Impala Platinum Holdings Limited – Annual report – 30 June 2022
Industry: mining
25. Provisions
25.1 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 and an insurance policy are available to the Department of Mineral Resources and Energy to satisfy the requirements of the National Environmental Management Act with respect to environmental rehabilitation (note 32).
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. In the current year, the funds in the trust were transferred to a more cost-effective structure (note 15).
The trust is a special purpose entity controlled by the Group and is consolidated accordingly.
Estimates and judgements
Environmental rehabilitation
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 11).
In particular, from 20 November 2015, regulations governing financial provisions for asset retirement obligations were 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 R4 274 million (2021: R3 367 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 7.2% and 11.5% (2021: between 3.9% 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 up to 5.5% (2021: 3.8%).
Zimbabwean operations
The discount rate used was 7.5% (2021: 7.3%) 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 3.8% (2021: 2.0%).
Canadian operations
The inflation and discount rate used was 2.4% (2021: 1.9%) and 3.8% (2021: 2.1%) respectively at the time of the calculation.
Accounting policy
Provisions
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.
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 11).
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.
11. 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.
15. Environmental rehabilitation investments
15.1 Guardrisk
During the current year, R306 million was invested in an insurance cell captive (Guardrisk) to finance the long-term rehabilitation liabilities of the Group’s South African mining operations. The Group has elected to carry these financial instruments at fair value through profit or loss. A R9 million fair value gain was recognised in profit or loss during the year.
Estimates and judgements
Financial assets measured at fair value through profit or loss
Fair value measurements reflect the view of market participants under current market conditions taking into account the impact of Covid-19, climate-related risks as well as geopolitical factors. The investment in Guardrisk was valued using unobservable level 3 measurement inputs which are further described in note 33.
Accounting policy
Financial assets measured at fair value through profit or loss
Financial assets that are not measured at amortised cost or at fair value through other comprehensive income are classified as measured at fair value through profit or loss.
32. 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 422 million (2021: R1 449 million) has been raised (note 25.1).
Accounts examples 