IFRIC 20

IFRIC Interpretation 20

Stripping Costs in the Production Phase of

a Surface Mine
In October 2011 the International Accounting Standards Board issued IFRIC 20 Stripping
Costs in the Production Phase of a Surface Mine.
It was developed by the Interpretations
Committee.

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CONTENTS
from paragraph
IFRIC INTERPRETATION 20
STRIPPING COSTS IN THE PRODUCTION PHASE OF A
SURFACE MINE
REFERENCES
BACKGROUND 1
SCOPE 6
ISSUES 7
CONSENSUS 8
Recognition of production stripping costs as an asset 8
Initial measurement of the stripping activity asset 12
Subsequent measurement of the stripping activity asset 14
APPENDICES
A Effective date and transition
B Amendment to IFRS 1 First-time Adoption of International Financial
Reporting Standards

FOR THE ACCOMPANYING DOCUMENT LISTED BELOW, SEE PART B OF THIS EDITION

BASIS FOR CONCLUSIONS

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IFRIC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine (IFRIC 20) is
set out in paragraphs 1–16 and appendices A–B. IFRIC 20 is accompanied by a Basis for
Conclusions. The scope and authority of Interpretations are set out in paragraphs 2 and
7–16 of the Preface to International Financial Reporting Standards.

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IFRIC Interpretation 20
Stripping Costs in the Production Phase of a Surface Mine

References

● Conceptual Framework for Financial Reporting

● IAS 1 Presentation of Financial Statements

● IAS 2 Inventories
● IAS 16 Property, Plant and Equipment

● IAS 38 Intangible Assets

Background

1 In surface mining operations, entities may find it necessary to remove mine

waste materials (‘overburden’) to gain access to mineral ore deposits. This waste
removal activity is known as ‘stripping’.

2 During the development phase of the mine (before production begins), stripping
costs are usually capitalised as part of the depreciable cost of building,
developing and constructing the mine. Those capitalised costs are depreciated
or amortised on a systematic basis, usually by using the units of production
method, once production begins.

3 A mining entity may continue to remove overburden and to incur stripping

costs during the production phase of the mine.

4 The material removed when stripping in the production phase will not
necessarily be 100 per cent waste; often it will be a combination of ore and
waste. The ratio of ore to waste can range from uneconomic low grade to
profitable high grade. Removal of material with a low ratio of ore to waste may
produce some usable material, which can be used to produce inventory. This
removal might also provide access to deeper levels of material that have a higher
ratio of ore to waste. There can therefore be two benefits accruing to the entity
from the stripping activity: usable ore that can be used to produce inventory and
improved access to further quantities of material that will be mined in future
periods.

5 This Interpretation considers when and how to account separately for these two
benefits arising from the stripping activity, as well as how to measure these
benefits both initially and subsequently.

Scope

6 This Interpretation applies to waste removal costs that are incurred in surface
mining activity during the production phase of the mine (‘production stripping
costs’).

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Issues

7 This Interpretation addresses the following issues:

(a) recognition of production stripping costs as an asset;

(b) initial measurement of the stripping activity asset; and

(c) subsequent measurement of the stripping activity asset.

Consensus

Recognition of production stripping costs as an asset

8 To the extent that the benefit from the stripping activity is realised in the form
of inventory produced, the entity shall account for the costs of that stripping
activity in accordance with the principles of IAS 2 Inventories. To the extent the
benefit is improved access to ore, the entity shall recognise these costs as a
non-current asset, if the criteria in paragraph 9 below are met. This
Interpretation refers to the non-current asset as the ‘stripping activity asset’.

9 An entity shall recognise a stripping activity asset if, and only if, all of the
following are met:

(a) it is probable that the future economic benefit (improved access to the
ore body) associated with the stripping activity will flow to the entity;

(b) the entity can identify the component of the ore body for which access
has been improved; and
(c) the costs relating to the stripping activity associated with that
component can be measured reliably.

10 The stripping activity asset shall be accounted for as an addition to, or as an

enhancement of, an existing asset. In other words, the stripping activity asset
will be accounted for as part of an existing asset.

11 The stripping activity asset’s classification as a tangible or intangible asset is the

same as the existing asset. In other words, the nature of this existing asset will
determine whether the entity shall classify the stripping activity asset as
tangible or intangible.

Initial measurement of the stripping activity asset

12 The entity shall initially measure the stripping activity asset at cost, this being
the accumulation of costs directly incurred to perform the stripping activity that
improves access to the identified component of ore, plus an allocation of directly
attributable overhead costs. Some incidental operations may take place at the
same time as the production stripping activity, but which are not necessary for
the production stripping activity to continue as planned. The costs associated
with these incidental operations shall not be included in the cost of the
stripping activity asset.

13 When the costs of the stripping activity asset and the inventory produced are not
separately identifiable, the entity shall allocate the production stripping costs
between the inventory produced and the stripping activity asset by using an

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allocation basis that is based on a relevant production measure. This production

measure shall be calculated for the identified component of the ore body, and
shall be used as a benchmark to identify the extent to which the additional
activity of creating a future benefit has taken place. Examples of such measures
include:
(a) cost of inventory produced compared with expected cost;
(b) volume of waste extracted compared with expected volume, for a given
volume of ore production; and
(c) mineral content of the ore extracted compared with expected mineral
content to be extracted, for a given quantity of ore produced.

Subsequent measurement of the stripping activity asset

14 After initial recognition, the stripping activity asset shall be carried at either its
cost or its revalued amount less depreciation or amortisation and less
impairment losses, in the same way as the existing asset of which it is a part.

15 The stripping activity asset shall be depreciated or amortised on a systematic

basis, over the expected useful life of the identified component of the ore body
that becomes more accessible as a result of the stripping activity. The units of
production method shall be applied unless another method is more appropriate.

16 The expected useful life of the identified component of the ore body that is used
to depreciate or amortise the stripping activity asset will differ from the
expected useful life that is used to depreciate or amortise the mine itself and the
related life-of-mine assets. The exception to this are those limited circumstances
when the stripping activity provides improved access to the whole of the
remaining ore body. For example, this might occur towards the end of a mine’s
useful life when the identified component represents the final part of the ore
body to be extracted.

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Appendix A
Effective date and transition

This appendix is an integral part of the Interpretation and has the same authority as the other parts of
the Interpretation.

A1 An entity shall apply this Interpretation for annual periods beginning on or

after 1 January 2013. Earlier application is permitted. If an entity applies this
Interpretation for an earlier period, it shall disclose that fact.

A2 An entity shall apply this Interpretation to production stripping costs incurred

on or after the beginning of the earliest period presented.

A3 As at the beginning of the earliest period presented, any previously recognised

asset balance that resulted from stripping activity undertaken during the
production phase (‘predecessor stripping asset’) shall be reclassified as a part of
an existing asset to which the stripping activity related, to the extent that there
remains an identifiable component of the ore body with which the predecessor
stripping asset can be associated. Such balances shall be depreciated or
amortised over the remaining expected useful life of the identified component
of the ore body to which each predecessor stripping asset balance relates.

A4 If there is no identifiable component of the ore body to which that predecessor

stripping asset relates, it shall be recognised in opening retained earnings at the
beginning of the earliest period presented.

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Appendix B
Amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards
The amendments in this appendix shall be applied for annual periods beginning on or after
1 January 2013. If an entity applies this Interpretation for an earlier period these amendments
shall be applied for that earlier period.

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The amendments contained in this appendix with this Interpretation was issued in 2011 have been
incorporated into IFRS 1 as issued on and after 27 May 2004. In November 2008 a revised version of
IFRS 1 was issued.

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