Environmental liabilities and rehabilitation

We uphold our licence to operate through

All business units review their financial provisions for mine closure and rehabilitation every year, and consider amendments to rehabilitation plans and closure objectives based on periodic environmental management programme performance assessments. The cost estimates of activities in the concurrent and final closure rehabilitation programme are reviewed and adjusted where necessary. The provisions are audited twice a year by Exxaro’s external auditors who visit sites and review documents.

In 2019, Exxaro appointed consultants to compile reports on financial provision for mine closure and rehabilitation in line with the regulation (GNR 1147) published in December 2015 and amended in September 2018 by the Department of Environmental Affairs, extending the transition period to February 2020.

Concurrent rehabilitation plans

All business units have a five-year conceptual concurrent rehabilitation plan, schedule and associated budget in place:

• Setting measurable targets for each mine
• Avoiding backlogs and related liabilities
• Enabling managers to implement plans without cash flow constraints
• Including concurrent rehabilitation in operational tracking

Annual process

Liabilities

Exxaro is committed to effective and efficient rehabilitation beyond mere compliance. We believe it is a moral responsibility in the face of environmental liabilities, particularly concurrent rehabilitation within a changing regulatory landscape, inflation, a larger operating footprint and a backlog in rehabilitation against plans.

At 31 December 2019, total land disturbed was 10 325ha and total rehabilitated 2 277ha. The Exxaro Environmental Rehabilitation Fund (EERF) and ECC trust fund provide for a portion of these liabilities while additional bank guarantees provide for new developments and cover shortfalls in financial provisions.

The EERF’s assets are managed in terms of asset and liability modelling that aligns risk/return and liability on each site. The objective is to maximise investment growth in the cost of liability provisions. An external specialist supports EERF trustees with the technical skills required to profile and identify suitable structures for assessment by the trustees. Current implementation includes:

• Two income building blocks benchmarked to cash rates and investing in government treasury bills, bank and corporate paper
• Three growth building blocks targeting inflation-linked returns and investing in insurance and bank-guaranteed products
• Equity-driven portfolios without explicit investment guarantees but portfolio managers control capital risk by managing portfolio volatility

Quarterly contributions to the trust are based on closure cost estimates at life of mine without considering any guarantees in place.

The trust funds earned R270 million in 2019, including cash contributions, interest on investments and fair value adjustments. The fund has recorded 15.1% growth from an opening balance of R1 782 million in January 2019 to R2 052 million in December 2019. In addition, the group had bank guarantees of R3 998 million in place at year end. Updating these provisions twice a year highlights potential rehabilitation alternatives that could decrease the long-term closure liabilities of mines.

Estimated closure costs per mine

The quantum for environmental contributions is calculated, based on relevant legislation, by internal and external specialists. The Exxaro team includes members of our sustainability and finance departments with expertise and experience in environmental management. We also employ independent technical and financial specialists.

In 2019, the closure costs of all our operations were calculated as R9 536 million.

Mine closure

Exxaro had six operations in active closure in 2019: Arnot, Tshikondeni, Durnacol, Hlobane, Strathrae and Gravelotte. We understand that operational closure, concurrent rehabilitation and land management activities directly connect employees, communities, the environment, government and infrastructure.

Our land management goals for 2019 included transferring 90% of post-mining land to emerging farmers in local communities by 2026 while creating strategic partnerships with farmers on the land to advance agri-economies in support of government’s land redistribution policies.

Closure planning process

Integrated stages of mining and mine closure planning

Operational closure, concurrent rehabilitation and managing land where our operations are located is part of the operating philosophy and moral responsibility that drives us forward. We actively plan our operations with closure in mind and ensure we have adequate financial resources to meet our rehabilitation commitments.

We also strive to integrate land and liability management in day-to-day mine planning, aiming to minimise final closure costs for each operation and optimise final land use after closure.