Ron Gagel - Prospectors and Developers Association of Canada

Ron Gageltackles theintricaciesof miningunder theIFRSphoto by Michelle siuAccounting firms may possess the expertiserequired to interpret the International FinancialReporting Standards (IFRS) adopted by Canadianpublic companies in 2011, but it’s people likeRon Gagel who have the real life experience todeal with the unusual accounting issues facingthe mining industry—especially the junior sectorthat is so prolific in Canada.That’s why the PDAC chose Gagel, a charteredaccountant who has worked in the industry formore than a quarter of a century and been aPDAC board member since 1997, to assist themore than 1,000 juniors that make up the bulk ofthe PDAC membership as they transition to theIFRS accounting standards that took effect onJanuary 1, 2011. The standards, which wereinitially implemented in Europe to harmonizeaccounting practises across the European Union,are designed to make company accountsunderstandable and comparable across internationalboundaries.Gagel chairs a mining task force establishedby the PDAC and the Canadian Institute ofChartered Accountants (CICA) to respond tomining specific issues where the IFRS provideslittle guidance around such topics as how toaccount for flow-through, a financing vehicleunique to Canada. The task force does notpublish pronouncements—only the InternationalAccounting Standards board can do that—but does produce “Viewpoints” that juniorslacking accounting depth can use to determinehow to proceed when they hit a snag underthe new rules.“Being the only chartered accountant on theboard of the PDAC at the time, it was felt that Iwas the person who was most technically qualifiedfrom a financial perspective,” says Gagel, theformer CFO of FNX Mining, which merged withQuadra Mining in 2010. “I’ve been with juniorsthat have gone from nothing to producing, soI’ve seen almost everything that’s involved froman accounting perspective when it comes to thejunior side of the business.”36 Prospectors & Developers Association of Canada

ifrs“ The IFRSs do not contemplate the nuances of the extractiveindustries. Even mining and oil and gas, thoughboth are extractive industries, are very different.”— Ron GagelAnother added bonus is that throughout theinitial set-up of the task force, and until herecently joined TMAC Resources as theirExecutive Vice President and CFO, Gagel wasnot affiliated with one mining company oraccounting firm, although he did sit on theboards of Adriana Resources, DalradianResources and Stonegate Agricom.The rest of the task force is made up of representativesfrom the largest Canadian public accountingfirms, including KPMG, Deloitte & Touche,PricewaterhouseCoopers, Ernst & Young, RaymondChabot Grant Thornton and BDO Canada.Given several years to prepare before theJanuary 2011 conversion date, the majority ofCanada’s public mining companies have madethe switch to IFRS, a set of accounting principlesused in most countries, the United States beingthe most significant exception. But that doesn’tmean that all the wrinkles have been ironed out.“Mining has a lot of unique issues associatedwith it. For example, going underground anddigging shafts and tunnels makes for an unusualbusiness,” says Gagel. “The IFRSs do not contemplatethe nuances of the extractive industries.Even mining and oil and gas, though both areextractive industries, are very different.”As a result, the PDAC-CICA mining task forcehas developed nine “Viewpoints” on variousissues that range from how to define the beginningof commercial production, to determiningfunctional currency, to guidance on farm outarrangements for exploration properties. Andthey are working on more.“This is a value-added service to the PDACmembership,” says Gagel. “The PDAC is trying todo something for its members by providing theguidance they and their auditors need to accountfor certain unusual aspects of mining accounting.”Some issues have been contentious, whileothers, such as mining royalties, have beenshelved because they are “too complex andvaried,” says Gagel. The IFRS is already investigatingthe principles for royalties from a broader,multi-industry perspective.But although adopting IFRSs has not beenwithout its challenges, Gagel says the newaccounting system gives Canadian companiesglobally comparable metrics that should helpthem attract capital.“Capital flows to where it has the best return,” saysGagel. “But if you have country-specific accounting,there is an element of risk and confusion thatreduces the efficiency of the capital markets.”The mining task force is important to thetransition process because of the lack of guidancefrom the IFRS about an industry that most ofthe financial world sees as a “rounding error insize” and not the economic powerhouse that itrepresents in Canada.Even though, after all is said and done, a juniormining company’s balance sheet may look the sameunder IFRS (where it is referred to as a “Statementof Financial Position”) as it did under Canada’sGenerally Accepted Accounting Principles (GAAP),there is a great deal of training and documentationrequired for companies to make the switch.At least GAAP and IFRS are both principlesbased,which means that they both begin withstandards that can be interpreted accordingto the situation. This is different from the morerules-based type of system that the United Statesclings to, which resembles a Napoleonic code.“Principles-based accounting permits someflexibility in interpreting rules, so the IFRSs arewritten at a high level and don’t necessarilyget into minutia, especially industry-specificminutia,” says Gagel. “We’re always askingwhich principle are we talking about, and that’swhere you get interpretations of accounting.”Gagel says IFRS issues continue to arise in themining sector, such as how to account for goldlinkedfinancing, resource depletion and thereopening of a previously closed mine.“There are still a lot of issues out there thatneed to be addressed. Accounting is contin uouslyevolving so I don’t see an end to the mining industryIFRS task force in the foreseeable future.”— By Virginia HeffernanAnnual Report 201237