Exxaro report selector 2019

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Exxaro Resources Limited
Group and company annual financial statements for the year ended 31 December 2019

Currently viewing: CHAPTER 10 / 10.1 Property, plant and equipment

10.1 Property, plant and equipment

10.1.1 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 requirements 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:

  2019     2018  
  Coal Ferrous Other     Coal Ferrous Other  
Mineral properties 5 to 25 years or         5 to 25 years or      
  6.7Mt to 72.7Mt N/A N/A     6.7Mt to 72.7Mt N/A N/A  
Residential buildings 1 to 40 years N/A N/A     1 to 40 years N/A N/A  
Buildings and infrastructure 1 to 40 years 10 to 20 years 20 to 25 years     1 to 40 years 10 to 20 years 25 years  
Machinery, plant and equipment 13 000 to         13 000 to      
  50 000 hours         50 000 hours      
  or 1 to 40 years         or 1 to 40 years      
  or         or      
  6.7Mt to 72.7Mt 5 to 25 years 1 to 20 years     6.7Mt to 72.7Mt 5 to 25 years 1 to 20 years  
Site preparation, mining development and rehabilitation 1 to 25 years or         1 to 25 years or      
  6.7Mt to 72.7Mt N/A N/A     6.7Mt to 72.7Mt N/A N/A  
Bearer plants (mature) N/A N/A 7 years     N/A N/A 7 years  

Exploration costs

Exploration and evaluation costs are expensed 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 expenditure meets the criteria to be capitalised, the directors utilise several sources of information depending on the level of exploration. While the criteria for determining capitalisation is 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. Development costs are capitalised 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.

Impairment of non-current assets

The carrying amounts of non-current assets (or CGUs) are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indicators of impairment exist, the recoverable amount of the asset is estimated as the higher of the fair value less costs of disposal and the value-in-use.

For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the CGU to which the asset belongs. An impairment loss is recognised whenever the carrying amount of the CGU exceeds its recoverable amount.

A previously recognised impairment loss is reversed (or partially reversed) if there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined (net of depreciation and amortisation) had no impairment loss been recognised in prior years.

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

Depreciation and useful lives

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 coal resources and coal 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.

Impairment of non-current assets

Impairment assessments are performed whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. Management, in particular, have identified and track indicators such as the movement in group market capitalisation, volatility in exchange rates, commodity prices and the economic environment in which the businesses operate, to assess whether there is an indication of impairment.

Assets, previously impaired, are reviewed for possible reversal of impairment at each reporting date.

Estimates are made in determining the recoverable amount of assets which includes the estimation of cash flows and discount rates used. In estimating the cash flows, management bases cash flow projections on reasonable and supportable assumptions that represent management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the assets. The discount rates used reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted.

ECC CGU impairment consideration

The recoverable amount of the ECC CGU was assessed for impairment on 31 December 2019 as the current decline in market conditions were viewed by management as an impairment indicator. The recoverable amount, being the fair value less costs of disposal marginally exceeds the carrying amount of the CGU at Exxaro group level (impairment of R227 million for company was recognised (refer note 17.3.4)). The recoverable amount was derived using a DCF model and is a level 3 valuation technique in the fair value hierarchy. The model was performed in real terms in South African rand.

Key assumption made in the valuation included the following (all in real terms):

  • Post-tax discount rate: 7.87%.
  • R/US$ exchange rate range: R12.99 to R14.22
  • Coal API4 long-term price (per tonne): US$81
  • Coal domestic selling price range (per tonne): R508 to R563.

Sensitivity analysis

If all other assumptions are held constant, the following changes in assumptions would result in the recoverable amount being equivalent to the carrying value of the ECC CGU for group purposes, and would result in a further R123 million impairment loss of the company’ investment in subsidiary, for company purposes:

  • Post-tax discount rate increase of 0.8%
  • R/US$ exchange rate decrease of 1.7%
  • Coal API4 long-term price (US$/tonne) decrease of 1.7%
  • Domestic selling price (R/tonne) decrease of 0.8%.

10.1.3 PROPERTY, PLANT AND EQUIPMENT COMPOSITION AND ANALYSIS

      Group   
At 31 December 2019  Note    Land and 
buildings 
Rm
 
Mineral 
properties 
Rm
 
Residential 
land and 
buildings 
Rm
 
Buildings 
and 
infra- 
structure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Site 
preparation, 
mining 
develop- 
ment 
and 
rehabilitation 
Rm
 
Bearer 
plants 
Rm
 
Assets 
under 
con- 
struction 
Rm
 
Total 
Rm
 
 
Gross carrying amount                         
At beginning of the year  11.4    444  2 151  661  4 933  21 417  467  6 669  36 744   
Transfer to right-of-use assets              (16)       (16)  
Balance at 1 January 2019      444  2 151  661  4 933  21 401  467  6 669  36 728   
Additions      73  30  462  1 472  361    3 800  6 199   
Transfer from right-of-use assets  11.4            14        14   
Changes in decommissioning assets  13.3          (7) (21)   17  (4)  
Borrowing costs capitalised  12.1.2                  448  448   
Loss of control of subsidiary        (17)   (9) (2)       (28)  
Disposals          (36) (70) (360) (99)     (565)  
Transfer between classes          131  400  640    (1 172)    
Exchange differences on translation      (3)               (3)  
At end of the year      514  2 135  786  5 709  23 144  737  9 762  42 789   
Accumulated depreciation                         
At beginning of the year        (664) (175) (907) (5 891) (154)     (7 791)  
Transfer to right-of-use assets  11.4                   
Balance at 1 January 2019        (664) (175) (907) (5 889) (154)     (7 789)  
Charges for the year  6.1.3      (39) (24) (193) (1 555) (38)     (1 849)  
Disposals          35  68  307  99      509   
Loss of control of subsidiary                   
At end of the year        (703) (164) (1 026) (7 136) (93)     (9 122)  
Accumulated impairment                         
At beginning of the year            (18) (108)     (2) (128)  
Impairment reversals            18      23   
At end of the year            (14) (90)     (1) (105)  
Net carrying amount at end of the year      514  1 432  622  4 669  15 918  644  9 761  33 562   
      Group   
At 31 December 2018  Note    Land and 
buildings 
Rm
 
Mineral 
properties 
Rm
 
Residential 
land and 
buildings 
Rm
 
Buildings 
and 
infra- 
structure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Site 
preparation, 
mining 
develop- 
ment 
and 
rehabilitation 
Rm
 
Bearer 
plants 
Rm
 
Assets 
under 
con- 
struction 
Rm
 
Total 
Rm
 
 
Gross carrying amount                         
At beginning of the year      446  2 223  660  4 137  20 429  252  20  3 322  31 489   
Additions            311  965  205    4 456  5 937   
Changes in decommissioning assets  13.3          (5) (11)     (12)  
Re-measurement      (4)         (18)   (18)  
Borrowing costs capitalised  12.1.2                  187  187   
Disposals        (12) (2) (103) (659) (5)     (781)  
Net reclassification to non- current assets held-for-sale        (60)             (60)  
Transfer between classes          589  693  15    (1 300)    
Exchange differences on translation                     
At end of the year      444  2 151  661  4 933  21 417  467  6 669  36 744   
Accumulated depreciation                         
At beginning of the year        (683) (152) (777) (5 045) (145)     (6 802)  
Charges for the year  6.1.3      (47) (22) (163) (1 336) (11)     (1 579)  
Disposals        31  490      530   
Net reclassification to non- current assets held-for-sale        60              60   
Transfer between classes          (2)            
At end of the year        (664) (175) (907) (5 891) (154)     (7 791)  
Accumulated impairment                         
At beginning of the year            (89) (230) (4)   (2) (325)  
Disposals            71  122      197   
At end of the year            (18) (108)     (2) (128)  
Net carrying amount at end of the year      444  1 487  486  4 008  15 418  313  6 667  28 825   
      Company   
At 31 December 2019  Note    Buildings 
and 
infra- 
structure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Assets 
under 
construction 
Rm
 
Total 
Rm
 
 
Gross carrying amount               
At beginning of the year        788  132  920   
Additions      93  161  255   
Disposals        (90)   (90)  
Transfer between classes        40  (40)    
At end of the year      831  253  1 085   
Accumulated depreciation               
At beginning of the year        (469)   (469)  
Charges for the year  6.1.3      (86)   (86)  
Disposals        72    72   
At end of the year        (483)   (483)  
Net carrying amount at end of the year      348  253  602   
      Company   
At 31 December 2018  Note    Buildings 
and 
infra- 
structure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Assets 
under 
construction 
Rm
 
Total 
Rm
 
 
Gross carrying amount               
At beginning of the year        789  91  880   
Additions        60  66   
Disposals        (26)   (26)  
Transfer between classes        19  (19)    
At end of the year        788  132  920   
Accumulated depreciation               
At beginning of the year        (418)   (418)  
Charges for the year  6.1.3      (75)   (75)  
Disposals        24    24   
At end of the year        (469)   (469)  
Net carrying amount at end of the year        319  132  451   

10.1.4 CAPITAL COMMITMENTS

  Group     Company  
At 31 December 2019
Rm
  2018
Rm
    2019
Rm
  2018
Rm
 
Contracted 2 225   4 508     42   24  
Contracted (owner-controlled) 1 985   3 533     42   24  
Share of capital commitments of equity-accounted investments 240   975            
Authorised, but not contracted 3 119   2 914     134   46  
Authorised, but not contracted (owner-controlled) 3 119   2 914     134   46  

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