Our Refining IFRS series aims to examine the complex, but unique, issues faced by mining and metals companies applying IFRS. These issues will be considered in the context of recent and current developments in the global mining and metals market place.
Accounting for stripping costs during the production phase
This issue of Refining IFRS (pdf, 817.5kb) examines the issue of accounting for stripping costs incurred in the production phase of a mine. There is a lack of specific guidance in IFRS on this topic, but a draft interpretation has been released and this issue offers our observations and implications for your organization.
IASB discussion paper on extractive activities: implications for the mining and metals sector
This issue outlines some of the key practical implications Ernst & Young raised in its comment letter to the International Accounting Standards Board (IASB) on the extractive activities project team’s working draft of the discussion paper on extractive activities (pdf, 253.1kb).
Joint venturing to provide access to capital
This issue discusses joint ventures as a new source of capital for the sector in the wake of the credit crisis and the different forms they can take. Specifically, the paper covers considerations when accounting for the nature of these joint ventures.
Download Joint venturing to provide access to capital (pdf, 258.2kb).
Accounting for stripping costs
This issue discusses how companies can account for the cost of removing overburden and other waste materials to access the ore from which minerals can be extracted. Specifically, the paper covers accounting for pre-production stripping costs vs. production stripping costs.
Download Accounting for stripping costs (pdf, 218.7kb).
Changes in estimates for rehabilitation costs
This issue discusses the affects of the volatility in the sector on closure and rehabilitation costs. The paper covers the impact on rehabilitation provisions of changes in costs, commodity prices, exchange rates and discount rates, and includes tax exemptions and deductibility of rehabilitation obligations.
Download Changes in estimates for rehabilitation costs (pdf, 217kb).
Accounting for farm-outs
This issue discusses the farm-out of a portion of projects by companies to strategic partners in order to create value, meet license conditions or reduce their debt burdens. The paper covers accounting for farm-outs, and the arrangements inside and outside the exploration and evaluation phase, discussing the implications for both the farmee and farmer.
Download Accounting for farm-outs (pdf, 194kb) (pdf, 194kb) (pdf, 218kb).
The rise in hedging metal concentrates
This issue discusses the consequences of the sharp decline in metal concentrate prices and the subsequent shortfall that has occurred between provisional and final settlement prices. The paper covers the mitigation of risk on concentrate metal sales through hedging, and discusses issues around hedging such as the consideration of individual metals, pricing mechanism and hedge designation.
Download The rise in hedging metal concentrates (pdf, 502.4kb).
Metals price collapse: implications for impairment testing
The fourth issue in the series discusses the consequences of the sharp decline in metal prices and the increase in operating costs which have led to the impairment of many mining and metals assets. The paper covers the sector’s impairment indicators under IFRS and the assumptions underlying an impairment test, which include future demand and commodity price assumptions, cost inflation, discount and exchange rates, mineral reserves and future cash flow assumptions.
Download Metal price collapse - implications for impairment testing (pdf, 318.4kb).
Meeting the supply challenge: The rise of take-or-pay contracts
The third issue in the IFRS series covers the incorporation of ‘financial undertakings’ by mining and metals companies, in the form of take-or-pay contracts, in order to support the expansion of infrastructure capacity. The issues to be considered in take-or-pay contracts are discussed and include embedded leases, financial guarantee, makeup product and undertake and special purpose entities.
Download Meeting the supply challenge: The rise of take-or-pay contracts (pdf, 245.7kb).
Higher commodity prices raising value beyond proven and probable reserves
The second publication in this series discusses how mining and metals companies determine the economic value of the estimated cash flows beyond a mine's proven and probable reserves. We consider this issue specifically in the context of higher than historic average commodity prices.
Download Higher commodity prices raising value beyond proven and probable reserves (pdf, 237kb).
Volatile currency markets causing a rethink on functional currency
The first publication in this series discusses how mining and metals companies determine their appropriate functional currency and the impact of their selection.
Download Volatile currency markets causing a rethink on functional currency (pdf, 225kb).
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