Pay extra attention: Explorers play in that unique space of the market where share price is strongly linked to speculation. Conjecture and extrapolation have their place in interpreting data and planning the next exploration program. Suggestions about what will be found, how big it will be, whether it will have a similar quality to nearby resources and most pertinently, whether it can be viably removed from the ground, can significantly influence investor decisions and the bottom line valuation.
When considered in this light, the need for tight disclosure rules and extra attention from the regulator is not so difficult to understand. In addition to proposed new rules around disclosure due for release later this year (see: ASIC Consultation Papers 147, 154 and 155), ASIC has recently taken a special interest in feasibility study disclosure.
Getting it right - Our key pointers to avoid disclosure headaches and ‘get it right’ are to ensure that announcements:
1. are clear, concise and unambiguous;
2. are aptly named:
– a ‘bankable feasibility study’ represents a base case for financiers;
– a ‘definitive feasibility study’ is the final study undertaken to determine whether or not to proceed with a project and is based on detailed capex and opex budgets;
– a ‘pre-feasibility study’ is an earlier phase due diligence exercise to determine project areas warranting more attention or the viability of proceeding further;
3. distinguish between statements relating to resources, reserves and exploration results. Information regarding exploration targets shouldn’t be included when disclosing study ‘results’. They are merely a statement of future intention;
4. explain the assumptions, time periods, risks and calculations taken into account in the study;
5. avoid hypothetical assumptions and directors’ best estimates – no matter how genuinely these beliefs are held, they will never get you across the line;
6. are based on reasonable grounds, that can be demonstrated by contracts, industry expert reports or other verifiable sources to make those statements; and
7. get a third party to critique the announcement and the sign off on the verification materials.
Distinguish study results from broader plans
If you feel that these tips limit your company’s ability to disclose relevant information, then consider splitting your announcement into two:
(1) an announcement on feasibility study results that strictly comply with these requirements; and (2) a separate announcement in the nature of a ‘development plan’ or ‘exploration program’ which may include broader and longer-term plans, or future plans falling out of the back of the feasibility study.
Splitting the information in this way will allow you to set and maintain the right context for different parcels of information, each having its own distinct purpose.
Why is this so important?
Statements that are factually true may still be considered misleading or deceptive. Equally, presentation or the prominence given to select information can have the same result. In some circumstances, the law even goes so far as to presume that some statements as to future matters are misleading.
With that in mind it is easy to see how disclosure made with good intention, but without absolute rigour, can lead to unwanted regulatory attention, company or director prosecutions and in some cases, actions by investors who have taken the information that you present at face value.
Watch this space
ASIC has intimated that they believe further guidance on disclosure is warranted. When we discussed this with them in August last year, they suggested this was likely to be six to 12 months away.
While guidance on a range of disclosure topics has started to flow in 2011, we wait to see whether resource industry specific guidance will in fact be given.
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