Opinion piece - disclosure by smaller mining companies

John Price - ASIC Commissioner

The Chanticleer column recently became the latest to convey the notion that somehow the goalposts have been shifted in what constitutes required disclosure by smaller mining companies. 'Nanny state suffocates Perth' (AFR, 31 May 2016) claimed ASIC's 'nitpicking', combined with an ASX move to tougher listing requirements, could stifle a nascent return to good times in the mining industry.

Not so, as we would have told Chanticleer if asked.

There is one thing that must be made clear from the outset: the law has not changed! There are no new laws, no removal of existing laws. Nor has ASIC's interpretation or enforcement of the law changed – and ASIC has made this abundantly clear to all. (All of which rather undermines Chanticleer's claim that 'ASX is already enforcing the new rules'.)     

The ASX Listing Rules, guidance and FAQs also deal with forward-looking statements, and these were last amended in 2012 following a rigorous public consultation process, including extensive consultation with ASIC and the JORC, the industry's own highly respected panel of experts.  

Chanticleer also found fault with ASX's revised threshold policy for new listings, and ASX is best placed to defend that.  

For its part, ASIC released an Information Sheet in April that provides guidance on forward-looking statements in the mining and resources sector. This followed a request from industry after feedback that many found the existing rules and guidance to be fragmented, not easily accessible and difficult to understand.

Accordingly ASIC provided the guidance, following collaboration with the ASX, JORC, VALMIN and technical experts, to give industry a 'one stop shop' for participants to assist them in improving compliance, and reduce business costs and the risk of litigation, including class actions, or regulatory action. Throughout the two-year process ASIC also consulted with AMEC to ensure that our articulation, explanation and drawing together of the existing rules and guidance, was clear.

Chanticleer claimed ASIC had forced promoters on several occasions to return funds to investors. That refers to situations where there were serious concerns over the use of trust accounts, or the level of disclosure on the legal status of a business model within Australia. ASIC makes no apologies for protecting investor funds in these circumstances. There are strict laws around the use of trust accounts and these laws are fundamental to the integrity of our market.

There is a myth that claims companies cannot release any 'technical' scoping study information as it may be too preliminary to show reasonable grounds for production targets and forecast financial information. This is incorrect. ASIC and ASX guidance make clear that it should be fine, as long as it's relevant and reliable technical information that assists in assessing a project's prospects.

Companies are already required to have 'reasonable grounds' for any projections – but that does not  require them to have ore reserves or secured funding in place. Chanticleer claimed 'as a result of the changes…forecasts can be published only if the companies have the funding to proceed with the project that is the subject of the forecasts.' That is simply not true.

ASIC specifically acknowledges the need for 'flexibility' in assessing what's reasonable.  

For example, it is quite possible to publish production targets and forecast financial information on the basis of deposits only proved up to "mineral resources" status, (and in some cases even on the basis of inferred mineral resources alone).

There is only one proviso – and it is not a new one: ASIC does not want companies or entrepreneurs to raise money from investors on the basis of claims without reasonable foundation – and would be surprised if Chanticleer or any other observer felt otherwise. By definition this would be unreliable, irrelevant or misleading – and that applies to all companies, not just those in the mining industry.  To repeat, nothing's changed.

Surely it is not too much to expect that predictions of future funding be based on reasonable expectations?

It is still an equity market, where capital is employed at some risk in order to achieve a return. There's nothing wrong with that as long as investors can make their decisions based on information that is balanced and not so ‘hyped’ as to be misleading. That is exactly why the law says you need reasonable grounds to make important future predictions.

This requirement of reasonable disclosure applies to all companies in all industries in Australia. It captures the spirit of the world-renowned JORC code, the rules hammered out by Australian industry, legislators and regulators 40 years ago to prevent a repeat of the treacherous Poseidon-style booms and busts that inhibited real wealth creation for so long.

The credibility that provided has made the Australian mining and resources sector a world leader and helps explain why they comprise 47% of Australia's 2,200 listed companies.

Long may that continue.