There has been a change in the wind for small to mid-cap ASX-listed companies. Over the last four to five years these organisations have had to rapidly adapt to the evolving regulatory landscape. One of the key challenges lies in what they can or can't say about their projects as they attempt the transition from explorer, to developer, to producer. With a range of legislative changes, information sheets, FAQ's and Listing Rules amendments released by ASIC and ASX1, listed mining companies face a range of disclosure issues including:
- the degree of project certainty required before a production target and associated financial forecasts (for example, a project "NPV") can be disclosed;
- if the requisite project certainty is achieved, how those production targets can be used and the required accompanying cautionary disclosure (especially where the production target is based on a portion of inferred resources or exploration target);
- what they can and can't disclose about the content of a scoping study they have spent a considerable amount of shareholder funds on (particularly where no ore reserves have been delineated yet);
- the use of non-JORC terminology (such as the use of the term "mining inventory"); and
- whether a reasonable basis exists to fund any proposed project's development (particularly when the cost of development is significantly in excess of the company's current market capitalisation).
The regulators have been active in this area employing the use of "in-house" geologists to assist in vetting announcements and requiring public retractions of those that fail to comply with these rules. In many cases, those companies have had to seek an extended halt in trading until they are in a position to release a compliant announcement.
At the core of ASIC's concern is the early stage at which mining companies make statements that imply their exploration tenements are likely to transition into a producing mine – especially where the current drill results and associated resources are based on some or all of inferred mineral resources and exploration targets which are generally accepted to have a lower level of geological knowledge and confidence associated with them.
The significance of having to retract an offending announcement should not be lost on companies and directors alike. A retraction is an admission on the part of the company that it did not have a reasonable basis upon which to make "forward looking" representations – or put another way, it is a public admission that it released an announcement with misleading information.
In a recent sign that ASIC is continuing to be vigilant in this area, the regulator recently confirmed that Gold Mountain Limited had accepted and paid a $33,000 fine relating to an ASIC infringement notice after failing to retract in a timely manner certain public statements that did not comply with the JORC Code.
Further ASIC has restricted Gold Mountain Limited from eligibility to issue a reduced-content prospectus until 20 July 2019, thereby reducing the flexibility of its future fundraising initiatives.
The statements in question arose in the context of a company authorised article sent to the entity's shareholders and subsequently re-published on the website Hotcopper. ASIC alleged that the statements in question implied that mineralisation in a target drill zone was capable of producing ounces of gold, was capable of economic extraction and was capable of producing future revenue.
And whilst the gap between release and public retraction was only 10 days, ASIC's media release noted that the obligation to retract misleading announcements is immediate.
ASIC's actions in this case are another reminder to ASX-listed resources companies that they should ensure any public announcement relating to mineral resources and ore reserves, particularly those involving forward-looking statements, comply with the JORC Code and published ASIC and ASX guidance, or else risk intervention by the corporate regulator.
1See for example updates to the reporting and disclosure obligations set by the Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves Code 2012, changes to Chapter 5 of the ASX Listing Rules and guidance issued by both ASX and ASIC (refer to ASIC's Information Sheet 214 and ASX has published interim guidance).
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