IFRS 6 Exploration for and Evaluation of Mineral Resources — Core Rule

Exploration and evaluation (E&E) assets are recognised when an entity has obtained the legal right to explore a specific area and incurs qualifying expenditures. Recognition follows an entity-determined accounting policy: an entity decides which expenditures to capitalise as E&E assets and must apply that policy consistently (IFRS 6.9). Expenditures falling outside the E&E phase — either before legal rights are obtained or after technical feasibility and commercial viability are demonstrable — are excluded from the scope of IFRS 6 entirely (IFRS 6.5).

How IFRS 6 Exploration for and Evaluation of Mineral Resources Works

Recognition threshold

An entity shall apply IFRS 6 to all exploration and evaluation expenditures it incurs (IFRS 6.3). The standard grants significant flexibility: rather than prescribing a single recognition threshold, it requires the entity to determine an accounting policy specifying which expenditures are recognised as E&E assets, with the key consideration being the degree to which expenditure can be associated with finding specific mineral resources (IFRS 6.9). This is a policy election, not a probability-based judgment in the same sense as the Conceptual Framework — the standard deliberately preserves existing industry practices while requiring consistency in application.

Measurement on initial recognition

E&E assets are measured at cost (IFRS 6.8). Direct costs may include acquisition of rights, geological and geophysical studies, exploratory drilling, trenching, sampling, and activities related to evaluating technical feasibility. Development expenditures, however, are explicitly excluded: costs related to the development of mineral resources shall not be recognised as E&E assets (IFRS 6.10). Additionally, any obligations for removal and restoration incurred as a consequence of undertaking exploration and evaluation activities must be recognised in accordance with IAS 37 (IFRS 6.11).

Measurement after recognition

After initial recognition, an entity applies either the cost model or the revaluation model. Where the revaluation model is used — whether under IAS 16 or IAS 38 — the choice must be consistent with how the assets are classified (IFRS 6.12).

Classification and presentation

E&E assets are classified as tangible or intangible according to the nature of the assets acquired, and that classification must be applied consistently (IFRS 6.15). For example, drilling rights are typically intangible while vehicles and drilling rigs are tangible. E&E assets must be treated as a separate class of assets, with disclosures made under either IAS 16 or IAS 38 consistent with the classification applied (IFRS 6.25).

Reclassification at development stage

An E&E asset is reclassified out of the E&E category once the technical feasibility and commercial viability of extracting the mineral resource are demonstrable (IFRS 6.17). Before any reclassification occurs, the asset must be assessed for impairment and any impairment loss recognised.

IFRS 6 Exploration for and Evaluation of Mineral Resources — Common Pitfalls

• Capitalising pre-licence costs: Expenditures incurred before obtaining legal rights to explore a specific area are excluded from IFRS 6 and cannot be capitalised as E&E assets (IFRS 6.5).
• Continuing to classify assets as E&E post-feasibility: Once technical feasibility and commercial viability are demonstrable, the asset must be reclassified — retaining E&E classification beyond that point is not permitted (IFRS 6.17).
• Skipping impairment before reclassification: Impairment must be assessed and any loss recognised before reclassifying an E&E asset into development or production assets.
• Inconsistent cost policies: Because recognition is policy-driven, entities must apply their chosen policy consistently across similar expenditures — selective capitalisation within the same project type is not acceptable (IFRS 6.9).
• Inadequate disclosure: Entities must disclose their accounting policies for E&E expenditures, and the amounts of assets, liabilities, income, expense and cash flows arising from exploration and evaluation activities (IFRS 6.24).

IFRS 6 Exploration for and Evaluation of Mineral Resources — Key Paragraphs

• IFRS 6.3 — Establishes that the standard applies to all exploration and evaluation expenditures an entity incurs.
• IFRS 6.5 — Defines the boundaries of IFRS 6: pre-licence costs and post-feasibility costs are excluded.
• IFRS 6.8 — Requires E&E assets to be measured at cost on initial recognition.
• IFRS 6.9 — Requires a consistent accounting policy for determining which expenditures qualify as E&E assets, based on association with finding specific mineral resources.
• IFRS 6.15 — Requires classification of E&E assets as tangible or intangible based on the nature of the asset, applied consistently.
• IFRS 6.17 — Requires reclassification out of E&E once technical feasibility and commercial viability are demonstrable, with impairment tested first.