Virginia Heffernan - 01 March 2019
Even for a convention known for its parties, the 1997 PDAC was a grand affair. The March event in Toronto attracted a record number of participants, cash was flowing into exploration, and Canadian junior Bre-X Minerals was winning awards for finding one of the largest gold deposits in the world. Champagne corks could be heard popping throughout the hallways of the Royal York hotel as the industry succumbed to Bre-Xphoria.
But shortly after the revellers disbanded, Bre-X’s exploration manager fell to his death from a helicopter. Mounting evidence suggested that the junior’s Busang project in Indonesia was a hoax and that samples had been salted with gold from other sources. In May 1997, Bre-X was delisted from the Toronto Stock Exchange (TSE), wiping out $3 billion in investments as the company’s shares – trading for nearly $200 apiece a year earlier – became worthless.
“They were enjoying the party so much, they forgot to call the cops,” Maureen Jensen recalled a colleague quipping when the scandal hit. Jensen is a professional geologist (P.Geo) and Chair and CEO of the Ontario Securities Commission (OSC). At the time, she was Chair of Noble Peak Resources, a former junior exploration company.
But the cops, in the form of the TSE and OSC, were quick to respond once the fraud was exposed. They formed the Mining Standards Task Force to instil professionalism and investor confidence by developing the strictest disclosure rules for mining companies of any jurisdiction in the world. Jensen, who joined the TSE in 1998, was a member of that task force.
“Before Bre-X, the public rules for disclosure were very nebulous,” she said. “When it came to reporting on technical matters, it wasn’t necessary for companies to use any common definitions and there were no standards.”
Fortunately, CIM was already in the process of developing definitions for Mineral Resources and Reserves and had published its guidelines in the September 1996 CIM Bulletin. Under the leadership of John Postle and Bernie Haystead, the CIM Standing Committee on Reserve Definitions accelerated its efforts in lockstep with the task force.
The CIM Guidelines for the Estimation, Classification and Reporting of Resources and Reserves was to become an integral part of National Instrument 43-101 (NI 43-101), the set of rules for reporting and displaying information from mineral properties owned by companies listed on Canadian exchanges that came into effect on Feb. 1, 2001.
“The Canadian securities commissions were writing the disclosure rules, but they had to look to industry for definitions of Mineral Resources and Reserves and best practice standards to accompany those,” said Deborah McCombe, P.Geo, President and CEO of Roscoe Postle Associates, who was the chief mining consultant for the OSC in 2000 when NI 43-101 was in the final stages of industry comment and approval. “CIM took a major role in developing those standards.”
McCombe says one of the key benefits of the standards is that they allow investors, analysts and peers to compare projects to similar ones anywhere in the world and make better judgements based on those comparisons.
A cornerstone of NI 43-101 is the Qualified Person (QP) who writes the technical reports and is responsible for signing off on any news releases or other disclosure. The QP has to be a qualified engineer or geoscientist with experience relevant to the project and in good standing with a professional organization.
The trouble was that at the turn of the millennium, no such professional body existed in some provinces, including Ontario. That is when the Association of Geoscientists of Ontario (AGO), a group representing about 1,000 geoscientists in the province, got to work. The Professional Geoscientists Act received Royal Assent on June 23, 2000, to establish the Association of Professional Geoscientists of Ontario (APGO). The legislation protects investors by giving APGO the power to accept only qualified geoscientists and to discipline members for professional misconduct.
“To get royal assent just in time for 43-101 to come into force was quite an achievement” said McCombe. “Many geologists in Ontario would not have been able to write NI 43- 101 reports otherwise.”
There was considerable pushback to NI 43-101 from both junior companies, who felt that complying with the rules would be too costly and time-consuming, and from QPs who were responsible for ensuring the accuracy of any technical information disclosed by their employer.
But educational sessions that were – and continue to be – held at events, such as the PDAC and CIM conventions, provided a degree of comfort for juniors and geoscientists. CIM also published several articles explaining how to put NI 43- 101 into practice.
“The intent was never for the QP to bear all the liability, but simply that someone with the proper background, knowledge and experience was calculating your Reserves and Resources and would do that to some standard,” said Jensen. “Before there was no obligation to involve someone who was qualified.”
NI 43-101 and the definitions, standards and best practices that provide the foundation for the instrument continue to evolve. Initially the rules were designed for early stage projects where the opportunity for deception is greatest, but NI 43- 101 has been revised for use on producing properties too. And in 2014, CIM updated the Definition Standards and Guidelines to align with reporting codes used in Australia and South Africa with the ultimate goal of creating one international standard though CRIRSCO, the international reserve definition committee.
CIM standards are also expanding beyond traditional metals to include resources such as lithium brines and other sources of battery metals that are facing growing demand from automakers for electric vehicle production.
Bouts of market exuberance can still encourage rushed, sloppy work that, even though it may be NI 43-101 compliant, ends in heartache for investors (Rubicon Minerals is a recent example). And no amount of legislation can stop a determined fraudster. But NI 43-101 and the standards the instrument employs have transformed a somewhat maverick sector into one that insists on professionalism, transparency and a level playing field.
CIM plays an integral role in maintaining those virtues. “Technical standards are important for keeping a profession up to date, and professional bodies like CIM have practitioners who can help in setting those standards,” said Jensen. “Otherwise, we leave standards up to regulators and academics who don’t deal with the real world.”
Originally published in CIM Magazine under the title "Standard Bearers"
