JORC's and ASX's new reporting requirements a plus for the local industry
Australian mining and exploration companies stand to benefit from new rules requiring better disclosure about their exploration and mining projects.
In coordinated releases, the Joint Ore Reserves Committee (JORC) and ASX have revealed the outworking of several years of extensive consultation and review of mineral reporting requirements – in the form of likely amendments to the JORC Code and Listing Rules.
The amendments materially increase the reporting obligations for mining and exploration companies on a number of key disclosure items and introduce greater prescription on the meaning and use of certain terms. They introduce an annual reporting obligation, but also respond to industry calls for a reduction in red tape, albeit in a small way.
We believe the changes will lead to Australian-based mining and exploration companies explaining their projects in a way that is more easily comparable, fair and balanced. Although more onerous, we see the industry will benefit from the new rules through improved international confidence in the quality of Australian reporting and the flow through effect this will have on the availability of capital for mining projects.
This article outlines our views on the proposed changes and how they will impact companies in the sector.
Changes to concepts – 'Production Targets' and other key issues
The requirement to disclose more detail and analysis on mining and exploration projects will be the biggest impact the new changes will have on companies in this sector. However, a large proportion of JORC, ASX and ASIC's effort has gone into the changes to a few core concepts, as follows:
- Disclosure of production targets has been a vexed issued in recent years, with ASIC, ASX and market participants expressing conflicting views on the appropriate level of certainty for their disclosure.
The Listing Rule changes have ASIC's support and will definitively settle the circumstances in which long-term production targets can be disclosed. In itself, this clarity as to what is acceptable is a positive for fundraising hopefuls.
On face value, the new rules appear to be a softening of ASIC's earlier stated position because they allow disclosure of production targets based solely on inferred mineral resources or a combination of inferred mineral resources and an exploration target. However, the additional requirements applying to production target disclosures will mean they will rarely, if ever, be made. Effectively, early stage projects will need to have at least indicated mineral resources before they can disclose production targets, the same requirement as under earlier ASIC policy.. Additionally, at intermediate levels of geological and economic certainty, the measures for explaining a reasonable basis for productions target will be much more rigorous, creating greater scope for public scrutiny.of projects.
While readers of investment presentations will need to get used to inevitably clunky disclosures of production targets, those that are interested in making their own assessment of likely future production will receive the information they need to do so. For all of the market, the new regime will give the term 'production target' greater meaning, as it will come packed with regulators' high, and now clear, expectations for its use.
- The JORC code now requires more detailed disclosure of exploration targets. In addition to the existing requirements for a proximate cautionary statement and explanation of basis, every statement of an exploration target will need to be accompanied by far greater justification, as well as details of the completed and proposed exploration program and a competent person statement. It will be prohibited to report an exploration target tonnage or grade as a 'headline statement' in any public report.
While we welcome the overall package of changes, the additional requirements for exploration targets risk simply requiring them to be surrounded with more voluminous reliance warnings. By their nature, exploration targets are not capable of empirical justification and it remains to be seen whether, by requiring justification, market participants will receive any additional useful information. Explorers are already generally at pains to explain their work program progress and may find it difficult to do so with the same clarity within the confines of a proximate statement. As a result, we suspect that many explorers will take a formulaic approach to compliance, treating the additional disclosure as another legally-required disclaimer.
- For the first time, the JORC Code will require ore reserves to be supported by a pre-feasibility study or a feasibility study, which must demonstrate that extraction could reasonably be justified.
While this is consistent with many companies' internal practices, it is an example of the more prescriptive approach taken in the new rules.
- As a supporting measure, the JORC Code proposes a definition of scoping study and will adopt international reporting standards body CRIRSCO's definitions of pre-feasibility study and feasibility study. For all disclosures of scoping studies, there will be a requirement for a proximate cautionary statement and a statement of what proportion of the scoping study is supported by inferred resources.
The previous lack of definition and potential for inconsistency amongst the various levels of study was a commonly voiced industry complaint and we expect the new definitions will be favourably received.
- The JORC Code will prohibit reporting in-situ or in-ground values and will introduce rigorous requirements for reporting metal equivalents, as to the assumptions underlying the calculations, and prohibiting disclosure until metallurgical recovery information can be estimated with reasonable confidence.
Although long frowned-upon by regulators, in-situ values have commonly been published and we expect to see some instances of non-compliance, followed by ASX-required corrective disclosure. The level of detail required to report metal equivalents will make their publication significantly more burdensome, perhaps with the result they are seen less frequently.
Fair and balanced disclosure – a step change in expectations
Under the proposed Listing Rule changes, there will be several triggers for additional disclosures for 'material mining projects' which include the first reporting of, or a material change to:
- exploration results
- inferred, indicated or measured mineral resources
- probable and proved ore reserves.
In each case, the entity will need to provide high quality summary information in the main text of the announcement, as well as disclosing against specified sections of Table 1 of the JORC Code on an "if not, why not" basis.
Our message to companies is not to underestimate the regulators' expectations for balance and fairness in their announcement-body summaries. The reforms seek a step change in the quality of reporting and we expect ASX will be vigilant in reviewing announcements. Particular attention needs to be given to the expansion of the fundamental JORC Code principles of materiality, transparency and competence, with new instructions to competent persons to:
- consider that the benchmark of materiality is that which an investor or their advisors would reasonably expect to see explicit comment on
- not remain silent on any issue for which the presence or absence of comment could impact the public perception or value of the mineral occurrence.
We see these new instructions call upon competent persons to give a frank assessment of the difficulties faced by their projects – and to do so in a way that is relevant and useful for investors and their advisers. For example, where companies may have previously disclosed levels of deleterious elements simply as one figure amongst many in a technical table, if these are material to investors, they will need to be the subject of specific comment in the main text of the announcement.
We are also encouraging companies to come to grips with the additional information that will be required by Table 1, notably the mining and metallurgical assumptions for mineral resources, and cost and revenue assumptions and a market assessment for ore reserves.
The "if not, why not" obligation requires that every item of the relevant sections of Table 1 be completed, but if an item is not material to understanding the results it must be completed with a supportable explanation for this. We recommend that where companies are in doubt about the materiality of information required by the relevant sections of Table 1, they err on the side of caution in order to avoid ASX-required corrective disclosure.
Companies will be sensitive about disclosing some of the information that will be required in Table 1. However, ASX has provided guidance that companies need not disclose proprietary mining technology, metallurgical processes or pricing or volumes under long term contractual commitments. ASX has warned companies not to claim that information is commercially sensitive too readily. For example, if a company is not in production and does not have contracts that underpin price, capital expenditure, or operational expenditure assumptions, ASX will not consider those assumptions commercially sensitive.
Maintaining effective market communications is a well known requirement for success in the mining and exploration industry. The new rules can be read as guidance on how to improve those communications. Companies that embrace this guidance can use it to their relative advantage, showcasing their projects through clearer, more transparent explanation and inching ahead in the ongoing competition for funding.
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