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USE OF ACCOUNTING ASSUMPTIONS, ESTIMATES AND JUDGEMENTS | 12 Months Ended
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Jun. 30, 2022
USE OF ACCOUNTING ASSUMPTIONS, ESTIMATES AND JUDGEMENTS |
Use of accounting assumptions, estimates and judgements | 2 USE OF ACCOUNTING ASSUMPTIONS, ESTIMATES AND JUDGEMENTS The preparation of the consolidated financial statements requires management to make accounting assumptions, estimates and judgements that affect the application of the Group's accounting policies and reported amounts of assets and liabilities, income and expenses. Accounting assumptions, estimates and judgements are reviewed on an ongoing basis. Revisions to reported amounts are recognised in the period in which the revision is made and in any future periods affected. Actual results may differ from these estimates. Information about assumptions and estimates in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in the notes: NOTE 9 PROPERTY, PLANT AND EQUIPMENT NOTE 11 PROVISION FOR ENVIRONMENTAL REHABILITATION NOTE 18 INCOME TAX NOTE 24 PAYMENTS MADE UNDER PROTEST NOTE 25 OTHER INVESTMENTS Information about significant judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in the notes: NOTE 24 PAYMENTS MADE UNDER PROTEST NOTE 25 OTHER INVESTMENTS NOTE 26 CONTINGENCIES Mineral reserves and resources estimates The Group is required to determine and report mineral reserves and resources in accordance with the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“ SAMREC Code ”). In order to calculate mineral reserves and resources, estimates and assumptions are required about a range of geological, technical and economic factors, including but not limited to quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. Estimating the quantity and/or grade of mineral reserves and resources requires the size, shape and depth of reclamation sites to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and difficult geological judgements and calculations to interpret the data. Because the assumptions used to estimate mineral reserves and resources change from period to period and because additional geological data is generated during the course of operations, estimates of mineral reserves and resources may change from period to period. Mineral reserves and resources estimates prepared by management are reviewed by independent mineral reserves and resources experts. Changes in reported mineral reserves and resources may affect the Group’s life-of-mine plan, financial results and financial position in a number of ways including the following: • asset carrying values may be affected due to changes in estimated future cash flows; • depreciation charged to profit or loss may change where such charges are determined by the units-of-production method, or where the useful lives of assets change; • decommissioning, site restoration and environmental provisions may change where changes in estimated mineral reserves and resources affect expectations about the timing or cost of these activities; and • the carrying value of deferred tax assets and liabilities may change due to changes in estimates of the likely recovery of the tax benefits and charges. Depreciation The calculation of the units-of-production rate of depreciation could be affected if actual production in the future varies significantly from current forecast production. This would generally arise when there are significant changes in any of the factors or assumptions used in estimating mineral reserves and resources. These factors could include: • changes in mineral reserves and resources; • the grade of mineral reserves and resources may vary from time to time; • differences between actual commodity prices and commodity price assumptions; • unforeseen operational issues at mine sites including planned extraction efficiencies; and • changes in capital, operating, mining processing and reclamation costs, discount rates and foreign exchange rates. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The contract must also be enforceable. To assess whether a contract conveys the right to control the use of an identified asset, requires judgement particularly on contracts with service contractors, which may contain embedded leases. The Group assesses whether: • the contract involves the use of an identified asset; • the Group has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and • the Group has the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relevant stand-alone prices. However, for the lease of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease component as a single lease component. Some property leases contain options to renew under the contract. Judgement is applied in whether the renewable option periods must be included in the lease term i.e. it is reasonably certain that the options to renew will be exercised. In applying judgement, the Group also considers whether the lease term is commensurate with estimated future mine plans requirements and environmental rehabilitation obligations associated with the property post reclamation. Estimates of future environmental rehabilitation costs are determined with the assistance of an independent expert and are based on the Group’s environmental management plans which are developed in accordance with regulatory requirements, the life-of- mine plan (as discussed in note 9) which influences the estimated timing of environmental rehabilitation cash outflows and the planned method of rehabilitation which in turn is influenced by developments in trends and technology. An average nominal discount rate ranging between 10.2 % and 10.3 % (2021: between 8.9 % and 9.0 %), average inflation rate of 5.5 % (2021: 5.2 %) and the discount periods as per the expected life-of-mine were used in the calculation of the estimated net present value of the rehabilitation liability. Management periodically evaluates positions taken where tax regulations are subject to interpretation. This includes the treatment of both Ergo and FWGR as single mining operations respectively, pursuant to the relevant ring-fencing legislation. The deferred tax liability is calculated by applying a forecast weighted average tax rate that is based on a prescribed formula. The calculation of the forecast weighted average tax rate requires the use of assumptions and estimates and are inherently uncertain and could change materially over time. These assumptions and estimates include expected future profitability and timing of the reversal of the temporary differences. Due to the forecast weighted average tax rate being based on a prescribed formula that increases the effective tax rate with an increase in forecast future profitability, and vice versa, the tax rate can vary significantly year on year and can move contrary to current period financial performance. A 100 basis points increase in the effective tax rate will result in an increase in the net deferred tax liability at June 30, 2022 of approximately R 18.7 million (2021: R 14.2 million; 2020: R 10.3 million). The assessment of the probability that future taxable profits will be available against which the tax losses and unredeemed capital expenditure can be utilised requires the use of assumptions and estimates and are inherently uncertain and could change materially over time. Capital expenditure is assessed by the South African Revenue Service (“ SARS ”) when it is redeemed against taxable mining income rather than when it is incurred. A different interpretation by SARS regarding the deductibility of these capital allowances may therefore become evident subsequent to the year of assessment when the capital expenditure is incurred. Payments made under protest The determination of whether the payments made under protest give rise to an asset or a contingent asset or neither, required the use of significant judgement. The definition of an asset in the conceptual framework was applied as well as the considerations in the outcome of the IFRS Interpretations Committee (“ IFRIC ”) agenda decision – Deposits relating to taxes other than income tax (IAS 37 Provisions, Contingent Liabilities and Contingent Assets ) (“ IFRIC Agenda Decision ”) published in January 2019. The IFRIC Agenda Decision has a similar fact pattern to that of the payments made under protest. With the consideration of the facts and circumstances surrounding the payments made under protest in applying the definition of an asset and the IFRIC Agenda Decision, management considered the following: • payments were made under protest and without prejudice or admission of liability. Such payments were not made as a settlement of debt or recognition of expenditure; • the Group therefore retains a right to recover the payments from the City of Ekurhuleni Metropolitan Municipality (“ Municipality ”) if the Group is successful in the Main Application (as defined below); • if the Group is not successful in the Main Application, the payments will be used to settle the resultant liability to the Municipality; and • these two possible outcomes (i.e. success in the Main Application or not) therefore, will lead to economic benefits to the Group. Therefore, the right to recover the payments made under protest is not a contingent asset because it meets the definition and recognition criteria of an asset. No specific guidance exists in developing an accounting policy for such asset. Therefore, management applied judgement in developing an accounting policy that would lead to information that is relevant to the users of these financial statements and information that can be relied upon. Contingent liabilities The assessment of whether an obligating event results in a liability or a contingent liability requires the exercise of significant judgement of the outcome of future events that are not wholly within the control of the Group. Litigation and other judicial proceedings inherently entail complex legal issues that are subject to uncertainties and complexities and are subject to interpretation. SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES The discounted amount of the payments made under protest is determined using assumptions about the future that are inherently uncertain and can change materially over time and includes the discount rate and discount period. These assumptions about the future include estimating the timing of concluding on the Main Application, i.e. the discount period, the ultimate settlement terms, the discount rate applied and the assessment of recoverability. The Group has one (1) director representative on the Rand Refinery board. Therefore, judgement had to be applied to ascertain whether significant influence exists, and if the investment should be accounted for as an associate under IAS 28 Investments in Associates and Joint Ventures . The director representation is not considered significant influence, as it does not constitute meaningful representation. It represents 11.11 % of the entire board and is proportional to the 11.3 % shareholding that the Group has. SIGNIFICANT ACCOUNTING ASSUMPTIONS AND ESTIMATES The fair value of the listed equity instrument is determined based on quoted prices on an active market. Equity instruments which are not listed on an active market are measured using other applicable valuation techniques depending on the extent to which the technique maximises the use of relevant observable inputs and minimizes the use of unobservable inputs. Where discounted cash flows are used, the estimated cash flows are based on management’s best estimate based on readily available information at measurement date. The discounted cash flows contain assumptions about the future that are inherently uncertain and can change materially over time. SIGNIFICANT ACCOUNTING JUDGEMENTS The assessment of whether an obligating event results in a liability or a contingent liability requires the exercise of significant judgement of the outcome of future events that are not wholly within the control of the Group. Litigation and other judicial proceedings inherently entail complex legal issues that are subject to uncertainties and complexities and are subject to interpretation.

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- Definition The disclosure of judgements that management has made in the process of applying the entity's accounting policies that have the most significant effect on amounts recognised in the financial statements along with information about the assumptions that the entity makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next year. [Refer: Carrying amount [member]] + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Name IAS -Number 1 -IssueDate 2021-01-01 -Paragraph 10 -Subparagraph e -URI http://eifrs.ifrs.org/eifrs/xifrs-link?type=IAS&num=1&code=ifrs-tx-2021-en-r&anchor=para_10_e&doctype=Standard -URIDate 2021-03-24 + Details
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