11.1.1 ACCOUNTING POLICIES RELATING TO PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment

Land and assets under construction are stated at cost and are not depreciated. Buildings, including certain non-mining residential buildings, and all other items of property, plant and equipment are reflected at cost less accumulated depreciation and accumulated impairment losses. The group’s cherry trees qualify as bearer plants under the definition of IAS 41 Agriculture and are therefore accounted for under the rules for plant and equipment. The cherry trees are classified as immature until the produce can be commercially harvested. At that point depreciation commences. Immature cherry trees are measured at accumulated cost.

Depreciation is charged on a systematic basis over the estimated useful lives of the assets after taking into account the estimated residual values of the assets. Useful life is either the period of time over which the asset is expected to be used or the number of production or similar units expected to be obtained from the use of the asset.

Items of property, plant and equipment are capitalised in components where components have a different useful life to the main item of property, plant and equipment to which the component can be logically assigned.

An asset’s residual value and useful life is reviewed, and adjusted if appropriate, at the end of each reporting period.

The estimated useful lives of items of property, plant and equipment are:

Exploration costs

The group expenses all exploration and evaluation costs until management (as determined per project) concludes that future economic benefits (as determined per project) are more likely than not of being realised. In evaluating if expenditures meet the criteria to be capitalised, the directors utilise several sources of information depending on the level
of exploration. While the criteria for determining capitalisation are based on the probability of future economic benefits, the information that management uses to make that determination depends on the level of exploration.

Development costs

Development expenditure incurred by or on behalf of the group is accumulated separately for each area in which economically recoverable resources (as determined per project) have been identified. Such expenditure comprises costs directly attributable to the construction of a mine and the related infrastructure, including the cost of material, direct labour and an appropriate proportion of production overheads. The group capitalises development costs once approval for such development is obtained from management (as determined per project). Development expenditure is net of proceeds from the sale of ore extracted during the development phase. On completion of development, all assets included in assets under construction are reclassified as either plant and equipment or other mineral assets.

11.1.2 SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS MADE BY MANAGEMENT IN APPLYING THE RELATED ACCOUNTING POLICIES

In applying IFRIC 4 Determining whether an Arrangement contains a Lease, contractual agreements were assessed to determine if they contain a lease. Exxaro has reviewed the long-term coal supply agreements with Eskom. Exxaro is of the view that the plant and equipment do not qualify as a lease under IFRIC 4 as fulfilment of the arrangement is not dependent on the utilisation of specific plant and equipment. In addition, it is expected that more than an insignificant amount of coal processed by the plant and equipment during the arrangement will be exported.

The depreciable amounts of assets are allocated on a systematic basis over their useful lives. In determining the depreciable amount, management makes assumptions in respect to the residual value of assets based on the expected estimated amount that the entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal. If an asset is expected to be abandoned the residual value is estimated at zero. In determining the useful life of assets, management considers the expected usage of assets, expected physical wear and tear, legal or similar limits of assets such as mineral rights as well as obsolescence.

Management makes estimates of mineral resources and reserves in accordance with the SAMREC Code (2009) for South African properties and the Joint Ore Reserves Committee (JORC) Code (2012) for Australian properties. Such estimates relate to the category for the resource (measured, indicated or inferred), the quantum and the grade.

11.1.3 PROPERTY, PLANT AND EQUIPMENT COMPOSITION AND ANALYSIS

Leased assets

Machinery, plant and equipment include the following amounts where the group is a lessee under a finance lease (refer note 12.1.3 for further details):

11.1.4 CAPITAL COMMITMENTS

Capital expenditure will be financed from available cash resources, funds generated from operations and available borrowing capacity.

11.2.1 ACCOUNTING POLICIES RELATING TO FINANCIAL ASSETS

The accounting policy for financial assets is disclosed in note 16.1 of financial instruments.

11.2.2 FINANCIAL ASSETS COMPOSITION

11.3.1 ACCOUNTING POLICIES RELATING TO LEASED ASSETS

Leases of property, plant and equipment, where the group has substantially all the risks and rewards of ownership, are classified< as finance leases. All other leases are classified as operating leases.

Group as lessee

Assets acquired in terms of finance leases are capitalised at the lower of fair value of the leased asset and the present value of the minimum lease payments at inception of the lease and depreciated over the useful life of the asset. The corresponding rental obligations, net of finance charges, are recorded as a liability. Each lease payment is allocated between the liability and finance charges. The interest element of the finance charge is charged over the lease period using the effective interest rate method.

Payments made under operating leases are charged against profit or loss on the straight-line basis over the period of the lease.

Group as lessor

Lease income from operating leases is recognised in profit or loss on a straight-line basis over the lease term. The respective leased asset is included in property, plant and equipment.

The group recognises the net investment in the finance lease, which is the aggregate of the minimum lease payments receivable, discounted at the interest rate implicit in the lease as a financial asset, at the commencement of the lease. On conclusion of the lease agreement the leased asset is derecognised and depreciation ceases. Each lease payment received is allocated between the receivable and finance income. The interest element is recognised in profit or loss over the lease period.

11.3.2 LEASE RECEIVABLES ANALYSIS

The lease relates to the upgrade of the Zeeland Water Treatment Works (in Lephalale, South Africa), of which Exxaro will fund the capital for a period of 15 years. The municipality’s share of the capital expenditure will be recovered through fixed monthly instalments over this period. The minimum lease instalments are payable monthly with no escalation and calculated at a rate of 13% per annum.

11.4.1 OTHER ASSETS COMPOSITION