rate of 2.0% and a market risk premium of 5.0%.
Covid-1 9 did not have any significant impact on the Impala Rustenburg restructuring provision.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are not recognised for future operating losses.
Provisions are recognised as the best estimate of the expenditure required to settle the present obligation at reporting date taking into account the time value of money where relevant.
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.
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).
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.
12. CASH AND CASH EQUIVALENTS (extract)
1 This cash has been invested by the Trust.
6. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (extract)
7. OTHER FINANCIAL ASSETS (extract)
7.3 Long-term debt instruments
This investment was held through the Impala Pollution Control, Rehabilitation and Closure Trust Fund and bore an average interest rate of 10%. The investment was liquidated during the current year following management’s decision to invest the funds in a more cost effective structure. The investment was restricted for use by the Group by virtue of its nature (note 15.1).
29. CONTINGENT LIABILITIES, GUARANTEES AND UNCERTAIN TAX MATTERS (extract)
The following guarantees have been issued by third parties and financial institutions on behalf of the Group to the following holders:
Guarantees to regulators (DMRE and the Minister of Energy, Northern Development and Mines) are in respect of future environmental rehabilitation liabilities for which a provision of R1 467 million (2019: R1 207 million) has been raised (note 15).