Ore stockpiles and work in progress

What counts as ore stockpiles and work in progress?

Run-of-mine stockpiles of ore waiting at the crusher, high-grade and low-grade stockpiles held for later processing, crushed ore, ore on heap leach pads, metal in circuit in the processing plant, and concentrate or doré not yet sold. All are inventory under IAS 2, because they will be processed and sold in the ordinary course of business. See IAS 2 inventories.

What goes into the cost of a stockpile?

The costs of mining the ore and bringing it to the stockpile: drilling, blasting, loading and hauling, the share of waste stripping charged to inventory under IFRIC 20, depreciation of mine assets and equipment, site overheads related to production, and royalties based on production. Costs are usually averaged per tonne mined in the period. As ore moves through crushing, leaching or milling, the processing costs at each stage are added. General administration and abnormal costs are expensed. See stripping costs and mining depreciation.

Ore stockpiles: testing a low-grade stockpile

A copper mine holds 2 million tonnes of low-grade ore at a cost of US$ 15 a tonne, 30 million in total. The ore grades 0.4% copper and the plant recovers 85% of it, so the stockpile holds 6,800 tonnes of recoverable copper. The expected copper price when it is processed is US$ 8,000 a tonne, processing will cost 12 a tonne of ore, and refining, transport and selling costs total 5 million.

The stockpile is written down to 25.4 million. If copper prices or the processing plan improve, the write-down is reversed, up to the original cost. Because net realisable value depends heavily on price, grade and recovery, a small change in any of them can make the difference between no write-down and a large one, so the assumptions should be disclosed. See net realisable value.

How are tonnes and grade measured?

Stockpile volumes are measured by surveys, increasingly by drone, and converted to tonnes using density estimates; grades come from sampling and assays of the ore as it is mined. Companies reconcile the ore delivered to the stockpile with surveys and with what the plant eventually processes, and adjust balances when differences appear. Because these are estimates, auditors focus on them, and large stockpiles need robust measurement processes.

How is heap leach inventory measured?

Ore stacked on a heap leach pad releases metal over months or years as solution percolates through it. The company estimates recoverable ounces from the ore placed, its grade and expected recovery, and allocates costs to those ounces, usually on a weighted average basis. As metal is recovered, costs move from the pad to metal in circuit and then to finished metal. If recoveries fall short of estimates, the remaining cost per ounce rises and may require a write-down.

Which price is used for net realisable value?

IAS 2 requires the most reliable evidence available at the reporting date of the amount the inventory is expected to realise. For metal to be sold soon, that is close to current prices. For stockpiles to be processed over several years, companies typically use forward prices or their long-term price assumptions, consistent with those in impairment testing, and take account of the time until sale where it is significant. Price falls after the year end that confirm conditions at the year end are considered.

How are long-term stockpiles presented?

Stockpiles that will not be processed within twelve months of the reporting date are presented as non-current assets, separately from current inventories, because they will not be realised in the normal operating cycle of a year. The mine plan determines the split, and it should be updated as the plan changes. See mining accounting.

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