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Exxaro Resources Limited
Annual Financial Statements 2021
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CHAPTER 13:
Provisions and contingencies

  • 13.2SIGNIFICANT 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 FPR:2015 was promulgated by the Minister of Environmental Affairs for South Africa as replacement of financial provisioning and rehabilitation legislation contained in the MPRDA and 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 therefore would have had to comply with the financial provisioning requirements in terms of the MPRDA until 20 February 2020 when the FPR:2015 would have come into effect. However, the FPR:2015 transitional arrangements have been amended again with the transitional period being extended for the fourth time to 19 June 2022. A third draft of financial provisioning regulations has been published for comments.

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 
2021 
%
 
2020 
%
 
PPI  4.5  4.5 to 5.0 
Risk-free discount rate 
– Period of discounting: 1 to 5 years  7.57 to 8.04  7.23 to 7.70 
– Period of discounting: 6 to 15 years  9.80 to 10.25  10.23 to 10.31 
– Period of discounting: 16 to 30 years  10.76 to 10.86  11.43 to 11.62 

Sensitivities

Sensitivities calculated on changes in the discount rate, based on unscheduled closure cost on 31 December each year, are as follows:

At 31 December 
2021 
%
 
2020 
%
 
Increase/(decrease) in net operating profit: 
Resulting from a 1% increase in discount rate  205  231 
Resulting from a 1% decrease in discount rate  (230) (253)
(Increase)/decrease in environmental rehabilitation provisions: 
Resulting from a 1% increase in discount rate  (315) (317)
Resulting from a 1% decrease in discount rate  355  352 
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CHAPTER 1: THE YEAR IN BRIEF
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The year in brief

CHAPTER 2: REPORTS
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2.1 Responsibility statement on internal financial controls
2.2 Certificate by the group company secretary
2.3 Report of the directors
2.4 Audit committee report
2.5 Independent auditor's report

CHAPTER 3: SEGMENTAL REPORTING
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3.1 Accounting policy relating to segmental reporting
3.2 Significant judgements and assumptions made by management in applying the related accounting policy
3.3 Reportable segments
3.4 Geographic location of segment assets

CHAPTER 4: FINANCIAL STATEMENTS
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4.1.1 Group financial statements of comprehensive income
4.1.2 Group financial statements of financial position
4.1.3 Group financial statements of changes in equity
4.1.4 Group financial statements of cash flows
4.2.1 Company financial statement of comprehensive income
4.2.2 Company financial statement of financial position
4.2.3 Company financial statement of changes in equity
4.2.4 Company financial statement of cash flows

CHAPTER 5: EARNINGS
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5.1 Accounting policy relating to earnings
5.2 Attributable earnings per share
5.3 Reconciliation of headline earnings
5.4 Headline earnings per share
5.5 Dividend distributions
5.6 Notes to the statements of cash flows relating to earnings

CHAPTER 6: OPERATIONAL PERFORMANCE AND WORKING CAPITAL
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6.1 Operational performance
6.2 Working capital
6.3 Notes to the statements of cash flows relating to operational performance and working capital

CHAPTER 7: TAXATION
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7.1 Accounting policies relating to taxation
7.2 Significant judgements and assumptions made by management in applying the related accounting policies
7.3 Income tax (expense)/benefit
7.4 Reconciliation of tax rates
7.5 Deferred tax
7.6 Notes to the statements of cash flows relating to taxation
7.7 Tax effect of other comprehensive income

CHAPTER 8: BUSINESS ENVIRONMENT AND PORTFOLIO CHANGES
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8.1 Accounting policies relating to business environment and portfolio changes
8.2 Significant judgements and assumptions made by management in applying the related accounting policies
8.3 Divestment of non-core assets
8.4 Impairment charges of non-current assets
8.5 Non-current assets and liabilities held-for-sale

CHAPTER 9: ASSOCIATES AND JOINT ARRANGEMENTS
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9.1 Accounting policies relating to investments in associates and joint arrangements
9.2 Significant judgements and assumptions made by management in applying the related accounting policies
9.3 Income from investments in associates and joint ventures
9.4 Investments in associates and joint arrangements
9.5 Movement analysis of investments in associates and joint ventures
9.6 Summarised financial information of associates and joint ventures
9.7 Reconciliation of carrying amounts of investments in associates and joint ventures

CHAPTER 10: ASSETS
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10.1 Property, plant and equipment
10.2 Intangible assets
10.3 Financial assets
10.4 Other assets

CHAPTER 11: LEASES
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11.1 Accounting policies relating to leases
11.2 Judgements and assumptions made by management in applying the related accounting policies
11.3 Right-of-use assets
11.4 Lease liabilities

CHAPTER 12: FUNDING
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12.1 Debt
12.2 Equity

CHAPTER 13: PROVISIONS AND CONTINGENCIES
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13.1 Accounting policies relating to provisions and contingencies
13.2 Significant judgements and assumptions made by management in applying the related accounting policies
13.3 Provisions
13.4 Contingent liabilities

CHAPTER 14: PEOPLE
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14.1 Accounting policies relating to employee benefits
14.2 Significant judgements and assumptions made by management in applying the related accounting policies
14.3 Employee benefits
14.4 Retirement employee obligations
14.5 Directors' and prescribed officers' remuneration

CHAPTER 15: RELATED PARTIES
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15.1 Related-party transactions

CHAPTER 16: FINANCIAL INSTRUMENTS
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16.1 Accounting policies relating to financial instruments
16.2 Judgements and assumptions made by management in applying the related accounting policies
16.3 Financial instruments

CHAPTER 17: SUBSIDIARIES
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17.1 Accounting policies relating to subsidiaries
17.2 Significant judgements and assumptions made by management in applying the related accounting policies
17.3 Transactions with subsidiaries
17.4 Summary of investments in subsidiaries
17.5 Summary of indebtedness by/(to) subsidiaries
17.6 Detailed analysis of investments in subsidiaries
17.7 Non-controlling interests

CHAPTER 18: COMPLIANCE
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18.1 Basis of preparation
18.2 Adoption of new, amended and revised standards and interpretations
18.3 Events after the reporting period

CHAPTER 19: CHANGES TO COMPARATIVE INFORMATION
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19.1 Re-presentation of group comparative information
19.2 Restatement of company comparative information

CHAPTER 20: ANNEXURES
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Annexure 1 Shareholder analysis
Annexure 2 Definitions
Annexure 3 Administration
Annexure 4 Shareholders' diary

ACRONYMS
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Acronyms