Chapter 44 AUDITING MINING COMPANIES.docx

Chapter 44 AUDITING MINING COMPANIES.docx

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Chapter44AUDITINGMININGCOMPANIES

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44

AUDITINGMININGCOMPANIES

44.1OVERVIEWOFTHEINDUSTRY

44.2ACCOUNTINGPRINCIPLESANDPRACTICES

（a）AcquisitionCosts

（b）ExplorationCosts

（c）DevelopmentCosts

（d）DeterminingtheStartoftheProductionPhase

（e）EnvironmentalRemediationLiabilities

44.3RISKFACTORSANDAUDITREACTION

（a）InherentRisks

（i）AssetRealization

（ii）Contingencies

（iii）Disclosures

（b）AuditStrategy

44.4TYPICALTRANSACTIONS,INTERNALCONTROL,ANDSUBSTANTIVETESTS

（a）Revenue

（i）SalesofMetalsandMinerals

（ii）Tolling

（iii）Royalties

（iv）MineralPropertyConveyances

（v）GainsandLossesfromHedgingTransactions

（b）Expenditures

（i）Acquisition,Exploration,andDevelopmentCosts

（ii）Inventory

（1）MetalsandMinerals

（2）MaterialsandSupplies

（iii）LiabilitiesOtherthanIncomeTaxes

（iv）IncomeTaxLiabilities

（c）DisclosureofRisksandUncertainties

44.1  OVERVIEWOFTHEINDUSTRY

Theprincipaldifferencebetweenminingcompaniesandcompaniesinvolvedinoilandgasproducingactivitiesrelatestothenature,timing,andextentofexpendituresincurredforexploration,development,production,andprocessingofminerals.Generallyintheminingindustry,aperiodofaslongasseveralyearselapsesbetweenthetimeexplorationcostsareincurredtodiscoveracommerciallyviablebodyoforeandtheexpenditureofdevelopmentcosts,whichareusuallysubstantial,tocompletetheproject.Therefore,theeconomicbenefitsderivedfromaprojectarelongtermandsubjecttotheuncertaintiesinherentinthepassageoftime.Incontrast,thecostsrelatedtoexploringfordepositsofoilandgasareexpendedoverarelativelyshorttimeframe.

Theminingindustryiscapitalintensive.Substantialinvestmentsinproperty,plant,andequipmentarerequired;usuallytheyrepresentmorethan50percentofaminingcompany'stotalassets.Thesignificantcapitalinvestmentsofminingcompaniesandtherelatedrisksinherentinanylong-termprojectmayaffecttherecoverabilityofcapitalizedcosts.Theauditorshouldbecognizantofthesefactors,amongothers,andshouldassesstheriskthatcostswillnotberecovered.

Thestagesofminingoperationsvarysomewhatdependingonthetypeofmineralandaredeterminedbydifferencesingeological,chemical,andeconomicfactors.Thebasicoperationscommontominingcompaniesareexploration,development,extraction,andmarketing.Somemineralsalsorequiremilling,beneficiationandagglomeration,smelting,solventextraction-electrowinning,orrefining.

Explorationisthesearchfornaturalaccumulationsofmineralswitheconomicvalue.Explorationformineralsisaspecializedactivityinvolvingtheuseofcomplexgeophysicalandgeochemicalequipmentandprocedures.Thereisanelementoffinancialriskineverydecisiontopursueexploration,andexplorersgenerallyseektominimizethecostsandincreasetheprobabilityofsuccess.Asaresult,beforeanyfieldworkbegins,extensivestudiesaremadeconcerningwhichtypesofmineralsaretobesoughtandwheretheyaremostlikelytooccur.Marketstudiesandforecasts,studiesofgeologicalmapsandreports,andlogisticalevaluationsareperformedtoprovideinformationforuseindeterminingtheeconomicfeasibilityofapotentialproject.

Explorationcanbedividedintotwophases,prospectingandexploratorydrilling.Prospectingisthesearchforgeologicalinformationoverabroadarea.Itembracessuchactivitiesasgeologicalmapping,analysisofrocktypesandstructures,searchesfordirectmanifestationsofmineralization,takingsamplesofmineralsfound,andaeromagneticsurveys.Exploratorydrillingisconductedinspecificareasofinterestidentifiedduringtheprospectingphase.Rockandsoilsamplesareexamined,andtheearth'scrustismonitoreddirectlyformagnetic,gravitational,sonic,andradioactivedata.Basedontheanalysis,targetsfortrenching,testpits,andexploratorydrillingareidentified.Drillingisparticularlyusefulinevaluatingtheshapeandcharacterofadeposit.Analysisofsamplesisnecessarytodeterminethegradeofthedepositandtheextractionmethodtobeused.

Oncethegradeandquantityofthedeposithavebeendetermined,adecisionmustbemaderegardingthetechnicalfeasibilityandcommercialviabilityofdevelopingthedepositforminingactivity.Thevalueofamineraldepositisdeterminedbytheintrinsicvalueofthemineralspresentandbythenatureandlocationoftheiroccurrence.Inadditiontothegradeandquantityoftheore,suchfactorsasthephysicalaccessibilityofthedeposit,theestimatedcostsofproduction,andthevalueofjointproductsandby-productsarekeyelementsinthedecisiontodevelopadepositforcommercialexploitation.

Thedevelopmentstageofproductioninvolvesplanningandpreparingforcommercialoperation.Developmentofsurfaceminesisrelativelystraightforward.Foropen-pitmines,whicharesurfacemines,theprincipalprocedureistoremovesufficientoverburdentoexposetheoreormineral.Forthesemines,aninitialcutismadetoexposethematerialtobemined.Forundergroundmines,dataresultingfromexploratorydrillingisevaluatedasabasisforplanningtheshaftsandtunnelsthatwillprovideaccesstothedeposit.Substantialcapitalinvestmentinminedevelopment,machineryandequipment,andrelatedfacilitiesgenerallyisrequiredinthedevelopmentstage.

Thegoalattheminingstageofproductionistobreakuptherockandoretotheextentnecessaryforloadingandremovaltotheprocessinglocation.Avarietyofminingtechniquesexiststoaccomplishthis.Thedrillingandblastingtechniqueisutilizedfrequently;analternativeisthecontinuousminingmethod,inwhichaboringortearingmachineismountedonaforwardcrawlertobreakthematerialawayfromtherockface.

Afterremovalfromtheminesite,thematerialmayrequirefurtherprocessingsuchasmilling.Thefirstphasetypicallyinvolvescrushingandgrindingtheoretoasizethatwillfacilitatetheliberationofmetalfromthewastematerial.Thisisperformedinseveralsteps;watergenerallyisusedinthegrindingprocess,andtheendproductofthisphaseisusuallyacombinationoffinelygroundoreandwatercalledslurry.

Formostmetalores,thesecondmillingprocedureisconcentration,whichinvolvestheseparationofthemineralconstituentsfromthewasterock.Thisusuallyisdoneusingseparationtechniquessuchasflotation,leaching,andprecipitation.Flotationisaprocessinwhichheavymetallicsubstancesaremadetoclingtothebubblesofanoilyfrothandrisetothesurface,fromwhichtheycaneasilybeskimmedoff.Thisprocessisusedprimarilyforconcentrationsoforesthatcontaincompoundsofsulfur.SincemostofthemetalproductionintheUnitedStatescomesfromsulfideores,flotationisthemostcommonlyusedconcentrationprocessinthiscountry.Flotationisusednotonlytoseparatethemineralfromthewasterock,butalsotoseparatedifferentmineralsfromeachother.Leachingandprecipitationareparticularlyimportantforrecoveringmetalsfromoxideores.Leachingisaprocessofextractingmetalsfromtheorebyselectivelydissolvingtheminasuitablesolvent,suchaswater,sulfuricacid,hydrochloricacid,oraweaksolutionofsodiumorpotassiumcyanide.Themetalisthenremovedfromthesolutionusingchemicalorelectrochemicalprecipitationtechniques.Heapleaching,anothermethodforrecoveryofvariousmineralsfromlow-gradeoredeposits,isasignificantfactoringoldproduction.Eventhoughtherecoveryofthemetalsinheapleachoperationsisoftenmuchlowerthaninotherprocesses,heapleachingisneverthelessacost-effectiveprocessduetothelowunitcostsassociatedwithit.

Beneficiationandagglomerationrelatetoferrous（iron）mining.Beneficiationisthedressingorprocessingoforeforthepurposeofregulatingthesizeofthedesiredproduct,removingunwantedconstituents,andimprovingthequality,purity,orassaygradeoftheore.Beneficiationtechniquesincludecrushing,screening,andwashing,andalsoinvolvetheuseofgravity,magnetic,andflotationmethods.Smallparticlesofironoregenerallyaresubjectedtoanadditionalprocesscalledagglomeration.Thisisaprocessinwhichthebeneficiatedparticlesarefusedtogetherintolargerbitsorpelletsthatareeasiertohandle.

Smeltingistheprocessofseparatingthemetalfromimpuritieswithwhichitmaybechemicallyboundorphysicallymixedtoocloselytoberemovedbyconcentration.Mostsmeltingisaccomplishedthroughfusion,whichistheliquefactionofametalunderheat.Insomecases,chemicalprocessesareusedinsteadof,orincombinationwith,heatingtechniques.Sincemetalsoccurinavarietyofcombinationswithotherelements,thesmeltingtechniqueutilizeddependsonthecharacteristicsoftheconcentrate.Theprincipalsmeltingprocessesincluderoasting,"true"smelting,andconverting.Roastingisaheatingprocessusedprimarilyforsulfideoresasameansofdrivingoutthesulfur."True"smeltingistheprocessofseparatingthemetalfromitschemicalbondswithwastematerialbymelting.Theprocessofconvertingentailsblowingoxygen-enrichedairthroughmoltenmetal,causingoxidationandremovalofsulfurandotherimpuritiesfromthemetal.

Refiningisthelaststepinisolatingthemetal.Theprimarymethodusediselectrolyticrefining,inwhichanelectricalcurrentseparatesmetalsfromasolutioninsuchawaythatby-productscanberecovered.Forexample,inelectrolyticrefiningofcopper,platesofimpurecopper（anodes）aresuspendedbetweenthinplatesofpurecopper（cathodes）,andbothareth