Reliable valuation of assets in extractive industries - International Financial Reporting Standards

Reliable valuation of assets in extractive industries

35.5. In addition to the issues set out in accordance with IFRS for the exploration and evaluation of mineral resources, I would like to dwell on the "International Guidelines for Valuation - Extractive Industries". This manual was developed by the International Committee on Evaluation Standards (ISCO), in 2004 the discussion of the project was completed. This document not only contains definitions used in international practice, but also explains the conditions under which the assets of extractive industries have different costs. Reliable estimates of the value of assets and interests in extractive industries are mandatory to guarantee the suitability of the capital necessary to maintain the integrity of an important component of the global economic base, to promote the productive use of mineral and oil resources, and to maintain the confidence of capital markets. International Valuation Guide - Extractive Industries & quot; provides a special guide for assessing the value of assets and interests in extractive industries. In addition, it provides additional guidance for the application of International Valuation Standards (IES 1, 2 and 3), International Valuation Applications (IGOs 1 and 2), and other international guidance (MR). It is made so that it specifically adds the following MPs for their use in extractive industries:

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• MR 1 "Valuation of real estate property";

• MR 2 "Estimate the cost of interest (rights) of the lease";

• MR 3 "Valuation of machinery and equipment";

• MP 4 "Valuation of intangibles (intangible) assets";

• MR 6 "Estimating the value of business (enterprises)";

• MR 8 & quot; Amortized replacement costs (ACS) & quot ;;

• МР 9 & quot; Discounted cash flow analysis (CGD) for valuations on a market and non-market basis. & quot;

If the financial reporting procedures compliant with the market rules are or are being considered, the appraisers must comply with the terms of the IGO 1 "Valuation for financial statements" in conjunction with the said MR. In some states, securities transactions and the need for administrative measures may cause specific reporting requirements for the extractive and petroleum industries that prevail over the provisions of the IES.

When providing additional guidance for assessing the value of property and interests, as well as for reporting extractive industries, the provisions of the MR do not replace any provision elsewhere in the current edition of the International Valuation Standards. Extractive industries are defined as industries involved in the detection, recovery and associated processing (processing) of natural resources located on the surface of the earth or in the bowels of the earth. These are the extractive and oil industries.

The property of reconnaissance or reconnaissance areas means a proprietary or oil real property interest that is actively explored for the existence of mineral or oil fields, but for which economic viability has not yet been substantiated.

The essential data that will be relied upon in calculating the cost must be checked for accuracy every time when it is reasonable to do so. This may include a selective review of information and samples from boreholes and related analytical data on property objects, as well as confirmation of published information relevant to transactions at other property sites. If there is more than one calculation of the quantity and quality of resources and inventories for the property object, the evaluator must decide which calculation corresponds to the disclosure and discussion and which calculation should be used as the basis for the valuation, and the evaluator must state these reasons.

The evaluator should take into account and make reference to other issues that significantly affect the valuation, including:

• The status of rented premises, rights and other interests;

• all mineral or oil fields within the boundaries of the terms of possession or rights;

• access to markets, quality and quantity of products that can be sold;

• services and infrastructure, any envisaged payments, other payments or obligations related to this;

• Environmental impact assessments and obligations to restore it;

• any local features of the title (property);

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• capital and operating costs;

• choice of time mode (timing) and completion of capital projects;

• calculation of residual value;

• Substantial agreements and legal (legal) requirements;

• Taxation and various royalties (Royalties);

• arrears and financial irregularities;

• Site restoration, claims and closing costs;

• Any other issue with an emphasis on valuation. Impairment

35.6. A check for impairment of developed and assessed mineral resources must be conducted in accordance with the requirements of IAS 36. In order to properly estimate the value of carry-over costs, exploration and evaluation assets of mineral resources must be necessarily tested for impairment. The identified impairment loss must be charged to profit and loss before reclassification and the deletion of assets from exploration and evaluation of mineral resources. Some tangible assets can be reclassified to fixed assets and general industrial inventories. The standard lists possible signs of impairment of developed and estimated mineral resources:

• the license for the operation of the field has expired, unless the license is renewed;

• additional costs for the development of specific areas were not budgeted;

• The discovered mineral resources are recognized as unprofitable, and a decision is made to stop further development;

• the book value of assets is unlikely to pay off due to the successful development or operation of the field. An entity should formulate a policy to classify the assets being developed and evaluated as cash-generating units, and then consistently apply this policy from period to period. If an audit of the impairment of developed and assessed assets is impractical for comparison with the data of the previous reporting period, the enterprise should disclose this fact.


35.7. The Company is required to disclose information identifying and explaining the amounts recognized in its financial statements and arising from the exploration and evaluation of mineral resources. A mining company must reflect:

• the accounting policy adopted by it with respect to exploration and evaluation costs of mineral resources, including recognition of exploration and evaluation assets of mineral resources;

• the amount of assets, liabilities, income and expenses, operating and investment cash flows arising from the exploration and evaluation of mineral resources. The organization is required to account for exploration and evaluation assets as a separate class of assets and to conduct disclosure in accordance with the requirements of IAS 16 or IAS 38 in accordance with how these assets are classified.

IFRS 6 requires that an enterprise's accounting policy for the recording of exploration and evaluation costs of mineral resources ensures that the financial statements are consistent with users' needs and that they can make economic decisions based on reliable and adequate information.

Justifying the changes in accounting policy, the company is obliged to show how these changes increase the degree of compliance of its financial statements with respect to exploration and evaluation of mineral resources to the criteria set out in IFRS 8.

Disclosure of information on exploration and evaluation of mineral resources is mandatory in terms of clarifying certain indicators of financial reporting. In particular, the adopted procedure for the recognition of assets, as well as the amount of assets, liabilities, income and expenses, operating and investment cash flows arising from exploration and evaluation of mineral resources, are disclosed.

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