Notes to the Consolidated And Separate Annual Financial Statements | Note 16

Reconciliation of provision – Group – 2022

Environmental rehabilitation

The provision for closure and restoration costs is for a liability for the rehabilitation of land involved in any prospecting or mining operations of the Group and to discharge any liability which may arise in terms of the Atmospheric Pollution Prevention Act of 1965, the Environment Conservation Act, No 73 of 1989, the Minerals Act, No 50 of 1991, the Water Act, No 54 of 1956, NEMA No 107 of 1998 and any such other legislation that may be enacted in the future. The environmental obligations and corresponding liability remain the sole responsibility of the Venture. The draft NEMA Financial Provision Regulations No. 765, gazetted 27 August 2021, have not come into effect at the reporting date.

Guarantees have been provided by the Venture to the Department of Mineral Resources in respect of the liability for closure and restoration costs. These guarantees are in the name of Glencore and relate to the Venture and are disclosed in note 27. The guarantees are not recognised as liabilities in the financial statements. The estimated cost of rehabilitation is based on environmental plans in accordance with current technology, environmental and regulatory requirements and the measurements of an independent professional surveyor. The change in estimate relates to a reassessment of the provision based on change of discount rates, expected timing of rehabilitation for operations and closure cost estimates based on the most recent assessment performed.

The measurement of the environmental rehabilitation and decommissioning provisions is a key area where management's judgement is required. The closure provisions are measured at the present value of the expected future cash flows required to perform the rehabilitation and decommissioning. This calculation requires the use of certain estimates and assumptions when determining the amount and timing of the future cash flows and the discount rate. The closure provisions are updated at each reporting date, for changes in the estimates of the amount or timing of future cash flows, inflationary changes in the expected cash flows, utilisation of prior year provisions and changes in the discount rate. The life of mine plan (LoMP) on which accounting estimates are based only includes proved and probable ore reserves as disclosed in Merafe's annual ore reserves and mineral resources statement.

During the year, the Group's investment in Boshoek mine has been classified as held for sale and is disclosed in note 39. The liability associated with the sale of Boshoek mine is the environmental rehabilitation obligation of R24m measured at the reporting date.

For purposes of calculating the provision for closure and restoration, management have assumed a risk-free real inflation rate representative of the future cashflows and a nominal discount rate of 3.75%. This is in comparison to the prior year where management assumed a long-term nominal inflation rate of 10% and a nominal discount rate of 9.1%. A 10% increase in the discount rate would have a R22m decrease in profit, a 10% decrease would have a R24m increase in profit. The timing of the cash outflows relating to the provision is uncertain but is expected to range between two and thirty years. The short-term portion of the provision relates to the best estimate for ongoing rehabilitation activities.