Updated regulations to allow U.S. mining and exploration companies to report mineral resources resources. Competent person requirements also feature in the new rules for the first time.
In October, the U.S. Securities and Exchange Commission (SEC) adopted a final rule that overhauls its existing disclosure requirements for mining company issuers. This represents the first major change since Guide 7 was adopted almost 30 years ago and brings the U.S. into line with countries following CRIRSCO reporting codes. U.S. companies will be required to begin to comply with the new rules in its first fiscal year beginning on or after Jan. 1, 2021.
Under the current SEC reporting rules, mining companies are not permitted to disclose mineral resources. In Canada, Australia, South Africa and other countries, companies have been required to disclose resources where it would be material information for investors.
Dual listed companies will benefit from decreased compliance costs. Previously, companies listed in the U.S.A. and a country following the CRIRSCO convention for mineral resource and ore reserve reporting were compelled to produce different annual reports and other public disclosure documents dealing with resources and reserves for different markets. U.S. exploration companies should find that the new rules assist with raising funds for exploration in the U.S.A. rather than having to resort to listing on overseas markets, including the TSX, TSX.V and ASX.
U.S. companies that are only subject to the SEC rules, may experience increased compliance costs because of the new requirement to disclose mineral resources and have statements of resources and reserves prepared by a qualified person. Canadian companies that are dual-listed in the US and Canada, have been allowed to comply with Canadian rules (NI 43-101) so are unlikely to be affected by the change.
The SEC announcement included some important provisions.
Geothermal energy is specifically excluded from the new rules.
A principles-based definition of materiality, consistent with Securities Act Rule 405 and Exchange Act Rule 12b-2, was adopted by the commission, whereby a matter is material if there is a substantial likelihood that a reasonable investor would attach importance to it in determining whether to buy or sell securities. The commission also proposed that a company should follow an approach requiring aggregation of all mining properties, regardless of size or type of commodity produced, when assessing the materiality of a registrant’s mining operations.
The commission also adopted a definition of mining operations that includes operations on all mining properties that:
- a company owns or in which it has, or it is probable that it will have, a direct or indirect economic interest;
- possesses, or lis likely to possess under a lease or other legal agreement, a right to sell or otherwise dispose of mineral products; or,
- has, or probably has, an associated royalty or similar right.
The commission also requires that companies materially disclose the basis for setting forward prices for commodities which form an essential component of asset valuation and, therefore, asset materiality. Companies may not exceed the average price for the preceding 24 months. Beyond this, however, qualified persons may use any reasonable and justifiable price, with transparent justification.
The new rules permit a mineral resources to be disclosed inclusive of mineral reserves, as long as mineral resources exclusive of reserves are also stated. This rule is more specific than current requirements of some other reporting codes, including the JORC Code (2012).
Inferred resources are also able to be used in economic analysis, as long as certain conditions are met.
The new rules adhere to the CRIRSCO convention where a public report about a company’s exploration results, mineral resources, and mineral reserves must be based on and fairly reflect information and supporting documentation prepared by a “competent” or “qualified person.” This is the first time that the commission has defined a role for competent persons which may be both individuals, or companies employing individuals responsible for preparing reports.
A “qualified person” is defined as a “mineral industry professional with at least five years of relevant experience in the type of mineralization and type of deposit under consideration and in the specific type of activity that person is undertaking”. Additionally, qualified persons must be “an eligible member or licensee in good standing of a recognised professional organisation at the time the technical report is prepared”. These requirements effectively mirror those of the JORC Code (2012).
The new rules allow multiple qualified persons to prepare a technical report provided the sections of the report for which individuals are responsible are clearly specified, signed dated and consented to by each individual.
Reports must include a consent statement from the qualified person, state whether the qualified person is an employee of the company and, if not an employee, what relationship or interests the qualified person may have in the company.
The rules specifically indemnify the qualified person from findings and conclusions regarding certain aspects of modifying factors discussed in technical reports that the qualified person specifically states were based on information provided by the company – another first and an important legal protection for individuals or groups acting as qualified persons.
A “recognised professional organisation” would have to be either recognised within the mining industry as a reputable professional association, or be a board authorised by U.S. federal, state or foreign statute to regulate professionals in the mining, geoscience, or related field.
Furthermore, the organization must:
- Admit eligible members primarily on the basis of their academic qualifications and experience;
- Establish and require compliance with professional standards of competence and ethics;
- Require or encourage continuing professional development;
- Have and apply disciplinary powers, including the power to suspend or expel a member regardless of where the member practices or resides; and,
- Provide a public list of members in good standing.
The commission has elected, however, to adopt a principles-based approach to professional organisation recognition rather than the approach adopted by existing CRIRSCO codes of publishing a list of Recognised Overseas Professional Organisations (ROPO) updated by organisations responsible for reporting standards in individual countries from time to time. AIG is considered to fully meet the commissions requirements of a recognised professional organisation, supported by it being recognised in all current jurisdictions where CRIRSCO template reporting codes are in use.
AIG welcomes the SEC announcement which brings the U.S.A. closer to countries with effective, transparent and material codes for exploration result, mineral resource and ore reserve reporting that provide informed investors with a basis for sound mineral asset investment decisions. The new rules also provide an opportunity for Australian geoscientists, experienced in the application of the JORC Code and Canada’s National Instrument NI 43-101, to share their knowledge and experience with their U.S. counterparts.
The SEC release announcing the new rules is available here.
The AIG Professionals Subcommittee is a subcommittee of Council comprising:
- Wayne Spilsbury MAIG, FAusIMM (CP), PGeo
- Dr Julian Vearncombe BSc. PhD. FGS. FSEG. FAIG. RPGeo.
- Kaylene Camuti MAIG, RPGeo
- Josh Leigh MAIG
- Dr Robert Findlay MAIG
AIG’s vision statement is “The AIG will strive to be the preeminent Australian professional institute in advocacy for, and public promotion of, all Australian geoscientists”. This is not a static statement. As the practice of geoscience evolves with changes in technology and changes in society’s expectations of professional practice, so must AIG change to preserve its preeminent status.
Benchmarking against the major international geoscience professional institutes shows AIG may be falling behind in its entrance requirements, expectations of Continued Professional Development (CPD) by members and governance.
The Professional Issues Subcommittee was formed at the Face to Face Strategic Planning meeting in June 2016. Its mandate was to create a “Road Map” to improve competency and increase professionalism (and the community perception of professionalism) of AIG members. The Subcommittee’s Charter is summarised in Figure 1.
A PDF copy of Figure 1 (above) is available here.
AIG members will soon receive a link to an on-line survey prepared by the Professional Issues Subcommittee. We are seeking your input as we prepare the Road Map for presentation to the AIG Council. Your responses will assist the subcommittee in its recommendations to Council for AIG to demonstrate best practice.
The survey is seeking your input on the following issues:
Membership Requirements – Education and Communication Skills
The current minimum requirements for AIG Membership are a 3 year bachelor’s degree in the geological sciences and five years relevant professional experience that includes two years in which the applicant has been required to exercise professional judgement and discretion, and is supported by at least two AIG members with personal knowledge of the applicant’s relevant professional experience.
For industry employers, an Honours degree is the desired minimum qualification for graduate employment. This is because, under the modern degree system, most students are not exposed to work requiring problem solving and the exercise of technical and professional judgement until their Honours year. That is, until students complete Honours, they have little to no experience in the acquisition, assessment, compilation and interpretation of data, and little experience in technical writing and professional reporting.
Some institutions require applicants to submit a recent report and undertake a personal interview to demonstrate their functional literacy skills.
In many comparable jurisdictions (Canada, USA, South Africa and Europe) the minimum education requirement for professional institute admission is a 4 year Bachelor’s degree. AIG is currently not, but could potentially be at risk of losing its Recognised Overseas Professional Organisations (ROPO) status which allows our Members to identify as Qualified Persons or Competent Persons in these jurisdictions because of our lesser education requirement.
Should the education requirement be changed to an Honours degree or equivalent and should new applicants be interviewed and be required to submit a recent report (or other example of written, geoscientific work)?
Membership Requirements – Law and Ethics Examination
Some professional organisations require applicants to complete a professional Law and Ethics short course, and pass an examination. The short courses are designed to increase knowledge of corporate law, stock exchange rules and other relevant legislation, and teach the obligations and responsibilities that come with adherence to a Code of Ethics. Typically these Law and Ethics short courses involve a seminar followed by an on-line exam.
Membership Requirements – Continuous Professional Development (CPD)
AIG promotes the benefits of CPD to all members and requires Registered Professional Geoscientists to complete and document a minimum of 50 hours of CPD, on average, annually over a three year period. CPD is not a guarantee of competence. The community at large, however, sees a commitment to CPD as being at the core of an individual being able to describe themselves as a “professional”. Should AIG follow many professional organisations in other disciplines to make undertaking and recording CPD activities a requirement of membership?
Because geoscience is largely unregulated in Australia, essentially anyone can submit a geoscientific report to an employer, client, the public at large, or a government authority. This arguably undermines the practice of professional geoscientists and exposes the public to risks inherent in the misrepresentation and misinterpretation of geoscientific data and observations, not just confined to exploration results and mineral resource reporting. Should Members be encouraged to sign and seal all formal public documents that have been created by them in their professional capacity to employers, clients and the public? Should AIG promote the benefits of only accepting geoscientific reports prepared by members of a professional institute including AIG and AusIMM in Australia, or a Recognised Overseas Professional Organisation?
JORC Competent Person
The JORC Code defines a ‘Competent Person’ as “… a minerals industry professional who is a Member or Fellow of The Australasian Institute of Mining and Metallurgy, or of the Australian Institute of Geoscientists, or of a ‘Recognised Overseas Professional Organisation’ … and … must have a minimum of five years relevant experience in the style of mineralisation or type of deposit under consideration and in the activity which that person is undertaking.” (JORC 2012) The key qualifier in the definition of a Competent Person are the words ‘relevant experience’. What constitutes relevant experience is left to the judgement of the Competent Person (CP) who must be confident of being able to demonstrate competence to a panel of their peers if called on to do so (convened by the AIG or AusIMM Complaints or Ethics and Standards committees)
Several reviews of JORC reports (AIG JORC Representatives, 2015 and Combes, 2016) have identified frequent shortcomings in:
- Competent Person reports issued in compliance with the JORC Code that range from procedural breaches (e.g. omitting a consent statement by the CP);
- provision of inadequate technical information of substance (e.g. cut-off grades and maximum internal dilution in a drill intercept, physical characteristics of industrial minerals); and, less frequently,
- a lack of market-sensitive technical information (e.g. inadequate, opaque description of mineralisation in “intersections of massive sulphides” without describing the sulphide minerals observed or their respective abundances) which represent a failure to comply with the underlying transparency and materiality provisions of the JORC Code.
Australia, arguably, benefits from a non-prescriptive standard for exploration results, mineral resource and ore reserve information to securities exchanges. This information, particularly for junior companies, is almost invariably market sensitive, making a high standard of compliance with JORC imperative if JORC is to be preserved, rather than replaced by more prescriptive requirements. There appears to be a compelling argument that our JORC reporting skills need improvement.
Should the definition of a Competent Person under JORC be changed to require Registered Professional Geoscientist (RPGeo) status (and Chartered Professional status for AusIMM members) to implement a requirement for CPD and a higher standard of independent peer review of the CP’s relevant experience? A change for Australian geoscientists would bring them into alignment with Canadian geoscientists who already need to be registered with the relevant provincial registration authority (PGeo). This could be seen to be strengthening the access to reciprocal reporting arrangements to the TSX and TSXV, by far the world’s largest sources of exploration and mining investment capital.
Licencing or Registration
Geosciences are one of only a handful of fields of professional practice in Australia where some form of professional registration is not either mandated by government, or effectively essential due to industry imposed requirements (Waltho 2012).
The Professional Issues Subcommittee is concerned that regulation could be imposed on us, as illustrated by recently proposed Commonwealth legislation for Financial Advisors. The Commonwealth government has released an exposure draft of legislation to raise education, training and ethical standards for Financial Advisers, including a Tertiary degree, an entrance exam, mandatory CPD and an enforceable Code of Ethics for public comment and consultation. Geoscience could be considered to have escaped the attention of government regulators due to the limited exposure of the community to the actions of geoscience professionals. This could, however, change rapidly should there be a scandal relating to the share price of an exploration or mining company that could, for example, have wide reaching consequences for both direct and indirect investors. Many Australian’s superannuation investments have exposure to mining shares.
A number of Australian professional institutes are accredited through the Professional Standards Council (PSC) and regulated through State Professional Practice Acts. Information about this organisation is provided at http://www.psc.gov.au/
This accreditation provides limitations on the liabilities of an organisation and its members, and ensures that organisational self-regulation meets the current Australian standards applicable to other comparable professional organisations (such as Engineers Australia).
Accreditation of AIG by the PSC would require AIG to undertake the following (some of which are already within the scope of current activities):
- Both provide and track Continued Professional Development by members
- Maintain an effective complaints handling and disciplinary process for members
- Use of the PSC disclosure statement
- Undertake an annual risk management program review
- Improvements and changes to professional standards
- Insurance cover, claims and business asset monitoring
- Annual audit of members and the provision of an independent certificate
Additionally there is a cost for PSC membership including a one-time fee of $35,000 and an annual levy equivalent to $50 per AIG member.
Should AIG investigate accreditation and regulation through State Professional Practice Acts?
AIG has experienced steady growth over the past 15 years with fee-paying Members doubling to about 2500. AIG’s management, however, continues to be managed by volunteer members with outsourced administrative (back office) support engaged on a contract basis. The Institute has no paid employees. If the above changes are approved, it is proposed that AIG will need to employ appropriately skilled and experienced staff to manage increased requirements for Membership, raising awareness of AIG’s activities and requirements of membership to universities, employers and regulators that will exceed reasonable expectations of volunteers.
The survey has only 9 questions and should take only about 10 minutes to complete. Please consider your responses – your opinions are important to us.
AIG JORC Representatives (2015) – Strengthening the integrity of Public Reports made under the JORC Code– a confidential green paper prepared for the Australian Institute of Geoscientists
Coombes, J. (2016) Scoping Study Review – Discussion Paper presented to JORC
JORC (2012). The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, from http://www.jorc.org/jorc_code.asp
Waltho, A. W. (2012) It’s Time to Think About Professional Registration, from https://www.aig.org.au/its-time-to-think-about-professional-registration/
 To date, professional experience has been assigned greater weighting than education in assessing competence. We cannot, however, rely on the status quo continuing in view of developments overseas.
The U.S. Securities and Exchange Commission (SEC) has announced a proposal to adopt CRIRSCO-compliant reporting standards for U.S. companies.
CRIRSCO (the Committee for Mineral Reserves International Reporting Standards) has been lobbying the U.S. Securities and Exchange Commission (SEC) to adopt CRIRSCO reporting standards for many years. JORC is the model on which CRIRSCO standards has been based. CRIRSCO reporting standards are currently in official use in Australia, Canada, South Africa, throughout Europe, Brazil, Chile, Russia, and Mongolia.
The SEC, to date, has permitted public reporting of ore reserves only by U.S. listed companies under Industry Guide 7. In the SEC announcement, the Commission stated that the “proposed revisions are intended to provide investors with a more comprehensive understanding of a registrant’s mining properties, which should help them (investors) make more informed investment decisions”. “The proposed revisions would also modernize the Commission’s disclosure requirements and policies for mining properties by aligning them with current industry and global regulatory practices and standards”. SEC Guide 7 would be rescinded under the proposal.
The Society for Mining, Metallurgy and Exploration (SME) has had a CRIRSCO compliant code for Mineral Resource and Ore Reserve reporting in place for a number of years, but adherence to the code was not possible for public reporting due to SEC requirements.
This comes as U.S. mining companies have said their international competitors already report their potential reserves, which help investors to value a firm and have sought to fix this disadvantage.
U.S. National Mining Association spokesman Luke Popovich lauded the move for “recognizing this problem by aligning our material resource reporting with those of other mining regions.”
The proposal will also potentially benefit Australian and Canadian companies that are also listed on U.S. exchanges by simplifying their annual reporting requirements.
The SEC will also seek comment from the public on whether it should require companies to provide investors with a more-detailed discussion on how they are planning to manage greenhouse gas emissions and workforce health, safety and their well-being.
The SEC will seek comments for two months and will go through a vote on the measures ahead of implementation.
New restrictions on forward looking statements introduced by the Australian Securities and Investments Commission (ASIC) have attracted criticism by junior sector exploration and mining companies. The Australian (16 May 2016) reported that the Association of Mining and Exploration Companies (AMEC) is preparing to appeal directly to federal Resources Minister Josh Frydenberg for intervention over the regulator’s latest rule changes immediately following the upcoming Federal election.
ASIC last month released new guidelines that restrict what junior exploration companies can say about the economic potential of their discoveries.
AMEC, on behalf of its members, are arguing that the changes will create a less transparent market and make it even harder for explorers to secure funding.
The Australian reported that under the rules, companies are restricted from disclosing project economics to their investors if the company does not have “reasonable grounds” to believe they have funding in place for the project’s development.
That restriction has been seen within the industry as a Catch-22 situation, given the release of the economic potential is a crucial stepping stone in raising both money and market capitalisation.
AIG has consistently advocated that measures which unnecessarily stifle investment in exploration and mining are damaging employment prospects for geoscientists and placing renewal of Australia’s mineral resource project pipeline at risk. The JORC Code, last revised in December 2012, already provides standards for the content forward looking statements made by exploration and mining companies, intended to ensure appropriate, transparent disclosure of information for the =benefit of investors.
Click here to read The Australian’s report on this issue.
20 May 2016
There is increasing demand in the mining industry for raising the standard of JORC and NI43-101 reporting for mining projects. Edumine offers a range of on-line and instructor led courses that help to build and refresh skills in a number of areas.
Upcoming courses are relevant for anyone who has to prepare, understand, or evaluate a JORC or 43-101 report.
Quality Control of Assays by Dr. Alastair Sinclair
Practical Geostatistics by Dr. Isobel Clark
Mineral Resource Estimation by Dr. Alastair Sinclair
Cash Flow Evaluations for Mineral Projects and Operations by Lawrence Devon Smith
To develop your 43-101 skills, and to find out more about these unique events click the titles above or contact Sandra Wunsch at Edumine in Vancouver directly. AIG members who have elected to enrol in the AIG Edumine campus have free access to on-line and discounted enrolment for instructor-led courses.