AAOM Handbook

WA.05 Is Capital Approval Needed? Context

The expense of performing work must be recorded in the Company’s accounts. Both the taxation laws and Company policy require that Operating and Capital expenditures be correctly and separately identified in the Company’s financial accounts. In general, only a limited number of Company personnel have the authority to approve Capital. In the few instances where work that may be Capital is necessary to contain an emergency situation, the correct approval shall be obtained as soon as practical and may occur at the same time as the work is being started. In a mining environment development is typically treated as a special case for work approval. Development costs are treated as capital expenditure in the Company’s accounts, but development work is managed and executed in the same way as routine Production work. This situation arises because development is creating a new asset, and therefore needs to be capitalised, but the actual work of development is an ongoing activity that must progress steadily ahead of ore extraction. An approved (capital) budget for development is established based on a development Operating Master Schedule for the mine, in the same way that an approved operating budget is established based on the production and service work Operating Master Schedule. In this type of circumstance, where an approved capital budget exists, the approval of capital development work can be managed via the Work Approval process in exactly the same way as non-capital production and service work. In all cases where it has been determined that the work is not urgent, and the work is of a Capital (excluding mine development) nature, then the capital approval process must be followed. If the work is capital, the originator of the request should be notified of the status of the request, and of the reasons why. Purpose To ensure the correct approval process is applied to the Work Request. Quantity One decision whether the requested work is Operating/Development or Capital. Quality The decision whether an expenditure is operating or capital shall be made in accordance with the Company standard for expenditure classification. Approval of capital work shall follow the Company procedures for capital approval.