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 13 / 13.2 Significant judgements and assumptions made by management in applying the related accounting policies

13.2 Significant judgements and assumptions made by management in applying the related accounting policies

Environmental rehabilitation

Estimates are made in determining the present liability of environmental rehabilitation provisions consisting of a restoration provision, decommissioning provision and a residual impact provision. Each of these provisions are based on an estimate of unscheduled closure costs on reporting date, inflation and discount rates relevant to the calculation and the expected date of closure of mining activities in determining the present value of the total environmental rehabilitation liability.

On 20 November 2015, the Financial Provisioning Regulations, 2015 (FPR:2015) were promulgated by the Minister of Environmental Affairs for South Africa as replacement of financial provisioning and rehabilitation legislation contained in the MPRDA and National Environmental Management Act of 1998 (NEMA). After promulgation of the FPR:2015, the DEA met with various stakeholders who sought clarification on a number of issues. This resulted in amended regulations pertaining to the financial provisioning for prospecting, exploration, mining or production operations which were issued on 10 November 2017.

On 21 September 2018, the Minister of Environmental Affairs for South Africa amended the FPR:2015 by extending the transitional period from 19 February 2019 to 19 February 2020. All holders of mining or exploration rights or permits will therefore have to comply with the financial provisioning requirements in terms of the MPRDA until 20 February 2020 when the FPR:2015 will come into effect. However, FPR:2015 has not been finalised by the DEA and the transitional period has been extended to June 2021.

The obligation to ensure that water is treated according to statutory requirements is specifically included in the scope of both internal and external reviews of closure costs. Costs relating to water treatment, which are expected within a 20-year window period from date of review, are quantified and included in the environmental rehabilitation provisions for relevant mines. The majority of the costs relating to water treatment are included in the provision for residual impact. Where necessary, the costs associated with constructing a water treatment plant have also been included.

Discounting of the costs relating to unscheduled closure on reporting date is calculated over the expected LOM of each mine. The LOM is based on remaining reserves at each mine as well as the level of complexity to perform mining activities at these reserves.

The assumption that post-closure rehabilitation will take place over a period of five years resulted in discounting of the costs included in the residual impact provision to be calculated over the expected remaining LOM and an additional five years for post-closure activities to be completed.

Other site closure costs

The provision includes estimates for plant and facility closures, dismantling costs and employee termination costs, in terms of announced restructuring plans. Provision is made on a piecemeal basis only for those restructuring obligations supported by a formally approved plan.

The provision includes social and labour costs for mines closing in the near future in terms of approved social and labour plans for these sites.

Key assumptions

  At 31 December  
PPI 5   5  
Discount rate        
– Period of discounting: 1 to 5 years 7.37 to 7.58   8.52  
– Period of discounting: 6 to 15 years 9.40 to 9.81   9.80 to 9.92  
– Period of discounting: 16 to 30 years 9.91 to 10.50   10.09 to 10.19  


  At 31 December  
Decrease in total environmental rehabilitation provisions as a result of a 1% increase in discount rate (435)   (338)  
Increase in total environmental rehabilitation provisions as a result of a 1% decrease in discount rate 488    383