ASX-listed companies come under greater scrutiny than private companies and one of the recurring problem areas for many juniors is what can and can\u2019t be included in scoping studies.<\/p>\n
The issues surrounding scoping studies have been a thorn in the side of explorers for several years, and not much has been done since the Australian Securities and Investments Commission (ASIC) released a draft of its regulations around forward-looking statements in April 2016 following two years of discussions with the industry.<\/p>\n
One of the key concerns for industry is that it puts potential investment at risk and leaves smaller investors at a disadvantage because they don\u2019t have access to all the information.<\/p>\n
ASIC says it is common for investors in resources companies to put a lot of emphasis on \u201cforward-looking statements\u201d when considering an investment.<\/p>\n
But the regulator says companies need to be careful because those that publish non-compliant forward-looking statements \u201ctake legal and reputational risks\u201d.<\/p>\n
A forward-looking statement is a statement about a future matter, such as production targets and forecast financial information.<\/p>\n
ASIC made some minor drafting changes to clarify its guidance in response to concerns and misunderstandings that arose at the time of the original release of its regulations in April 2016.<\/p>\n
The corporate watchdog clarified that production targets and forecast financial information can be published even if secured funding is not in place, but a company still needs to be able to demonstrate \u201creasonable grounds\u201d that it could obtain the necessary finance as and when required.<\/p>\n
If a company does not have \u201creasonable grounds\u201d to assume it can fund a project then ASIC considers it misleading to publish forward looking statements such as cash flow or production forecasts.<\/p>\n
This is where it gets confusing for explorers and difficult for investors.<\/p>\n
If a company has been compelled to retract production schedules and financial models, it is then not allowed to refer to them in any future presentations or market releases \u2013 and they are deemed not material by ASIC.<\/p>\n
But junior explorers argue that the production schedules and financial models of a project may be very material even if a company\u2019s market cap is small.<\/p>\n
Meanwhile, a company can discuss those same forecasts that were retracted with sophisticated investors who are considering providing funding and it\u2019s not considered to be misleading because the company is not implying that it can fund the project.<\/p>\n
This makes larger sophisticated investors privy to information that smaller mum and dad type investors are not able to access.<\/p>\n
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ASIC says \u201cthe test for reasonable grounds is an objective one and depends on the facts of each case\u201d.<\/p>\n
But some explorers argue that it is more arbitrary and subjective than objective.<\/p>\n
\u201cOne of the challenges for us is where there\u2019s inconsistency applied by the ASX, where a company will look at what has been released by another company and what has been considered acceptable,\u201d Association of Mining and Exploration Companies (AMEC) CEO Warren Pearce explained.<\/p>\n
\u201cThey then use the same form of words or same type of information provided in the same way and they\u2019re told by the ASX that they can\u2019t put that information out in that way.<\/p>\n
\u201cNow that creates a bit of frustration among our members because there\u2019s not a consistent approach being applied to all companies.\u201d<\/p>\n
ASX spokesman Matthew Gibbs told Stockhead<\/em> there had been \u201csome disappointment\u201d expressed by companies that had not been permitted by the ASX to release their scoping studies because of concerns the information could be misleading due to an over-reliance on inferred resources and, therefore, not in accordance with the Corporations Act, ASX policy or ASIC\u2019s IS 214.<\/p>\n Mineral resources are categorised in order of increasing geological confidence from inferred to indicated to measured.<\/p>\n Inferred resources are estimated using limited geological evidence and sampling information, which means there\u2019s not enough confidence to evaluate the project\u2019s economic viability.<\/p>\n However, Gibbs said the industry was supportive of the ASX guidance on scoping studies.<\/p>\n \u201cWe regularly discuss it with stakeholders,\u201d he said.<\/p>\n With respect to the question of consistency, Gibbs says all scoping studies are reviewed by a member of the ASX\u2019s resources team, which includes geologists.<\/p>\n \u201cWe inform ASIC as necessary,\u201d he explained.<\/p>\n \u201cMany studies we pre-vet. Some are released without ASX\u2019s review. Some of these are subsequently retracted or amended.\u201d<\/p>\n Companies that have been forced to retract their scoping study announcements include base metals explorer Mithril Resources (ASX:MTH)<\/strong><\/a>, New Talisman Gold (ASX:NTL)<\/strong><\/a>, graphite producer Syrah Resources (ASX:SYR)<\/strong><\/a> and copper-silver explorer Valor Resources (ASX:VAL)<\/strong><\/a>.<\/p>\n AMEC has been in regular talks with the ASX over the past 12 months.<\/p>\n \u201cWe\u2019re absolutely cognizant that information has to be reliable and our companies work hard to make sure it is,\u201d AMEC\u2019s Pearce told Stockhead<\/em>.<\/p>\n \u201cBut sometimes it feels like we\u2019re being prevented from putting out information that should reasonably be able to make it into the investment market so people can understand what does happen in the company and can make decisions on it.<\/p>\n \u201cWe need to be able to make that promotional effort in order to keep investment coming into our industry.\u201d<\/p>\n Pearce argues that it is not so much an administrative or cost burden on companies as it is more of a missed investment opportunity.<\/p>\n \u201cThe problem is largely unknown until the last minute,\u201d he said.<\/p>\n \u201cSo you go to put your information out, you\u2019ve based it on something that\u2019s been seen to be acceptable in previous cases or with other companies and then you find out last minute that you can\u2019t put the information out.<\/p>\n \u201cOften that leads to a two- or three-day delay while the company sorts out with ASX what can and can\u2019t be said, and typically when they are putting out their statement, they\u2019re often time sensitive.<\/p>\n \u201cYou try to do it at a particular point ahead of an investment conference or ahead of something happening that gives you the best chance to promote your company and attract some investment opportunity.<\/p>\n \u201cSo I don\u2019t think it\u2019s a major cost factor so much as there is an opportunity that has been lost when these things get held up.\u201d<\/p>\n There is a proposal for a \u201cJORC 20\/20\u201d review next year which will involve ASX.<\/p>\n JORC refers to the mining industry\u2019s official code for reporting exploration results, mineral resources and ore reserves, managed by the Australasian Joint Ore Reserves Committee.<\/p>\n Gibbs said the ASX planned to review the scoping study guide at the same time but separately to the JORC review.<\/p>\n The post Scoping study issues continue to plague ASX-listed explorers<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Missed opportunity<\/h2>\n