Page 202 - Annual Report 2020

14 Closure and rehabilitation provisions continued
The Group is required to 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 environmental performance
requirements as set out within Our Charter.
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, productive and self-sustaining condition, consistent with the agreed end 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 Subsequent remeasurement
Closure and rehabilitation provisions are initially The closure and rehabilitation asset, recognised within property, plant and equipment, is depreciated
recognised when an environmental disturbance over the life of the operations. The value of the provision is progressively increased over time as the
first occurs. The individual site provisions are effect of discounting unwinds, resulting in an expense recognised in net finance costs.
an estimate of the expected value of future The closure and rehabilitation provision is reviewed at each reporting date to assess if the estimate
cash flows required to rehabilitate the relevant continues to reflect the best estimate of the obligation. If necessary, the provision is remeasured
site using current restoration standards and to account for factors, including:
techniques and taking into account risks and
uncertainties. Individual site provisions are • revisions to estimated reserves, resources and lives of operations;
discounted to their present value using currency • developments in technology;
specific discount rates aligned to the estimated • regulatory requirements and environmental management strategies;
timing of cash outflows. • changes in the estimated extent and costs of anticipated activities, including the effects
When provisions for closure and rehabilitation of inflation and movements in foreign exchange rates;
are initially recognised, the corresponding cost • movements in interest rates affecting the discount rate applied.
is capitalised as an asset, representing part Changes to the closure and rehabilitation estimate for operating sites are added to, or deducted
of the cost of acquiring the future economic from, the related asset and amortised on a prospective basis accordingly over the remaining life
benefits of the operation. 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.
Closed sites
Where future economic benefits are no longer expected to be derived through operation, changes to the associated closure and remediation
costs are charged/(credited) to the income statement in the period identified. This amounted to a charge of US$669 million in the year ended
30 June 2020 (2019: charge of US$251 million; 2018: credit of US$(21) million).

Key estimates
The recognition and measurement of closure and rehabilitation A further 0.5 per cent decrease in the real discount rates applied
provisions requires the use of significant estimates and at 30 June 2020 would result in an increase to the closure and
assumptions, including, but not limited to: rehabilitation provision of US$772 million, an increase in property,
• the extent (due to legal or constructive obligations) of potential plant and equipment of US$606 million in relation to operating
sites and an income statement charge of US$166 million in
activities required for the removal of infrastructure and respect of closed sites. In addition, the change would result in an
rehabilitation activities (including activities to mitigate the increase of approximately US$35 million to depreciation expense
potential physical impact of climate change); and a US$16 million reduction in net finance costs for the year
• costs associated with future rehabilitation activities; ending 30 June 2021.
• applicable real discount rates;
• the timing of cash flows and ultimate closure of operations. Given the long-lived nature of the majority of the Group’s assets,
closure activities are not expected to occur for a significant
Rehabilitation activities are generally undertaken at the end of period of time. While the closure and rehabilitation provisions
the production life at the individual sites, the estimated timing reflect management’s best estimates based on current knowledge
of which is informed by the Group’s current assumptions relating and information, further studies and detailed analysis of the
to demand for commodities and carbon pricing, and their impact closure activities for individual assets will be performed as the
on the Group’s long-term price forecasts. Remaining production assets near the end of their operational life and/or detailed
lives range from 4-91 years with an average for all sites, weighted closure plans are required to be submitted to relevant regulatory
by current closure provision, of approximately 28 years. The authorities. Such studies and analysis can impact the estimated
discount rates applied to the Group’s closure and rehabilitation costs of closure activities. Estimates can also be impacted by the
provisions were revised during the year to reflect decreases in emergence of new restoration techniques, changes in regulatory
market interest rates. The effect of changes to discount rates was requirements for rehabilitation, risks relating to climate change
an increase of approximatively US$675 million in the closure and and the transition to a lower carbon economy, and experience at
rehabilitation provision of which US$90 million in respect of other operations. These uncertainties may result in future actual
closed sites was recognised in the income statement. expenditure differing from the amounts currently provided for
in the balance sheet.

200 BHP Annual Report 2020