An Introduction to Mining and Metallurgy - Thanatia: The Destiny of the Earth's Mineral Resources - page 166

is in turn often the consequence of insu cient resources (monetary or otherwise)
for the development of regional geophysical surveys. Such surveys are the prereq-
uisites to understanding and unlocking potential mineral or fossil fuel deposits, not
to mention the identification of underground rivers and storage capacity for carbon
sequestration, etc.
The costs incurred by those involved in exploration are di cult to evaluate and
as of yet there remains no standard practice for the reporting of accounts within
the private sector. A good historical overview of the adoption of certain accounting
practices can be found in Cortese et al. (2009) who state: “Given the significant
economic consequences of the choice of the accounting method, it is hardly surprising
that extractive industries have favoured flexible reporting practices that enable them
to choose the methods of accounting for pre-production activities that presents them
in the most favourable manner”.
There are two main types which private entities choose to evaluate their ac-
counts. Under the successful efforts accounting method, costs that lead directly
to finding mineral reserves are capitalised, while those that do not are considered
an expense. On the other hand, under full cost accounting, all costs incurred in
searching for, acquiring and developing mineral reserves in a country or continent
are capitalised as part of the cost of the desired finding, even though some of this
cost was spent in an effort that was predominately a failure.
The first method presents fewer benefits to the balance sheet, affecting the enter-
prise stock of exchange image and discouraging investors from further exploration
of new mineral deposits. It is however more heavily linked to the physical real-
ity of the field and therefore some mining intensive countries like Australia have
maintained this practice for more than thirty years albeit with some modifications
(area-of-interest method). Proponents of full cost accounting methods meanwhile
defend the practice in order to promote accelerated exploration programmes, since
an exponentially growing demand for minerals needs exponential investments to
satisfy it. But this is something which clearly avoids reaching a consensus as to the
standardisation of accounting practices.
Generally speaking, the exploration costs found in accounting topics contain
little information that can be of use for evaluating the mineral capital on Earth.
Indeed any discovery of a mineral endowment influences the commodity price and
hence the reality presented becomes strategic and opaque. As Cartwright (1994)
argues this is “because the discovery and development costs usually bear no rela-
tionship to mineral property value, the cost approach is an inappropriate method
to use for estimating the value of a known mineral deposit”. If this is true, any
assessor of mineral capital needs to resort to compiled mining surveys conducted by
geological institutions.