The Australian Security and Investments Commission (ASIC) recently released Information Sheet 214: Mining and resources: forward looking statements (Sheet 214) which gives ASIC’s interpretation on what mining companies need to do when they make ‘forward looking statements’. Typically, ‘forward looking statements’ cover information on the extent of resources in the company’s tenements, the productivity value, etc. ASIC believes that forward looking statements need to be drafted to satisfy the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) as well as satisfying, where appropriate, the ASX listing rules and ASIC Regulatory Guide 170.
ASX listing rules and ASIC regulatory guide 170
The Association of Mining and Exploration Companies (AMEC), being an industry body representing small mining companies, was reported in The Australian newspaper on 16 May 20161 as being so upset with the new ASIC policy that it intended to raise its concerns with the next government’s resources minister.
Sheet 214 will essentially require mining companies to substantiate data in their announcements, where forward looking statements are used, in order to avoid the statements being misleading.
Sheet 214 appears to target a company’s release of optimistic resources information without the company being satisfied as to the probable occurrence of unsubstantiated outcomes.
How does Sheet 214 work?
There are several sections in the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) (Act) dealing with misleading statements. Sections 12BB (1) and (2) of the Act are general in application and apply to ‘forward looking statements’ i.e.:
a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.
(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
a party to the proceeding; or
any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.’
What this means is that if a company releasing a ‘forward looking statement’ does not have reasonable grounds for substantiation of the statement, then the statement is deemed misleading. The onus is on the party making the statement to prove they had ‘reasonable grounds’.
What does this mean for mining companies?
For any kind of mining and exploration reporting, resource companies are bound to comply with the JORC Code, whilst the Valmin Code, which sets out the requirements for the technical assessment and valuation of mineral assets and securities for independent expert reports, inherently applies to more technical reports. The JORC Code means that statements made about exploration targets, exploration results, mineral resources and ore reserves must be based on and fairly reflect, the information and supporting documentation prepared by a competent person, for example, e.g. an experienced and qualified geologist.
ASIC believes (see ASIC regulations 111, 112 and 170) that there is an obligation on the competent person to include information in the 'forward looking statement' about the assumptions on which the forward looking statement was based.
For small mining companies endeavouring to catch the interest of the market, many would find it to be a serious financial impost to bear, if, for example, the intended release of information about resources meant that it was also necessary to include information from a geologist about development costs of a mine, production cost, selling costs, funding etc. (this seems to be central to AMEC’s objections.)
Conversely, ASIC’s policy motivation under Sheet 214 rests with the protection of investors by ensuring adequate disclosure of information is made to them so that they can choose to invest in an informed manner.
Observations and conclusion
Sheet 214 is not really new ASIC policy. Sheet 214 regurgitates extracts from existing ASIC Regulatory Guides and explains how 'forward looking statements' can be found to be misleading. The industry yardstick (JORC Code) has also not changed, meaning that announcements made by mining companies about Inferred and Indicated Mineral Resources, Measured Resources or Probable Ore Reserves apply when involving that subject matter. The least regulated type of announcement is where Inferred Mineral Resources are dealt with. Because of inherent uncertainty as to the extent, quantum and grade/mineral content of an Inferred Mineral Resource, conservative parameters apply for announcements and embellishments are not permitted. For announcements of Inferred Mineral Resources, the lack of further testing, drilling and sample testing means that it is misleading (hence improper) to add speculation about the discovery.
For subsequent statements to be made identifying Measured Mineral Resources, Probable Ore Resources and Proved Ore Reserves, additional testing and analysis needs to be made as per the JORC Code. In some instances, ASIC recognises that ‘aspirational statements’ can be legitimately made i.e. where an opinion based statement is made as distinct from a forward looking production statement. For example:
The company hopes that this discovery will cement its place as one of Australia’s top gold producers.
Forward Looking Production Statement:
The company believes that this discovery could double its production output over the next five years.
ASIC is obviously not intending to rewrite the JORC Code. However, the JORC Code technically applies to all public reporting and is not restricted to expert reports or conducting valuations.
In our view, Sheet 214 is a reasonable amalgamation of regulatory information which ASIC has referred to in order to ensure that mining companies stick to the JORC Code, as supplemented by ASX Listing Rules and ASIC Regulatory Guides in order to not run foul of making misleading statements. Whilst the mining industry might prefer some relaxation of the rules, given the state of the economy, relaxation of the rules would seem to necessitate a review of the JORC Code which may not be on anyone’s agenda at present. Given that the JORC Code was last reviewed 12 years ago, it is possible that the mining industry may seek a review to have some JORC Code provisions modified to suit industry bodies such as AMEC.
However, the main mischief which the industry has to overcome would seem to be the misleading conduct provisions and the need to have reasonable grounds to support forward looking statements. This is going to be a much greater hurdle to overcome than changing the JORC Code.