It is a year since the Pan European Resources & Reserves (PERC) Code for reporting mineral reserves/resources was released. Now the PERC committee is lobbying to have it made the European reference code, in the current process of updating the Committee of European Securities Regulators (CESR) rules. In the CESR consultation process, the other Committee for Mineral Reserves International Reporting Standards (CRIRSCO) member committees (JORC, CIM, SAMREC, SME, etc) have already agreed to make submissions supporting PERC’s case, and it also has the support of IMA-Europe (the European Industrial Minerals Association), as well as, of course, its sponsoring organisations IOM3, The Geological Society, the European Federation of Geologists, and the Institute of Geologists of Ireland.
Common features of major jurisdictions involved in mining are the adoption of a national reporting code which is clearly linked to national securities legislation either through reference or incorporation, and strong working ties between the professional groups responsible for the reporting standards and the regulatory authorities. This is not mirrored in Europe and the UK despite London’s pre-eminent position as a leading financial centre. See http://www.im-mining.com/2008/06/18/perc-2008-another-resource-code-comment-welcomed/
PERC is currently in discussions with the CESR through the United Kingdom Listing Authority (UKLA) and other European regulatory bodies on how to address the perceived anomaly in Europe. It is proposed to revise the list of acceptable reporting codes in the CESR Guidelines to include only those that are CRIRSCO-aligned and to set the PERC Code as the reference Code for reporting in Europe.
Reporting of reserve and resource assets, whether in public statements, presentations or reports, is governed by reporting standards that are commonly linked to stock exchange listing and disclosure rules. For example, in Australia reporting is carried out according to the JORC Code which is incorporated in Australian Securities Exchange (ASX) Listing Rules. Similar linkages occur in South Africa and Canada.
In the UK and Western Europe, the mineral resource and reserve reporting standard is the PERC Code, developed and maintained by the Pan-European Reserves and Resources Reporting Committee, which is a standing committee set up under the auspices of a number of professional organisations which include the Institute of Materials, Minerals and Mining (IoM3), the Geological Society of London (GSL), the European Federation of Geologists (EFG) and the Institute of Geologists of Ireland (IGI) to develop a Pan-European reporting code. It includes representatives from various sectors including the major mining companies, financial sector, industrial minerals, junior mining companies and the Association of Mining Analysts and mining consultancies. The PERC Code supersedes the old IMM European Reporting Code 2001 and is recognised by the UK regulators and stock exchanges.
PERC is a member organisation of CRIRSCO, which works towards international harmonisation of resource and reserve definitions and reporting standards. Largely due to this effort, the PERC Code can be considered a direct equivalent of others such as the JORC Code, SAMREC and CIM Guidelines with only minor differences, usually related to local regulatory requirements from securities regulators and professional organisations.
The Need for Reporting Codes
The reporting codes are drawn up by industry and professional organisations, generally in collaboration with other interested parties such as securities regulators and stock exchanges. The professional organisations represent geologists, metallurgists, mining engineers and other industry professionals who are responsible for the estimation, classification and reporting of Mineral Resources and Mineral Reserves. The reporting codes stipulate minimum qualifications, experience and competencies for the recognised professional or Competent Person who writes Competent Person Reports which generally form the basis for disclosure in listing applications and prospectuses. The Competent Person must be a professional Member or Fellow of an approved professional organisation with an enforceable code of ethics and disciplinary procedure.
These codes have no statutory or legally binding status. They are guidelines which really only become effective when incorporated into securities laws or stock exchange rules. However, they are important because of the generally accepted governing principles of such codes, namely:
Transparency: requires that the reader of a Public Report is provided with sufficient information, the presentation of which is clear and unambiguous.
Materiality: requires that a public report contains all the relevant information which investors and their professional advisors would reasonably require, and reasonably expect to find in a Public Report, for the purpose of making a reasoned and balanced judgement regarding the Exploration Results, Mineral Resources or Mineral Reserves being reported.
Competence: requires that the Public Report be based on work that is the responsibility of suitably qualified and experienced persons who are subject to an enforceable professional code of ethics and rules of conduct.
Impartiality: requires that the author of the Public Report is satisfied and able to state without any qualifications that his/her work has not been unduly influenced by the organisation, company or person commissioning a Public Report or a report that may become a Public Report, that all assumptions are documented, and that adequate disclosure is made of all material aspects that the informed reader may require, to make a reasonable and balanced judgement thereof (Note: This requirement is not in the CRIRSCO Template, nor some of the other CRIRSCO-aligned codes).
Other Jurisdictions
National reporting codes are well developed in countries such as Canada, Australia and South Africa where disclosure and ongoing reporting of Mineral Resources and Mineral Reserves are regulated through specific national securities laws e.g. Canada (NI-43 101), or through mineral industry specific stock exchange rules which incorporate a national code, e.g. Australian (ASX) and Johannesburg (JSE) Stock Exchanges. Also, there are strong links between the professional bodies whose members are Competent Persons and the regulators.
In Australia and South Africa, reporting under a single nationally endorsed code is mandatory for primary listings.
The situation in the UK and Europe is clearly an anomaly in relation to other jurisdictions where the mining industry is an important contributor. CESR recommendations on the content and structure of prospectuses contain some basic mineral industry specific references. The competent authorities in each member state such as the UKLA apply these recommendations and build on them in their own national securities regulations. However, securities regulation on listing, prospectuses, transparency and disclosure in the UK includes very little guidance on definitions and minerals reporting standards. A Note for Mining Oil and Gas Companies distributed by AIM in June 2009 stipulates that an internationally recognised standard for reporting should be used in the preparation of Competent Persons Reports (CPR). PERC is currently assisting the UKLA with recommendations for improvements to the current CESR guidelines which would flow through into UK securities regulation.
Whilst physical mining activity has become less important in the UK, the London Stock Exchange (LSE) remains the most important exchange for mining finance, according to the PERC committee. The total equity market value of the 237 mining and industrial metals companies listed on the LSE was some £314 billion at the end of August 2008 which represented approximately 8.5% of the total LSE. The 54 companies listed on the main board made up some £300 billion while the 183 companies listed on the AIM represented approximately £14 billion, which equated to 17% of the AIM total value.
Whilst the above figures represented a substantial share of the LSE, of greater significance is that mining industry market capitalisation on the LSE represented 41% of the world total at the end of 2007 (source CRU).
Increasingly, companies from the Former Soviet Union (FSU) are raising finance in London through IPOs. The standards and methodology used for classifying and reporting Mineral Resources and Mineral Reserves in the FSU are very different to western standards. An initiative is underway through CRIRSCSO to agree criteria for mutual recognition of Russian and non-Russian Competent Persons and obtain preliminary agreement on alignment of reporting classifications. Given the increasing importance of the LSE to companies from the FSU and the differences in classification and reporting standards, adoption of the PERC Code by the UKLA would reduce ambiguity in interpreting listing requirements and provide clear standards against which compliance can be regulated.
A serious shortcoming of the current system is that listings in London using other codes are not reviewed by the regulators in their country of origin. For example, reporting under the JORC Code in the UK would not be monitored for compliance by the ASX or JORC.
Objectives and Implications
PERC seeks to have the PERC Code endorsed as the preferred code for reporting Exploration results, Mineral Resources and Mineral Reserves in Europe. It is proposed to revise the list of acceptable reporting codes in the CESR Guidelines to include only those that are CRIRSCO- aligned and to set the PERC Code as the standard against which regulatory compliance will be measured. Currently, this is likely to mean JORC, SAMREC and the CIM Guidelines (NB. Canadian NI 43-101 is securities legislation and not a reporting code). For European securities regulators to exercise the necessary overview and regulatory functions it would seem sensible to operate under a single consistent framework.
National codes such as JORC and SAMREC are written to meet specific requirements of the regulators and stock exchanges in their regions. Although the definitions of reserves and resources in all of these codes are (almost) identical, the rules on how estimates are to be quoted and used are different in detail, depending on national regulations. It is unreasonable to expect that stock exchanges in Europe, should unquestioningly accept guidelines which have been prepared for the use of – and for the benefit of – stock exchanges in South Africa, Australia etc. It also makes it more difficult for a competent authority such as the UKLA to impose discipline on non-compliant companies and individuals.
This does not mean that all European reporting must be done using the PERC Code; it simply means that whichever standard is used, reporters should be able to demonstrate if necessary that their reports also align with the PERC Code. As the PERC Code is compatible with other CRIRSCO codes, this should require little effort on behalf of the reporting company. Equally, if a company wishes to report under PERC and is already reporting under some other CRIRSCO-aligned standard (such as JORC or SAMREC) then to change to using PERC will involve virtually no change in their procedures or estimation methods, and only minor changes in the text of their reports. A common European standard would clarify the regulatory process both in terms of listing prospectuses and ongoing reporting and remove ambiguity in respect of the standards required.
The PERC Code has been endorsed by the largest professional bodies in Europe whose members are required to comply with the professional standards, definitions and experience requirements for a Competent Person as laid down in the PERC Code. Disciplinary matters relating to professional misconduct in the reporting of Exploration Results, Mineral Resources and Mineral Reserves will reference the PERC Code. http://www.percreserves.com/
