Mining and mineral exploration is a capital-intensive industry where accounting policy choices at the exploration stage have long-term consequences for the balance sheet and tax returns. The industry-specific standard AASB 6 (Exploration for and Evaluation of Mineral Resources) allows considerable policy discretion — but that discretion must be exercised consistently and disclosed. Royalties, rehabilitation provisions, and the units-of-production depreciation method add further complexity. This guide covers the key areas bookkeepers and accountants working with mining companies need to understand.
AASB 6: Exploration and Evaluation Expenditure
AASB 6 applies once a company has obtained the legal right to explore in a specific area and ceases when the commercial viability of extracting a mineral resource is demonstrable. It is a transitional standard — it sits between the research-phase costs (which under AASB 138 must be expensed) and the development-and-production-phase costs (which are outside AASB 6 and governed by AASB 116 and AASB 138).
Under AASB 6, companies may choose to capitalise exploration and evaluation expenditure (as an intangible asset or tangible asset, depending on its nature) or expense it immediately. The elected policy must be applied consistently across all exploration and evaluation expenditure and disclosed in the notes.
The capitalisation policy is the more common choice for listed and significant unlisted mining companies. Expenditures that are capitalised include: licence acquisition costs, geological surveys and mapping, geophysical and geochemical surveys, exploratory drilling, and sampling and testing costs directly attributable to a specific area of interest. General overhead and administrative costs allocated to exploration must be on a systematic and rational basis — they cannot simply be capitalised because they were incurred during an exploration period.
Capitalised exploration assets must be assessed for impairment at the end of each reporting period when any indicators of impairment exist. AASB 6 specifies indicators: the right to explore has expired or will expire without renewal; no further exploration is planned for the area; the project has failed to demonstrate commercially viable quantities of mineral resources; or the company has decided to discontinue exploration in the area.
Capitalising Mine Development and Infrastructure
Once the decision to develop a mine is made, AASB 6 no longer applies. Development expenditure (shaft sinking, infrastructure construction, pre-production stripping, and mine preparation) is capitalised under AASB 116 as property, plant, and equipment or under AASB 138 where appropriate. This is not discretionary — the criteria for recognition under AASB 116 must be met (future economic benefits probable, cost reliably measurable).
Mine infrastructure has defined useful lives: haul roads, processing plants, pumping systems, and buildings. These are depreciated under the units-of-production (UOP) method rather than straight-line or diminishing value — because the benefit is consumed in proportion to production, not time. The UOP method calculates the depreciation rate as production in the period divided by total proved and probable reserves (2P reserves per the JORC Code 2012) at the start of the period.
Where reserves are revised — which happens regularly as exploration matures and geological data improves — the depreciation rate is adjusted prospectively, not retrospectively. A significant upward revision in reserves reduces the depreciation rate per unit produced; a downward revision increases it and may trigger an impairment review.
Resource Royalties
Mining royalties in Australia are state taxes levied on the value or volume of resources extracted. Each state applies its own royalty regime: Western Australia uses an ad valorem rate (percentage of the value of the mineral), Queensland uses a combination of value and volume bases, South Australia applies flat-rate royalties, and the Northern Territory uses both. The Commonwealth applies petroleum resource rent tax (PRRT) on offshore petroleum.
From an accounting perspective, resource royalties are an operating expense (not a tax on income) recognised in the period the extractive activity occurs. They are accrued based on the royalty calculation formula applied to production data — they are not recognised on a cash basis (when the royalty statement arrives from the relevant authority) but on an accrual basis aligned with production.
For BAS purposes, royalties paid to state governments are not a supply — they carry no GST. Royalties paid to third parties under royalty agreements (e.g., a holder of royalty rights from a prior interest) may be taxable supplies, depending on the nature of the royalty right. The bookkeeper must distinguish between state-levied royalties (no GST) and contractual royalty payments (potentially taxable).
Mine Rehabilitation Provisions
Under AASB 137 (Provisions, Contingent Liabilities and Contingent Assets), mining companies are required to recognise a rehabilitation provision (also called a decommissioning, restoration, or make-good provision) as soon as the obligation arises — which is typically when the disturbance of the land first occurs, not when mining ceases.
The provision is the best estimate of the present value of costs to rehabilitate the disturbed area. Because rehabilitation occurs years or decades into the future, the provision must be discounted to present value using a pre-tax discount rate that reflects current market assessments. As time passes, the unwinding of the discount is a finance expense, not an operating expense.
Changes in the estimated rehabilitation costs or changes in the discount rate are reflected as adjustments to the provision and to the corresponding asset (the mine's capitalised cost). This creates an ongoing accounting adjustment requirement — the bookkeeper must update the rehabilitation provision calculation at each reporting date when there are changes in estimate.
How Reconlink Supports Mining and Exploration Companies
Mining businesses have diverse banking activity: exploration contractor payments, equipment financing, royalty disbursements, payroll for FIFO and residential workers, and investment inflows during capital-raising. Reconlink imports the company's bank transactions from CSV, Excel or PDF statements — or a per-client email inbox — and reconciles them as each statement lands. Automated coding rules classify contractor payments by vendor, royalty remittances to state agencies, and equipment financing repayments to the correct accounts. The coding rule engine can be configured to handle the GST-free treatment of state royalties differently from the potential taxable treatment of contractual royalties, reducing mis-coding risk on high-value transactions. BAS export ensures the quarterly return correctly reflects the full ITC entitlement on exploration and development expenditure.