Improving the 43-101


Warner Uhl, Procon Group

National Instrument 43–101 (“NI 43-101”) provides a framework for disclosure by mining companies designed to improve consistency and bases for comparisons between projects which are understandable to a reasonably informed investor. It is designed for the purpose of improving investor confidence in the mining industry. The document is 44 pages long and focuses on exploration results.  Only two sentences devoted to cost factors that generate the NPV and IRR. Investors use this information to assess the economic viability of the proposed mine based upon the resource, capital costs, sustaining costs and operating costs. The minimal guidance regarding the definitions and calculations of these cost factors leaves an opportunity to manipulate cost and schedule inputs to improve the economics. This makes it very difficult for investors to differentiate a good project from a bad project. Mining Companies are in the business of finding properties with the potential of extracting valuable minerals and to make a profit during the extraction and production process. Investors are seeking confidence that the Mining Company can develop the resources as stated in their public disclosures. Unfortunately, the mining industry has not lived up to this expectation. In 2015, Ernst and Young reported that of 108 mega mining projects evaluated, on average there was a  “staggering” 62% cost overrun and 50% were behind schedule even with acceleration mitigation.  Part of on the reason is the original cost estimate being unrealistic in order to drive higher NPV and IRR. The original prospective economic viability is disclosed in companies’ NI 43-101 and Form NI 43-101F1 Technical Report. It is time to update this document to provide better guidance in developing capital, sustaining and operating costs. Better definition guidance is required, specifically as to Item 21 in the NI 43-101 Technical Report: “Capital and Operating Costs”. Secondly the Qualified Professional definition should be expanded to allow Project Management Professionals or Construction Management professionals with in-field mine construction experience to review the capital costs and the construction schedule. Australia has the JORC Code which is similar to the NI 43-101. The Australian Government released an Issues paper in 2011 which resulted in 114 written submissions for improvements to the JORC. Comments resulted in improved transparency, immateriality and competence in Public Reporting. It is time to do the same in Canada to solicit comments on improvements to NI 43-101. The Issue NI 43-101 focuses on mineral resources and the qualifications of those individuals confirming the mineral resources. The document is also used to demonstrate the economic viability of a resource. However, NI 43-101F1 does not provide enough guidance as to how Companies should be consistent in the development of capital costs, sustaining costs and operating costs to bring the resource to market. It is this aspect that will be discussed in detail in this paper. The author has reviewed numerous NI 43-101F1 reports and has found inconsistencies in the methodology of capital cost estimates that result in higher Net Present Value and Internal Rate of Return calculations. Many investors relay heavily on NPV and IRR calculations in deciding whether to invest in a property or move on to another opportunity. The author will point out these areas of concern so that investors have a better understanding of some of the deficiencies in the report. Hopefully regulators will review and update the NI 43-101F1 report guidance to provide better consistency in reporting. Recommendation Company disclosures are used to provide economic and financial information to demonstrate potential return on investment. The guidance for the preparation of the 43-101 Technical Report does not provide enough information to provide consistency when reporting capital, operating and sustaining capital cost. Of the 44 pages of the template only two sentences reference capital cost reporting requirements. There is also considerable latitude in adjusting the financial information to make the resource more attractive to potential investors. To address this issue it is recommended that the Form 43-101F1 guidance provide more detail as to the development of costs and schedule information. Furthermore the Qualified Persons definition should be expanded to include Project Management Professionals to review construction execution, schedule and estimates in regards to section 21 of the disclosures. These two recommendations should help identify those projects that are worthy of moving forward to eventual operation and provide a healthy revenue stream to investors. Full version of this abstract is available at