Submission to IASB - Stripping costs in the production phase of a surface mine

6 December 2010

Sir David Tweedie
Chairman
International Accounting Standards Board
30 Cannon Street
London EC 4M 6XH
UNITED KINGDOM

Dear Sir David

Stripping costs in the production phase of a surface mine

The Group of 100 (G100) is an organization of chief financial officers from Australia's largest business enterprises with the purpose of advancing Australia's financial competitiveness. The G100 is pleased to provide comments on this draft interpretation.

As indicated in our submission on the Discussion Paper 'Extractive Activities' the G100 considers that recognition and measurement requirements in IFRSs should be applicable to entities engaged in extractive activities and, accordingly, the principles in IAS 16 'Property, Plant and Equipment' should apply in respect of mining stripping costs as part of a mine asset.

Definition of a stripping campaign

Do you agree that the proposed definition satisfactorily distinguishes between a stripping campaign and routine waste clearing activities? If not, why?

No. The G100 believes that the definition does not distinguish activities with sufficient clarity to reduce the differences identified in current practice. The proposals result in three types of stripping costs being identified for accounting purposes, each requiring a different accounting treatment. The manner of distinguishing between these three categories is not clear and is likely to result in further inconsistencies in practice because of different interpretations of how to make a distinction and an increase in complexity. For example, the incurrence of routine stripping costs may enable indirect access to lower ore bodies in which case it is questionable whether all these costs should be expensed as incurred.

Allocation to the specific section of the ore body

Do you agree with the proposal to require stripping campaign component to be depreciated or amortised over the specific section of the ore body that becomes accessible as a result of the stripping campaign? If not, why?

No. The G100 doubts that this approach can be made operational. It is unlikely that the incurrence of stripping costs and the specific section of the ore body can be as easily identified as inferred in the examples provided. Miners would be pleased if such specific identification were to be the common experience.

However, it is not and is affected by changes in the scale and scope of operations, the nature and quality of the reserves and problems associated with the separation of stripping and routine costs.

Do you agree with the proposal to require the units of production method for depreciation or amortization unless another method is more appropriate? If not, why not?

Yes. The unit of production method would normally be the most appropriate approach. However, it is possible that an alternative approach such as using the life of mine strip ratio may be more appropriate in some cases.

Disclosures

Is the requirement to provide disclosures required for the existing asset sufficient? If not, why not, and what additional specific disclosures do you propose and why?

The G100 considers that disclosure in relation to these costs should be consistent with the disclosures relating to mining assets under IAS 16 'Property, Plant and Equipment.

Transition

Entities would be required to apply the proposed Interpretation to production stripping costs incurred on or after the beginning of the earliest comparative period.

Do you agree that this requirement is appropriate? If not, what do you propose and why?

The G100 believes that the transition requirements should be consistent with the requirements of IAS 8 'Accounting Policies, changes in Estimates and Errors'. Entities are likely to experience difficulties in applying the requirements with effect from the beginning of the comparative period.

The proposed Interpretation requires any existing stripping campaign component to be recognized in profit or loss, unless the component can be directly associated with an identifiable section of the ore body. The proposed Interpretation also requires any stripping cost liability balances to be recognized in profit or loss on transition.

Do you agree with the proposed treatment of existing stripping cost balances? If not, what do you propose and why?

No. The ability to associate costs directly with an identifiable section of the ore body is likely to be difficult in practice and would result in costs which qualify as part of a mining asset to be expensed. This would have adverse effects on comparability.

Yours sincerely
Group of 100 Inc

Peter Lewis
President