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17 Oct 11
ASX Listing Rule changes

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Moving away from JORC? Or improving the capital raising process?

On 5 October 2011, the ASX released a public consultation paper proposing changes to the disclosure rules for mining and oil and gas companies regarding the reporting of their reserves and resources. The ASX consultation paper proposes a move towards the Canadian and South African systems for reserves and resources disclosures and away from the JORC Code (Joint Ore Reserves Committee).

The JORC Code has operated in Australia as the basis for reserves and resources reporting since shortly after the Poseidon nickel ‘bubble’ in the 1970s. As such, any move away from the JORC Code would be a significant change.

ASX lists its primary purpose for the review to improve the capital raising process for listed miners by enhancing the quality of company disclosures. The consultation paper also outlines a number of guiding principles supporting the proposed changes including international consistency, reducing compliance costs for dual listed companies and regulatory efficiency. ASX is seeking, however, to maintain a principles based approach to reporting, though many of the proposed changes appear quite prescriptive.

JORC has advised that it will issue its own consultation paper soon, with its initial comments to date suggesting that it believes the proposed changes may place too great a compliance burden on mining companies.

There are six issues in the ASX paper for public consultation.

Issue 1 - disclosure of exploration results

  • ASX proposes key drill hole and intercept information be disclosed with exploration results. The relevant data to be included would be the drill hole location, azimuths, the dip, the down hole widths and depths and the end of each hole. The prescription of these categories of information is intended to make exploration results more objective and meaningful.

Issue 2 - disclosure of exploration targets

  • ASX is concerned that exploration targets have become an opportunity for the reporting of preliminary low confidence estimates of tonnage and grade before sufficient data is available to make an Inferred Mineral Resource disclosure. ASX wants to avoid confusion between Mineral Resources, Ore Reserves and any lower level exploration target. The proposal is for a cautionary statement (of the same prominence) to be included with any exploration target disclosures.

Issue 3 - disclosure of key assumptions

  • ASX is concerned that the key assumptions underpinning a Mineral Resource or Ore Reserve estimate are not being disclosed consistently across the industry. Some examples of the assumptions the ASX seeks disclosures on are metal price assumptions, cut off grades, ore losses and dilution, mill recoveries, estimation methodologies, operating costs, mineral processing/metallurgical recovery factors, and for open pit mining methods, waste to ore ratio.
  • ASX proposes four possible options to facilitate greater disclosure of relevant assumptions. Its favoured approach is for the disclosure of a summary of the key assumptions underpinning the estimates at the time that the estimates are reported to the market. The other options include prescribing a list of information and assumption areas that would need to be addressed in estimates, disclosing the entire technical report or lifting just the assumptions section for disclosure.

Issue 4 - minimum level of study for Ore Reserve declaration

  • Currently, under the JORC Code, a particular level of study is not prescribed to justify an Ore Reserve declaration. ASX proposes that the minimum requirement for announcing an Ore Reserve is a completed preliminary feasibility (pre-feasibility) study. ASX intends to define a pre-feasibility study as a comprehensive technical and economic study which establishes the preferred mining method (or pit configuration, in the case of an open pit) and mineral processing method and includes a financial analysis. A pre-feasibility study would be more than a scoping study and less than a full feasibility study.

Issue 5 - disclosure of production targets

  • The JORC Code does not currently cover the reporting of production targets. The proposal is to include production targets under the Code.
  • To do this, ASX proposes a number of options with their preferred approach being that production targets be permitted to be reported subject to the key assumptions, risks and contingencies behind the production target, with an approximate cautionary statement be to included. The other (non-preferred) options proposed by ASX place various prohibitions on the disclosure of production target information.

Issue 6 - annual reporting

  • ASX wants mining companies to make a Mineral Resources and Ore Reserves report annually. The two options being proposed by ASX are that companies will be either required to report on their Mineral Resources and Ore Reserves in their annual report or that companies will be required to file a reconciliation of the changes for the year. The reconciliation approach is preferred by ASX and would identify changes resulting from mineral discoveries, revisions, commodity price changes, acquisitions or disposals over the preceding year.

ASX’s consultation paper also proposes changes to the reporting requirements of oil and gas companies. These changes are broadly similar to the proposed mining company reporting changes outlined above.

The last date for submissions on the consultation paper is 27 January 2012. Under each of the six issues, ASX specifically asks for feedback on a number of questions. Should you require any further information on these particular questions or any other aspect of the consultation paper or if you would like our assistance in preparing a submission please contact us.

Definitions

Mineral Resource - where there are reasonable prospects of eventual economic extraction. The types of Mineral Resource are:

  • Inferred - low level of confidence (estimations)
  • Indicated - reasonable level of confidence, and
  • Measured - high level of confidence.

Ore Reserve - the economically minable part of a Measured or Indicated Mineral Resource. The types of Ore Reserve are:

  • Probable - economically viable part of an Indicated Mineral Resource
  • Proved - economically viable part of a Measured Mineral Resource.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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