Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 373
address accounting issues relating to mine exploration and evaluation activities. In addition, a
comprehensive accounting standard for the industry is in the works.
The dilemma with the mining compliance regimes is one of convergence. There is no
internationally agreed set of definitions for mineral resources and reserves or a global standard
governing their classification and reporting (PricewaterhouseCoopers, 2008). In its comparison of
mineral reporting practices and accounting policies, the International Accounting Standards Board
(IASC Foundation, 2008) concedes that some differences seem to be attributable to the fact that the
definitions were developed and updated independently of each other. The disparity is evident in current
practice. Mineral resources and reserves (MRR) are not reflected in the financial statements of most
extractive firms. Further, no specific guidance is provided as to disclosure in the accompanying notes.
These despite the fact that MRR are the most important information about a mining company
(Stephenson and Weatherstone, 2006).
The objective of this paper is to examine the public reporting practices in the mining industry.
The study focuses on two compliance frameworks, mineral disclosure and financial reporting. In the
following section, the significant developments in mineral and financial reporting are discussed. The
paper then proceeds to evaluate how MRR influence the preparation and presentation of financial
statements. Interspersed therein is a comparative study of listed mining companies to corroborate the
assertions made. Finally, the conclusions are presented.
2. Previous Research, Methodology and Sample Data
Portions of the study draw on related researches. It builds on the work of Vaughan and Felderhof
(2001) and updates their study on the comparison of mineral reporting codes. This paper extends the
examination to the reporting codes of Chile, Peru and the Philippines. The last two, however, are
virtual ‘clones’ as both adopted the Joint Ore Reserves Committee (JORC) Code in its entirety. In
2002, Goldsmith analyzed the effects of MRR on financial statements particularly, their impact on
operational performance. This paper revisits his work but also evaluates how the impact of MRR is
influenced by accounting policies in sampled firms.
To empirically support the findings, a comparative study of the annual reports of forty (40)
publicly-listed mining companies is performed. The focus is to evaluate the comparability of the
mineral reporting practices of these firms. The comparison extends to financial reporting where the
impact of MRR on company financial statements is examined. The sampled companies account for
more than 80% of the global mining business in 2007 based on market capitalization. This according to
the Hong Kong and Shanghai Banking Corporation (HSBC) Global Mining Index, the recognized
benchmark for investing in natural resource companies. The index is composed of 31 sub-categories
including a comprehensive list of the largest global mining entities.
Public reporting in mining companies is diversity in action. Despite the early and repeated recognition
of a need for a standardized approach (Cortese, et al., 2008; Weatherstone, 2000), the industry
subscribes to a patchwork of conventions. This is evident in the various mineral and financial reporting
standards discussed in Sections 3.1 and 3.2.
3.1. Development in Mineral Reporting
The reporting of mineralization developed haphazardly over time. Early initiatives saw most countries
creating their own standards. There was however no attempt for a reporting framework that will
transcend international boundaries (Stephenson, 2000). Since the implementation of the JORC Code in
1989 and the founding of the Committee for Mineral Reserves International Reporting Standards
374 Jay Stephen C. Siy
(CRIRSCO) thereafter, considerable progress was made towards a standardized approach to mineral
reporting. The formation of the latter was a step for increased harmonization as it brought together the
mineral reporting codes and guidelines in Australia (JORC), Chile (Institute of Mining Engineers of
Chile-IIMCh), Canada (Canadian Institute of Mining, Metallurgy and Petroleum-CIM), South Africa
(South African Mineral Resource Committee-SAMREC), the United States (Society for Mining,
Metallurgy and Exploration, Inc.-SME), the United Kingdom, Ireland and Western Europe (Pan
European Reserves Reporting Committee-PERC).
Except for the CIM Guidelines, the reporting codes share the underlying principles of
Materiality, Transparency and Competence (Competency for the SAMREC Code) in their
development and application. The SME Guide (2007) includes two additional principles, Consistency
between Financial and Technical Reports and Consistency between Financial Markets while
Impartiality is the fourth principle in the SAMREC Code (2006).
Diagram 1: The CRIRSCO Framework for Mineral Reporting
Mineral Resources Mineral Reserves
level of geological Indicated Probable
Consideration of mining, metallurgical, economic, marketing, legal,
environmental, social and governmental factors
(the “modifying factors”)
Following the CRIRSCO framework, estimates of mineralization are reported in two
categories, Mineral Resources and Mineral Reserves. Ore Reserves are synonymous to Mineral
Reserves but the JORC and IIMCh Codes (2004) prefer the former as it assists in maintaining the
distinction between resource and reserve. All other guidelines allow the use of the terms
interchangeably depending upon the nature of the mineral involved. Accordingly, the basic definitions
are as follows:
A ‘Mineral Resource’ (MRO) is a concentration or occurrence of material of intrinsic economic
interest in or on the earth’s crust in such form and quantity that there are reasonable prospects for
eventual economic extraction. The location, quantity, grade, geological characteristics and continuity
of a Mineral Resource are known, estimated or interpreted from specific geological evidence and
knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into
Inferred, Indicated and Measured categories.
An Inferred MRO is that part for which tonnage, grade and mineral content can be estimated
based on geological evidence and assumed, but not verified, geological and/or grade continuity.
Because the estimates are based on information which may be limited or of uncertain quality and
reliability, Inferred MRO has a lower level of confidence than that applying to an Indicated MRO. The
uncertainty surrounding such estimate precludes the notion that all or part of this type of mineralization
will be upgraded to an Indicated or Measured MRO as a result of further exploration.
Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 375
Indicated and Measured MRO are that part for which tonnage, densities, shape, physical
characteristics, grade and mineral content can be estimated with reasonable and high levels of
confidence, respectively. Both are based on exploration, sampling and testing information gathered
through appropriate techniques. The difference lies in the geological and/or grade continuity. In the
former, locations are too widely or inappropriately spaced to confirm continuity but are spaced closely
enough for such to be assumed. For the latter, the sample spacing is close enough to confirm geological
and/or grade continuity.
A ‘Mineral Reserve’ (MRE) is the economically mineable part of a Measured or Indicated
Mineral Resource. It includes diluting materials and allowances for losses which may occur when the
material is mined. Appropriate assessments and studies have been carried out and include consideration
of and modification by realistically assumed mining, metallurgical, economic, marketing, legal,
environmental, social and governmental factors. These assessments demonstrate at the time of
reporting that extraction could reasonably be justified. Mineral Reserves are sub-divided in order of
increasing confidence into Probable Mineral Reserves and Proved Mineral Reserves (Proven Mineral
Reserves is the term used in the CIM Guidelines and SME Guide).
Probable and Proved MRE are the economically mineable part of Indicated and Measured
MRO, respectively. A Proved MRE has the highest confidence level in reserve estimates. There is
direct relationship between Indicated MRO and Probable MRE and between Measured MRO and
Proved MRE (refer to Diagram 1). However, there are circumstances when uncertainties relating to the
modifying factors result to a lower confidence level for the reserve than the parallel resource category.
This explains how Measured MRO converts to Probable instead of Proved MRE (dashed line, Diagram
2). Conversely, an Indicated MRO could never be converted directly to a Proved MRE without first
being upgraded to Measured MRO.
In the foregoing, note how MRO estimates are derived primarily from geoscientific information
whereas MRE estimates are reliant on the analysis of the modifying factors. For MRO, the term
‘reasonable prospects for eventual economic extraction’ implies an initial judgment on the technical
and economic considerations likely to affect extractive potential. The assumptions made in relation to
the estimates should be clearly disclosed in a public report. For MRE, the national reporting codes
require appropriate assessments and studies to be carried out. The CIM Guidelines specifically want
reserves to be demonstrated by at least a Preliminary Feasibility Study. At the minimum, the SAMREC
Code necessitates a Pre-Feasibility Study for a project or a Life of Mine Plan for an operation. For its
part, the SME Guide requires a Mineral Reserves Declaration Report to be prepared. It contains the
results of fairly detailed evaluation, analyses and studies to affirm that extraction is reasonably
justified. These include mining methods, configurations and mineral production processes. All other
guidelines expect the Mineral Reserve Statement to disclose sufficient details indicating the source and
type of mineralization, assessment techniques and key assumptions, among others. The MRR report is
signed by the ‘Competent Person’.
Under CRIRSCO, the ‘Competent Person’ is a member of a professional society for earth
scientists or mineral engineers, or has other appropriate qualifications. He must have a minimum of
five years experience which is relevant to the style of mineralization, type of deposit and the activity
which that person is undertaking. He is called ‘Qualified Person’ in Canada (CIM, 2005) and
‘Qualified Competent Person’ in Chile (IIMCh Code, 2004). Phillips (2000) discussed the liability of
Competent Persons and Company Directors for resource and reserve disclosure. All CRIRSCO
member countries recognize Competent Persons from different mining jurisdictions. This is by virtue
of membership in Recognized Overseas Professional Organizations (ROPO) or for the SME Guide,
Recognized Professional Organizations (RPO) overseas.
376 Jay Stephen C. Siy
Table 1: Compliance Regimes in Global Mining Firms
Primary Listing Mining Company Mineral Reporting Framework Financial Reporting Framework
Australia Fortescue Metals Group JORC Code IFRS
Newcrest Mining JORC Code IFRS
Australia and UK* BHP Billiton (1) JORC Code IFRS
Rio Tinto (2) JORC Code IFRS
Brazil Vale (3) US SEC-Industry Guide 7 US GAAP
Canada Barrick Gold (9) CIM Guidelines US GAAP
Cameco CIM Guidelines Canadian GAAP
Goldcorp CIM Guidelines Canadian GAAP
Kinross Gold CIM Guidelines Canadian GAAP
Teck Cominco CIM Guidelines Canadian GAAP
Chile Codelco JORC Code IFRS
China China Coal Energy JORC Code IFRS
China Shenhua Energy (4) JORC Code IFRS
Jiangxi Copper Not disclosed IFRS
Yanzhou Coal Mining Not disclosed IFRS
Zijin Mining Group Not disclosed IFRS
India Neyveli Lignite Unknown basis for MRR disclosure Indian GAAP
NMDC (8) Unknown basis for MRR disclosure Indian GAAP
Indonesia Bumi Resources Not disclosed Indonesian GAAP
Inco Indonesia CIM Guidelines Indonesian GAAP
Peru Buenaventura Mining Unknown basis for MRR disclosure Peruvian GAAP
Russia Norilsk Nickel (7) JORC Code IFRS
Polyus Gold JORC Code IFRS
South Africa AngloGold Ashanti CIM, JORC and SAMREC IFRS
Anglo Platinum SAMREC Code IFRS
Gold Fields SAMREC Code IFRS
Impala Platinum Holdings SAMREC Code IFRS
Kumba Iron Ore SAMREC Code IFRS
United Kingdom Anglo American (5) JORC and SAMREC Codes IFRS
Antofagasta JORC Code IFRS
ENRC JORC Code IFRS
Kazakhmys JORC Code IFRS
Lonmin Not disclosed IFRS
Vedanta Resources Not disclosed IFRS
Xstrata (6) Not disclosed IFRS
United States Consol Energy US SEC-Industry Guide 7 US GAAP
Freeport McMoRan (10) US SEC-Industry Guide 7 US GAAP
Newmont Mining US SEC-Industry Guide 7 US GAAP
Peabody Energy US SEC-Industry Guide 7 US GAAP
Southern Copper US SEC-Industry Guide 7 US GAAP
Parentheses connote the ten largest mining companies by market capitalization
* BHP Billiton and Rio Tinto are dual listed companies
To the rest of the world, the JORC Code emerged as the most important template for the
development of mineral reporting standards. The CRIRSCO adopted its MRR categories and their
definitions from the said Code. The national reporting codes of Canada, Chile and South Africa are
patterned after it. Weatherstone (2000) claimed that the JORC Code is the ‘de facto’ best practice in its
field. This is affirmed in Table 1 where half of the ten largest mining companies and more than a third
of the sampled firms, including four of the world’s top five use the Code as a basis for mineral
reporting. As part of their internal policies, these firms adopted the JORC Code as a minimum standard
for disclosing mineralization and exploration results. Its Australian origin did not prevent wider
acceptance from mining companies overseas.
An important factor in the success of the JORC Code was the regulatory backing of the stock
exchanges in Australia and New Zealand making compliance mandatory for all companies listed or
listing in those exchanges. A similar development transpired in Canada and South Africa with the
active involvement of the local stock exchanges in crafting their respective codes. The same however
cannot be said of the market regulators in the United Kingdom and the United States. This is evident in
the absence of the PERC and SME Guides in Table 1.
Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 377
In the review of annual reports, ten companies failed to subscribe to any mineral reporting
framework. Buenaventura Mining, Neyveli Lignite and NMDC did not identify the basis of their MRR
disclosures. The rest of the firms provided no details as to the quantity of ore bodies possessed or the
breakdown per category.
The degree of compliance varied even for CRIRSCO-based standards. China Coal Energy and
China Shenhua Energy both violated the provisions of the JORC Code. The firms reflected insufficient
quantitative information with respect to the various MRR categories. Conversely, two companies
reported the use of more than one framework. Anglo American used the SAMREC Code for
consolidated subsidiaries which are primary listed in South Africa. While one of those subsidiaries,
AngloGold Ashanti adhered to the CIM Guidelines and the JORC Code for its respective operations in
Canada and Australia.
In the case of American mining companies, the Industry Guide 7 of the United States Securities
and Exchange Commission (SEC) rules supreme. Vale of Brazil also reports under this regime in the
absence of a local mineral reporting code. The SEC does not patronize the reporting standard
developed by the SME. In its place, the market regulator requires strict adherence to its own standard.
The Industry Guide 7 is a simplistic disclosure guidance which is 3 pages in length. It was last
updated in March 1981. The guideline, in its present form, may not be responsive to the market
realities facing extractive companies. In terms of content, the SEC only allows the disclosure of
mineral reserves and derives them differently from the CRIRSCO-based standards. It bars the reporting
of quantitative estimates, such as tonnages and grades, for all mineralization except for two recognized
reserve categories, Probable or Indicated and Proven or Measured. These terminologies are a source
of confusion with their similarity to the MRO categories of CRIRSCO.
The non-disclosure of MRO disadvantages companies by understating their reported mineral
assets. This may affect the calculation of future income negatively reducing the investment
attractiveness of these firms. Apparently, CRIRSCO users benefit from more realistic depiction of their
earnings potential but the SEC thinks differently. Its main purpose is to safeguard the investing public
(Abbott, 1985) which explains the restrictive definitions of mineralization categories in its guidelines.
The SEC believes its reserves-only standard is more appropriate in light of incidences like the Bre-X
scandal. Even for reserve estimates, public reporting is only allowed after the completion of full
feasibility studies. There are rare instances, however, when estimates other than reserves can be
reported. These are when (i) such information is required to be divulged by foreign and state law or (ii)
such estimate has been previously provided to an entity that is offering to acquire, merge, or
consolidate with, the registrant or otherwise to acquire the registrant’s securities.
As mentioned earlier, another key area of difference is the inputs used in estimating mineral
reserves. The CRIRSCO standards envisage the use of reasonable investment assumptions, including
the use of projected long term commodity prices. These includes long range commodity price forecasts
which are prepared by in-house specialists largely using future estimates of supply and demand and
long term economic outlooks. However, for United States reporting, the SEC requires historical price
data to be utilized. Only when historical data is unavailable are listed-mining firms allowed to use
‘reasonable forward looking estimates’. In so doing, reserves reported under such guideline may vary
considerably from CRIRSCO-based estimates.
Mineral estimates by geologists and engineers are relied upon heavily by accountants and
company executives. They serve as crucial inputs to financial reporting and decision-making in the
mining industry. The relationship, however, is not one-sided. All efforts towards a mineral standard
will be for naught if mineralization cannot be reported in a company’s financial statements.
3.2. Development in Financial Reporting
In the area of financial reporting, two frameworks predominate among the listed mining firms
examined. There are 24 firms which follow the IFRS and 7 firms which subscribes to the United States
378 Jay Stephen C. Siy
Generally Accepted Accounting Principles (US GAAP). All other companies in Table 1 adhere to the
national accounting standards in Canada, India, Indonesia and Peru. Recent developments on these
standards focus on increasing convergence with IFRS. The result is outright adoption in the case of
Peruvian GAAP and the expected transition of Canadian GAAP in 2011. In the United States, financial
statements prepared under IFRS will be allowed, without the need for reconciliation with US GAAP,
prior to adoption in 2014. For 2007 reporting, the accounting pronouncements in Canada, India and
Indonesia are largely aligned with IFRS. Their policy differences, together with US GAAP, are
discussed in the context of Section 3.3.
In spite of the progress noted earlier, the fact remains that there is no globally recognized
accounting standard for extractive companies. Existing IFRS and US GAAP have limited applicability
as they do not address industry reporting needs comprehensively. In search for uniformity in
accounting practices, the IASB embarked on its extractive industries project in 1998. It strives for
convergence with the Financial Accounting Standards Board (FASB), the accounting standard setter in
the United States, with its ‘modified joint’ approach. The undertaking focuses on upstream activities,
which in the mining context pertains to all aspects of the search for, finding, and extraction of minerals.
It seeks to develop an acceptable approach to settling financial reporting differences in the sector.
Issues of mineralization are of primary focus. These concern the definition, recognition, measurement
and disclosure of MRR in the financial statements and whether or not such estimates should be
reflected in the first place. Ultimately, the objective is to create an IFRS on accounting for extractive
The extractive activities research project has a chequered history. It resulted to the issuance of
an Issue Paper in November 2000. Subsequent to this, however, minimal development has taken place.
The initiative suffered its first setback amidst the restructuring at the International Accounting
Standards Committee (IASC), the IASB’s predecessor. It was removed from the active list of research
topics in 2001 due to time constraint (IASB, 2003). The second setback came in 2002 when the IASB
(2004) announced that it could not complete the project in time for the implementation of International
Accounting Standards (IAS) in many territories. With its initial timeframe not met, the IASB came up
with an interim measure. IFRS 6-Exploration for and Evaluation of Mineral Resources was issued in
December 2004. Effective 1 January 2005, it and the rest of the standards were adopted by the
European Union and several other countries worldwide.
At this point, it is clear that the industry lacks an integrating framework for both mineral and
financial reporting. Still, advancement on both fronts is evident with the increased adoption of IFRS
and CRIRSCO-compliant standards. In the study, two out of three mining firms employ either standard
in public reporting. While strides are being made in mineral reporting, enforceability is still an issue. In
Table 1, seven companies did not disclose their MRR. This is on top of three other firms whose basis
for reported mineralization cannot be verified. In financial reporting, on the other hand, noncompliance
is less of an issue compared to the impact of MRR on company financial statements.
3.3. Resources and Reserves: Impact on Financial Statements
Estimates of mineralization are crucial to the determination of mining companies’ financial results.
They underpin much of the value that investors place on the natural resource assets of extractive
businesses. Financial reporting contends not only with the presentation of MRR but how financial
statements are impacted in terms of financial position and earnings. This is demonstrated by MRR’s
direct impact on key accounting policies. Shifts in mineral projections influence asset carrying values
and returns through periodic charges against income as a result of depreciation, depletion or
amortization. In the same manner, obligations arising from mine restoration, rehabilitation and closure
are shaped by changes in MRR. Accounting of mine stripping, exploration and evaluation costs is also
significantly affected by these estimates. The aforementioned are critical areas of judgment which can
alter a mining company’s resource valuation, profitability and net worth. The same transactions are
repeatedly singled out as the greatest source of estimation uncertainty for listed mining companies.
Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 379
3.3.1. Exploration and Evaluation Costs
In mine accounting, the policy on pre-production exploration and evaluation (E&E) costs vacillates
between vague to overly prescriptive guidance. On one end is Indian GAAP with no specific policy for
the treatment of such costs. IFRS 6 is not much different. Firms are allowed to continue with current
treatment for exploration and evaluation costs as long as these are consistent and reliable. Although an
interim measure, this deviates from the uniformity thrust of the extractive industries project. For
Canada and the US, the mineral reporting policies of their market regulators heavily influence cost
treatments. Under US GAAP, E&E are charged to the income statement. This is consistent with the
SEC’s policy where development costs incurred prior to the establishment of proven and probable
reserves are expensed. Users of Canadian GAAP, on the other hand, are not precluded from
capitalizing E&E so long as MRO is determined to exist. Also, recoupment of costs should be
imminent via production or sale. A more lenient treatment is prescribed by Indonesian GAAP where
deferral is allowed whenever permit to explore is valid and (1) significant exploration is in progress or
(2) exploration cost is expected to be recovered through eventual extraction or sale of mining right.
Similar to IFRS, the current policies under Indonesian and Canadian GAAP perpetuate choice among
accounting methods. The diversity in accounting practice of users of the said regimes (a and c to h) is
shown in Table 2. This is in sharp contrast with firms reporting under US GAAP (b). Several
companies, notably those governed by IFRS and Indian GAAP (i) did not disclose E&E policies
altogether. Two other IFRS users (d and g) failed to specifically address their evaluation costs.
The impact of MRR is most evident in the deferral of E&E costs. The recognition of these costs
as mining assets or as a component thereof entails subsequent depreciation upon the start of mining
operations. The periodic charge against income is derived using the units-of-production method which
is based on MRR. Besides estimates of MRR, the timing of deferral also influences the changes in
depreciation. Mining firms that capitalize E&E earlier (h; evaluation costs, f) will have more costs to
amortize over the life of mine compared to those that do so after project viability is established
(exploration costs, f; evaluation costs, c and e).
Table 2: Treatment of Exploration and Evaluation Costs
Cost of Evaluation
Mining Company Cost of Exploration Activities
(a) China Shenhua Energy, Codelco, Vedanta Resources Expensed as
(b) mining companies reporting under US GAAP Expensed until
(c) Anglo American, Antofagasta, Inco Indonesia, Kinross Gold, Rio project viability is
Expensed as incurred
Tinto established; deferred
(d) Buenaventura Mining Treatment not
(e) AngloGold Ashanti, Anglo Platinum, BHP Billiton, Cameco, China Expensed until
Coal Energy, Impala Platinum, Kumba Iron Ore, Lonmin, Zijin project viability is
Mining established; deferred
Expensed until project viability thereafter
(f) Goldcorp, Gold Field, Teck Cominco is established; deferred Deferred; expensed
thereafter only if project is not
(g) Norilsk Nickel Treatment not
(h) Bumi Resources, ENRC, Fortescue Metals Group, Kazakhmys, Deferred; expensed only if project is not viable
Newcrest Mining, Polyus Gold, Xstrata
(i) Jiangxi Copper, Neyveli Lignite, NMDC, Yanzhou Coal Mining Treatment not disclosed
3.3.2. Stripping Costs
The accounting of mine stripping costs is another area where industry practice varies. IFRS and Indian
GAAP provide no specific guidance in this regard. As a result, users of the said frameworks (Table 3-
380 Jay Stephen C. Siy
b, d, e and g) treat stripping costs differently. The lack of guidance also results to non-disclosure in a
considerable number of firms (h). Fortunately, there are policies under Canadian, Indonesian and US
GAAP that deal with these costs. Development or pre-production stripping is deferred in all three
regimes. Under Canadian GAAP, production stripping costs are accounted for according to the benefits
received by the entity. Companies can opt to defer these costs as betterment of mining properties or
include them as component of inventory cost. For US GAAP, the latter treatment is required.
Indonesian GAAP, on the other hand, allows production stripping to be deferred or expensed
depending upon the mine stripping ratio.
In the study, several treatments of stripping costs persist. Some firms charge these costs directly
against income in the period incurred (d; production stripping, e and f) or indirectly as inventory cost
reflected as part of cost of goods sold upon sale (production stripping, a to c). Others defer stripping
costs as part of mining property which is subsequently amortized on a units-of-production basis after
operation commences. For development stripping (a to c and e to g), and deferred production stripping
costs (a, e and f), amortization results to periodic charges against income over the life of mine (‘periods
of benefit’) which tends to vary based on the changes in MRR. With respect to production stripping, a
deferral approach dependent on the mine stripping ratio predominates (e and f). These costs are
deferred when actual is higher than average mine stripping ratio. In periods when the reverse is true, an
appropriate amount of deferred cost is written off. When the stripping ratio is expected to be constant
during the life of mine, production stripping is expensed as incurred. The ratio is based on mined MRE
for the period.
Table 3: Treatment of Mine Stripping Costs
Mining Company Development Production
(a) Mining companies reporting under Canadian GAAP Choice between
(b) Codelco, ENRC, Kazakhmys deferral and
(c) Mining companies reporting under US GAAP Inventory cost
(d) China Coal Energy, China Shenhua Energy, Vedanta Resources Expensed as incurred Expensed as
(e) Anglo American, AngloGold Ashanti, Anglo Platinum, BHP
Billiton, Gold Field, Newcrest Mining, Neyveli Lignite, NMDC, Rio
Tinto, Xstrata Deferred
on stripping ratio
(f) Mining companies reporting under Indonesian GAAP
(g) Buenaventura Mining
(h) Antofagasta, Fortescue Metals Group, Impala Platinum, Jiangxi
Copper Kumba Iron Ore, Lonmin, Norilsk Nickel, Polyus Gold, Treatment not
Treatment not disclosed
Yanzhou Coal Mining, Zijin Mining
3.3.3. Decommissioning, Restoration and Closure Costs
Extractive firms are subjected to environmental regulations in the various jurisdictions where they
operate. More often than not, the regulations obligate the restoration of mined areas as well as the
proper decommissioning and closure of mining assets such as tailing dams, etc. As such, provisions for
asset retirement obligations (ARO) are recorded as soon as production commences. This not only
involves the recognition of a liability, equal to the present value of the ARO, but also the capitalization
of corresponding cost as Property, Plant and Equipment. The expected timing of decommissioning,
restoration and closure costs is dependent on the life of mine plan. This, in turn, is based on resources
and reserves. The same is true for the subsequent depreciation of the capitalized cost.
In accounting for ARO, companies reporting under Canadian and US GAAP follow similar
guidance. Prior to recognition, both standards require that a legal obligation exists and that reasonable
estimates of fair value be made. For IFRS, Indian and Indonesian GAAP, a liability is recorded as long
as the probability of an obligation is ‘more likely than not’. Also, the ability to estimate fair value is
not required. ‘Best estimates’ will suffice. While Indian GAAP closely resembles IFRS, there are
important differences. Users of the former can recognize a provision using undiscounted cash flows
Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 381
and not capitalize the corresponding cost as asset. The latter is evident in the case of Neyveli Lignite
3.3.4. Amortization and Depreciation Charges
In mine depreciation, two methods are widely used: Straight-Line and Units-of-Production (UOP).
Both are also employed in amortizing intangibles. Irrespective of regime, the reduction in income as a
result of these charges is influenced by mineralization. Shifts in mineral estimates invariably affect
asset useful lives and life of mine plans. These, in turn, determine amortization and depreciation. Note
that capitalized asset retirement, stripping and E&E costs are all depreciable.
In Table 4, the amortization and depreciation bases of the mining companies examined are
shown. Mineral reserves are the overwhelming choice for CRIRSCO and Industry Guide 7 users (a to c
and e to h), difference in definition notwithstanding. The same is true for firms with undisclosed
frameworks (j and l). A few (b and c) specifically use proved reserves in depreciating particular assets.
Two companies (d and m) utilize mineral resources and reserves, the latter under an undisclosed
framework. Other companies (i and n) did not divulge their bases. The choice of depreciation base has
significant implication. Employing a larger base, i.e. resources and reserves, results to smaller charges
against income over the period of benefit as opposed to a smaller base like mineral reserves. Hence,
CRIRSCO-based reserves translate to less depreciation compared to its SEC-defined counterpart. The
use of a fraction of total reserves, therefore, results to the largest depreciation charge.
Table 4: Basis for Amortization and Depreciation Charges
Mining Company Basis Definition Source
(a) Anglo American, Antofagasta, BHP Billiton, China Shenhua Energy,
ENRC, Fortescue Metals Group, Newcrest Mining, Norilsk Nickel, Proved and Probable Reserves
Proved Reserves (mining
structures) JORC Code
(b) China Coal Energy
Proved and Probable Reserves
(c) Kazakhmys Proved Reserves
(d) Rio Tinto Mineral Resources and Reserves
(e) Barrick Gold, Inco Indonesia
Proven and Probable Reserves CIM Guidelines
(f) Mining companies reporting under Canadian GAAP
(g) Mining companies reporting under US GAAP except Barrick Gold Proven and Probable Reserves Industry Guide 7
(h) AngloGold Ashanti, Anglo Platinum, Gold Fields, Impala Platinum Proved and Probable Reserves
(i) Kumba Iron Ore Not disclosed
(j) Buenaventura Mining, Lonmin, Yanzhou Coal Mining, Zijin Mining ‘Proven and Probable Reserves’
(k) Vedanta Resources ‘Proved and Probable Reserves’
(l) Neyveli Lignite, NMDC ‘Estimated Mineable Reserves’
(m) Xstrata ‘Estimated Recoverable
Resources and Reserves’
(n) Jiangxi Copper, Bumi Resources, Codelco Not disclosed
This study examines compliance regimes in the mining business. The diversity in industry reporting is
attributed to the separate evolution of mineral disclosure and financial reporting. The lack of
convergence is evident in current practice. MRR are not reflected in the financial statements of most
extractive firms. This despite their pervasive impact on financial reporting and industry stature as
primary assets. The proliferation of financial and mineral reporting standards complicates matters.
Compared to CRIRSCO-based guidelines, Industry Guide 7 understates MRR with its reserves-only
disclosure. Different accounting policies, on the other hand, vary MRR’s influence on the financial
statements. An empirical examination of publicly-listed mining firms validates these findings. The
382 Jay Stephen C. Siy
results show that the comparability of sampled companies is hampered by (i) divergence in mineral
reporting guidelines; (ii) policy differences between IFRS and national accounting standards; (iii) non-
disclosure of mineralization and/or the lack of accounting guidance; and, (iv) non-existence of
integrating mechanism between the two regimes.
The need for a consistent and reliable approach to public reporting becomes increasingly
important with the rapid globalization of the mining industry. Investors rely in no small part to
information and assertions made in company reports as bases for decision-making. Diversity in
reporting practices deters meaningful assessment by users undermining the ability to raise capital and
the effective communication of achievements and potentials.
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Compliance Regimes in Publicly-listed Mining Firms: Mineral Resources and
Financial Reporting Issues 383
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