Page 197 - Annual Report 2020

11 Property, plant and equipment continued
Development expenditure Other mineral assets
When proven mineral reserves are determined and development Other mineral assets comprise: Strategic Report
is sanctioned, capitalised exploration and evaluation expenditure • capitalised exploration, evaluation and development
is reclassified as assets under construction within property, plant expenditure for assets in production;
and equipment. All subsequent development expenditure is • mineral rights and petroleum interests acquired;
capitalised and classified as assets under construction, provided • capitalised development and production stripping costs.
commercial viability conditions continue to be satisfied.
The Group may use funds sourced from external parties to finance Overburden removal costs
the acquisition and development of assets and operations. Finance The process of removing overburden and other waste materials
costs are expensed as incurred, except where they relate to the to access mineral deposits is referred to as stripping. Stripping
financing of construction or development of qualifying assets. is necessary to obtain access to mineral deposits and occurs
Borrowing costs directly attributable to acquiring or constructing throughout the life of an open-pit mine. Development and
a qualifying asset are capitalised during the development phase. production stripping costs are classified as other mineral assets
Development expenditure is net of proceeds from the saleable in property, plant and equipment. Governance at BHP
material extracted during the development phase. On completion Stripping costs are accounted for separately for individual
of development, all assets included in assets under construction components of an ore body. The determination of components
are reclassified as either plant and equipment or other mineral is dependent on the mine plan and other factors, including the
assets and depreciation commences. size, shape and geotechnical aspects of an ore body. The Group
accounts for stripping activities as follows:
Development stripping costs
Key judgements and estimates These are initial overburden removal costs incurred to obtain access
Judgements: Development activities commence to mineral deposits that will be commercially produced. These costs
after project sanctioning by the appropriate level of are capitalised when it is probable that future economic benefits
management. Judgement is applied by management (access to mineral ores) will flow to the Group and costs can be Remuneration Report
in determining when a project is economically viable. measured reliably.
Estimates: In determining whether a project is economically Once the production phase begins, capitalised development
viable, management is required to make certain estimates stripping costs are depreciated using the units of production
and assumptions as to future events and circumstances, method based on the proven and probable reserves of the
including reserve estimates, existence of an accessible relevant identified component of the ore body to which the
market and forecast prices and cash flows. Estimates and initial stripping activity benefits.
assumptions may change as new information becomes Production stripping costs
available. If, after having commenced the development These are post initial overburden removal costs incurred during
activity, new information suggests that a development the normal course of production activity, which commences
asset is impaired, the appropriate amount is charged after the first saleable minerals have been extracted from the
to the income statement. component. Production stripping costs can give rise to two Directors’ Report
benefits, the accounting for which is outlined below:

Production stripping activity
Benefits of stripping activity Extraction of ore (inventory) in current period. Improved access to future ore extraction.
Period benefited Current period Future period(s)
Recognition and When the benefits of stripping activities are realised When the benefits of stripping activities are improved 5
measurement criteria in the form of inventory produced; the associated access to future ore; production costs are capitalised
costs are recorded in accordance with the Group’s when all the following criteria are met:
inventory accounting policy. • the production stripping activity improves access
to a specific component of the ore body and it
is probable that economic benefits arising from
the improved access to future ore production Financial Statements
will be realised;
• the component of the ore body for which access
has been improved can be identified;
• costs associated with that component can be
measured reliably.
Allocation of costs Production stripping costs are allocated between the inventory produced and the production stripping asset using
a life-of-component waste-to-ore (or mineral contained) strip ratio. When the current strip ratio is greater than the
estimated life-of-component ratio a portion of the stripping costs is capitalised to the production stripping asset.
Asset recognised from Inventory Other mineral assets within property, plant and equipment.
stripping activity Additional information
Depreciation basis Not applicable On a component-by-component basis using the
units of production method based on proven
and probable reserves.

Key judgements and estimates
Judgements: Judgement is applied by management in determining the components of an ore body.
Estimates: Estimates are used in the determination of stripping ratios and mineral reserves by component. Changes to estimates
related to life-of-component waste-to-ore (or mineral contained) strip ratios and the expected ore production from identified
components are accounted for prospectively and may affect depreciation rates and asset carrying values. Shareholder information

BHP Annual Report 2020 195