OSC rips miners for poor disclosure

80% of reports had compliance errors

The Ontario Securities Commission says it has found an “unacceptable level of compliance” with proper mining disclosure practices after completing a review of 50 technical reports released by Ontario-based companies.

The problems are widespread, according to the OSC. It said it found deficient reporting of mineral resource estimates, lack of information on community and social impact of mines, poor disclosure of costs, lack of economic analysis, poor disclosure of risks and numerous other issues.

In total, the commission found that 80% of the reports it studied had some form of compliance error, and 40% of them had at least one serious problem.

The OSC suggested that issuers should expect requests for re-filings, additional disclosure, or “other staff action” if technical reports are not compliant. It is a hint that the regulator could initiate a broader crackdown on poor mining disclosure.

Technical disclosure became a very important issue in the mining industry following the Bre-X fraud in 1997. In response to that scandal, Canada introduced a new series of mining disclosure rules called National Instrument 43-101. They provide very specific guidelines that companies need to follow when disclosing information.

Technical reports are a crucial disclosure document, as they provide all the key data on a mining project, including the mineral reserves and the anticipated capital and operating costs. The data needs to be confirmed by independent geologists under 43-101 rules, which gives it greater credibility.

“Technical reports are fundamental disclosure documents and ensuring compliance among mining issuers is critical,” Huston Loke, the OSC’s director of corporate finance, said in a statement. “It is important that investors have accurate and meaningful information about material mineral properties in order to make informed investment decisions.”

But the OSC’s findings suggest that the disclosure in these reports remains lax across a wide range of mining companies.

Of the 50 reports that the OSC studied, half come from companies that have market values above $25-million, 59% are at the mineral resource stage, 26% are at the development or production stage, and 15% are at the exploration stage.

It is not unusual for regulators to make a push for better 43-101 disclosure from mining companies. In British Columbia, the securities regulator made a notable crackdown last year. The BCSC has kept shares of one company (Barkerville Gold Mines Ltd.), halted for a full 12 months after the company said its project could hold as much as 90 million ounces of gold.