In late June, Barkerville Gold Mines Ltd. announced major estimates of resources and "geological potential". The sizes of the estimates were remarkable – indicated resources of 10.6 million ounces of gold and "geological potential" of 65-90 million ounces of gold. That announcement was followed last week by a Barkerville press release indicating that the British Columbia Securities Commission had reviewed the company's technical disclosure and draft technical report and expressed concerns with both estimates. In the latter press release, Barkerville cautioned investors against relying on either of the disclosed estimates until the BCSC completed its technical disclosure review.
What strikes me as interesting about this situation is what stands out about the facts and the approach the BCSC is taking here. On the facts, the sizes of the estimates certainly made the original announcement hard to miss. One could also consider whether disclosing "geological potential" is what caught the attention of the regulators. While issuers are permitted to say certain things about the potential of exploration targets, the principle underlying NI 43-101 is that mineral disclosure should be based on various levels of certainty. The further one moves away from certainty, the trickier the disclosure can become and the more limited it arguably should be.
On the subject of potential quantities and grades, NI 43-101 allows an issuer to disclose in writing the potential quantity and grade, expressed as ranges, of a target for further exploration. To do so, the disclosure must state, with equal prominence, that: (i) the disclosure is all conceptual in nature; (ii) there has been insufficient exploration to define a resource; and (iii) there is no certainty a resource will ever be defined. The disclosure must also include the basis for the determination of the potential quantity and grade. Barkerville did all of this, and it seems from the description of the BCSC's review that the regulator is not challenging this fact.
Instead, the BCSC has challenged the very parameters, methods and assumptions used by the qualified person to arrive at each of the estimates. As part of its disclosure review, the BCSC asked Barkerville to provide the qualified person's draft technical report. According to Barkerville's second release, following a review of the original press release and the draft technical report,
The BCSC expressed concern that the disclosure in the Original News Release of a 10.6 million ounce indicated gold resource (69 million tons grading 0.154 ounces per ton) and 65 to 90 million additional ounces in "potential" is inadequately supported in the draft technical report and estimated in a manner that appears contrary to normal industry practice and therefore could be construed as misleading.
A summary of the concerns of the BCSC regarding the resource estimate disclosed in the Original News Release include: (i) the drill-hole assays were not composited before estimating resource grade; (ii) the estimates do not apply grade capping, despite most of the gold in the reported 2011 drill intersections being in thin high-grade intersections; (iii) the resource appears to be unconstrained by the geological model of the gold hosting structures; (iv) failure to cap and use of an unconstrained bulk-tonnage resource model is likely to have resulted in material overestimation of grade and tonnage of the resource; and (v) no external cut-off grade.
A summary of the concerns of the BCSC regarding the exploration target relate to what was initially perceived as a lack of local data used to estimate potential ton and grade ranges along strike for such geological potential. For example: (i) using the indicated resource as a basis for the quantity and grade of potential exploration targets in other locations along strike; (ii) grade ranges of estimates of potential set an apparent arbitrary +/- 15% above and below average grade of the resource; and (iii) tonnage ranges apparently arbitrary based on percentages above and below the resource tonnage.
It's worth highlighting that the BCSC said the basis for its concern is that, in its view, the estimates were determined "in a manner that appears contrary to normal industry practice". This puts the spotlight on the General Guidance notes at the beginning of Companion Policy 43-101CP. Note (6) Industry Best Practices Guidelines states:
The Instrument does not specifically require the qualified person to follow the CIM best practices guidelines. However, we think that a qualified person, acing in compliance with the professional standards of competence and ethics established by their professional association, will generally use procedures and methodologies that re consistent with industry standard practices, as established by CIM or similar organizations in other jurisdictions. Issuers that disclose scientific and technical information that does not conform to industry standard practices could be making misleading disclosure, which is an offence under securities legislation.
From a substantive point of view, we'll have to wait to see how the facts unfold. However, regardless of the outcome, the BCSC is deep into the realm of the expert on this one. This is not the first time that a Canadian securities regulator has questioned the technical substance of an expert's work, but it has been relatively uncommon. As such, this serves as a good reminder of the extent to which the commissions may delve in addressing mineral disclosure issues.
As practice points go, when you step into the world of "geological potential", you can find yourself on some thin ice. Even where you may be technically permitted under NI 43-101 to make certain disclosure, this is the uncertainty frontier, and anything out here may receive a long hard look from securities regulators.
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