Common Financial Jargon in Mining

In the final part of our Mining Financial Basics series, we briefly cover ten common financial terms you might hear around the mine site. This is the final post in the series, and I hope you’ve enjoyed the series and learnt a little about the financial concepts you’re likely to encounter around a mining operation or mining company head office. To finish off, here’s a brief list of some other common financial terms you might hear:

Earnings Before Interest and Tax – this is the most common measure of what we normally call profit. It is total revenues minus total costs, but excluding the costs of paying interest on borrowings or paying tax. Interest and tax are excluded to basically show the net profit achieved before taking into consideration taxes and finance costs. We exclude interest and tax as these costs are not directly related to how profitable or well performing the operation is. They are more like costs of doing business rather than directly telling us how well we are going. EBIT is the most common form of measuring operational profit.

Earnings Before Interest, Tax, Depreciation and Amortization – another measure of profit. This time it is revenues minus costs, again excluding the costs of interest and tax. This time we also exclude depreciation costs (see below) and amortization costs (see below). Again this is just a different measure for profits taking out some additional measures that aren’t directly related to operational performance (i.e. depreciation is more related to capital assets than how well the business actually did).

Depreciation is basically how much the assets of the business decline in value. For example your car will decline in value over time – if you were a business, the amount by which it declines in value each year could be claimed as a depreciation cost. It is recognised as a cost even though no cash is involved. It is essentially a cost item which recognises how much value the company’s assets have lost each period.

Amortisation is the same as depreciation, except it applies to loss or gain in value of intangible assets of the company. Where depreciation applies to physical capital assets, amortisation applies to intangible assets. Intangible assets are those things a company puts a value on, even though there is nothing that physically exists. Intangible assets include things like the value of goodwill, a brand, deferred tax assets, patents, and capitalised R&D - things that make the company worth more in and manufacturing even though you can’t actually see them. Amortisation then is recognising the change in value of these assets as either a cost or revenue to the company, which once again is obviously a non-cash item.