18. Provisions
 

Provision for rehabilitation

  2018   2017  
  Restoration
US$’000		   Decommis-
sioning
US$’000		   Total
provision
US$’000		   Restoration
US$’000		   Decommis-
sioning
US$’000		   Total
provision
US$’000		  
Opening balance 3 962   2 961   6 923   2 343   2 264   4 607  
Recognised in profit or loss 1 693   –   1 693   1 340   –   1 340  
Capitalised to mining assets and infrastructure –   3 922   3 922   –   451   451  
Business combination (note 21) 76   57   133   –   –   –  
Unwinding of discount 529   212   741   269   225   494  
Exchange differences (339)   (439)   (778)   10   21   31  
Closing balance 5 921   6 713   12 634   3 962   2 961   6 923  

The Group has a legal obligation to rehabilitate the mining area, once the mining operations cease. The provision has been calculated based on total estimated rehabilitation costs, discounted back to their present values. The pre-tax discount rates are adjusted annually and reflect current market assessments. These costs are expected to be utilised mostly towards the end of the life of mine and associated infrastructure, which is currently estimated to be within 15 years. The provision is determined using commercial closure cost assessments and not the inflation adjusted Department of Mineral Resources published rates as were used during 2017.

The table below illustrates the movement in the provision as a result of mining operations, changes in variables and adopting commercial rates in comparison to the previously used Department of Mineral Resources rates.

   Opening 
balance 
US$’000 		    Mining 
operations 
US$’000 		    Changes in 
variables 
US$’000 		    Commercial 
rates 
US$’000 		    Exchange 
differences 
US$’000 		    Closing 
balance 
US$’000 		   
30 September 2018                                      
Provision for restoration   3 962     1 839     882     (423)    (339)    5 921    
Provision for decommissioning  2 961     (597)    368     4 420     (439)    6 713    
   6 923     1 242     1 250     3 997     (778)    12 634    

The current estimated rehabilitation cost to be incurred mostly at the end of the life of mine taking escalation factors into account is US$21.8 million (2017: US$13.7 million). The estimate was calculated by an independent external expert.

In determining the amounts attributable to the rehabilitation provisions at 30 September 2018, management used a discount rate of 9.4% (2017: 8.6%) which represents the rate associated to a 10-year and longer daily average yield based on South African government bonds (2017: R186 government bond of South Africa), estimated rehabilitation timing of 15 years (2017: 18 years) and an inflation rate of 6.3% (2017: 4.5%).

An insurance company has provided a guarantee to the Department of Mineral Resources to satisfy the legal requirements with respect to environmental rehabilitation and the Group has pledged as collateral its investments in interest-bearing debt instruments to the insurance company to support this guarantee.