Miners dig in for IFRS clarification

Analysts are battling to value booming international mining companies,
claiming that international standards are making it more difficult to calculate
underlying value.

With operations in place across the globe, FTSE100 miners such as Rio Tinto,
BHP Billiton and Xstrata put foreign exchange funding in place for their
businesses and are exposed to volatility caused by the new standard for foreign
exchange debt.

Analysts believe the exchange rate gains or losses on this debt, which go
through the income statement under IFRS, are clouding the true performance of
mining companies.

‘The international standard for foreign exchange debt is a terrible
standard,’ said Morgan Stanley mining analyst Marcus Lun. ‘It muddies the
underlying picture.’

PKF partner Jason Homewood added that an ‘education process’ was needed for
analysts to get used to the different accounting treatment.

Rio Tinto financial controller Michael Merton said the group had already
included a second earnings indicator in its accounts to present a clearer
picture of performance.

‘If analysts look at the earnings figures and the secondary figure together
they should be able to see what is going on,’ he said.

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Fiona Westwood of Smith and Williamson.