Asset Retirement Obligations

Understanding the difference between financial assurance, closure costing, and closure provisioning for the mining industry

Over the last 20 years, mine closure liabilities have constituted an increasingly large percentage of mining companies’ balance sheets. Many mining companies around the world estimate closure costs and post-closure programs then successfully fund and implement mine closure. There are also notable examples of mining companies defaulting on their obligations by not initiating or completing appropriate closure programs. In response to the risk of default, mining operators are now subject to financial assurance requirements. These stipulate third-party completion of the proposed closure plan; therefore, mining companies must secure the necessary bonding, insurance, cash, and/or corporate guarantees.

International accounting standards take reclamation and closure obligations of public mining companies into consideration and allow for asset retirement obligations (AROs) to be estimated with financial models. Regardless of whether a mining company is subject to the United States’ Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), accounting firms demand a fair-value estimate of the legal closure obligation of a mining property. The ARO provision becomes a balance sheet item derived from a complex combination of closure cost estimates, financial assurances, and asset life calculations.

SRK understands the specialized vocabulary of internal closure budgets, financial assurances, and ARO provisions. We also understand the inefficiency of attempting to communicate without this perspective. We can assess your closure strategy and budgeting process then tune your financial assurance cost estimates to meet the regulatory requirements. We can prepare your third-party accounting provisions under GAAP or IFRS as allowed by the United States’ Statements on Auditing Standards (SAS) 73. And lastly, we can communicate effectively with your external audit team.

Through our specialist knowledge of mine closure planning and cost estimation, we can deliver value to your bottom line.

Contacts for this service

SRK North America