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19 Jan 2012

ASIC responds to ASX and JORC on disclosure of production targets and forward-looking statements

by Heath Lewis, Warrick Louey

ASIC has released a public submission in response to public issues papers released by ASX and JORC in relation to the disclosure of production targets and statements as to future matters implying economic viability of mineral deposits.

On 1 December 2011, ASIC released a public submission in response to public issues papers released by ASX and JORC, emphasising the need to balance ease of access to equity capital markets (particularly by junior mining companies) with the need to ensure market integrity. ASIC's submission focuses on concerns with the latter.

The ASX and JORC issues papers discuss, amongst other things, the disclosure of production targets and forward-looking statements based on inferred mineral resources and exploration targets (which are matters not currently addressed in the ASX Listing Rules or the JORC Code).

ASIC says that inferred mineral resources and exploration targets are too uncertain to support reasonable grounds for disclosing production targets and forward-looking information. ASIC believes that such disclosure may be misleading, because production targets and forward-looking financial information released by resources companies imply that those targets / prospects will be achieved (notwithstanding the underlying low level of geological certainty of an inferred mineral resource and the conceptual nature of an exploration target).

ASIC also says that while cautionary language plays an important role in highlighting risks, it will not, of itself, affect the requirement for there to be reasonable grounds for making statements as to future matters that imply the economic viability of resources projects (which ASIC suggests cannot be demonstrated where companies only have inferred mineral resources and exploration targets).

The approach proffered by ASIC is more rigorous than the proposed ASX disclosure regime set out in Option 5A of the ASX issues paper. ASX's preferred approach permits the disclosure of production targets and forward-looking financial information based on inferred mineral resources and exploration targets, so long as certain risk disclosures and cautionary statements are included. ASIC has expressed concerns that this approach could lead to the market being not fully informed and possibly investors being misled.

ASIC contends that its proposed approach is more consistent with the likes of Canada, South Africa and Europe, which all have more rigorous disclosure requirements than that proposed in Option 5A of the ASX issues paper.

In a move that is consistent with the Canadian approach, ASIC considers it implicit in clause 8 of the JORC Code that forward-looking statements implying economic viability, such as production targets or scoping studies, should be consented to by a Competent Person. ASIC also considers the independence of Competent Persons in this context to be an issue that requires consideration.

Adopting ASIC's proposed approach on these matters would certainly provide the market and investors with a greater level of certainty around the disclosure of production targets and forward-looking statements, and therefore seek to improve market integrity and the existence of a "fully informed" market. On the other hand, the changes would increase compliance costs (eg. Competent Person fees), particularly if ASIC's suggestion of independence is taken up, which in our view may have a disproportionate effect on junior mining companies.

Going forward, companies should be mindful of ASIC's position in respect of these issues when preparing offer documents or making market announcements. ASIC has demonstrated a willingness to apply this position, as previously raised in ASIC liaison meetings, through its powers of market supervision and review of disclosure documents for capital raisings.

For background information, please see our article ASX proposes more onerous disclosure obligations for mining and oil & gas companies, which considers the ASX issues paper Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies. See also 2011 JORC Code Review Issues Paper, the JORC Code in Appendix 5A of the ASX Listing Rules and the JORC website.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.