IGO Annual Report 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2016

Annual Report 2016 81

Notes to the consolidated financial statements

30 June 2016

(continued)

12 Provisions (continued)

(b) Recognition and measurement (continued)

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the

present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax

rate that reflects current market assessments of the time value of money and the risks specific to the liability. The

increase in the provision due to the passage of time is recognised as rehabilitation and restoration borrowing expense in

the profit or loss.

(i)

Rehabilitation and restoration

Long-term environmental obligations are based on the Group’s environmental management plans, in compliance with

current environmental and regulatory requirements.

Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance

that has occurred up to the reporting date. To the extent that future economic benefits are expected to arise, these costs

are capitalised and amortised over the remaining lives of the mines.

Annual increases in the provision relating to the change in the net present value of the provision are recognised as

finance costs. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in

legislation, technology or other circumstances. Cost estimates are not reduced by the potential proceeds from the sale

of assets or from plant clean-up at closure.

(ii)

Employee benefits

The provision for employee benefits represents annual leave and long service leave entitlements accrued by

employees.

Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be

settled wholly within 12 months after the end of the period in which the employees render the related service are

recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts

expected to be paid when the liabilities are settled.

Long service leave

The liability for long service leave is recognised and measured as the present value of expected future payments to be

made in respect of services provided by employees up to the reporting date. Consideration is given to expected future

wage and salary levels, experience of employee departures, and periods of service. Expected future payments are

discounted using market yields at the reporting date on national Government bonds with terms to maturity and

currencies that match, as closely as possible, the estimated future cash outflows.

(c) Key estimates and judgements

Rehabilitation and restoration provisions

The provision for rehabilitation and restoration costs is based on the net present value of the estimated cost of restoring

the environmental disturbance that has occurred up to the reporting date. Significant estimates and assumptions are

made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate

liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological

changes, regulatory changes, cost increases as compared to the inflation rates and changes in discount rates. These

uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at

reporting date represents management’s best estimate of the present value of the future rehabilitation costs required.

Long service leave

Long service leave is measured at the present value of benefits accumulated up to the end of the reporting period. The

liability is discounted using an appropriate discount rate. Management requires judgement to determine key

assumptions used in the calculation, including future increases in salaries and wages, future on-costs rates and future

settlement dates of employees' departures.

Independence Group NL