IFRS 6 | Exploration for and Evaluation of Mineral Resources

1

Objective

The objective is to specify the financial reporting for the exploration for and evaluation of mineral resources.

2

Requirements

The IFRS requires: (a) limited improvements to existing accounting practices; (b) assessment of assets for impairment in accordance with this IFRS and measurement of impairment under IAS 36; and (c) disclosures identifying amounts in financial statements and explaining amount, timing, and certainty of future cash flows.

3

Scope

An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.

4

Exclusions

The IFRS does not address other aspects of accounting by entities engaged in exploration and evaluation (e.g., activities outside the specific scope).

5

Specific Exclusions

An entity shall not apply the IFRS to expenditures incurred: (a) before the legal rights to explore a specific area are obtained; or (b) after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

6

Recognition Exemption

When developing accounting policies, an entity is required to apply paragraph 10 of IAS 8 (relevance and reliability) but is exempt from paragraphs 11 and 12 of IAS 8 (which require considering other IFRSs and the Conceptual Framework) for the recognition and measurement of exploration and evaluation assets.

8

Initial Measurement

Exploration and evaluation assets shall be measured at cost.

9

Elements of Cost

An entity determines a policy for which expenditures are recognised as assets based on the degree to which they associate with finding specific mineral resources. Examples include: acquisition of rights, topographical/geological studies, drilling, trenching, sampling, and activities evaluating feasibility.

10

Development Costs

Expenditures related to the development of mineral resources are not recognised as exploration and evaluation assets. The Conceptual Framework and IAS 38 apply to development assets.

11

Restoration Obligations

Obligations for removal and restoration incurred during exploration and evaluation are recognised in accordance with IAS 37.

12

Subsequent Measurement

After recognition, an entity applies either the cost model or the revaluation model (IAS 16 or IAS 38) consistent with the classification of the assets.

13

Policy Changes

An entity may change its accounting policies only if the change makes the financial statements more relevant and no less reliable, or more reliable and no less relevant, judging by the criteria in IAS 8.

14

Justifying Changes

The entity must demonstrate that the change brings its financial statements closer to meeting IAS 8 criteria, though full compliance is not required.

15

Classification

Exploration and evaluation assets are classified as tangible (e.g., vehicles, rigs) or intangible (e.g., drilling rights) according to their nature.

16

Tangible Consumption

If a tangible asset is consumed in developing an intangible asset, the consumption is part of the cost of the intangible asset. Using a tangible asset does not convert it into an intangible one.

17

Reclassification

Assets are no longer classified as exploration and evaluation assets when technical feasibility and commercial viability are demonstrable. They must be assessed for impairment, and any loss recognised, before reclassification.

18

Impairment Recognition

Assets are assessed for impairment when facts and circumstances suggest the carrying amount may exceed the recoverable amount. If so, the entity measures, presents, and discloses any impairment loss under IAS 36.

20

Impairment Indicators

Facts and circumstances indicating impairment testing is required include: (a) the period for exploring has expired or will expire soon and is not expected to be renewed; (b) substantive expenditure on further exploration is neither budgeted nor planned; (c) exploration has not led to commercially viable discovery and activities are to be discontinued; (d) sufficient data exists to indicate that the carrying amount is unlikely to be recovered in full from successful development or sale.

21

Impairment Level

The entity determines a policy for allocating assets to cash-generating units (CGUs) for impairment testing. The level cannot be larger than an operating segment under IFRS 8.

23

Disclosure

An entity shall disclose information that identifies and explains the amounts recognised in its financial statements arising from exploration and evaluation.

24

Specific Disclosures

To comply with paragraph 23, an entity discloses: (a) its accounting policies for exploration and evaluation expenditures; and (b) amounts of assets, liabilities, income, expense, and operating/investing cash flows arising from these activities.

25

Class of Assets

Exploration and evaluation assets are treated as a separate class of assets. Disclosures required by IAS 16 or IAS 38 are made consistent with their classification.

26

Effective Date

The IFRS applies for annual periods beginning on or after 1 January 2006.

Appendix A

Definitions

• Exploration and evaluation assets: Exploration and evaluation expenditures recognised as assets in accordance with the entity's accounting policy.
• Exploration and evaluation expenditures: Expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
• Exploration for and evaluation of mineral resources: The search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource.