Ontario's markets watchdog says the mining industry has an "unacceptable" level of compliance with disclosure rules brought in to protect investors after the Bre-X gold scandal of the 1990s shook confidence in Bay Street.
In a report issued on Thursday, the Ontario Securities Commission says it surveyed a sample of 50 technical disclosure reports filed by mining stock issuers over the past year. The reports were made mandatory in reforms enacted in 2001, after investors lost hundreds of millions of dollars when Indonesian gold-drilling results from Bre-X Minerals turned out to be fake.
But a dozen years later, it appears that mining companies are having trouble with the paperwork. The OSC says it found that 80 per cent of the reports it sampled, on which many investors rely, had "some sort of non-compliance." And 40 per cent had "at least one major non-compliance concern."
The report does not name the companies, although the OSC warned that mining issuers should expect requests for re-filings, additional disclosure, and possibly other action by its staff in the wake of the findings.
The strict rules have long been cited as the silver lining that came from the Bre-X cloud, trumpeted as a key strength of Canada's capital markets for mining companies, which have made Toronto the leading centre of mining finance in the world.
The regime requires a mining company to issue a comprehensive technical report, on a tight 45-day deadline, when it discloses any scientific or technical information, particularly new mineral resources or reserves. The reports, which can run into the hundreds of pages and cover a wide range of material, must be prepared or authorized by a "qualified person" such as a recognized geologist.
But in the regulator's sweep of what it said was a representative sample of 10 per cent of those technical reports filed over the past year, the OSC says it found "significant deficiencies" in key areas, such as estimates about the size and viability of mineral resources, and capital and operating costs.
The OSC also says that almost a third of the technical reports failed to adequately disclose information about environmental permits and agreements or talks with First Nations. And 36 per cent of reports "did not disclose project-specific risks and uncertainties such as the availability of water rights, use of a novel mineral processing technology or the potential impact of a civil war in the region."
Neither the Mining Association of Canada nor the Prospectors and Developers Association of Canada would comment on the report. But Mark Bennett, a lawyer with Cassels Brock & Blackwell LLP who acts for mining companies, said investors should not be concerned.
He said the industry has done a lot to comply with the disclosure rules, and that many of the deficiencies cited were technical in nature, and not warning signs of anything resembling another Bre-X: "I think it's a wake-up call to issuers of all sizes that they need to pay a little more attention to what's going in these reports."