The Australian Securities and Investments Commission (ASIC) has recently announced it considers that exploration targets and Inferred Mineral Resources are not a reasonable basis for the reporting by resources companies of production targets and forward looking statements implying future economic viability.

ASIC made the recent public submission in response to simultaneous ASX and Joint Ore Reserves Committee (JORC) issues papers that were released in October 2011 dealing with changes to, and the future of, the JORC Code in mineral and resource reporting in Australia.

ASX showed a preference for allowing companies to report production targets based on less firm geological information

In its October issues paper, ASX took the view that resource companies could report a production target, or a forward looking statement derived from a production target that includes, or is based on, Inferred Mineral Resources and exploration targets, on the basis that the company must:

  • disclose key risks and contingencies in converting the Mineral Resource from Inferred to Indicated or Measured;
  • disclose the proportion of the production target that is based on the Inferred Mineral Resource;
  • include a prominent cautionary statement highlighting the low level of geological confidence,and, to the extent that a production target is also derived in part from an exploration target, the company must:
  • disclose the proportion of the production target that is based on the exploration target;
  • disclose the basis for reporting a production target; and
  • include a prominent cautionary statement that highlights the conceptual nature and uncertainty of exploration targets.

ASX is of the view that by adequately disclosing risks and limitations in geological confidence, a company could satisfy regulatory requirements by showing reasonable grounds for making forward looking statements.

ASIC proposes to tighten the regulatory framework for reporting of production targets

ASIC was critical of ASX's preferred option on production target forecasting. It noted that, in reading the JORC Code, Inferred Mineral Resources and exploration targets were too uncertain to support reasonable grounds for production targets and forward looking financial information. Inferred Mineral Resources, by definition, have "a low level of geological confidence".

ASIC considered that reasonable grounds for a production target could only be shown when the Modifying Factors from the JORC Code were applied to Indicated and Measured Mineral Resources. Using an Inferred Mineral Resource in combination with a firm Mineral Resource, or an Ore Reserve, may contribute to a company's reasonable grounds, but only where the use of the Inferred Mineral Resource was an insubstantial part of those grounds.

ASIC also considers the independence of Competent Persons

ASIC noted that neither ASX nor JORC issues papers raised the issue of the independence of the Competent Person in relation to production targets or other forward looking statements. ASIC noted that the issue needs further consideration, but did not provide any further insight on its views of this issue.

Key take-aways

  • Indicated or Measured Mineral Resources may provide reasonable grounds for a statement about future matters where sufficient work has been done on the Modifying Factors.
  • Inferred Mineral Resources may provide reasonable grounds in part for a statement about future economic viability where the viability of the company's project is based on Indicated or Measured Mineral Resources, where sufficient work has been done on the Modifying Factors, or Ore Reserves (or a combination of all), and where the use of Inferred Mineral Resources is not substantial.

Next steps of JORC Code consideration

ASIC has invited public comment on its submission, which it has provided to both ASX and JORC directly.

The amendments to the JORC Code proposed by the ASX issues paper will be available for public comment until late January 2012, and will then be submitted to ASIC for its review.

Allion continues to monitor the JORC Code review and the consultation process, and will advise on any future developments.

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