Closure and rehabilitation provisions

12 Months Ended

Jun. 30, 2023

15 Closure and rehabilitation provisions


	2023			2022
	US$M			US$M
At the beginning of the financial year		8,689			11,910
Capitalised amounts for operating sites:
Change in estimate		510			1,579
Exchange translation		(50	)		(694	)
Adjustments charged/(credited) to the income statement:
Increases to existing and new provisions		47			174
Exchange translation		(8	)		(58	)
Released during the year		(35	)		(42	)
Other adjustments to the provision:
Amortisation of discounting impacting net finance costs		839			554
Acquisition of subsidiaries and operations 1		168			–
Divestment and demerger of subsidiaries and operations		–			(4,477	)
Expenditure on closure and rehabilitation activities		(273	)		(316	)
Exchange variations impacting foreign currency translation reserve		–			(3	)
Other movements		–			62

At the end of the financial year		9,887			8,689

Comprising:
Current		520			475
Non-current		9,367			8,214

Operating sites		7,366			6,198
Closed sites		2,521			2,491

1	Relates to the acquisition of OZL on 2 May 2023. Refer to note 29 ‘Business combinations’ for more information.

Profile of closure and rehabilitation cash flows

The table below indicates the estimated profile of the Group’s closure and rehabilitation provisions. The profile reflects the undiscounted forecast cash flows that underpin the provisions. In some instances, the Group has an obligation to rehabilitate and maintain a closed site for an indefinite period. For the purpose of this analysis, the cashflow period has been restricted to 100 years.


Proportion of the Group’s undiscounted forecast cashflows	2023 %		2022 %

In one year or less		3		3
In more than one year but not more than two years		4		3
In more than two years but not more than five years		8		9
In more than five years but not more than ten years		14		15
In more than ten years		71		70

Total		100		100

The Group is required to close and rehabilitate sites and associated facilities at the end of or, in some cases, during the course of production to a condition acceptable to the relevant authorities, as specified in licence requirements and the Group’s closure performance requirements.

The key components of closure and rehabilitation activities are:

•

the removal of all unwanted infrastructure associated with an operation

•

the return of disturbed areas to a safe, stable and self-sustaining condition, consistent with the agreed post-closure land use

Recognition and measurement

Provisions for closure and rehabilitation are recognised by the Group when:

•

it has a present legal or constructive obligation as a result of past events

•

it is more likely than not that an outflow of resources will be required to settle the obligation

•

the amount can be reliably estimated


Initial recognition and measurement		Subsequent measurement
Closure and rehabilitation provisions are initially recognised when an environmental disturbance first occurs. The individual site provisions are an estimate of the expected value of future cash flows required to close the relevant site using current standards and techniques and taking into account risks and uncertainties. Individual site provisions are discounted to their present value using currency specific discount rates aligned to the estimated timing of cash outflows. When provisions for closure and rehabilitation are initially recognised, the corresponding cost is capitalised as an asset, representing part of the cost of acquiring the future economic benefits of the operation.		The closure and rehabilitation asset, recognised within property, plant and equipment, is depreciated over the life of the operations. The value of the provision is progressively increased over time as the effect of discounting unwinds, resulting in an expense recognised in net finance costs. The closure and rehabilitation provision is reviewed at each reporting date to assess if the estimate continues to reflect the best estimate of the obligation. If necessary, the provision is remeasured to account for factors such as: • additional disturbance during the period • revisions to estimated reserves, resources and lives of operations including any changes to expected operating lives arising from the Group’s latest assessment of the potential impacts of climate change and the transition to a low-carbon economy • developments in technology • changes to regulatory requirements and environmental management strategies • changes in the estimated extent and costs of anticipated activities, including the effects of inflation and movements in foreign exchange rates • movements in interest rates affecting the discount rate applied Changes to the closure and rehabilitation estimate for operating sites are added to, or deducted from, the related asset and amortised on a prospective basis over the remaining life of the operation, generally applying the units of production method. Costs arising from unforeseen circumstances, such as the contamination caused by unplanned discharges, are recognised as an expense and liability when the event gives rise to an obligation that is probable and capable of reliable estimation.

sed sites

Where future economic benefits are no longer expected to be derived through operation, changes to the associated closure and remediation costs are charged to the income statement in the period identified. This amounted to US$4 million in the year ended 30 June 2023 (2022: US$74 million; 2021: US$483 million).

Key estimates

Closure cost estimates are generally based on conceptual level studies early in the operating life of an asset with more detailed studies and planning performed as closure risks (including those related to climate change) are identified and/or as an asset, or parts thereof, near closure. As such, the recognition and measurement of closure and rehabilitation provisions requires the use of significant estimates and assumptions, including, but not limited to:

•

the extent (due to legal or constructive obligations) of potential activities required for the removal of infrastructure, decharacterisation of tailings storage facilities and rehabilitation activities

•

costs associated with future closure activities

•

the extent and period of post-closure monitoring and maintenance, including water management

•

applicable discount rates

•

the timing of cash flows and ultimate closure of operations

The extent, cost and timing of future closure activities may also be impacted by the potential physical impacts of climate change and the transition to a low-carbon economy. Further detail is provided in note 16 ‘Climate Change’.

Estimates for post-closure monitoring and maintenance reflect the Group’s strategies for individual sites, which may include possible relinquishment. The period of monitoring and maintenance included in the provision requires judgement and considers regulatory and licencing requirements, the outcomes of studies and management’s current assessment of stakeholder expectations.

While progressive closure is performed across a number of operations, significant activities are generally undertaken at the end of the production life at the individual sites, the estimated timing of which is informed by the Group’s current assumptions relating to demand for commodities and carbon pricing, and their impact on the Group’s long-term price forecasts.

Approximately 51 per cent (2022: 48 per cent) of the Group’s total undiscounted forecast cashflows are expected to be incurred after more than 30 years, reflecting the long-lived nature of many of the Group’s operations which have remaining production lives ranging from

1-103 years

(2022:

2-104

years). The discount rates applied to the Group’s closure and rehabilitation provisions are determined by reference to the currency of the closure cash flows, the period over which the cash flows will be incurred and prevailing market interest rates (where available). The Group continues to monitor current market conditions with no change made to the Group’s discount rates in the current year.

While the closure and rehabilitation provisions reflect management’s best estimates based on current knowledge and information, further studies, trials and detailed analysis of relevant knowledge and resultant closure activities for individual assets continue to be performed throughout the life of asset. Such studies and analysis can impact the estimated costs of closure activities. Estimates can also be impacted by the emergence of new closure and rehabilitation techniques, changes in regulatory requirements and stakeholder expectations for closure (including costs associated with equitable transition), development of new technologies, risks relating to climate change and the transition to a low-carbon economy, and experience at other operations. These uncertainties may result in future actual expenditure differing from the amounts currently provided for in the balance sheet.

Sensitivity

A 0.5 per cent increase in the discount rates applied at 30 June 2023 would result in a decrease to the closure and rehabilitation provision of approximately US$758 million, a decrease in property, plant and equipment of approximately US$568 million in relation to operating sites and an income statement credit of approximately US$190 million in respect of closed sites. In addition, the change would result in a decrease of approximately US$44 million to depreciation expense and a US$26 million increment in net finance costs for the year ending 30 June 2024.

Given the long-lived nature of the majority of the Group’s assets, the majority of final closure activities are generally not expected to occur for a significant period of time.

However, a

one-year

acceleration in forecast cash flows of the Group’s closure and rehabilitation provisions, in isolation, would result in an increase to the provision of approximately US$209 million, an increase in property, plant and equipment of US$148 million in relation to operating sites and an income statement charge of US$61 million in respect of closed sites.