SB is having a rant this week - on the subject of the disclosure of commercial information by ASX companies pertaining to the likes of joint ventures, and asset sales/purchases, including by mineral explorers and miners.
Whilst technical disclosure has come on leaps and bounds with the introduction of the JORC Table 1 checklist for the reporting of geoscientific information, the same cannot be said for commercial information.
Okay - filling out any form is tedious - but the introduction of Table 1 as a supplement to technical reporting will save future explorers a lot of legwork in evaluating the quality of past reported information. The metadata is all there.
Technical reporting is now comprehensive - and requires that companies provide key information on sampling techniques, drilling techniques, drill sample recovery, logging, sub-sampling techniques and sample preparation, quality of assay data and laboratory techniques, verification of sampling and assaying, location of data points, data spacing and distribution, orientation of data in relation to geological structure, sample security, and audits or reviews.
What's more is that the above list is just section 1 of Table 1, being ‘sampling techniques and data'.
In the subsequent ‘steak knives' section, meaning section 2 of Table 1, Reporting of Exploration Results, comes mineral tenement and land tenure status, exploration done by other parties, geology, drill hole information, data aggregation methods, relationship between mineralisation widths and intercept lengths, diagrams, balanced reporting, other substantive exploration data and finally ‘further work'.
That is a pretty comprehensive list.
Then of course, we have section 3 (mineral resources), section 4 (ore reserves), and section 5 (diamonds and gemstones),
Contrast this with the current situation for commercial reporting. Here, there are no guidelines - other than what a reasonable person might expect to read and the broader ASX rules on continuous disclosure.
In practice, the reporting of commercial transactions is lamentable.
Confidentiality is not, at least in this scribe's view, the issue here - as in many cases not even the basic terms of a commercial agreement are disclosed.
Take joint venture and option agreements between companies over a mineral exploration property as one example.
Your scribe has seen numerous ‘disclosures' where only part of the deal is actually reported - sometimes with clues as to the ‘real deal' only emerging after ‘contract tracing' through several historical ASX announcements pertaining to the same deal.
Here's one sanitised example - where SB has changed the exact details to protect the identity of the particular company.
The ASX announcement heralds the acquisition of a 70% stake in a lease prospective for gold.
The deal commences with an option, and then, if the option is exercised, proceeds to a joint venture arrangement with the vendor, a local prospector.
The deal terms disclosed were as follows:
- An initial option payment of $20,000, payable at the company's election as scrip or cash, with scrip, if used, valued at the 15-day volume-weighted average price (VWAP).
- During the 12-month option period, the company has a minimum expenditure commitment of $40,000.
- Upon exercising the option, the company will acquire a 70% interest by paying the vendor $150,000 in scrip or cash.
- If a gold resource of at least 50,000 ounces is discovered with sufficient confidence to report a JORC inferred resource, then a further payment of $150,000 will be made to the vendor.
That's it. SB would be interested to know several other relevant issues pertaining to the potential joint venture.
Firstly, will the vendor be contributing or be free-carried for the 30% interest? If initially contributing and then diluting, what is the future dilution clause? Is there, for example, a royalty backstop in the event that the vendor dilutes its equity in the project? What is the minimum level of equity contribution prior to any royalty backstop?
In the event that the 30% interest is indeed free-carried, to what stage of advancement of the project does the free-carry apply? Completion of prefeasibility? Decision to mine? To the point where a resource is reported as per the criterion above? Nobody knows - at least nobody that is outside the two parties themselves and their respective lawyers.
None of these questions are answered - and none would appear to be particularly confidential either.
Does ASX reporting of commercial agreements desperately need a ‘Table 2' - pertaining to the disclosure of a commercial transaction?
What do you think? Okay, rant over.
Allan Trench is MBA Director and Professor at the UWA Business School, a non-executive director of several ASX-listed minerals companies - and the Perth representative for CRU Consulting, a division of independent metals and mining advisory CRU Group (firstname.lastname@example.org).
John Sykes is undertaking a multidisciplinary doctorate at the Centre for Exploration Targeting, UWA and a sessional lecturer on the MBA programme at UWA Business School. He is also a strategist for MinEx Consulting and a director of Greenfields Research, both consultancies specialising in the analysis of mining and exploration across the base, precious and specialty metals sectors (email@example.com).