JORC Code, 2012 Edition: Implications for Investors
The biggest benefit for investors with the implementation of JORC 2012 will be a substantial increase in the information provided in Public Reports (such as those released to ASX). This will assist the investor or advisor to better understand the asset being reported upon.
The biggest risk for investors is the downgrade in mineral assets that will occur for some companies due to the more rigorous reporting conditions of the new Code. This can be expected across all asset classes: Exploration Targets, Exploration Results, Mineral Resources and Ore Reserves.
The JORC 2012 Code must be implemented by 1 December 2013. The only exception is the requirement for a Pre-Feasibility or Feasibility Study before declaring Ore Reserves, which will come into effect on 1 December 2014.
The primary objective of the new Code is to improve confidence in public reports concerning Exploration Results, Mineral Resources and Ore Reserves. In particular, the requirement for increased transparency and the disclosure of all relevant material information, which will result in more comprehensive reporting by Competent Persons.
All reporting must be against the relevant sections of (what will become the notorious) “Table 1”. Table 1 specifies an extensive list of criteria that must be reported on an “if not, why not” basis. That is, if anything on the list is not covered, then the report must specify why it has not been covered. The list is extensive. For Exploration Results alone there are over 20 criteria, most of which have several requirements which must all be reported.
I will give a few examples of the changes and the effect they may have upon reporting. For information on Exploration Targets read here. For a description and comparison of Mineral Resources and Ore Reserves read here. Read the full JORC Code, 2012 Edition here.
Reporting of Exploration Results has been a particular concern for some time. It has been common practice for selected assay results to be reported from exploratory drilling and sampling, without any context or even reference to other results. This can lead to overly optimistic assumptions being made about the project’s potential.
One of the changes in JORC 2012 that deals with this issue is that either all assay results have to be reported, or the results are reported by weighted average grades. Results must also be reported according to specified criteria in the JORC Code and accompanied by geologically meaningful maps and plans.
Reporting of Mineral Resources sees perhaps the most significant changes. Resources have tended to be treated as a total mineral inventory, with no consideration of future economic viability. This has resulted in some questionable practices in determining resources. For example; extreme projections from known data, the incorporation of very narrow zones, and the use of very low cut-off values.
Under JORC 2012, a resource is not an inventory of all mineralisation drilled and sampled. It is an inventory of mineralisation that has reasonable prospects for eventual extraction. “Reasonable” is defined as more likely than not, or greater than 50% chance of development. A small, isolated gold deposit would probably not make the cut as a resource, unless substantial additional potential could be demonstrated. Poor quality iron ore would not make the cut as a resource. “Eventual” could mean up to 50 years for large, high grade deposits of bulk minerals such as iron ore, coal and bauxite. However, for small gold or base metal deposits it could mean much less than 10 years.
It is specifically stated that the confidence for Inferred Resources is not sufficient to use in economic and technical planning. Further, the proportion of the Inferred Resource that is based upon extrapolated data must be stated and shown diagrammatically. Finally, many resources based upon historic data will not meet the Table 1 criteria.
Reporting of Ore Reserves now requires Pre-Feasibility or Feasibility Studies. Reserves are the technically and economically viable part of an Indicated or Measured Mineral Resource. That is, the reserve can be economically mined and processed under “reasonable” financial assumptions. There also need to be reasonable grounds to believe that all necessary approvals, shipping facilities, sales contracts, etc. will be forthcoming.
When compared with the situation today, there is a much stronger requirement for economic viability before reporting Ore Reserves.
There are a number of uncertainties that will only be resolved once JORC 2012 is in place.
Changing technology and changing demand can result in previously uneconomic resources becoming of significant value. Think of low grade iron ore being exported today, or how cyanide leaching made low grade gold deposits viable. Under JORC 2012, resources could come and go with changing demand and prices, this seems cumbersome and unreasonable.
Supervision by ASIC and ASX is expected to be strengthened but there is not yet clarity on how action will be taken. For example, will companies be suspended if they have not complied with JORC 2012 by 1 December 2013?
The Competent Person has a significant increase in responsibilities, as do directors. However, it is uncertain exactly how these will be enforced and what remedies may be available to shareholders.
In any event it must be noted that JORC 2012 can be expected to negatively impact upon the asset base of a number of companies. It would be in investors’ best interest to seek to identify those companies that may be affected.
I will write further on this significant change to the JORC Code but in the meantime please email me if you have any specific questions.