The consultation period for ASX's proposed changes to its Listing Rules expired on Monday, 14 May 2012. In particular, proposed changes to the Reserves and Resources Disclosure Rules are likely to impact mining and oil and gas companies.
For commentary on proposed changes to capital raising and listing requirements rules, please see our article Proposed changes to ASX Listing Rules to impact mid to small cap companies.
Based on the consultation report published by the ASX in April, likely changes to the disclosure requirements are summarised below.
Changes to disclosure rules for mining companies
The consultation feedback described in the ASX's April 2012 publication suggests that the following proposed changes may be adopted:
- Disclosure of exploration results: More detailed guidance as to information to be disclosed regarding drill holes, such as the type of drilling undertaken, the scope of the exploration program and the total number of holes drilled. A number of persons providing comments in response to the ASX consultation paper (Respondents) have indicated that the competent person should retain flexibility to determine when to report specific drill-hole and intercept information, as disclosure of such information may not be particularly useful for particular commodities and styles of mineralisation.
- Disclosure of exploration targets: Requirement that a cautionary statement accompany reporting of exploration targets, and that companies be prohibited from including the quantity of an exploration target in the headline statement of market announcements. Further, reporting of exploration targets may need to include the basis for the exploration target and the assumptions underpinning the reported target, a summary of the exploration program and the method used to estimate the target size of mineralisation.
- Disclosure of key assumptions underpinning mineral resource and ore reserve estimates: Respondents have indicated that they would not support a requirement for release of a technical report similar to that required in Canada. However, there was support for a mandatory requirement for disclosure of a completed Table 1 of the JORC Code on an "if not, why not" basis.
- Defining the level of study for a maiden ore reserve declaration: There was strong support from Respondents for the adoption of the Committee for Mineral Reserves International Reporting Standards definitions of a "preliminary feasibility study" and "feasibility study" in the reporting framework. Some Respondents suggested introducing percentage levels of accuracy corresponding with the definitions for "scoping study", "preliminary feasibility study" and "feasibility study". This may on impact what a company is required to do before declaring an ore reserve.
- Disclosure of productions targets: Prohibition of the disclosure of a production target based solely on an exploration target, and possible prohibition where the production target is partly based on an exploration target.
- Annual reporting and reconciliation of mineral resources and ore reserves: Mandatory information in the annual report as to a reconciliation of the company's aggregated mineral resources and ore reserves with the estimate from the previous year. This may create additional work for companies whose corporate planning cycle and annual review of their mineral resources and ore reserves occur at different times of the year.
- Streamlining Competent Person signoff: While the competent person sign-off requirement is likely to continue to apply when mineral resources and ore reserves reporting and exploration results and estimates of mineral resources and ore reserves are reported to the market for the first time, subsequent reporting of the same results and estimates would not need competent person sign-off if the report cross-references the original announcement and all material assumptions and technical parameters underpinning the results and estimates remain unchanged.
- Reporting historical and foreign estimates of mineralisation: Development of a reporting framework to allow companies to report historical and foreign estimates of mineralisation.
Changes to disclosure rules of oil and gas companies
The consultation feedback described in the ASX's April 2012 publication suggests that the following proposed changes may be adopted:
- Adoption of standardised petroleum resources definitions and a comprehensive classification system: Adoption of the Petroleum Resources Management System to provide updated definitions and an updated resources classification system.
- General reporting requirements for the reporting of reserves and other resources:
- prohibiting the use of the term "reserves" in any context other than the reporting of estimates of commercially recoverable quantities of petroleum;
- prohibiting the disclosure of a mean estimate of reserves and contingent resources;
- requiring the inclusion of a cautionary statement accompanying reported estimates of prospective resources;
- allowing the aggregation of reserves and resources probabilistically and requiring disclosure of the method of aggregation; and
- requiring the disclosure of the conversion factor used to convert gas to oil or oil to gas when estimated reserves and other resources are
- reported in units of equivalency between oil and gas; and
other more detailed guidance on calculation and reporting of reserves and resources estimates.
- Annual reserves and resources reporting requirements: Mandatory reporting requirements to apply to 1P and 2P reserves.
- Disclosure of drilling progress and exploration information: Clarification that companies are only required to report on progress in drilling programs where the information would be expected to have a material effect on price or value of the company's securities.
- Disclosure of key assumptions underpinning reserves and resource estimates: Disclosure of methodology used to determine price assumptions and other details following announcing the booking of reserves for a material project/asset to the market such as:
- whether the company has operator or non-operator interests;
- the type of permits and/or licences held with respect to the project;
- the basis for confirming commercial producibility and assigning reserves;
- the analytical procedures used to estimate the reserves;
- estimated quantities that will be recovered from existing wells and facilities, and the estimated quantities that will be recovered through significant future investments;
- proposed extraction method; and
- any specialised processing required following extraction.
Similar reporting requirements may be introduced for the announcement of contingent resources estimates for a material project/asset. However, any disclosure requirements are likely to take into account the need to keep some commercially sensitive information confidential.
- Disclosure of production targets: A number of Respondents have indicated concern that the introduction of disclosure requirements applicable to reporting of production targets might discourage companies from providing production target guidance at all which would be of detriment to investors. It is therefore unlikely that any extensive disclosure requirements for production target reporting will be introduced.
- Qualified reserves and resources evaluator requirements: Minimum professional qualifications and experience required to be recognised as a "qualified reserves and resources evaluator" for the purpose of signing off on publicly reported estimates of petroleum reserves and other petroleum resources. However, comments on what the requirements should be have been mixed.
What does this mean for me?
If the proposed changes to the disclosure requirements are adopted (an announcement is anticipated around the beginning of the 2012/2013 financial year):
- changes to disclosure requirements in respect of both mining and oil and gas companies means companies are likely to be required to disclose more information in relation to underlying assumptions and methodology, and to be required to show more stringent research and testing before announcing reserve estimates; and
- closer attention may need to be paid to disclosure of price assumptions and other potentially commercially sensitive information relating to reserve and resource estimates, and the wording of public announcements to strike a balance between adequate disclosure and protection of sensitive information.
Please do not hesitate to contact us if you have any queries in relation to these proposed changes to the ASX Listing Rules and/or their impact on your company.
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