Mineral exploration Anne Harrison

1993 SNA Introduced “mineral exploration” as a category of produced fixed asset Designated “subsoil deposits’ as a category of non-produced assets

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?

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

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

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

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

How to value the deposit? SNA gives three options Present value of net returns from exploitation Market prices Owner’s valuation Market prices seldom available

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

Owner’s 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

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

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