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.
Other Standards have made minor consequential amendments to IFRIC 20, including
Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018).

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 the Preface to IFRS
Standards.

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

References

• Conceptual Framework for Financial Reporting1
• IAS 1 Presentation of Financial Statements
• IAS 2 Inventories
• IAS 16 Property, Plant and Equipment
• IAS 38 Intangible Assets

Background

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’.
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 capitalized costs are
depreciated or amortized on a systematic basis, usually by using the units of
production method, once production begins.
A mining entity may continue to remove overburden and to incur stripping
costs during the production phase of the mine.
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.
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

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

Issues

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

To the extent that the benefit from the stripping activity is realized 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 recognize 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’.
An entity shall recognize 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.
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.
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

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.

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 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

After initial recognition, the stripping activity asset shall be carried at either
its cost or its revalued amount less depreciation or amortization and less
impairment losses, in the same way as the existing asset of which it is a part.
The stripping activity asset shall be depreciated or amortized 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.
The expected useful life of the identified component of the ore body that is
used to depreciate or amortize the stripping activity asset will differ from the
expected useful life that is used to depreciate or amortize 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.

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.
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.
An entity shall apply this Interpretation to production stripping costs incurred
on or after the beginning of the earliest period presented.
As at the beginning of the earliest period presented, any previously recognized
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 amortized over the remaining expected useful life of the
identified component of the ore body to which each predecessor stripping
asset balance relates.
If there is no identifiable component of the ore body to which that
predecessor stripping asset relates, it shall be recognized in opening retained
earnings at the beginning of the earliest period presented.

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.

* * * * *

The amendments contained in this appendix when 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.