EDITORIAL — PDAC bemoans inadequate disclosure — Codifying corporate conduct

With a membership of more than 6,000 individuals and corporations, the Prospectors & Developers Association of Canada (PDAC) is taking a keen interest in the Ontario task force currently reviewing standards for exploration programs carried out by public companies, and for the reporting and disclosure of the results of those programs.

The committee, set up last summer by the Toronto Stock Exchange (TSE) and the Ontario Securities Commission (OSC), intends to recommend regulatory standards for the reporting of mineral resources and reserves and assaying results in prospectuses and continuous disclosure documents.

The PDAC, for its part, has no objection to the codification of certain reporting standards, but it has urged the task force to resist the temptation to respond to the improper actions of a few companies by imposing, on the whole industry, unnecessary standards and their associated costs. At the same time, however, the PDAC has suggested that the task force recommendations should go beyond matters raised in its request for submissions.

We share the PDAC’s view that the government’s decision to turn the OSC into a self-funded organization should be expedited and that other provinces should be encouraged to increase the enforcement capabilities of their securities commissions. All the rules and regulations in the world will not deter devious minds if enforcement is ineffective or haphazard. The OSC has an important role to play in maintaining confidence in public markets; it should be given the tools and resources to pursue parties connected with fraud and misrepresentation.

We also agree that rules, laws and policies should be consistently interpreted and vigorously enforced between jurisdictions and among stock exchanges. This way, bad apples will not roll from one exchange to another, as they have in the past.

The PDAC is urging support for the recommendations of the Allen Report, which concern a fully integrated and continuous disclosure system, the availability of supplemental information, and statutory liability in respect of misleading information contained in continuous disclosure documents.

The recommendations of the Allen Report would provide investors with the benefit of an initial prospectus-level disclosure document, which would be updated on a continuous basis with other prospectus-level disclosure. As the PDAC points out, the application of prospectus-level disclosure standards and the imposition of civil liability for representations would go a long way toward helping restore confidence in the markets.

But some of the more interesting suggestions made by the PDAC are in the realm of corporate conduct. In the reporting of results and standards applicable to reserves, the industry association supports minimum criteria for public disclosure documents. The PDAC has noticed (as have we) that inadequate disclosure practices of some companies include: the reporting of deposit reserves as contained ounces, pounds or tonnes of metal without reference to specific tonnes and grade; the use of metal equivalents; use of dollar values for drill intersections; and the mixing of metric and imperial units of measures. It also notes that, in the case of gold, cut and uncut assays should be identified.

The PDAC suggests that the disclosure of drill results and reserves in continuous disclosure documents and annual reports should be free of incomplete or confusing disclosure such as that described above. To say that we second that motion would be an understatement.