Mineral exploration

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Mineral exploration

• Anne Harrison

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1993 SNA

• Introduced mineral exploration as a category of
  produced fixed asset
• Designated subsoil deposits as a category of
  non-produced assets

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Questions

• 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

• 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

• 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?

• 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?

• 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?

• SNA gives three options
• Present value of net returns from exploitation
• Market prices
• Owners valuation
• Market prices seldom available

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Net return from exploitation

• 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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Owners valuation

• 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?

• 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?

• 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