Rio Tinto plc – Annual report – 31 December 2023
Industry: mining
13 Property, plant and equipment (extract 1)
Deferred stripping
In open pit mining operations, overburden and other waste materials must be removed to access ore from which minerals can be extracted economically. The process of removing overburden and other waste materials is referred to as stripping. During the development of a mine (or, in some instances, pit; see below), before production commences, stripping costs related to a component of an orebody are capitalised as part of the cost of construction of the mine (or pit). These are then amortised over the life of the mine (or pit) on a units of production basis.
Where a mine operates several open pits that are regarded as separate operations for the purpose of mine planning, initial stripping costs are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In such cases, the initial stripping of the second and subsequent pits is considered to be production phase stripping (see below).
Key judgement – deferral of stripping costs
We apply judgement as to whether multiple pits at a mine are considered separate or integrated operations. This determines whether the stripping activities of a pit are classified as pre-production or production phase stripping and, therefore, the amortisation base for those costs. The analysis depends on each mine’s specific circumstances and requires judgement: another mining company could make a different judgement even when the fact pattern appears to be similar.
The following factors would point towards the initial stripping costs for the individual pits being accounted for separately:
- if mining of the second and subsequent pits is conducted consecutively following that of the first pit, rather than concurrently;
- if separate investment decisions are made to develop each pit, rather than a single investment decision being made at the outset;
- if the pits are operated as separate units in terms of mine planning and the sequencing of overburden removal and ore mining, rather than as an integrated unit;
- if expenditures for additional infrastructure to support the second and subsequent pits are relatively large; and
- if the pits extract ore from separate and distinct orebodies, rather than from a single orebody.
If the designs of the second and subsequent pits are significantly influenced by opportunities to optimise output from several pits combined, including the co-treatment or blending of the output from the pits, then this would point to treatment as an integrated operation for the purposes of accounting for initial stripping costs. The relative importance of each of the above factors is considered in each case.
In order for production phase stripping costs to qualify for capitalisation as a stripping activity asset, three criteria must be met:
- it must be probable that there will be an economic benefit in a future accounting period because the stripping activity has improved access to the orebody;
- it must be possible to identify the “component” of the orebody for which access has been improved; and
- it must be possible to reliably measure the costs that relate to the stripping activity.
A “component” is a specific section of the orebody that is made more accessible by the stripping activity. It will typically be a subset of the larger orebody that is distinguished by a separate useful economic life (for example, a pushback).
Recognition and measurement of deferred stripping
13 Property, plant and equipment (extract 2)
(a) At 31 December 2023, the net book value of capitalised production phase stripping costs totalled US$2,505 million, with US$2,069 million within “Property, plant and equipment” and a further US$436 million within “Investments in equity accounted units” (2022: total of US$2,497 million, with US$2,038 million in “Property, plant and equipment” and a further US$460 million within “Investments in equity accounted units”). During the year, capitalisation of US$325 million was partly offset by depreciation of US$324 million, inclusive of amounts recorded within equity accounted units (2022: US$411 million offset by depreciation of US$331 million). Depreciation of deferred stripping costs in respect of subsidiaries of US$216 million (2022: US$246 million; 2021: US$201 million) is included within “Depreciation for the year”.
Accounts examples 