SUMANTING, Lizette Janiya C.

BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA

MINING INDUSTRY

● State the nature and background of the specialized industry.

○ The Philippines, endowed with rich mineral resources, boasts a mining industry
deeply embedded in its socio-economic fabric. Rooted in a history spanning
centuries, the sector has undergone profound transformations, shaping both
the nation's development trajectory and its environmental landscape. The
Philippines is blessed with a diverse array of mineral resources, ranging from
metallic ores such as gold, copper, nickel, and chromite to non-metallic
minerals like limestone, silica, and marble. These resources are scattered
across the archipelago, with mineral-rich regions dotting the landscape. The
abundance and variety of mineral deposits position the Philippines as a
promising destination for mining investment, offering lucrative opportunities for
exploration and development.

Mining in the Philippines traces its roots back to pre-colonial times when
indigenous communities engaged in small-scale mining activities, primarily for
gold and other precious metals. With the arrival of Spanish colonizers in the
16th century, large-scale mining operations commenced, driven by the quest
for gold and silver. This colonial legacy laid the groundwork for the modern
mining industry, influencing its regulatory framework and operational dynamics.
The landmark Mining Act of 1995, also known as Republic Act No. 7942,
marked a significant milestone in shaping the industry's legal framework. Aimed
at promoting the responsible exploration, development, and utilization of
mineral resources, the law sought to strike a balance between economic
development and environmental sustainability. Subsequent amendments and
executive orders further refined the regulatory framework, addressing
emerging issues and enhancing governance mechanisms.

In the contemporary context, the Philippine mining industry faces both

opportunities and obstacles on its path to sustainable development. Efforts to
promote responsible mining practices, enhance environmental regulations, and
foster stakeholder collaboration are underway, signaling a shift towards more
inclusive and environmentally conscious approaches. Furthermore,
advancements in technology and innovation offer new avenues for improving
operational efficiency and minimizing environmental impacts. However,
navigating the intricate interplay of economic imperatives, environmental
concerns, and social aspirations will require continued dialogue, partnership,
and collective action.

● What are the relevant statistics, and updates of the specialized industry in the
Philippine setting?
○ Metal production in the Philippines experienced a significant rebound under the
Marcos Jr Administration's mining policies, with a nearly 32% increase in
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA
2022 compared to the previous year. From 2020 to 2022, the total export.
value of metals reached US$18.7 billion, accounting for approximately 8.51%
of the country's total exports during that period.

● In 2022, the Philippines continued to play a notable role in the global nickel
market, producing approximately 360,000 metric tons of contained nickel. This
output represented around 11% of the world's total nickel production,
positioning the country as the second-largest producer behind Indonesia.

● The Philippines maintains its prominent status in the Asia-Pacific region for
metal reserves, particularly for nickel, and stands as the fourth-largest holder
of nickel reserves worldwide. These reserves constitute approximately 10% of
the global total.

● In 2022, the Philippines witnessed a second consecutive year of gradual

recovery in exploration spending, with a modest 2% increase to reach a five-
year high of $35.3 million, up from $34.5 million in 2021. This uptick was
primarily driven by heightened exploration activity in the nickel sector. However,
despite the year-over-year improvement, significant growth in exploration
investment remains elusive, as the 2022 budget represents only 11% of the
peak budget of $329.8 million recorded in 2012.

● In 2022, investments in the exploration of nickel assets in the Philippines saw

growth across all stages of development. Budgets for late-stage exploration
tripled to $1.2 million, while those for near-mine exploration nearly doubled to
$4.4 million. This resurgence in nickel exploration helped offset declines
observed in gold exploration, especially in programs conducted within or near
operating mines.

● Projected for 2023, the all-in sustaining costs (AISC) for nickel and copper in
the Philippines are anticipated to be below the Asia-Pacific average.
Specifically, the AISC for copper is forecasted to decrease by 26% year over
year to $2.28 per pound, primarily driven by a decrease in energy expenses.
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA

● Identify the different audit and accounting considerations and trends for the
industry.
○ Audit and accounting considerations for the mining industry in the Philippines
encompass a range of factors, including regulatory compliance, financial
reporting standards, risk management, and industry-specific challenges.

■ Regulatory Compliance: Mining companies operating in the

Philippines are subject to various regulations and reporting
requirements set forth by government agencies such as the Securities
and Exchange Commission (SEC), the Department of Energy (DOE),
and the Mines and Geosciences Bureau (MGB). Ensuring compliance
with these regulations, including environmental, safety, and financial
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA
reporting standards, is essential for maintaining transparency and
credibility.

■ Financial Reporting Standards: Mining companies must adhere to

accounting standards prescribed by the Financial Reporting Standards
Council (FRSC), which generally follow International Financial
Reporting Standards (IFRS). Accurate and transparent financial
reporting is crucial for providing stakeholders, including investors,
regulators, and communities, with timely and reliable information about
the company's financial performance and position.

■ Asset Valuation: The valuation of mining assets, including mineral

reserves, exploration and development properties, and mining
equipment, presents unique challenges due to the inherent
uncertainties and risks associated with resource extraction. Auditors
must assess the reasonableness of asset valuations, taking into
account factors such as commodity prices, production costs, and
technological advancements.

■ Impairment Testing: Given the cyclical nature of commodity markets

and the long-term nature of mining projects, impairment testing of
mining assets is a critical aspect of financial reporting for mining
companies. Auditors must evaluate whether there are indicators of
impairment, such as declines in market prices or adverse changes in
operating conditions, and assess the recoverability of asset carrying
values.

■ Risk Management: Mining companies face a wide range of risks,

including commodity price volatility, geopolitical instability, regulatory
changes, and operational disruptions. Auditors must understand and
evaluate the effectiveness of risk management processes and internal
controls implemented by mining companies to mitigate these risks and
safeguard assets.

■ Sustainability Reporting: With growing awareness of environmental,

social, and governance (ESG) issues, stakeholders are increasingly
demanding transparent and comprehensive sustainability reporting
from mining companies. Auditors may need to assess the
completeness and accuracy of sustainability disclosures, including
metrics related to carbon emissions, water usage, community
engagement, and mine rehabilitation.

● Look for at least 2-3 audited financial statements of companies under the
specialized industry in the Philippines and list down your observations from
audit report to the financial statements.
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA

- Revenue from Mineral Sales:

o This account captures the income generated from the sale of extracted
minerals and ores. It is the primary source of revenue for mining companies
and can be segmented by different types of minerals such as gold, copper,
coal, or diamonds. The revenue is typically recognized when control of the
minerals passes to the customer, which may involve complex
arrangements depending on the nature of the contracts and the point of
sale.

- Exploration and Evaluation Expenditures:

o Costs incurred during the exploration and evaluation phase to locate and
assess mineral resources are recorded in this account. These expenses
include geological surveys, drilling, sampling, feasibility studies, and other
activities aimed at determining the technical feasibility and commercial
viability of extracting minerals. These costs are critical for identifying new
reserves and ensuring the long-term sustainability of mining operations.

- Development Expenditures:
o This account includes expenses associated with preparing a mine for
commercial production. These costs encompass infrastructure
development, construction of facilities, acquisition and installation of
equipment, and other activities necessary to bring a mine into operation.
Development expenditures are usually capitalized and amortized over the
productive life of the mine.

- Depletion Expense:
o Depletion expense is an accounting measure that reflects the reduction in
value of a mining company's mineral reserves as they are extracted. It is
similar to depreciation but specific to natural resource extraction industries.
The expense is calculated based on the quantity of minerals extracted
during a period relative to the total estimated reserves and is recognized as
an operating cost.

- Rehabilitation and Environmental Provisions:

o Provisions for future costs related to the rehabilitation of mining sites and
compliance with environmental regulations are captured in this account.
These costs include land restoration, pollution control, and dismantling of
infrastructure. Mining companies are typically required by law to set aside
funds to cover these future obligations, and the provisions are periodically
reviewed and adjusted based on new information and changes in
regulations.

- Mine Operations and Production Costs:

o This account captures the direct costs of operating mines, including labor,
equipment maintenance, energy consumption, and materials used in
extraction. These costs are significant as they represent the day-to-day
SUMANTING, Lizette Janiya C.
BSA 3-1
Prof. Christy Ann O. Abesamis, CPA, MBA, DPA

expenses of running a mine and are directly tied to production levels and
efficiency.

- Mineral Reserves and Resources:

o This section of the financial statements includes detailed disclosures about
the company's estimated mineral reserves and resources. It often comes
with technical reports that provide information on the quantity, quality, and
accessibility of mineral deposits. These disclosures are crucial for
assessing the future production potential and financial stability of the mining
company.

- Capitalized Exploration and Development Costs:

o This account includes costs that are capitalized on the balance sheet when
certain criteria are met, rather than expensed immediately. These
expenditures relate to significant exploration and development activities
that are expected to provide future economic benefits. Capitalized costs are
amortized over the useful life of the developed assets.