By Michelle Eastwell,Partner;Jessica McKenzie,Associate and Karyn Silcock,Associate
The ASX has released a consultation paper that proposes amendments to its Listing Rules, designed to improve the reporting regime for reserves and resources for mining and oil and gas exploration and production companies.
The proposed amendments follow extensive consultation over the last two years and take into consideration the written submissions made to the ASX following its October 2011 consultation paper ASX Listing Rules Review Issues Paper: Reserves and Resources Disclosure Rules and Mining and Oil & Gas Companies.
The proposed changes will affect all mining and oil and gas companies listed on the ASX. Here, partner Michelle Eastwell and associates Jessica McKenzie and Karyn Silcock outline the ASX's proposals.
Key proposed changes
The proposed amendments, designed to provide investors with a more stringent and transparent reporting regime, include:
- additional requirements for material disclosures in relation to resource assets for both mining and oil and gas companies, and, specifically for oil and gas companies, a requirement to report in accordance with the Society of Petroleum Engineers' Petroleum Resources Management System (SPE-PRMS);
- additional reporting requirements for mining companies for material projects related to:
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- exploration results;
- estimates of mineral resources and ore reserves;
- historical and foreign estimates; and
- production targets;
- additional reporting requirements for oil and gas companies for:
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- exploration and drilling information;
- petroleum reserves; and
- contingent and prospective resources for material projects;
- a requirement for mining and oil and gas companies to include an annual mineral resources and ore reserves statement, or an annual petroleum reserves statement (as applicable), in their annual report; and
- changes to the minimum experience and qualifications that evaluators need to report on petroleum reserves and resources.
Companies will have a 12 month transition period to comply with the new reporting requirements.
The ASX is inviting comments on the both the transition timeframe and the draft Listing Rules and related Guidance Notes by 26 October 2012.
Estimating reserves and resources
The proposed changes aim to maximise the disclosure of information relating to exploration activities, and the material assumptions and technical parameters underpinning estimates of reserves and resources.
After obtaining the initial written consent for the required disclosures from a competent person or qualified petroleum reserves and resources evaluator, where the information is subsequently reported to the market (and provided there is no new information or data that materially affects the initial information), further consent will not be required.
Changes for mining companies
As well as the requirement for mining companies to report in accordance with the JORC Code (which is being revised in parallel with the ASX proposals), the ASX is proposing additional reporting requirements in relation to material projects for disclosure of:
- Exploration results: Initial reporting must include disclosure of a report based on section 1 and section 2 of Table 1 of the JORC Code on an 'if not, why not' basis. For material drill-holes, the report must include a table setting out specific drill-hole and intercept information, or an explanation of why the company has determined that this information is not material to understanding the reported results.
- Estimates of mineral resources: Initial market announcements (and announcements of a material change of estimates) of inferred, indicated or measured mineral resources will need to include a summary of, among other things:
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- sampling, sub-sampling and drilling techniques; and
- the criteria used for classification, including drill and data spacing and distribution, sample analysis method and estimation methodology.
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A report based on sections 1, 2 and 3 of Table 1 of the JORC Code will also need to be prepared on an 'if not, why not' basis.
- Estimates of ore reserves: Initial market announcements (and announcements of a material change of estimates) of ore reserves will need to include a summary of:
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- the material assumptions and the outcomes from the preliminary feasibility study or the feasibility study;
- the criteria used for classification;
- the processing method selected and processing assumptions;
- estimation methodology; and
- material modifying factors, including the status of environmental and mining tenement approvals.
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A report based on sections 1, 2 and 3 of Table 1 of the JORC Code will also be required to be prepared on an 'if not, why not' basis.
- Historical and foreign estimates: The ASX proposes an exception from the JORC reporting requirement for companies seeking to report historical estimates or foreign estimates of mineralisation for a material project. Currently, companies need to apply for and be granted an ASX waiver to report such estimates. A company that reports historical or foreign estimates will be required to disclose specific supporting information, including:
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- relevance and reliability of estimates;
- key work and key assumptions;
- the work required to verify the estimates under the JORC Code; and
- a proximate cautionary statement.
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Where these estimates have not subsequently been verified and reported in accordance with the JORC Code, specific explanations must be given in the annual report.
- Production targets: The ASX proposes additional reporting requirements for longer-term projections of future production and associated forecast financial information, together with a ban on the disclosure of production targets and associated forecast financial information based on historical and foreign estimates of mineralisation, and solely on an exploration target.
Changes for oil and gas companies
Oil and gas companies will need to report pursuant to the SPE-PRMS, which promotes the use of standardised terminology and a consistent classification framework. Additional requirements for disclosures are proposed in relation to:
- Exploration and drilling information: Companies will no longer be expected to adopt a regime of regular and structured reporting for each drilling program. Instead, reporting will only be required under the Listing Rules when the company expects the information to have a material effect on the price or value of its securities. Companies may continue to voluntarily report on drilling progress provided these reports comply with the proposed updated requirements for reporting on exploration information and drilling progress.
- Petroleum reserves for material projects: Additional reporting requirements for material projects are proposed for the initial disclosure of estimates of reserves, or on a material change of those estimates. These requirements include:
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- details of the material economic assumptions used to calculate the estimates;
- whether the company has operator or non-operator interests;
- a brief description of the basis for confirming commercial producibility; and
- details of the estimated quantities to be recovered from existing wells and facilities, and those to be recovered through future investment.
- Contingent resources for material projects: Additional reporting requirements for material projects are proposed for the initial disclosure of estimates of contingent resources, or on a material change of those estimates. These requirements include:
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- details of the types of permits or licences held related to the reported estimates;
- a basis for confirming the existence of a significant quantity of potentially moveable hydrocarbons and the determination of a discovery; and
- where the estimates relate to unconventional resources, the land area and number of wells for which the estimates are provided.
- Prospective resources for material projects: Additional reporting requirements for material projects are proposed for the initial disclosure of estimates of prospective resources, or on a material change of those estimates. These requirements include:
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- a brief description of the basis on which the prospective resources are estimated and any further exploration activities, including exploration drilling, to be undertaken;
- the expected timing of those activities;
- the company's assessment of the chance of discovery and the chance of development associated with the reported estimates; and
- where risked estimates are reported, an explanation of how the estimates were adjusted for risk.
Oil and gas companies will also need to appoint a qualified petroleum reserves and resources evaluator to prepare estimates and provide prior written consent as required. In line with this, the ASX proposes to update the minimum qualifications and experience to be recognised as a qualified petroleum reserves and resources evaluator.
Is your company affected?
The proposed changes will affect all mining and oil and gas companies listed on the ASX. Some larger listed mining and oil and gas companies may already be complying with most or some aspects of the proposed reforms, which are the culmination of industry consultation spanning two years, and are largely designed to ensure the Australian disclosure rules are in line with international industry standards.
However, a large proportion of mining and oil and gas companies will need to review their reporting systems and ensure greater transparency and satisfactory disclosure if these proposed amendments are adopted, which seems likely. For many junior mining and oil and gas companies, compliance will create an additional expense and put pressure on company resources in challenging economic times.
If you feel that your company may be disadvantaged by the proposed amendments or believe that the ASX's proposal should be altered or amended, we would be pleased to assist you in preparing a submission or coordinating a group submission. Submissions need to be provided to the ASX by 26 October 2012.
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