Restoration10 Nov 2019 12:21
Mining companies normally incur significant costs at mine sites after the minerals have been
extracted and the mine is closed. Such costs include those to remove plant and other facilities
and to restore the area in a manner required by law or in accordance with a company’s own
accepted practices. In addition, reclamation and other environmental obligations frequently
arise during ongoing operations. The question is how to account for such costs.
The options are to:
• Expense costs as incurred
• Accrue costs by incrementally increasing a provision
over the life of the mine
• Provide for the present value of the total future costs
expected to be incurred in making good past damage
and other related closure costs when the obligation is
incurred. The amount capitalized is then amortised over
the life of the mine
Historically, asset removal and site rehabilitation costs
were charged to expense at the time that they were
incurred. This practice was accepted because the costs
were significantly lower than they are currently and there
were few regulations requiring companies to rehabilitate
sites. The situation today could not be more different.
Governments have introduced stringent environmental
and rehabilitation requirements, the public as a whole
has become more environmentally conscious and
demanding, and mining companies themselves have
introduced their own codes of environmental practice.
The result is that the future cash outlays can indeed be
significant.
In 1999 the International Accounting Standards Board
issued IAS 37 Provisions, Contingent Liabilities and
Contingent Assets. The same standard was issued in
the United Kingdom as FRS 12.
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