Draft Handbook on Measuring Intellectual
Property Products:
Estimating Mineral Exploration
Presentation to OECD Working Party on
National Accounts,
Paris, October 2007
Outline
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Developments in International standards
Proposals for SNA93 Rev 1
Coverage of mineral exploration and evaluation
Aspects of measurement
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Valuation
Price and volume measures
Depreciation and capital services
Ownership and balance sheets
• ABS sources and methods
• Measurement issues
International standards
• SNA68
– Mineral exploration treated as intermediate consumption
• SNA93
– Expenditure on mineral exploration capitalised
– Addition to stock of knowledge and costs realise their benefits
over an extended period of time
• SEEA 2003
– Consistent with SNA93 with additional discussion on accounting
treatment
International standards (cont)
• International accounting standards
– IASB interim guideline – IFRS 6 – released in 2004
– Case by case assessment allowing capitalisation and
expensing
– A cost model is used when first recognised
– Revaluation possible but guideline does not cover
treatment of the asset once feasibility of extraction is
demonstrated
– IASB working group formed to examine issues further
– Discussion paper scheduled for release in 2008
Proposals for SNA93 Rev 1
• Five proposed clarifications / refinements
– Use of term “mineral exploration and evaluation”
– Continue separation between mineral exploration as
produced asset and sub-soil assets as non-produced
– Clarify that when specialised firms provide services the
actual output of these firms is used in valuing GFCF
– The resource rent used to value sub-soil assets should be
adjusted for the capital services provided by mineral
exploration
– Payment by extractor to owner treated as rent
Coverage
• Recommend use of IASB criteria
– Consider the extent to which the expenditure is
associated with finding specific mineral resources
– Possible expenditures include
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Acquisition of rights to explore (incl. leases & licences)
Topographical, geological studies, etc
Drilling, trenching, sampling
Evaluation of technical and commercial viability
Valuation
• Much mineral exploration is done on an own
account basis and so should be valued at the sum of
costs
• SNA93 Rev 1 has details. Relevant costs include:
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Intermediate consumption
Compensation of employees
COFC
Return to fixed capital
Taxes less subsidies on production
Price and volume measures
• Preference for output price index
– Technically feasible but resource intensive to develop
and maintain
• Likely use of an input price index based on
deflating the various costs of production
– Will miss productivity gains that are likely to have been
significant
– Some adjustment for productivity might be sensible
Depreciation & capital services
• Use a conventional approach through assumptions
regarding age-price and age efficiency functions
• Asset life linked to life of the sub-soil asset
discovered
• Need to consider appropriate choices of age-price
and age efficiency functions
Ownership & Balance sheets
• Ownership of mineral exploration rests with the unit
undertaking the exploration
• However, in many countries ownership of the subsoil assets rests with the government
– Results of mineral exploration may become freely
available
• Balance sheets should record the mineral
exploration and sub-soil assets separately
Ownership & Balance sheets
• “Double counting”
– Is the value of mineral exploration included in the value of the
stock of sub-soil assets?
– Provided costs of mineral exploration deducted in estimating
resource rent there is no problem
• Allocating ownership
– If governments own sub-soil assets then the accounts for the
extractor will include the mineral exploration asset but exclude the
sub-soil asset
– Analysis less obvious if conducted with respect to mining activity
– Ongoing area for investigation and research
ABS source & methods
• Quarterly surveys of firms in mineral and petroleum
exploration
– Exploration expenditure allocated between current and capital in
line with Australian and international accounting standard
• Deflation using input price index
– Largest component wage rates (77%)
• Derive depreciation and related capital estimates through
PIM
• In balance sheets currently include mineral exploration with
sub-soil assets
Measurement issues
• Volatility of series impacting on editing data and
weighting series
• Finding suitable deflators
– Appreciate any general advice that the manual can give
in this area
• Defining units appropriately especially given own
account nature of the work
Conceptual issues
• Rationale for inclusion of unsuccessful exploration
– See draft HMIP paragraphs 19-20
• Rationale for treatment of “freely available” mineral
exploration knowledge
– Suggest that since only one extractor can use the
information at one time then there is no public benefit
even if knowledge is freely available
– Thus the boundary considerations that apply to R&D
expenditures do not apply for mineral exploration