More must buy into JORC discussion
Dr Graham Lumley*, 15 December 2011
STEVE Gemell writes a well-constructed contribution about the Valmin Code and JORC Code. I, like him, am interested in more industry people contributing to this HighGrade discussion and taking the time to respond to the issues papers released by JORC and the ASX.
I attended a forum in Brisbane last Friday where JORC and the ASX (this one did not include Valmin) explained the process and reasons for their reviews. It was a very interesting discussion. The following is a summary of the main points I took away from this forum (there were many other points others would have engaged with):
1. The reviews are being driven by ASIC. ASIC has had the mining industry in its sights since 2008 and the statement from the ASX representative was that they had to do something to get industry input on the changes needed because ASIC was going to act and if the industry was not heard then they might not like the outcome ASIC might impose. This is a really important point and ASX pleaded with people to submit their opinions particularly on the issue of production rates.
2. On a number of occasions senior people said the key problem with JORC was that many (their word not mine) competent persons were incompetent. Other people stated that the competent persons needed more training and education. It was also stated that industry people are hesitant to refer practitioners to the professional associations’ ethics committees.
3. There is a belief that a significant issue is that there is too much geological input and not enough mining input. On a hand count there were less than 10 mining engineers in a room of 50 people. The JORC representative also said that JORC was under-represented by mining engineers. This point led on to a deal of discussion about how prescriptive the codes and listing rules should be on the mining inputs. The ASX said that ASIC may force it to be prescriptive.
4. The issue of how the different levels of feasibility studies fit in with the different levels of resources and reserves is an area of confusion with many different approaches being taken.
We need to remember that the aim of the codes and the ASX’s listing rules are to protect investors and financiers and I think we need to keep that in the forefront of our thinking. I and thousands of investors have lost money in mining companies using poor/optimistic forecasts. In my opinion, the codes have tightened up the geological inputs but the mining/engineering inputs remain too vague. Mr Gemell correctly points to the variability in performance and says that this demonstrates the need for detailed assessment of each individual project. He correctly points out that industry norms are only a starting point. I couldn't agree more, but they are a necessary starting point. My point is that the forecast performance should be placed in a particular percentile and that it should be justified. Mr Gemell and I disagree somewhat on the relevance of the competent person or the expert and how much leeway they should have in their assumptions. I believe that data from operations covers many more of the mining inputs than it is currently being used for.
The issue I have is that I have rarely found any mining person who didn't believe they couldn't perform in the 75th percentile but when you look at it only one in four do and three in four don’t.
More often than not forecast production rates are at or above the 75th percentile. I would argue that the errors in equipment performance are so large that some of the detail Mr Gemell mentions is not significant in the assessment. Personally, median is where you start and you go up or down from there based on site factors.
The most damning point is that only 3% of Australian development projects in 2010 actually accessed industry performance information (when the JORC code says they should compare with available production data – I haven't checked Valmin). To me this shows the process has moved on from 2004 (JORC) and 2005 (Valmin) and the reviews are a welcome opportunity to get them up with the times. In my opinion some of the responsibility of the Competent Persons and Experts should be replaced with industry standards plus their opinions on factors which can’t be quantified. Personally, I think we need the codes to be more prescriptive in the areas of mining inputs. I also think that we need to be more demanding that developments access industry norms and explain to financiers and investors why their forecasts vary from the median. As Mr Gemell points out this is not just about equipment rates but is about all the mining inputs. Compare to industry norms, explain where they are not available and explain the variations in the assumptions made.
Please get involved in this discussion. JORC and ASX contributions are due by January 27, 2012.
*Dr Graham Lumley is CEO of GBI Mining Intelligence and a regular columnist for HighGrade.
Also in the December 15 - 21, 2011 edition
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- Straits gain
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- Trafford's exploration boost
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- WA uranium policy
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- Windfall at lake
- Winmar attracts investor
- Yellowhead on track
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- COAL
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- CONSULTING
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- CONTRACTING
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- FINANCE
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- Kagara opts for safety first
- Money’s almost too tight to mention
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- FORUM
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- FROM THE CAPITAL
- Capital management will be key 2012 theme
- GOLD
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- Upside seen despite Teranga downslide
- HEAVY METAL
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- ISSUES
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- MINING
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- MINING INTELLIGENCE
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- VIEW FROM THE WEST END
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