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ASX may tighten disclosure rules

AUSTRALIA'S mining and resource stocks could face tougher disclosure requirements, as the local bourse seeks to protect investors from confusing and misleading information.
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By InvestSMART · 6 Oct 2011
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By InvestSMART ·
6 Oct 2011
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AUSTRALIA'S mining and resource stocks could face tougher disclosure requirements, as the local bourse seeks to protect investors from confusing and misleading information.

The operator of the Australian Stock Exchange has flagged a series of changes to the way companies in the mining and energy sectors report the size and potential of their assets, under a review process launched yesterday.

A minefield of industry jargon confronts new investors to the mining sector and the ASX revealed concerns yesterday that some companies were inappropriately taking advantage of that situation.

Among several concerns aired, the ASX said some companies had inappropriately used "exploration targets" to court investors with data that was speculative at best.

"It was not intended to provide an opportunity for reporting preliminary, low-confidence estimates of tonnes and grade before there was sufficient data and confidence to report an inferred mineral resource," the ASX said in an issues paper.

The ASX also raised concerns that companies were luring investors with "production targets" which did not fall under the JORC code - which is the accepted industry formula for measuring mineral resources.

The ASX raised the prospect of forcing companies to explain more about their production targets, including the financial assumptions underpinning the forecasts and what proportion of the targets were reliant on further exploration.

Cultural differences and the varying standards of reporting required by different nations has also caused problems on the local bourse. The ASX indicated it was keen to see regulations for petroleum companies brought into line with the international standards created in 2007 by the Society of Petroleum Engineers.

The Minerals Council of Australia could not be reached for comment yesterday but the ASX said the moves were also aimed at efficiency - and that it was wary of unnecessarily increasing the reporting burden.

Australian Shareholders' Association spokesman Vas Kolesnikoff welcomed the push towards tougher standards, saying it was timely given the large sums of money flowing towards resources stocks at the moment.

"Disclosure has been complicated and confusing, so any effort to make disclosure of information clearer is a plus," he said.

"Greater disclosure on the stage of exploration and certainty of the resource would clearly increase the knowledge base of investors."

Comments on the issues paper are being sought by the ASX until January 27.

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Frequently Asked Questions about this Article…

The ASX has launched a review considering tougher disclosure requirements for mining and energy companies to protect investors from confusing or misleading information. The issues paper flags changes to how companies report the size and potential of assets, and seeks clearer, more consistent reporting practices.

The ASX says some companies have used "exploration targets" in a way that presents low‑confidence, speculative estimates of tonnes and grade. The board notes exploration targets were not intended to substitute for an inferred mineral resource and warns investors to be cautious when companies present preliminary, uncertain figures.

Production targets are forecasts of future output. The ASX is worried some forecasts don't fall under the JORC code and may be presented without clear assumptions. It has flagged requiring companies to disclose the financial assumptions behind production targets and what portion of the target depends on further exploration.

The JORC code is the industry standard for reporting mineral resources. The ASX highlighted that production or resource statements outside JORC can be misleading, so investors should look for JORC‑compliant reporting to better understand the confidence and methodology behind a company’s resource estimates.

The ASX indicated it wants petroleum company reporting to be brought into line with international standards, specifically the Society of Petroleum Engineers guidelines developed in 2007, to reduce issues caused by differing national reporting practices.

Clearer disclosure should reduce confusing jargon and give investors better information about the stage of exploration and the certainty of resources, helping investment decisions. The ASX also says it wants to balance this with efficiency and avoid unnecessarily increasing reporting burdens on companies.

Vas Kolesnikoff, a spokesman for the Australian Shareholders' Association, welcomed the push for tougher standards, saying clearer disclosure is timely given large sums flowing into resources stocks. The Minerals Council of Australia could not be reached for comment, according to the article.

Yes. The ASX is seeking comments on its issues paper, with submissions being accepted until January 27, according to the article.