As market sentiment and investor confidence in Australia's extractive industries remains subdued, recent initiatives from governments and regulators demonstrate, at least, an acknowledgment of the issues faced by mineral exploration companies and a desire to improve conditions.
In this Legal Insight, we explore some of these initiatives and how they may assist market participants.
JORC Code 2012 – A Year on
Australian Securities Exchange (ASX), Australian Securities and Investment Commission (ASIC) and the Joint Ore Reserves Committee (JORC) have recently provided useful tips for mining companies in preparing their announcements in compliance with ASX Listing Rule 5 and JORC Code 2012. This guidance is drawn from their experience with companies' compliance since the mandatory commencement of JORC Code 2012 in December 2013. It seeks to remove some of the uncertainties faced by mining companies in complying with their revised disclosure obligations. A summary of the guidance is set out below.
Table 1 of the JORC Code 2012
Table 1 of the JORC Code 2012 sets out a checklist of assessment and reporting criteria which must be addressed and included in public announcements of exploration results, mineral resources and ore reserves. Each criterion in Table 1 must be addressed. Even if a criterion in Table 1 is not relevant, it must be completed on a 'if not, why not' basis.
JORC Code 2012 does not support partial publication of a Table 1 section. For example:
- if a mining company previously published Section 1 (Sampling Techniques and Data) and Section 2 (Reporting of Exploration Results) in an announcement, and if that mining company releases an announcement with mineral resources for the first time (which requires Section 3 to be published), that updated announcement must include Sections 1, 2 and 3
- if a mining company is reporting results on a follow-on program, the mining company should republish the full relevant sections of Table 1 in their announcement even though the mining company can note that none of the criterion in Table 1 has changed since its last publication
- if a mining company is releasing a maiden JORC Code 2012 Ore Reserve based on a JORC 2004 resource, the announcement of the Ore Reserve requires a full update of sections 1 to 3 criteria as well as section 4
- the regulators consider that an investor should not have to pull multiple updates to piece together the full picture.
Competent Person Sign Off
The relevant consent of the competent person must be included in an announcement. If exploration results are being announced for the first time, the consent of the competent person relating to the exploration results must be included in the announcement.
For exploration targets, the streamlined procedure for the consent of a competent person in ASX Listing Rule 5.23 cannot be utilised. Every announcement containing an exploration target (even if that exploration target has previously been announced) must contain the consent of a competent person.
A competent person's consent must also be refreshed each year for the annual reporting of the Mineral Resources and Ore Reserves even if a company's Mineral Resources and Ore Reserves have not changed.
Mining companies should now be cognisant of the requirements in clause 17 of the JORC Code 2012 for exploration targets. Common issues with the announcements of exploration targets are:
- an exploration target must be expressed as a range and cannot be a 'headline statement' in an announcement
- there must be a detailed explanation on the basis of the exploration target ie what is the exploration activity which has been completed for the exploration target?
- a clarification statement of the conceptual nature of the exploration target must be included in the same paragraph containing the first reference to the exploration target. A presentation containing a slide with an exploration target must include a cautionary statement in the slide with the first reference to that exploration target.
Mining companies must ensure that they comply with the requirements of ASX Listing Rules 5.15 – 5.19 for any announcements relating to production targets. In particular, mining companies need to be careful to distinguish between aspirational statements and production targets. ASX also emphasised that a production target is the responsibility of the board of a mining company, not the competent person. The board must be satisfied that there is a reasonable basis for any production target which is announced and include a description of the exploration work that has been done and an assessment of relevant modifying factors.
Exploration Development Incentive
In recognition of the challenges faced by mining companies in raising funds, the Federal Government has recently introduced the Exploration Development Incentive scheme for 'greenfield' mineral exploration. On 10 October 2014, Treasury released the exposure draft legislation for the Exploration Development Incentive scheme.
This measure is intended to enable small mineral exploration companies with no taxable income to provide exploration credits to their Australian shareholders as a refundable tax offset.
The new measures, if enacted, will apply to exploration expenditure incurred by 'eligible companies' from 1 July 2014. The allocated aggregate AUD100 million for the Exploration Development Incentive scheme will be made available to eligible companies as follows:
- 2015-16 year: AUD25 million
- 2016-17 year: AUD35 million
- 2017-18 year: AUD40 million
To be an eligible company, the exploration company must be a disclosing entity (under the Corporations Act) which has not carried on mining operations in an income year. An entity 'connected with' or an 'affiliate of' the exploration company must not have carried out any mining operations. For more details, please see our earlier Legal Insight here.
Initiatives by State Governments
Various state governments have also implemented initiatives aimed at encouraging mineral exploration in Australia. Most of these initiatives relate to identifying and obtaining new mining information through applying new ideas and technologies.
Currently funded initiatives include subsidised drilling programs, regional geophysical surveys, mapping and geochemistry programs, creating databases and virtual core libraries and core data, and collaborative projects with research organisations.
For example, the New South Wales government has implemented and invested AUD2 million in the New Frontier Cooperative Drilling Program which provides grants to mineral exploration companies to assist private exploration drilling programs for minerals and encourage exploration, which will hopefully lead to new scientific and economic discoveries. The program will provide funding up to 50% of direct drilling costs for each individual project, with a cap of AUD200,000 for each approved project.
Winding Back Taxation Laws on Options
The Federal Government has also announced that it intends to unwind the changes to the taxation of employee share schemes which were introduced in 2009 by the former Labor Government. The media release announces that this change will apply to all companies effective from 1 July 2015.
Under the announced unwinding of taxation laws on employee option schemes, employees who receive discounted options will be taxed at the time of exercise, rather than issue, of the options. The change to the taxation treatment of employee share options will benefit junior mining companies who provide, or would like to provide, non-cash based remuneration to its workforce as an incentive to grow the value of the enterprise whilst maintaining cash flow for exploration endeavours.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.