METAC Workshop March 14-17, 2016 Beirut, Lebanon National Accounts Compilation Issues Session 4.1: Mineral exploration and evaluation of mineral resources

Mineral exploration and evaluation Background – SNA 1993/SEEA 2003/2008 SNA Terminology – Produced and non-produced assets Valuation – Own account and hired external services Payments to owner – Property income

Background The concept of mineral exploration as a new category of produced assets has been introduced by the SNA 1993 The system of environmental accounting, SEEA 2003 contributed further in elaborating the concepts and definitions; The Canberra II Group has confirmed the treatment of the SEEA and proposed updates in the 1993 SNA, regarding: – … the coverage of the activities and assets, close to the International Accounting Standards Board (IASB); valuation at market prices; classifying payments from extractor to the owner of the assets as property income. – … these recommendations represent a clarification in the 2008 SNA, not fundamental change

Definition 2008 SNA, Para – Mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made. – The 2008 SNA maintains the distinction between the act of exploring for mineral resources (treated as a produced asset) and the mineral resources themselves (treated as non-produced assets).

Terminology and coverage Based on the IASD term “mineral exploration and evaluation”, including the following expenditures: – acquisition of rights to explore; – topographical, geological, geochemical and geophysical studies; – exploratory drilling; – trenching; – sampling; and – activities in relation to evaluating technical feasibility and commercial viability of extracting a mineral resource.

Valuation when exploration is carried out on own account: – as the sum of costs plus mark-up (an estimate of the return to the capital being used); – … included in the Gross Output and GFCF, capitalized expenditures when the activity is undertaken by a separate enterprise: – the full amount charged by this enterprise should be included in the value of mineral exploration and evaluation.

Payments to the owner of the mineral deposit … treated as property income/expenditures, not related to the intermediate expenditures: – The owners of the assets may grant leases to other institutional units permitting them to extract (or explore and evaluate) such deposits over a specified period of time in return for the payment of rents, or... – … often described as royalties, but actually they are rents that accrue to owners of the assets in return for putting them at the disposal of other institutional units for specified periods of time – when the owner of the resource is the government, the payments may be described as taxes even though they are still effectively appropriation of part of the resource rent … but it would introduce a discrepancy between taxes in the SNA and in government accounts.

Current practice Own account mineral exploration and evaluation is not considered as part of the production accounts in most cases; – most of the countries use the quantity/price method for measuring gross output in mining; In most cases, the information on own account expenditures for GFCF (including mineral exploration and evaluation) is not explicitly required/requested; When the own account expenditures are specified, and included in the value of gross output, no mark up adjustment is applied for estimating capital services.

Solutions Updating/revamping questionnaires for collection of regular information on mineral exploration and evaluation, including own account – on the production site: expenditures for own account GFCF, as a part of the gross output; – on the investment site: specifying the expenditures for mineral exploration and evaluation, including by own account To investigate whether and in what extend the business accounting standards for mining sector correspond to the national accounts definitions; Close collaboration with respective regulatory bodies and associations:

Solutions Algeria: – Ministry of Energy and Mining – National Agency for Mining Resources – GOLDIM (Exploration of mining fields, marketing of exploitation products) – FERPHOS (Exploitation, marketing and export of iron and phosphate) Egypt: – Ministry of Petroleum and Mineral Resources – Centamin Egypt Limited – a gold explorerwww.centamin.com Iraq: – Ministry of Oil – Republic of Iraq National Investment Commission

References 2008 SNA, Chapter 10, Paragraph – IFRS 6 Exploration for and Evaluation of Mineral Resources, IAS Plus, International Accounting Standards Board BALANCE SHEET VALIJATION: Produced intangible assets and non-produced assets, STATISTICS NETHERLANDS

Thank you