IFRS 6 - Exploration for and Evaluation of Mineral Resources

Introduction

The objective of this IFRS is to specify the financial reporting for the exploration for an evaluation of mineral resources.

In particular, the IFRS requires:

• Limited improvements to existing accounting practices for exploration and evaluation expenditures.
• Entities that recognize exploration and evaluation assets to assess such assets impairment in accordance with this IFRS and measure any impairment in accordance with IAS 36 Impairment assets.
• Disclosures that identify and explain the amounts in the entity's financial statements arising from the exploration for and evaluation of mineral resources and help users of those financial statements understand the amount, timing and certainty of future cash flows from any exploration and evaluation assets recognized.

Scope

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

An entity shall not apply the IFRS to expenditures incurred:

• Before the exploration for an evaluation of mineral resources, such as expenditures incurred before the entity has obtained the legal rights to explore a specific area.
• After the technical feasibility and commercial viability of extracting a mineral resources are demonstrable.

Recognition of exploration and evaluation assets

When developing its accounting policies, an entity recognizing exploration and evaluation assets shall apply IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and consider the criteria defined in that standard. (Please refer IAS 8)

Measurement of exploration and evaluation assets

Measurement at recognition

Exploration and evaluation assets shall be measured at cost. Subsequent measurement can be made either at cost of revaluation mode. The revaluation model may be either the revaluation model either at cost in IAS 16 - Property, Plant and Equipment or IAS 38 - Intangible Assets.

However, selected model should be consistently applied with the classification of the asset.

Elements of cost of exploration and evaluation assets

An entity shall determine an accounting policy specifying which expenditures are recognized as exploration and evaluation assets and apply the policy consistently. In making this determination, an entity considers the degree to which the expenditure can be associated with finding specific mineral resources.

Following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):

• Acquisition of rights to explore
• Topographical, geographical, geochemical and geophysical studies
• Exploratory drilling
• Trenching
• Sampling and activities in relation to evaluating the technical feasibility and commercial viability of extracting mineral resource

Classification of exploration and evaluation assets

Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.

If the following indications are presents, then assets classified as exploration and evaluation assets should be tested for impairment. This list is not exhaustive.

• The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed
• Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned
• Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area
• Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale

Specifying the level at which exploration and evaluation assets are assessed for impairment

An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with IFRS 8 Operating Segments.

Disclosure

• An entity shall disclose information that identifies and explains the amounts recognized in its financial statements arising from the exploration for and evaluation of mineral resources
• Company's accounting policies for exploration ane evaluation expenditures including the recognition of exploration and evaluation assets
• The amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources
• An entity shall treat exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 or IAS 38 consistent with how the assets are classified