UNSD/NA/GS1 Mineral Exploration (Issue 17) UNSD/NA/GS1 Gulab Singh UN STATISTICS DIVISION Economic Statistics Branch National Accounts Section

UNSD/NA/GS 2 Mineral Exploration in the 1993 SNA Mineral exploration is undertaken in order to discover new deposits of minerals or fuels that may be exploited commercially. Such exploration may be undertaken on own account by enterprises engaged in mining or the extraction of fuels. Alternatively, specialized enterprises may carry out exploration either for their purposes or for fees. The information obtained from exploration influences the production activities over a number of years. The expenditures incurred on exploration within a given accounting period, whether undertaken on own account or not, are therefore treated as expenditures on the acquisition of an intangible fixed asset and included in the enterprise's gross fixed capital formation.

UNSD/NA/GS 3 Treatment in 1993 SNA In discovery of assets through mineral exploration, 1993 SNA recognises two assets “mineral exploration” as a category of produced fixed asset. “subsoil deposits’ as a category of non-produced assets. Exploration, whether successful or not, is treated as gross capital formation.

UNSD/NA/GS 4 Calls for review of present treatment Since publication of 1993 SNA a number of questions have been raised; Is the exploration 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?

UNSD/NA/GS 5 Since 1993 SNA SEEA examined these questions in depth and made detailed proposals. Canberra-II Group scrutinised the SEEA and confirmed that the 1993 SNA needed clarification but not substantive change. These recommendations represent a clarification of the SNA and not fundamental change

UNSD/NA/GS 6 Terminology and coverage for mineral exploration The IASB uses the expression “mineral exploration and evaluation” which includes expenditure on following items: 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. This coverage is substantially the same as the SNA coverage (1993 SNA 10.91)

UNSD/NA/GS 7 AEG Recommendations: Since information compiled according to the IASB recommendations is likely to form source material for statisticians, and because it is desirable to avoid giving the impression that the SNA coverage is narrower, it would seem desirable to adopt the longer and more precise terminology used by the IASB AEG Recommendations: The AEG agreed to change the item “mineral exploration” to “mineral exploration and evaluation” and to draw on the IASB coverage of this item to specify the SNA item.

UNSD/NA/GS 8 One asset or two? Is the exploration activity separable from the value of the asset? (one asset or two) There was a suggestion that instead of keeping the discovery of the asset separate from the deposit itself, they should be combined and a new “developed natural asset” recorded instead. This would be treated as a produced asset so that, in effect, the value of the deposit became included in the total of produced assets and excluded from the total of non-produced assets. This proposal received support from only a very few members of the Canberra II Group. AEG Recommendations The group agreed to maintain a distinction between: ‘mineral exploration and evaluation’ as a produced asset and the mineral deposit as non-produced assets.

UNSD/NA/GS 9 How to measure exploration activity? The 1993 SNA (para 10.91) recommendation has led a number of users to assume that the mineral exploration activity is always to be treated as a non-market activity with no associated net operating surplus. In case of own-account exploration, valuation may done so. However, when the activity is undertaken by a separate enterprise the full amount charged by this enterprise, including their net operating surplus, should be included in the value of mineral exploration and evaluation. AEG Recommendation: “mineral exploration and evaluation” is market production to be valued either at market prices, if purchased, or as the sum of costs plus mark-up, if produced on own-account.

UNSD/NA/GS 10 How to value deposits? AEG Recommendations There are 3 options to value deposits: Present value of net returns from exploitation Market prices (seldom available) Owner’s valuation The AEG agreed that the preferred valuation for mineral deposits is market price which is seldom available. In default, the deposit should be valued as the present value of future receipts of resource rent.

UNSD/NA/GS 11 How to record payments by the extractor to the legal owner of the deposit? The 1993 SNA makes it clear that payments made by the exploiter to the legal owner of the mineral deposit are to be treated as property income. Sometimes, 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

UNSD/NA/GS 12 AEG Recommendations In principle, payments by the extractor to the owner of the deposit are property income. Payments by extractor to owner of deposits should continue to be shown as property income even if they are described as taxes and treated as such in government accounts.

UNSD/NA/GS 13 Thank You