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Mineral exploration
Anne Harrison
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1993 SNA
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Introduced “mineral exploration” as a category of
produced fixed asset
Designated “subsoil deposits’ as a category of nonproduced assets
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Questions
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Is the discovery activity separable from the value of
the 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?
In whose balance sheet is the deposit recorded?
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Since 1993
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SEEA examined these questions in depth and made
detailed proposals
Canberra II looked at the SEEA and confirmed that
the SNA needed clarification but not substantive
change
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Terminology
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Replace “mineral exploration” by “mineral exploration
and evaluation”
This is in line with IASB which will be the main source
of information
Coverage of IASB item consistent (but more explicit)
than SNA description
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Is the discovery activity separable from
the value of the asset?
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Proposal to have “developed natural asset” not
widely supported
Agree to maintain two types of asset as in 1993 SNA
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How to measure exploration activity?
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SNA describes exploration in terms of costs of
various activities such as borings, aerial surveys etc.
Some readers have interpreted this to mean the
activity is valued as “sum of costs” ie non-market
This is loose wording in the SNA. Own account
exploration would be valued at the sum of costs
(including return to assets used) but when exploration
is carried out under contract, the whole value
including the operating surplus of the contractor is
included
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How to value the deposit?
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SNA gives three options
– Present value of net returns from exploitation
– Market prices
– Owner’s valuation
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Market prices seldom available
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Net return from exploitation
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Resource rent
Depends on value of exploration – the higher the
value of exploration, the lower the resource rent
Value of deposit as a stock is net present value of net
returns/resource rent
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Owner’s valuation
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Amount paid to owner may not match resource rent
Amount agreed in advance
Owner agrees to share return with the extractor
Preferred valuation of deposit is market price (if
available but unlikely) then net present value of
returns to extraction
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How to record payments by the extractor
to the legal owner of the deposit?
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Fundamentally is division (or entire transfer) of
resource rent
Is not a tax, however it may be described
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In whose balance sheet is the deposit
recorded?
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SEEA gave a number of options
One of these is partitioning the asset between the
owner and the extractor in proportion to shares of
resource rent
Some unease with sharing ownership of an asset
This issue is still to be decided in light of discussion
on leases and licences
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