LETTER TO THE EDITOR — Mining sector should clean own house

Your editorial covering the release of the Mining Standards Task Force (T.N.M., June 15-21/98) did a good job of touching on the main points.

However, your conclusion that the Toronto Stock Exchange should have been more proactive in prescribing and enforcing industry best practices bears some thought.

There are 14 industry groupings and 33 separate industry sub-groupings on the TSE. Yet only the mining sector will have full-time industry specialists to police its listed companies and ensure that industry best practices are followed. Are exploration companies really that different from other industries? Many of the recently listed high-tech or bio-tech companies have no financial track record, with assets that are little more than a concept or idea. Are there more incompetent professionals and fraud artists in mining? Do you really want some securities commission or exchange bureaucrat deciding if industry best practices have been followed for a gold project on a remote hilltop in the Andes or a nickel laterite project in New Caledonia? It is too simple to focus on the specific instance of Bre-X and what should or shouldn’t have been done. The range of commodities, ore deposits, grade distributions, metallurgy and geographic locations create almost an infinite number of situations with varying best practices that are appropriate or possible in each situation. The decision as to the appropriate best practice rightly rests with the experienced “qualified person.”

The same applies to auditing projects. Simply requiring that holes be twinned is not a solution. Would twinning a few holes on nuggety Archean lode deposits be effective? Was it necessary to twin the discovery holes on the Voisey’s Bay massive sulphide? Would a twinned hole in a kimberlite pipe help when there has already been bulk sampling performed? Should industrial mineral deposits be treated the same? Again, the experienced qualified person is best suited to decide the effective means through which to verify the integrity of the data provided.

A big part of the problem facing the industry is that the professional and qualified engineers and geologists involved have, for too long, abdicated their responsibility in protecting their franchise. Doctors, lawyers and accountants are members of professions that actively control who can practice in their business and the minimum standards required. In the mining business, what makes an ore deposit appears to be such a vague science that we allow unqualified promoters (often former brokers, analysts, lawyers or even general business people) almost carte blanche in presenting the geological and technical merits of mining properties.

It is hoped that the proposed new rules will clearly limit what promoters can say about the technical aspects of mining properties. These limits should be based on what a qualified person — one who is a member of a self-regulating professional body — has determined to be appropriate. This hands more power and responsibility to the professionals and their associations. Hopefully, the professional associations will take advantage of the opportunity not only to improve their already high standards of practice but also to take part in limiting the ability of bad characters to operate. The Northern Miner should be calling on the professional geologists and engineers to help clean up and protect their own house rather than asking the TSE or the Ontario Securities Commission to do it for them.

David Harquail, P.Eng.

Senior Vice-President

Franco-Nevada Mining

 

— Editor’s Note: On whether exploration companies are “really that different” from venture-stage companies in high technology and biotechnology, we have to plead ignorance. We don’t know about high-tech or bio-tech companies, and it may very well be that they should be subject to whatever rules will flush out fraud in those sectors.

We are still of the opinion that making independent re-sampling mandatory at some stage will help to force frauds into the open. This could take the form of twinned holes, bulk samples, or whatever would provide the best comparison in specific cases: we know better than to suggest that twinning one hole could ever verify grades in a nuggety Archean lode gold deposit.

Bear in mind that of the eight mining scandals the task force listed in its report, independent re-sampling was the wire that tripped six of them (Bre-X, New Cinch, International Platinum, Naxos, Timbuktu and Golden Rule).

We are not arguing that every mineral exploration project should follow the same procedural cookbook. As you point out, such an approach could impose ridiculous requirements on projects that would not benefit from them. But we do believe that the measures proposed by the Mining Standards Task Force fall short of giving the regulatory bodies — either the TSE or the OSC — the mandate to prescribe even a minimum of “best practices” for junior companies, which may give rise to situations where companies choose not to implement specific recommendations of their QP on some pretext or other.

And, as we all have learned, QPs are not immune to temptation.

We would not have your “securities commission or exchange bureaucrats” making the call on best practices, either. You are right that the decision properly rests with the “qualified person.” We just think there ought to be one wearing an OSC or TSE badge. It is time for the regulatory bodies to realize they must hire and keep qualified people to monitor the mining industry stocks they oversee, and it is time for the industry to accept that there should be a referee on the ice to stop the play when there’s an infraction.

We agree with you that mining and exploration professionals should be licensed and that the professional organizations should exert strict control over members’ behavior. But alone, professional sanctions are not enough; the regulators have to be strong enough to take action at crucial times.