Recording the ownership
of mineral-related assets
London Group
Rome, December 2007
Peter Comisari
Australian Bureau of Statistics
SEEA 2003
Characterised by multiple treatment options for
some issues

If SEEA is to become a statistical standard,
these ‘options’ must be reconstituted as clear
accounting recommendations

Box 10.3 (SEEA, Ch.10) presents 3 options for
recording ownership of mineral-related assets

Overview
• Who ‘owns’ mineral related assets
– legal owner or economic owner?
– or partitioned (split) between these?
• Mineral-related assets:
– mineral exploration knowledge asset
– mineral resource
SEEA suggests 2 options:
• SEEA option [D1] shows mineral
exploration in the balance sheet of the
extractor and the value of the deposit in
the balance sheet of the legal owner. If
the agreement between the owner and
the extractor allows for the extractor to
retain some of the resource rent coming
from the asset, the ownership of the
asset should be partitioned accordingly.
SEEA suggests 2 options:
• SEEA option [D2] shows both the
mineral exploration and deposit as being
in the de facto ownership of the
extractor. In addition, the extractor has a
financial liability towards the owner
corresponding to his share of the
resource rent. This amount is also
shown as a financial claim in the balance
sheet of the owner.
Two distinct assets
• We are trying to determine
ownership of 2 distinct assets:
• 1. mineral exploration knowledge
asset
• 2. mineral resource
Mineral exploration asset
• typically produced and distributed in
the following ways:
• 1. produced (and used) ‘in-house’
as own-account production by
extractor
• 2. produced by a specialist
exploration company then sold to
an extractor
Mineral exploration asset
• LG decided in Johannesburg that
mineral exploration asset and
mineral resource are separate
assets
– decision endorsed by UNCEEA
– consistent with draft SNA93Rev.1
Mineral exploration asset,
continued…
• can therefore assign ownership of
mineral exploration and mineral
resource to different entities
• i.e. treatment of mineral exploration
independent of treatment of the
mineral resource
Legal & economic ownership
• Legal owner – the entity with claims
to ownership under law
• Economic owner – the entity
accepting the risks and rewards of
ownership
• assigning ownership to economic
owner is more analytically useful.
Mineral exploration asset –
allocating ownership
• own account production: legal
owner = economic owner
• where specialist exploration
company produces the asset, stays
on their balance sheet until sold
• therefore always recorded on the
balance sheet of the legal owner
Using mineral resources
1. owner may permit use of the
resource to exhaustion
2. owner may allow extended use of
resource where user controls the
resource
3. owner may extend / withhold
permission to use from one year
to the next
Using mineral resources,
continued
•
under the second set of
conditions, 3 possible options to
allocate ownership on the balance
sheet:
1. with the legal owner
2. with the extractor; or
3. partition ownership between legal
owner and extractor
Options outlined in the paper:
1. ownership with legal owner
2. ownership with the extractor
(SEEA option D2)
3. simple partition of ownership
(SEEA option D1)
4. partition of ownership – financial
lease approach
What does SNA say?
• Draft SNA93Rev.1 states that
– in principle, partition the asset using a
financial lease approach
– default option is to record ownership
with the legal owner
Record with legal owner
• legal owner has clear ownership
claims
• existing practice of most countries?
• simple to implement
– many resource-rich countries have
limited statistical capacity
Table 1: Recording ownership on the
balance sheet of the legal owner
Balance sheet: legal owner
Legal owner
NPV expected
rentals
Assets
Liabilities
910
Record with legal owner,
continued
• rentals (royalties) are paid by the
user to the owner
• In cases where extractor avoids
decommissioning bond, legal owner
takes on risks of ownership
Record with legal owner,
continued
• BUT net worth of legal owner may
be inflated inappropriately
• depletion charge against output and
income of extractor
– at same time, reducing the balance
sheet value of legal owner’s mineral
resource asset
Record with extractor
• recognises extractor’s acceptance
of risks/rewards of ownership
during life of extractive licence
– pre-agreement on how payments
made
– licence often transferable
• some compatibility with commercial
accounting?
Record with extractor,
continued…
• BUT extractor suffers decline in
asset wealth and makes rental
(royalty) payments
• wealth of legal owner remains zero
(unaffected by extraction activity)
• productivity analyses affected –
compare extractor’s output only
with relevant economic asset
Record with extractor, but
financial liability for expected
rentals (SEEA option D2)
• results in a simple asset ‘partition’
– reflecting that both legal owner and
extractor have claims
• recognises extractor’s future
obligation to make rental payments
• both legal owner and extractor
show some net decline in wealth
Table 2: Recording ownership on
the balance sheet of the extractor
(SEEA option D2)
Legal owner
Assets
NPV expected
rentals
Liabilities
270
Extractor
Assets
Mineral resource
NPV expected
rentals
Liabilities
910
270
‘Partitioning’ mineral resources
• mineral resources usually valued as
NPV of expected future benefits
– benefits during extractive licence =
extractor
– benefits beyond extractive licence =
legal owner
SEEA option D2, continued…
• BUT option D2 implicitly assigns
expected benefits beyond the
extractive agreement to the
extractor
– productivity analyses
SEEA option D2, continued…
• ‘expected rentals’ – somewhat
contingent in nature
• rentals not usually equal to
resource rents earned
– if so, inappropriate partition will result
Partitioning mineral resource
– SEEA option D1
• record mineral resource on balance
sheet legal owner
– but, where extractor retains share of
resource rent…
• this share represents extractor’s part of
the mineral resource
• relatively simple
Table 3: Partition ownership legal owner
and extractor – SEEA option D1
Legal owner
Assets
Mineral resource
Liabilities
700
Extractor
Assets
Mineral resource
Liabilities
210
Partitioning mineral resource
– SEEA option D1, cont’d…
• BUT
• if rentals are less than the resource
rent earned by extractor, extractor’s
share is understated
• why is the extractor paying rentals
for an asset they ‘own’?
Partition: financial lease
arrangement
• Partitioned according to:
– benefits during extractive licence =
extractor
– benefits beyond extractive licence =
legal owner
• i.e. extractor ‘owns’ the resource for
life of extractive licence
– an appropriate partition
Partition: financial lease
arrangement, continued…
• rental payments form basis for
imputed interest/principal to pay for
resource ‘acquisition’
• supports appropriate depletion
adjustments
– to extractor’s output, income etc.
– to extractor’s share of asset
• aids analyses of productivity etc.
Partition: financial lease
arrangement, continued…
• New discoveries / reappraisals
– flow accounts will reflect revised
benefits secured by the extractor
• (i.e. based on changed expected rentals)
Table 4: Partitioning – financial
lease approach
Legal owner
Assets
Mineral resource
Loan, mineral resource
Liabilities
430
270
Extractor
Assets
Mineral resource
Loan, mineral
resource
Liabilities
480
270
Partition: financial lease
arrangement, continued…
• BUT relatively complex
– significant assumptions about
expected prices, extraction rates etc.
– would require very detailed mine-level
data, or else use of assumptions at
macro level
– if revisions are large and / or frequent,
analytical usefulness is reduced
Determining the ‘best’ option
• need to reflect environmental /
economic realities underlying the
legal constructs
• consistent with SNA principles
• information systems should meet
important analytical needs
• should be practically achievable
Attraction of a ‘simple’ method
• produced capital is mainly located
in countries with sophisticated
statistical agencies
– but not true for natural capital
• ideally, method should be
achievable by as many countries as
possible
• allocating ownership of the mineral
resource to the legal owner is
straightforward
Discussion points
• Should mineral exploration be
attributed to the legal owner?
• What is the preferred approach to
attributing mineral resource
ownership?
• Should a default approach be
suggested (especially if the
preferred approach is complex)?