18 mineral exploration

8/10/2019 18 Mineral Exploration

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UNSD/NA/GS 1

Mineral Exploration(Issue 17)

UNSD/NA/GS 1

Gulab Singh

UN STATISTICS DIVISION

Economic Statistics Branch

National Accounts Section


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UNSD/NA/GS 2

Mineral Exploration in the 993 SNA

Mineral exploration is undertaken in order to discover newdeposits of minerals or fuels that may be exploitedcommercially.

Such exploration may be undertaken on own account by

enterprises engaged in mining or the extraction of fuels. Alternatively, specialized enterprises may carry out exploration

either for their purposes or for fees.

The information obtained from exploration influences theproduction activities over a number of years.

The expenditures incurred on exploration within a givenaccounting period, whether undertaken on own account ornot, are therefore treated as expenditures on theacquisition of an intangible fixed asset and included in theenterprise's gross fixed capital formation.


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Treatment in 993 SNA

In discovery of assets through mineral

exploration, 1993 SNA recognises two assets

mineral exploration as a category of producedfixed asset.

subsoil deposits as a category of non-producedassets.

Exploration, whether successful or not, istreated as gross capital formation.


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Calls for review of present treatment

Since publication of 1993 SNA a number of

questions have been raised;

Is the exploration activity separable from the value ofthe asset?

How to measure exploration activity?

How to value the deposit?

How to record payments by the extractor to the legal

owner of the deposit?


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Since 993 SNA

SEEA examined these questions in depth and

made detailed proposals.

Canberra-II Group scrutinised the SEEA andconfirmed that the 1993 SNA needed

clarification but not substantive change.

These recommendations represent aclarification of the SNA and not fundamental

change


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UNSD/NA/GS 6

erminology and coverage for

mineral exploration

The IASB uses the expression mineralexploration and evaluationwhich includesexpenditure on following items:

acquisition of rights to explore; topographical, geological, geochemical and geophysicalstudies;

exploratory drilling; trenching; sampling; and

activities in relation to evaluating technical feasibility andcommercial viability of extracting a mineral resource.

This coverage is substantially the same as theSNA coverage (1993 SNA 10.91)


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AEG Recommendations:

Since information compiled according to the IASBrecommendations is likely to form source materialfor statisticians, and because it is desirable to

avoid giving the impression that the SNA coverageis narrower, it would seem desirable to adopt thelonger and more precise terminology used by theIASB

AEG Recommendations: The AEG agreed to change the item mineralexploration to mineral exploration and evaluationand to draw on the IASB coverage of this item tospecify the SNA item.


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One asset or two?

Is the exploration activity separable from the value ofthe asset? (one asset or two)

There was a suggestion that instead of keeping the discoveryof the asset separate from the deposit itself, they should be

combined and a new developed natural asset recordedinstead. This would be treated as a produced asset so that, ineffect, the value of the deposit became included in the total ofproduced assets and excluded from the total of non-producedassets. This proposal received support from only a very fewmembers of the Canberra II Group.

AEG Recommendations The group agreed to maintain a distinction between:

mineral exploration and evaluation as a produced assetand

the mineral deposit as non-produced assets.


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How to value deposits?

AEG Recommendations

There are 3 options to value deposits:

Present value of net returns from exploitation

Market prices (seldom available)

Owners valuation

The AEG agreed that the preferred valuation for

mineral deposits is market price which is

seldom available. In default, the depositshould be valued as the present value of future

receipts of resource rent.


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How to record payments by the extractorto the legal owner of the deposit?

The 1993 SNA makes it clear that paymentsmade by the exploiter to the legal owner ofthe mineral deposit are to be treated as

property income.

Sometimes, when the owner of the resourceis the government, the payments may be

described as taxes even though they are stilleffectively appropriation of part of theresource rent


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AEG Recommendations

In principle, payments by the extractor tothe owner of the deposit are property

income.

Payments by extractor to owner ofdeposits should continue to be shown as

property income even if they aredescribed as taxes and treated as such ingovernment accounts.


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Thank You

18 mineral exploration

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