This case study shows a typical situation in which management accounting can be helpful. Read the case study now but only attempt the discussion points after you have finished studying the chapter.

This extract describes the evaluation of a project to explore and develop the production of the precious metal platinum in South Africa.

Anooraq Resources Corporation announces the results of a preliminary economic assessment of the Drenthe and adjacent Overysel North platinum group metals (‘PGM’) deposits. The Drenthe and Overysel North deposits are being explored and developed under the Boikgantsho Platinum Mine Joint Venture agreement (‘Boikgantsho JV’) between Anooraq and Anglo American Platinum Corporation Limited

(‘Anglo Platinum’). Anooraq is the operator of the joint venture. The Boikgantsho JV property is located on the northern limb of the Bushveld Complex, about 250 kilometres north of Johannesburg, South Africa.

………

As operator, Anooraq is responsible for exploration and engineering activities. This Preliminary Assessment has been conducted by in-house and external independent qualified persons employed by Anooraq. Anglo Platinum has not been involved in the preparation of the Preliminary Assessment nor in the evaluation of the results thereof. The study uses industry standard costs for all phases of the proposed development including the smelting and refining, and makes assumptions about the concentrate to be produced. Industry standard costs are also used in estimates of the cost for socio-economic activities, i.e. community involvement, relocation and other related issues. However, until there are final agreements on these and related matters there is no assurance that these costs will not change.

Discussion point
1 How will the use of standard costs help to reassure potential investors in this project?
2 Why will the standards need to be specific to the industry?