Mining joint arrangements

Mines are expensive and risky, so they are often owned by two or more companies: majors with juniors, miners with smelters or sovereign funds, buyers securing supply. The structure, and the way output and funding flow between the partners, decides whether each partner shows its share of the mine line by line or a single investment. This guide covers classification, including the important case of an incorporated vehicle that sells everything to its owners, the Interpretations Committee's decisions, revenue for joint operators and earn-in deals.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 4 minute read.

Short answer

Mining joint arrangements are classified under IFRS 11 as joint operations or joint ventures. Unincorporated arrangements, where partners own undivided interests in the mine, are joint operations: each partner records its share of the assets, liabilities and costs. A mine held in a company is usually a joint venture, equity accounted, unless the partners are entitled to all its output and are, in substance, the only source of the cash that keeps it running, in which case it is a joint operation too. A joint operator recognises revenue only on output it sells to its own customers. In this guide's example, a 60% partner in a mining company that sells all its output to the partners reports the same profit of US$ 90 million either way, but very different assets, liabilities and cost of sales.

At a glance

Unincorporated
Joint operation
Incorporated
Usually a joint venture
Unless
Partners take all output and fund it
Joint operation
Share of assets, liabilities, costs
Revenue
Only on output sold to customers
Earn-ins
Spend to acquire an interest
Mining joint arrangementsUnincorporated: Joint operation; Incorporated: Usually a joint venture; Unless: Partners take all output and fund it; Joint operation: Share of assets, liabilities, costs; Revenue: Only on output sold to customers; Earn-ins: Spend to acquire an interest.KEY FACTS AT A GLANCEMining joint arrangementsUnincorporatedJoint operationIncorporatedUsually a joint ventureUnlessPartners take all outputand fund itJoint operationShare of assets,liabilities, costsRevenueOnly on output sold tocustomersEarn-insSpend to acquire aninterestTax BakersMining joint arrangementsUnincorporated: Joint operation; Incorporated: Usually a joint venture; Unless: Partners take all output and fund it; Joint operation: Share of assets, liabilities, costs; Revenue: Only on output sold to customers; Earn-ins: Spend to acquire an interest.KEY FACTS AT A GLANCEMining joint arrangementsUnincorporatedJoint operationIncorporatedUsually a joint ventureUnlessPartners take all output and fund itJoint operationShare of assets, liabilities, costsRevenueOnly on output sold to customersEarn-insSpend to acquire an interestTax Bakers
Key facts at a glance, as set out in this guide.

Is a mining joint arrangement a joint operation or a joint venture?

Joint operation or joint venture?Joint operation or joint venture?Do the partners share jointcontrol of the mine?NoSubsidiary orassociateYesIs it held through aseparate company?NoJoint operation:share of assetsYesDo the partners take all outputand fund its liabilities?YesJoint operation:share of assetsNoJoint venture: equity method
Output and funding can make an incorporated mine a joint operation.

First, there must be joint control: decisions on the mine's relevant activities, such as approving the mine plan, budgets and major capital spending, require the unanimous consent of the parties sharing control. Then, if the mine is not held through a separate vehicle, the arrangement is a joint operation. If it is held through a company, it is a joint venture unless its legal form, the contractual terms or other facts and circumstances give the parties rights to the assets and obligations for the liabilities.

When is an incorporated mine a joint operation?

When the parties are obliged to take substantially all of the vehicle's output, and the vehicle depends on them for the cash to settle its liabilities, the parties in substance have rights to the assets and obligations for the liabilities. In 2015 the IFRS Interpretations Committee confirmed that this assessment looks at whether the facts create enforceable rights and obligations, and that selling the output to the parties at market prices does not by itself prevent the arrangement being a joint operation. Smelters, processing plants and mines set up to supply their owners often meet this test.

Mining joint arrangements: the same mine both ways

A mining company is owned 60% by partner A and 40% by partner B. It has assets of US$ 1,000 million and liabilities of 300 million. In the year it produces concentrate at a cost of 200 million, including depreciation, and sells it all to the partners in proportion at the market price of 350 million. Partner A sells its share on to smelters at the same price.

Partner A, US$ millionJoint operationJoint venture, equity method
Mine assets600None
Liabilities(180)None
Investment in joint ventureNone420
Revenue from sales to smelters210210
Cost of sales(120), its share of production cost(210), concentrate bought from the JV
Share of profit of joint ventureNone90
Profit9090

Profit and revenue are the same, but as a joint operator A shows 600 million of mine assets and 180 million of liabilities, a gross margin on its own production, and its share of the mine's depreciation in cost of sales. Under the equity method it shows one investment line and buys its concentrate at market price. If A had not yet resold the concentrate, the equity method would eliminate its share of the joint venture's unrealised profit.

How does a joint operator recognise revenue?

Only for output it has transferred to its own customers. In 2019 the IFRS Interpretations Committee confirmed that a joint operator recognises revenue only for the output it has transferred to its customers, not for its share of output that it has not sold. Where the joint operation sells its output to the partners themselves, each partner's revenue comes from its own onward sales. Where partners take output in kind and lift unevenly, imbalances are accounted for separately. See overlift and underlift.

How are earn-in arrangements accounted for?

In an earn-in, a company acquires an interest in a project by funding exploration or development spending in stages, for example earning 51% by spending US$ 50 million over three years. During the earn-in, the project owner usually records no gain for spending funded by the partner, and the earning party capitalises its spending under its exploration policy. Once the interest is earned and joint control exists, each party applies IFRS 11. See exploration and evaluation in mining.

What if a partner buys a bigger interest?

Buying an interest in a joint operation that is a business is accounted for using IFRS 3's principles: assets and liabilities at fair value, goodwill, deferred tax and acquisition costs expensed. Previously held interests in the joint operation are not remeasured if joint control continues. If a partner gains control, the mine becomes a subsidiary and is consolidated. See IFRS 3 explained.

How does US GAAP compare?

US GAAP allows proportionate consolidation of undivided interests in extractive industries, which gives a similar result to a joint operation, and equity accounting for incorporated joint ventures. It has no equivalent of IFRS 11's look-through to output and funding for incorporated vehicles. See joint operating agreements in oil and gas and mining accounting.

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Questions people ask

Is an unincorporated mining joint venture a joint operation?

Yes. Partners owning undivided interests have rights to the assets and obligations for the liabilities, so they account for their shares directly.

Can an incorporated mining company be a joint operation?

Yes, if the partners are obliged to take substantially all its output and are in substance its only source of cash to settle liabilities.

Does a joint operator recognise revenue on its share of production?

No. It recognises revenue only for output it has transferred to its own customers.

How is buying a larger interest in a joint operation accounted for?

If the joint operation is a business, using IFRS 3's principles, with no remeasurement of the interest already held while joint control continues.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 11 Joint Arrangements
  2. IFRS Interpretations Committee: Classification of joint arrangements (March 2015)
  3. IFRS Interpretations Committee: Sale of output by a joint operator (March 2019)

Rules and fees change. If you are reading this long after October 7, 2026, confirm the figures with the source before you rely on them.

MiningMining accounting: the key IFRS issuesOil and gasJoint operating agreements in oil and gasOil and gasOverlift and underlift

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