Mining accounting: the key IFRS issues

Why is mining accounting different?

Mining shares much with oil and gas: long lead times, large capital spending, depletion over uncertain reserves and heavy end-of-life obligations. It adds some features of its own: open-pit mines must remove huge volumes of waste rock to reach ore; ore is stockpiled and processed over years; metal is often sold as concentrate at prices finalised months later; and miners raise finance by selling future production through streams and royalties.

Which IFRS issues matter most in mining accounting?

How is exploration accounted for?

Under IFRS 6, a mining company chooses which exploration and evaluation costs to capitalise, from expensing everything until a decision to mine to capitalising drilling and studies as incurred. Assets are tested for impairment when specific facts suggest it, and are tested and moved to mine development once technical feasibility and commercial viability are demonstrable, usually on approval of a feasibility study and a decision to mine. See exploration and evaluation in mining.

What is capitalised during mine development?

From the decision to mine, the costs of building the mine, such as shafts, declines, pre-stripping of overburden, processing plant and infrastructure, are capitalised as property, plant and equipment. Since a 2022 amendment to IAS 16, metal sold during testing and commissioning is revenue in profit or loss, with its production cost, and is no longer deducted from the cost of the mine. Deciding when the mine is ready for its intended use, often called commercial production, is a key judgement: depreciation starts and capitalisation of costs stops then.

How are stripping costs treated?

Stripping before production is part of building the mine. During production, IFRIC 20 splits waste removal costs between inventory, for the ore produced now, and a stripping activity asset, for improved access to ore in later years. The asset is depreciated as that part of the ore body is mined. See stripping costs under IFRIC 20.

How are mining assets depreciated?

Assets whose life is tied to the ore body are usually depreciated on a units of production basis, over tonnes of ore or ounces of metal in reserves, sometimes including a portion of resources expected to convert to reserves. Mobile equipment and plant with shorter lives are depreciated over their own lives. Reserve changes are applied prospectively. The method mirrors oil and gas: see depletion and units of production.

When is rehabilitation provided for?

As the land is disturbed: building a pit, waste dump or tailings dam creates an obligation to restore the site, recognised under IAS 37 at present value and added to the cost of the mine. Disturbance caused by ongoing production adds to the provision and is charged to production costs. Changes in estimate follow IFRIC 1. The mechanics are the same as for decommissioning in oil and gas.

How are stockpiles and work in progress measured?

Ore stockpiles, ore on leach pads and metal in circuit are inventory under IAS 2, at the lower of cost and net realisable value, where net realisable value deducts the further costs to process and sell. Low-grade stockpiles that will not be processed within twelve months are presented as non-current. Their quantities and grades are estimates, measured by surveys and assays.

How are concentrate sales and streams accounted for?

Concentrate is often sold with provisional pricing: an initial price, finalised on the average market price in a later quotational period. Revenue is recognised when control passes, at the provisional price; the receivable is measured at fair value through profit or loss under IFRS 9, and later price movements are presented separately from revenue from contracts with customers. In a streaming deal, a financier pays upfront for the right to buy a share of future metal, usually a by-product, at a low price; most miners treat the upfront payment as a contract liability under IFRS 15, with a significant financing component, while some arrangements are financial liabilities.

How are reserves reported?

IFRS does not set rules for estimating mineral reserves and resources. Companies follow codes such as JORC in Australia, NI 43-101 in Canada and subpart 1300 of SEC Regulation S-K in the US, and use the same estimates for depreciation, impairment and rehabilitation timing.

Where to go next

See exploration and evaluation in mining and stripping costs under IFRIC 20. Further guides cover mine development costs, depreciation, rehabilitation, ore stockpiles, impairment, streaming and royalties, provisional pricing and joint arrangements, and mineral reserves and resources disclosures.

This guide is general information. It is not tax or legal advice for your situation.