Jargon minefield to be swept

Australia's mining and resource stocks could face tougher disclosure requirements.

By InvestSMART · 6 Oct 2011

By InvestSMART ·
6 Oct 2011

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Australia's mining and resource stocks could face tougher disclosure requirements.

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'' that did not fall under the JORC Code, 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 it was wary of unnecessarily increasing the reporting burden carried by companies.

Australian Shareholders Association spokesman Vas Kolesnikoff welcomed the push towards tougher standards, saying it was a timely intervention given the large sums of money flowing towards resources stocks at the moment. ''Disclosure has been complicated and confusing ? 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…

What is the ASX review of mining and resource disclosure and why does it matter to investors?

The ASX has launched a review of how mining and energy companies report the size and potential of their assets. It aims to protect investors from confusing or misleading information by tightening disclosure requirements and reducing industry jargon that can mislead new investors.

How could tougher disclosure requirements affect mining and resource stocks?

Tougher disclosure could mean companies must be clearer about the confidence behind their figures, explain production forecasts and the assumptions that sit underneath them, and avoid using speculative statements to attract investment. For everyday investors this should improve transparency and reduce the risk of being misled by preliminary or low‑confidence estimates.

What did the ASX say about companies using 'exploration targets' to attract investors?

The ASX raised concerns that some companies were using 'exploration targets' inappropriately to court investors with speculative data. The ASX said exploration targets were not intended to be used as preliminary, low‑confidence estimates of tonnes and grade before there was sufficient data to report an inferred mineral resource.

What are 'production targets' and what is the JORC Code issue mentioned in the review?

Production targets are forecasts of how much a project might produce. The ASX said some companies were promoting production targets that do not fall under the JORC Code (the industry standard for reporting mineral resources), prompting concerns that forecasts were being presented without the usual technical standards or clarity.

Will the ASX require companies to disclose the assumptions behind production forecasts?

Yes — the ASX flagged that it may force companies to explain more about their production targets, including the financial assumptions behind those forecasts and what portion of the target depends on further exploration. That aims to give investors clearer context on how realistic forecasts are.

How does the review address international reporting differences for petroleum companies?

The ASX signalled it wants petroleum reporting rules brought into line with international standards created by the Society of Petroleum Engineers in 2007. This move is intended to reduce confusion arising from cultural and differing national reporting standards while being mindful of not unduly increasing reporting burdens.

Who has publicly reacted to the ASX push for tougher standards?

The Australian Shareholders Association welcomed the move. Spokesman Vas Kolesnikoff said stronger disclosure was timely given large sums flowing into resources stocks, and that greater clarity on exploration stage and resource certainty would help investors. The Minerals Council of Australia could not be reached for comment in the article.

How can investors participate or follow the ASX disclosure review and its timeline?

The ASX issued an issues paper and is seeking comments on the proposed changes. According to the article, comments were being accepted until January 27. Investors can follow ASX announcements and submit feedback through the ASX consultation process to stay informed and have a say.