CVM Resolution No. 129 of June 3, 2022 — CVM — BR

SECURITY AND EXCHANGE COMMISSION OF BRAZIL
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CVM RESOLUTION NO. 129, OF JUNE 3, 2022
Approves the Consolidation of Technical Interpretation ICPC 18 of the Accounting Pronouncements Committee - CPC, which deals with the costs of removing waste rock (stripping) from surface mines in the production phase.

THE PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6.404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6.385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10.139, of November 28, 2019, APPROVED the following Resolution:

Art. 1. It is made mandatory for publicly held companies the Technical Interpretation ICPC 18, which deals with costs of removing waste rock (stripping) from surface mines in the production phase, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 714, of September 19, 2013, is hereby revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Electronically signed by
Marcelo Barbosa
President

CVM RESOLUTION NO. 129, OF JUNE 3, 2022
ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL INTERPRETATION ICPC 18
COSTS OF REMOVING WASTE ROCK (STRIPPING) FROM SURFACE MINES IN THE PRODUCTION PHASE Correlation to International Financial Reporting Standards – IFRIC 20 (BV2012)

Index Item
REFERENCES
BACKGROUND 1 – 5
SCOPE 6
ISSUES ADDRESSED 7
CONSENSUS 8 – 16
Recognition of stripping costs in the production phase as an asset 8 – 11 Initial measurement of the asset arising from the stripping activity 12 – 13 Subsequent measurement of the asset arising from the stripping activity 14 – 16
APPENDIX A – TRANSITIONAL PROVISIONS

References:
CPC 00 – Conceptual Framework for Financial Reporting CPC 04 – Intangible Assets CPC 16 – Inventories CPC 26 – Presentation of Financial Statements CPC 27 – Property, Plant and Equipment

CVM RESOLUTION NO. 129, OF JUNE 3, 2022

Background

In surface mine operations, entities may deem it necessary to remove mining waste (“stripping”) to gain access to ore deposits. This waste removal activity is called “stripping”.
During the mine development phase (before production begins), stripping and other mining waste removal costs – stripping costs – are usually capitalized as part of the depreciable cost of mine installation, development, and construction. These capitalizable costs are depreciated or amortized on a systematic basis, usually through the units-of-production method (extracted), from the start of production.
The mining entity may continue stripping and incur stripping costs during the mine's production phase 1.
The material removed, when stripping occurs in the production phase, will not necessarily be 100% qualified as waste rock and other mining waste. Frequently, the material removed in this phase will be a combination of ore and waste. The observed ratio between ore and waste in the removed material can vary from low grade, economically not very interesting, to high grade, highly profitable. The removal of material with a low ratio of ore to waste may produce some usable material, which can be used in the production of inventories. This stripping process may also provide access to deeper levels of the deposit, where material with a higher ratio of ore to waste can be found. Therefore, there may be two benefits flowing to the entity from the stripping activity: usable ore that can be used in the production of inventories and improved access to additional quantities of ore to be extracted in future periods.
This Interpretation guides when and how to account separately for these two benefits arising from the stripping activity, as well as how these benefits should be measured at initial and subsequent recognition.

Scope
6. This Interpretation shall be applied to stripping costs incurred in surface mines during the mine's production phase 2 (stripping and other mining waste removal costs in the production phase).

1 As highlighted in the document issued by the IASB, Basis for Conclusions of IFRIC 20, item BC3, there is a diversity of accounting treatment for the matter. Some entities treat production phase stripping costs as period expense (production cost); others capitalize part or all of the stripping costs, based on the expected life of the mine; still others capitalize only the costs associated with some improvement. 2 Also in the document issued by the IASB, Basis for Conclusions of IFRIC 20, in its item BC4, it is emphasized that the Interpretation applies to surface mining activity (and not underground - underground), covering the extraction of all natural resources, including coal. However, oil and natural gas extraction activities are excluded.

Issues Addressed
7. This Interpretation covers the following issues:
(a) recognition of stripping costs in the production phase as an asset; (b) initial measurement of the asset arising from the stripping activity; (c) subsequent measurement of the asset arising from the stripping activity.

Consensus
Recognition of stripping costs in the production phase as an asset
8. To the extent that the benefit arising from the stripping activity is realized in the form of produced inventories, the entity shall account for the costs of the stripping activity in accordance with the principles set forth in Technical Pronouncement CPC 16 – Inventories. To the extent that the benefit is the improvement in access to the ore, the entity shall recognize these costs as a non-current asset, if the criterion established in item 9 is observed. This Interpretation refers to the non-current asset as “asset arising from the stripping activity”.
9. The entity shall recognize the asset arising from the stripping activity if, and only if, all of the following conditions are met:
(a) it is probable that future economic benefits (improved access to the mineral deposit) associated with the activity will flow to the entity; (b) the entity can identify the component 3 of the mineral deposit to which access has been improved; and (c) the costs related to the stripping activity, associated with said component, can be measured reliably.
10. The asset arising from the stripping activity shall be accounted for as an addition or improvement to an existing asset. In other words, the asset arising from the stripping activity shall be accounted for as part of an existing asset 4.
11. The classification of the asset arising from the stripping activity shall follow that of the existing asset, namely, tangible asset or intangible asset. In other words, the nature of this existing asset will determine whether the entity should classify the asset arising from the stripping activity as tangible or intangible.

3 According to the document issued by the IASB, Basis for Conclusions of IFRIC 20, item BC8, a ‘component’ refers to a specific volume of the ore deposit that becomes more accessible through the stripping and other waste removal activity. The component will be a subset of the deposit as a whole. The mine may have a series of components, which must be identified during the mine planning stage. Just as it serves the purpose of guiding cost measurements reliably at the recognition phase, the identification of the ore deposit components is necessary for subsequent depreciation and amortization of the asset arising from the stripping activity, which will begin from the moment the identified component starts to be extracted from the mine. 4 In the document issued by the IASB, Basis for Conclusions of IFRIC 20, item BC10, the asset arising from the stripping activity, in the view of the IASB interpretation committee (IFRIC), has much more characteristics of part of an existing asset than characteristics of a standalone asset. The asset arising from the stripping activity can be incorporated into a variety of existing assets, such as property, plant and equipment, the ore deposit itself, the right to extract the ore (intangible), or the asset originated in the mine development phase.

CVM RESOLUTION NO. 129, OF JUNE 3, 2022

Initial measurement of the asset arising from the stripping activity
12. The entity shall initially measure the asset arising from the stripping activity at cost, which is obtained by accumulating the costs directly incurred to perform the stripping activity that improves access to the identified component of the mine, plus the allocation of directly attributable production overheads 5. Some incidental operations 6 may be carried out simultaneously with the stripping activity, but are not necessarily geared towards the continuation of the stripping activity in the production phase, as planned. The costs associated with these incidental operations should not be included in the cost of the asset arising from the stripping activity.
13. When the costs of the asset arising from the stripping activity and the costs of inventories are not identified separately, the entity shall allocate the stripping costs in the production phase between the inventories produced and the asset arising from the stripping activity, through the use of an allocation criterion based on relevant production measures 7. This production measure shall be calculated for the identified component of the mineral deposit, and shall be used as a benchmark to identify the extent to which additional activities to create future benefits are being carried out. Examples of such measures include:
(a) cost of inventories produced compared to expected cost; (b) volume of stripped waste and other mining waste compared to expected volume, for a given volume of ore production; and (c) mineral content (purity level) of extracted ore compared to expected mineral content to be extracted, for a given quantity of ore produced.

Subsequent measurement of the asset arising from the stripping activity
14. After initial recognition, the asset arising from the stripping activity shall be carried at cost or at its revalued amount 8, less depreciation or amortization, and less impairment loss, in the same manner as the existing asset of which it is part.
15. The asset arising from the stripping activity shall be depreciated or amortized on a systematic basis, over the expected useful life of the identified component of the ore deposit 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.

5 According to the document issued by the IASB, Basis for Conclusions of IFRIC 20, item BC12, an allocable indirect cost is the cost of the salary of the mine supervisor responsible for monitoring the mine component, as well as the allocation of equipment rental costs, specifically contracted to perform the stripping activity. 6 An example given by the document issued by the IASB, Basis for Conclusions of IFRIC 20, in its item BC13, is the incidental operation of constructing an access road to the area where the stripping activity will be carried out. 7 In the view of the IASB interpretation committee (IFRIC), as mentioned in the document Basis for Conclusions of IFRIC 20, in its item BC16, a production measure was considered a good indicator of the nature of the benefits generated by the stripping activity being carried out in the mine area. The production measure requires the entity to identify when the level of activity reaches the volume beyond that expected for the production of inventories in the period, and thus may provide room for access to future benefits. 8 When there is no legal prohibition in the Brazilian legal system for the accounting recording of revaluation.

CVM RESOLUTION NO. 129, OF JUNE 3, 2022

The expected useful life of the identified component of the ore deposit, which is used to depreciate or amortize the asset arising from the stripping activity, will be different from the expected useful life used to depreciate or amortize the mine and the useful lives of assets related to the mine. The exception to this fact are those limited circumstances in which the stripping activity allows for improved access to the entire remaining mineral deposit. For example, this may occur at the end of the mine's life when the identified component represents the final part of the ore deposit to be extracted.

CVM RESOLUTION NO. 129, OF JUNE 3, 2022

Appendix A – Transitional Provisions
A1. (Eliminated).
A2. (Eliminated).
A3. At the beginning of the earliest period presented, any asset previously recognized by virtue of stripping activities carried out during the production phase (prior stripping asset) shall be reclassified as part of the existing asset to which the stripping activity is related, to the extent that there is an identifiable remaining component of the ore deposit to which the predecessor stripping asset can be associated. Such balances shall be depreciated or amortized over the expected remaining useful life of the identified component of the ore deposit to which each prior stripping asset balance is related. A4. If there is no identifiable component of the ore deposit with which a prior stripping asset can be associated, it shall be recognized in the opening balance of accumulated profits at the beginning of the earliest period presented.

Lineage: No known changes