Exxaro Resources Limited
Annual Financial Statements 2022
Estimates are made in determining the present liability of the environmental rehabilitation obligation consisting of a restoration provision, decommissioning provision and a residual impact provision. Each of these provisions are based on an estimate of unscheduled closure cost 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 come into effect. However, the revised FPR:2015 has not been finally promulgated by the DEA and the transitional period has now been extended to 19 September 2023.
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 cost. Cost relating to water treatment which is expected within a 20-year window period from date of cessation of production, is quantified and included in the environmental rehabilitation provisions for relevant mines. The majority of the cost relating to water treatment is included in the provision for residual impact. Where necessary, the cost associated with constructing a water treatment plant has also been included. Any water treatment cost incurred at current operating mines is included in profit or loss in the year to which it relates
Discounting of the cost 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
The provision includes estimates for plant and facility closures, dismantling cost and employee termination cost, 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.
| At 31 December | ||
| 2022 % |
2021 % |
|
| Long-term PPI | 4.8 | 4.5 |
|---|---|---|
| Risk-free discount rate | ||
| – Period of discounting: 1 to 5 years | 8.91 | 8.04 |
| – Period of discounting: 6 to 15 years | 11.08 | 10.25 |
| – Period of discounting: 16 to 30 years | 11.60 | 10.86 |
Sensitivities calculated on changes in the discount rate, based on unscheduled closure cost on 31 December each year, are as follows:
| At 31 December | ||
| 2022 Rm |
2021 Rm |
|
| Increase/(decrease) in net operating profit: | ||
| Resulting from a 1% increase in discount rate | 195 | 205 |
| Resulting from a 1% decrease in discount rate | (218) | (230) |
| Increase/(decrease) in environmental rehabilitation provisions: | ||
| Resulting from a 1% increase in discount rate | (300) | (315) |
| Resulting from a 1% decrease in discount rate | 338 | 355 |
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