12 Apr 2012
ASX's proposed Listing Rules - more onerous disclosure obligations for mining, oil & gas companies
by Brett Cohen, Warrick Louey
Brett Cohen and Warrick Louey explain why ASX's proposed changes to its Listing Rules will mean more onerous disclosure obligations for mining and oil & gas companies.
On 2 April 2012, ASX released a paper, "Strengthening Australia's equity capital markets: ASX proposals and consultation" (ASX Proposals Paper), which sets out the first phase of initiatives it proposes to roll out in 2012 to strengthen Australia's equity capital markets.
As ASX has foreshadowed, ASX is proposing to impose more onerous disclosure obligations on mining and oil & gas companies to improve the level of disclosure to investors in the resources sector.
ASX's proposals detailed in the ASX Proposals Paper also include:
increasing the capital raising limit for mid to small cap companies (ie. entities with a market capitalisation of $300 million or less) from 15% to 25% . Such companies will be able to seek a 12-month shareholder mandate to issue up to 10% of the company's issued capital at a maximum 25% discount to the market price. This will be in addition to the 15% already permitted under ASX Listing Rule 7.1; and
updating ASX's admission requirements, by increasing the minimum net tangible assets test from $2 million up to $4 million, and providing new ways for companies to meet shareholder spread requirements.
On 5 October 2011, ASX released a consultation paper, "Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies", that focused on opportunities for updating and improving the disclosure obligations applicable to mining and oil & gas companies. Developments in international standards relating to the reporting of mineral and petroleum information, increasing demand for Australian resources and the need for consistency and confidence in public reporting by mining and oil & gas companies were the key drivers behind the consultation paper.
Following the release of the consultation paper, ASX conducted an extensive consultation process and received numerous written submissions.
ASX's "Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies – Report on Consultation Feedback" (Feedback Report), contained in the ASX Proposals Paper, details ASX's proposals and the feedback received in response to the Consultation Paper. ASX reports that its proposals for greater transparency and consistency in the reporting of reserves and resources received broad industry support, although ASX notes a divergence of views in relation to the reporting of production targets and other forecast financial information by mining companies.
ASX is currently preparing amendments to the ASX Listing Rules to reflect the proposed changes to resource and reserve disclosure by mining and oil & gas companies. ASX says that it expects to release an exposure draft of the proposed changes for comment in mid-2012.
ASX is also proposing to:
work with the Joint Ore Reserves Committee (JORC) to update the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves" (JORC Code) to enhance reserves and resources reporting requirements for ASX listed mining companies; and
update the reporting framework for petroleum reserves and other petroleum resources under the ASX Listing Rules, by introducing a requirement that petroleum reserves and other petroleum resources be reported in accordance with the Petroleum Resources Management System (SPE-PRMS), and a requirement to report key technical and other information relating to the disclosure of a booking of petroleum reserves and other petroleum resource estimates for material projects.
The proposed changes to the disclosure obligations are in many respects significant. Listed mining and oil & gas companies should consider how the changes may impact on their reporting obligations and systems, increase associated compliance costs and put additional pressure on company resources.
Disclosure of production targets
ASX's preferred approach to facilitate improved disclosure of production targets and associated forecast financial information is to prohibit the disclosure of a production target based solely on an exploration target (ie. a company must have mineral resources and/or reserves as defined under the JORC Code as a basis for the disclosure of a production target).
ASX will rely on the company to determine when it has a reasonable basis to disclose a production target, having regard to its obligations under the Corporations Act and its particular circumstances. ASX proposes that the ASX Listing Rules will set out the supporting information that must be disclosed to enable investors to understand and assess the basis and reliability of the stated production target.
ASX states that its preferred option seeks to achieve an appropriate balance between:
minimising the potential for the disclosure of misleading information; and
not preventing the disclosure of information where the company has determined it has a reasonable basis and where it may have a material effect on the price or value of the company's securities.
ASX considers that this balance is largely met by requiring greater disclosure of the bases underlying a production target and the inclusion of appropriate qualifications and cautionary statements.
ASX noted a considerable divergence of views relates to whether production targets should be permitted to be disclosed by mining companies when based solely on inferred mineral resources (or a combination of inferred mineral resources and exploration targets). An "inferred mineral resource" under the JORC Code is a mineral resource that has a comparatively low level of geological certainty.
In December 2011 following the release of ASX's Consultation Paper, ASIC expressed concern that inferred resources and exploration targets are too uncertain and not a reasonable basis for disclosing production targets and associated forward-looking information. ASIC believes that such disclosure may be misleading, because the disclosure implies that those targets will be achieved (notwithstanding the underlying low level of geological certainty of an inferred mineral resource and the conceptual nature of an exploration target).
Despite ASIC's expressed concerns, ASX's proposal would permit such disclosure, provided that the company has a reasonable basis. ASX noted in the Feedback Report that there may be circumstances where a company may have a reasonable basis for disclosing production targets based on inferred resources (and that certain types of mineralisation may provide a better basis for disclosure than others). ASX noted concerns that a prohibition on such disclosure may result in the market not being fully informed, and would make it more difficult for junior mining companies to raise the finance required to fund the next stage of project development.
Companies should still be mindful of ASIC's position in respect of the reporting of production targets and associated forecast financial information when preparing offer documents or making market announcements – ASIC retains powers of market supervision and review of disclosure documents for capital raisings. ASIC has demonstrated a willingness to apply its position, and may continue to do so, notwithstanding ASX's preferred approach that would permit the disclosure of production targets based wholly or partly on inferred mineral resources.
ASIC had also submitted that production targets should be consented to by a competent person. ASX does not appear minded to introduce this requirement. ASX noted that the majority of submissions considered that production targets were the responsibility of company directors and officers, particularly as a production target involves input from a number of disciplines, which is beyond the scope of expertise of a competent person.
The proposed changes
The changes proposed to the ASX Listing Rules to improve the level of disclosure to investors in the resources sector concern:
reporting on key technical and other supporting information when an initial (or materially changed) estimate of mineral resources and ore reserves for a material project is publicly reported for the first time;
reporting on key technical and other supporting information when estimates of petroleum reserves, contingent resources and prospective resources for a material project are booked and reported for the first time;
annual reporting for mineral resources, ore reserves, petroleum reserves and other petroleum resources;
reporting of production targets and historical estimates of mineralisation by mining companies;
all public reporting of petroleum reserves and drilling results;
reporting of petroleum exploration and drilling results; and
the minimum professional qualifications and experience required to be a "qualified reserves and resources evaluator" for the purpose of signing-off publicly reported petroleum reserves and other petroleum resources.
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