- New reserves and resources reporting regime for listed mining companies came into effect on 1 December 2013.
- Mining companies must have a ‘reasonable basis’ for reporting a production target.
- Recent examples indicate that a project at the development stage may be less likely to have a ‘reasonable basis’ for a production target or financial forecast derived from a production target.
On 1 December 2013, ASX introduced new Listing Rules to enhance disclosure of reserves and resources by ASX-listed mining exploration and production companies.
In parallel to the ASX initiative, JORC introduced a revised and updated JORC Code (Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves), which underpins the new requirements in the ASX Listing Rules.
New production target disclosure rules
New Listing Rule requirements apply to the public reporting of longer term projections (greater than 2 years) of future production and associated forecast financial information for a mining company as a whole or for a material project for that company.
Disclosing production targets and associated forecast financial information based on historical and foreign estimates of mineralisation or solely on an exploration target is prohibited.
The supporting information underpinning the production target and associated forecast financial information required to be disclosed includes:
- material assumptions (other than commercially sensitive economic assumptions) unless the production target relates to an operating mine and is underpinned by ore reserves or ore reserves and a combination of measured or indicated mineral resources,
- relevant proportions of exploration potential and each of the categories of mineral resources (inferred, indicated or measured) and ore reserves (probable or proved), and
- a statement that the ore reserves and/or mineral resources underpinning the production target have been prepared by a Competent Person in accordance with the JORC Code.
More onerous disclosure requirements for production targets and associated forecast financial information based on an inferred mineral resources and an exploration target apply including prescribed cautionary statements which must be proximate to (in the same or next paragraph) and with equal prominence (same font, colour and size) to the production target.
If a production target is based solely on inferred mineral resources specific disclosures are required including:
- a statement of the factors that lead the company to believe that it has a reasonable basis for reporting a production target based solely on inferred mineral resources,
- the level of confidence with which the inferred mineral resources are estimated and the basis for that level of confidence,
- a technical report of a sufficient level of confidence to support the production target which must be prepared by, or under the supervision of, a named independent Competent Person, and
- an additional prescribed cautionary statement relating to the low level of geological confidence associated with inferred mineral resources which is proximate and equal prominence to the production target.
In practice, the ASX expects that it will only be in exceptional circumstances that an entity might form the view that it has reasonable grounds for a production target, or forecast financial information derived from a production target, when it is based solely on inferred resources.
Does recent action by regulators signal a stricter test?
Several junior mining companies have recently retracted previously announced production targets.
These companies have been at the exploration or development stage prior to having defined ore reserves and, in most cases, prior to publishing a definitive feasibility study.
At this early stage of development, junior mining companies are generally unlikely to have full funding in place for the capital expenditure needed to get their project to production.
The recent retractions suggest that ASX and ASIC are concerned with companies at the exploration or development stage reporting a production target to the market, without a fully funded capital expenditure program or the ability to raise the required capital based on the market capitalisation of the company at the time.
ASX and ASIC appear to be interpreting the requirements in the Listing Rules and Guidance Note 31 Reporting on Mining Activities for mining companies reporting productions targets to have a ‘reasonable basis’ for that forecast information in a way that makes it very difficult for those companies to report those production targets or forecast financial information at the exploration stage which typically means prior to declaring a maiden ore reserve.
This is notwithstanding that the mining company may have a reasonable basis for the geological information underpinning the production target, for example where they have a majority of measured or indicated mineral resources.
Other than ASIC Regulatory Guide 170: Prospective financial information which provides general guidance on the ‘reasonable basis’ test applied by ASIC, ASX and ASIC have not as yet provided any specific public guidance on the parameters surrounding a mining company having a ‘reasonable basis’ for a production target, particularly in the context of the funding of the relevant project. For example, what level of secured funding is required - are companies expected merely to have begun negotiations with potential debt funders with a reasonable expectation of receiving the funding, or is a fully executed funding agreement required to be in place?
This new trend appears to be contrary to previous market practice of mining companies at the exploration stage, before a maiden ore reserve was declared, reporting a production target.
How will this impact the junior mining sector?
A production target is used by junior mining companies to provide guidance to investors on the potential of a project in order to raise equity or debt funding.
Without this information being available in the market, junior mining companies may find it difficult to attract the funding required to elevate their project to the next level of development. If production targets are not able to be used to explain the intended operational outcomes of the project, the exact funding that the regulators are concerned with ensuring is in place, may not be able to be secured. This may place junior miners with a project at the development stage in a difficult position.