Financial Reporting in the Global Mining Industry

1 Financial Reporting in the Global Mining IndustryA survey of twenty-one leading companiesManaging Risk in the Global Mining IndustryMining for the Best ReportIASC Extractive Industries Issues PaperComprehensive IntegratedSolutions for the Mining IndustryA study of the role of internal audit in today sglobal Mining communityAn analysis of Reporting on sustainability andenvironmental issues by leading miningand metals companiesA summary and analysis of the important issuesprepared specifically for the Mining industryA description of our Global Mining practice and ourrange of services, including examples ofprojects undertakenDeloitte Touche Tohmatsu is one of the world sleading professional services organisations. Themember firms of Deloitte Touche Tohmatsu deliverworld-class assurance and advisory, tax, andconsulting services.

2 With 119,000 people in 140countries, the member firms serve more than one-half of the world s largest companies, as well aslarge national enterprises, public institutions andsuccessful,fast-growing internationally experienced professionals striveto deliver seamless, consistent services whereverour clients operate. Our mission is to help ourclients and our people excel. Our Global miningpractice provides a comprehensive range of audit,tax, consulting and Financial advisory services tothe Mining and metals Industry and counts mostof the leading companies in the Industry amongits publication is one of a series prepared to helpour clients in the Mining Industry . Other publicationsinclude:About Deloitte Touche TohmatsuContentsFINANCIAL REPORTINGMININGCONTENTSI ntroductionpage oneDisclosures about mineral reserves and resourcespage twoAccounting for exploration and mine developmentpage eightAmortisation of capitalised costs related to mineral reservespage fourteenAccounting for impairmentpage sixteenAccounting for site rehabilitation and environmental costspage eighteenBusiness combinations accounting for goodwill and mineral rightspage twenty-oneAccounting for joint ventures and related undertakingspage twenty-fourCurrencies used in Financial statementspage twenty-sixTables analysing certain accounting policies & disclosurespage twenty-eightCompany reports reviewed page thirtyReferencespage thirty-threeDeloitte Mining Industry Leadership Teampage

3 Thirty-fourKey accounting policies and disclosures:Grey QuartzThis mineral occurs commonly in igneous, metamorphic, and sedimentary rocks,and can be frequently found in mineral veins with metal oresIntroductionIn November 2000, the international Accounting standards Committee published Extractive Industries,An Issues Paper issued for comment by the IASC Steering Committee on Extractive Industries (referredto hereafter as the IASB Steering Committee ). (1) During the comment period, we produced a publicationthat summarised for our Mining clients the major issues REPORTINGMININGINTRODUCTIONMany companies in the Mining Industry submitted thoughtfulcomments on the Issues Paper, as did Deloitte ToucheTohmatsu. However, with the subsequent formation of theInternational Accounting standards Board (IASB) and theadoption of a new agenda by the IASB, extractive industrieshas taken a back seat and is not currently listed as an active research topic.

4 While the subject continues toreceive the attention of a group of national standard settersinterested in accounting in the extractive industries,comprehensive Global accounting standards for the industryare clearly a long way convergence of accounting standards around theworld has helped to narrow some of the accountingdifferences found in the Mining Industry , for instance, inareas such as accounting for site reclamation and businesscombinations. Many issues remain to be addressed,however. This publication highlights the more importantareas and summarises current practice, without offeringsolutions or suggesting best findings are based on a review of the published annualfinancial statements and supplementary data of twenty-one of the world s leading Mining companies.

5 Thesecompanies listed on page thirty, are domiciled in ninedifferent countries and use seven different accountingframeworks for preparing their Financial statements. Welooked at their Reporting in many of the key areas addressedby the IASB Steering Committee: accounting for explorationcosts and mine development, the amortisation of capitalisedcosts, the issue of impairment, provisions for costs to beincurred after mine closures, establishing fair values in abusiness combination and Reporting interests in jointundertakings. We also looked into an area not addressedby the steering committee, but an important one wherepractice seems to vary: the currency used to measure theresults of operations. Mining is an Industry where theproduct is generally priced in dollars regardless ofwhere it is survey of this nature would be complete without reviewingsupplementary disclosures about mineral reserves, generallythe most valuable asset of a Mining company, but one youwill not find on the balance sheet.

6 While not reflected asan asset, the way a company determines its mineral reservesis critical to most amortisation calculations, for addressingimpairment, and comes into play in determining fair valuesin a business a few places in this report, we have referred to views ofthe staff of the Securities and Exchange Commission(SEC) that are a matter of public effort has been made to ensure the accuracy of thecontents of this publication but Deloitte Touche Tohmatsuaccepts no responsibility for any errors or hope that this survey of accounting and Reporting bymany of the Industry s leading companies will be useful tomining companies worldwide. We also hope it will be ofvalue to those who are working towards the eventualestablishment of accounting standards that will addressthe issues unique to this Industry .

7 This is a goal we FryerGlobal Leader Mining Industry PracticeDeloitte Touche Tohmatsupage oneAlthough its mineral reserves are arguably the mostvaluable asset of a Mining company, they do not appearas an asset on the balance sheet except to the extentthey were purchased. Even then, the cost of mineralreserves is often not disclosed separately from othermining-related fixed about mineralreserves and resourcespage twoUnder the historical cost model, mineral reserves that resultfrom a company s exploration activities do not appear asan asset. Information on mineral reserves is, however, vitalto investors and analysts in predicting future cash flowsand evaluating the prospects for a Mining company. Thus,supplementary disclosure about mineral reserves outsidethe Financial statements is important for a more completeappreciation of the value of an quantities of minerals beneath the earth s surfacecannot be known with absolute precision, reserves areusually categorised as proven or probable, dependingon the degree of confidence about the accuracy of thedisclosed quantity.

8 All of the companies we reviewed thatdisclose information on reserves provided quantities ofproven and probable reserves, in some cases separatelyand in other cases companies disclose in their annual reports informationon mineral resources as well as reserves. Mineral resourcesare quantities of minerals for which there are reasonableprospects of eventual economic extraction. These areclassified as measured, indicated or inferred, dependingon the degree of confidence. Only those parts of a company smineral resources that have been determined to beeconomically extractable can be classified as distinction is important from an accounting perspectivesince only proven and probable reserves are used incalculating amortisation on a unit-of-production basis andin measuring impairments.

9 Most of the companies wereviewed state this explicitly in their Financial statements,and those that do not are believed to follow this speaking, only proven and probable reservesare taken into account in determining fair values foracquisition SEC does not permit the disclosure of other thanproven and probable reserve quantities on a unit of salebasis, such as ounces for gold, in filings with the commission.(2) The SEC will, however, permit the disclosure of measuredand indicated mineral quantities on a non-unit of sale basis,such as tonnes and grade of material in the ground forgold. The companies that we reviewed did notprovide disclosure of resources not classified as in other jurisdictions that we reviewed disclosedboth reserves and resources in their annual reports.

10 Withlimited exceptions, however, foreign filers with the SEC donot disclose information on resources in theirSEC , there is no internationally agreed set ofdefinitions for reserves and resources and the sub-categorieswithin each. Three definition frameworks commonly usedare CIM, JORC and SAMREC, developed by the miningindustry in Canada, Australia and South Africa, respectively.(3) Not surprisingly, companies based in these countriesused their own framework. In the United States, the SEChas developed its own definitions of reserves, which arecontained in its Industry Guide 7. Unlike the otherframeworks mentioned, the SEC requires completion of afinal or bankable economic feasibility study before it willallow measured or indicated mineral resources to beclassified as reserves in SEC filings.