Australia: Changes to the JORC Code - a new world order in resources reporting?

From December 2013, ASX listed resources entities will need to change the way they publicly report their exploration results, mineral resources and ore reserves.

While large miners may already be substantially compliant with the new reporting requirements, the jury is out on how the revised code will impact small to mid cap miners.

Will the changes be nothing more than an additional compliance burden or will they help level the 'playing field' for junior miners, particularly when it comes to securing finance?

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) sets out the manner in which resources companies must report on their exploration activities and reserves. Compliance with the JORC Code is required under the ASX and NZX listing rules in respect of all public reporting.

Originally published in 1989, the JORC Code was updated several times between 1992 and 2004, but has remained untouched since then: even as Australia experienced an unprecedented mining boom and notwithstanding that other countries (such as Canada and South Africa) have continued to evolve their reporting codes to improve transparency for investors.

Over time, the 2004 JORC Code fell behind the standards being applied in other major mining jurisdictions. However, this changed last year with the release of the JORC Code 2012 Edition.

The principles governing the changes in the new edition are:

Transparency – language across reports is to be clear and unambiguous, to minimise the risk of information being misleading or omitting to disclose material information.

Materiality – all information reasonably considered to be material to an investor or their advisers in determining whether to invest in an entity is to be disclosed, to enable investors to may make a reasoned and balanced judgement on the information contained in the public report.

Competence – the person preparing the public report must be suitably qualified and experienced (Competent Person).

At the core of the changes is better disclosure of material information when an exploration result or reserve is being publicly reported either for the first time, or when there has been a material change since the last report. The Competent Person preparing the public report must explain the material assumptions underlying the declared exploration results or reserves.

Further, the reporting must be on an "if not, why not" basis. This means that if the Competent Person does not disclose information required under the JORC Code, they must justify why they are not providing that information.

The changes are a marked improvement in the rigour of JORC Code reporting and will benefit investors through greater transparency and disclosure.

However, there is still a substantial risk that Competent Persons do not estimate resources or reserves consistently. The 2012 Code attempts to address this issue by regulating who may be a Competent Person, but whether this really reduces the potential for inconsistency is questionable. Reporting is only as good as the person preparing it and the JORC Code cautions that references to "JORC compliant" in reports does not affirm the estimate, but only the manner of reporting.

The 2012 edition of the JORC Code has also addressed an issue around non-public reporting. A drawback of the 2004 JORC Code was that it was limited to public reports. These are prepared for the purpose of informing investors or potential investors and do not extend to a junior miners' financial institutions.

So while annual and quarterly company reports, press releases, website postings and public presentations were required to be compliant with JORC, it did not extend to information prepared internally or which was not publically disseminated.

This created confusion and the 2012 Code now recommends that all non-public disclosures not compliant with the JORC Code are clearly identified as such.

While the improved rigour of the updated reporting requirements do place an additional cost on ASX listed entities, it does have the benefit of allowing not only investors but also financiers to evaluate junior miners on a like for like basis.

Compliance with the new Code will hopefully place junior miners in a better position to obtain finance debt when their reserves clearly indicate real value, and we anticipate that JORC compliance will become a standard feature of reporting to financial institutions.

The JORC Code is clearly not a panacea for all the problems facing junior and mid cap miners in raising debt and equity financing, but it will help those with real jewels in their crowns to sparkle..

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