CIM Bulletin, Vol. 98, No. 1086, 2005
W.S. Vaughan and S. Felderhof
The minerals industry’s inherent international scope has led to raising the requisite capital in various jurisdictions, independent of a mining company’s management or operations base. While this creates various financing options, it can still be a challenge to raise the requisite capital given the requirement for large amounts of high-risk capital. As a consequence, the minerals industry must develop efficient means to attain this capital, the most important of which is providing investors willing to provide capital with transparent and comprehensive information. Achieving this requires internationally accepted reporting standards for mineral resources and mineral reserves using universally accepted definitions. Experts in the international mineral exploration and mining industries have been working diligently for decades towards this end. In fact, they have done exceptionally well relative to other industries in producing closely harmonized international standards in the world’s top mining and mineral financing countries.
The international standards provide minimum standards, recommendations, and guidelines for public reporting of exploration results, mineral resources, and mineral reserves in their respective jurisdictions (International Codes). Their reporting terminology sets out a classification system for the tonnage and grade estimates of mineral resources and mineral reserves. Public documents which include estimates of mineral resources and mineral reserves must be prepared by or under the direction of, and signed by, a Competent Person (i.e. Qualified Person) or persons. A Competent Person is essentially a regulated engineer or geoscientist who has a minimum of five years of relevant experience.
The regulatory framework within which each of these International Codes sits will determine whether or not each will have its intended effects. For each International Code to be effective they must have (1) backing from the applicable regulatory authorities (e.g. stock exchanges or securities commissions), and (2) SROs and other relevant organizations which adopt the International Codes and support them as a best practice. That is, it must be legally mandatory for both individuals and companies to conform to the International Codes if they are to be effective.
Unfortunately, the International Codes have not been accepted by the regulatory authorities in the United States [the U.S. Securities and Exchange Commission (SEC)], or in the United Kingdom (the UK Listing Authority). This is more serious in the United States, given that the SEC rules do not permit reporting of resource estimates or even use of the term resource and do not require the use of a Competent Person. This may not be an oversight on the part of the SEC given the United States does not have a national organization or agency that licenses mineral industry professionals nor an effective discipline committee that can remove one’s right to practice for incompetence or impropriety. This lack of a national professional ‘umbrella’ organization has not, however, hindered the concept of a Competent Person in Canada.
It is evident therefore, that application of these standards may be less in the hands of the industry and more in the hands of their respective regulators. One of the factors influencing the acceptance of such standards is the current work of the International Accounting Standards Board (IASB) and the International Organization of Securities Commissions (IOSCO). IASB and IOSCO are currently standardizing international accounting practices and international securities rules and regulations relating to multi-jurisdictional issues. Already the extractive industries have been segregated from international accounting practices due to their specialized nature and, unfortunately, the current views expressed by these organizations would nullify the use of the International Codes. The securities regulatory authorities are expressing dissatisfaction with the subjective nature of the estimation of mineral resources and mineral reserves to say nothing of the valuation of mineral resources and mineral reserves—the effect being that the extractive industries are being treated differently than other industries resulting in an uneven playing field. This may cause otherwise available capital to flow to non-extractive industries.
Accordingly, those in the minerals industry must do all that it can to be treated on par with other industries from an accounting point of view. This can be achieved by attaining the highest possible professional technical standards thereby establishing confidence in the International Codes. Similarly, the regulatory authorities must recognize that the uniqueness of the minerals industry requires input from industry professionals in order to implement successful rules and practices.