OSC finds ‘unacceptable’ non-compliance among miners

The Ontario Securities Commission (OSC) has reported there is an “unacceptable” level of non-compliance when it comes to exploration and mining firms disclosing required information in technical reports — a vital document used by many investors and other parties to assess resource properties.

The OSC reviewed 10% — or 50 of the 460 technical reports filed
by Ontario-based firms between June 30, 2011 and June 29, 2012 — and found that only 20%, or 10 reports, fulfilled the National Instrument
43-101 disclosure standards. The
remaining 80% — or 40 reports — had “some form of non-compliance,” of which half, or 40%, had “at least one major non-compliance concern.”  

Some major areas of concern include companies failing to document a project’s resource estimate, environmental and social impacts, start-up costs and economic analysis, and project-specific risks.  

The OSC revealed that a quarter of reports containing resource and reserve estimates did not provide the necessary information on “key assumptions, parameters and methods used to estimate the mineral resources,” such as cut-off grades and metal prices. 

When looking at reports on an advanced property — in this case defined as a project with at least a preliminary economic assessment  completed — regulators noted that a third didn’t adequately discuss environmental permits or the social and community impacts of developing a project. It recommends that companies include potential social or community conditions, as well as details on any negotiations and agreements with local communities.

“In some recent cases, the inability to advance projects has been related to surface and community issues rather than geological or technical issues,” the OSC states.

It revealed 26% of these reports left out how operating costs estimates were calculated and why certain costs were assumed, and that context and reasoning behind capital and operating cost estimates are necessary. 

The review also indicated 40% of those reports did not include the impact of taxes in an economic analysis, among other deficiencies. “It is potentially misleading for a technical report on an advanced property to disclose only pre-tax cash flows and economic outcomes, positive metal price changes and upside sensitivity analysis,” the OSC warns. 

Moreover, it says 36% of all the documents evaluated did not publish “project-specific risks and uncertainties, such as available water rights, a novel mineral processing technology or the potential impact of a civil war in the region.”

Some minor disclosure deficiencies include reports not containing a summary of project findings, while others were missing cautionary statements when referring to a historical resource estimate, or had incomplete qualified-person certificates. 

The OSC cautions that the companies that didn’t meet disclosure standards may be asked to re-file reports, adding that any “unresolved issues” may delay a prospectus receipt.

Most of the companies surveyed were listed on the Toronto Stock Exchange or TSX Venture Exchange, while a small portion were on the Canadian National Stock Exchange or unlisted. Half of the firms had more than a $25-million market capitalization, while a quarter had a market cap exceeding $100 million. 

In terms of development, 59% of the companies were at resource stage, while 26% were in development or production. Fifteen percent were at the exploration stage.