Chapter 13: Provisions and contingencies

Environmental rehabilitation

Estimates are made in determining the present liability for environmental rehabilitation obligations, comprising provisions for closure costs (restoration and decommissioning) and post-closure costs (residual impact). Each provision is based on estimates of unscheduled closure cost at reporting date, applicable inflation and discount rates, and the expected date of mine closure, in order to determine the present value of the total environmental rehabilitation provisions.

Closure cost estimates are determined using updated volumes and quantities at reporting date together with the latest unit rates for all activities included in each mine’s rehabilitation plan. Unit rates are sourced from external consultants, derived from continuously updated industry-standard databases and relevant indices published by Statistics South Africa. Internal reviews incorporate these externally derived rates, adjusted for inflation and any necessary technical updates in line with changes in operational conditions or the passage of time.

The obligation to ensure that water management and treatment meet statutory requirements is explicitly incorporated in both internal and external closure cost reviews. Costs relating to water treatment from the expected date of decanting are calculated over a 50-year period, discounted to present value, and included in the environmental rehabilitation provisions. The majority of these costs are recognised within the residual impact provision, and where applicable, the cost of constructing and maintaining a water treatment plant is also included.

To manage the risk of understatement of the environmental rehabilitation provisions, the undiscounted rehabilitation cost estimate is adjusted for:

– P&Gs (Preliminaries and Generals): Indirect, project-support costs required to manage and execute rehabilitation activities
– Contingencies: Allowances for uncertain, unforeseen, or variable cost elements that cannot be estimated with precision at reporting date

Discounting of unscheduled closure costs is performed over the expected LoM for each operation. The LoM is determined with reference to remaining reserves and the latest mine plans, taking into account the complexity of accessing and mining these reserves. The assumption that restoration and decommissioning activities will occur over five years after the end of LoM results in discounting of the residual impact provision over the expected remaining LoM plus an additional five years required to complete closure activities.

Other site closure cost

The provision includes estimates for the cost required to be incurred in support of execution of activities stipulated in the closure rehabilitation plan for each of the current mines in closure. Provision is made on a piecemeal basis for those operating expenses supporting the rehabilitation, but which are not included in the environmental rehabilitation provision.

Key assumptions

The net present value of the environmental rehabilitation provisions is determined using management’s long-term inflation assumptions, which reflect forward-looking inflation expectations and the South African government’s inflation-targeting framework. Discount rates are derived from government bond yields with maturities aligned to the LoM profiles of each operation.

1 Excluding discounting period of long-term post-closure water treatment cost.

Sensitivities

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