EDITORIAL — Rebuilding investor confidence no easy task — Why re-invent the wheel?

The past few weeks were eventful ones for the Canadian mining industry.

David Walsh, the disgraced founder of Bre-X Minerals, died in a Caribbean hospital of a brain aneurism and related stroke. The Mining Standards Task Force — established by the Toronto Stock Exchange (TSE) and the Ontario Securities Commission (OSC) in the wake of Bre-X’s Busang fraud — released 55 recommendations aimed at enhancing investor protection and reinforcing Canada’s leadership role in mining, mineral exploration and mine financing.

And another salting scam was exposed, this one involving a junior working in Mongolia, adding to an awful list of mining scandals that includes Delgratia Mining, Dessir Resources, Naxos Resources, International Precious Metals (and its predecessor International Platinum), Golden Rule Resources, Cartaway Resources and, the grand-daddy of them all, Bre-X Minerals.

The loss of investor confidence brought about by the sloppy and/or fraudulent practices of these companies hangs like a dark cloud over honest junior companies and professionals struggling to survive this period of weak metal prices. With the bear market for miners in mind, the task force was loath to burden the industry with excessive regulation, as was done in the aftermath of the Windfall scandal of the 1960s when the junior mining sector and investors were driven out of Toronto to competing jurisdictions.

The task force report sought, instead, to have regulators and industry work together to bring about higher standards of professionalism. The recommendations resulting from this exercise cover four key areas: formalizing the role of the “qualified person;” establishing exploration and field “best practices;” improving disclosure standards; and seeking national uniformity in regulation and enforcement.

Some of the recommendations — such as keeping at least one-quarter of drill core and adopting uniform definitions for reserves and resources — are excellent and will cost little or nothing to implement. Others are costly, but necessary, while a few are too weak and fuzzy to be of any use protecting investors.

Formalizing and broadening the role of the qualified person (QP) is a sound recommendation, though this would not have prevented the Bre-X fraud, nor will it deter copycats. John Felderhof, for example, qualified as Bre-X’s QP, whereas Kilborn Pacific, which did resource calculations for the Busang “deposit,” qualified as an independent QP. But, if adopted, this policy will at least let investors know who is responsible when normal industry practices are not followed.

Higher disclosure standards will go a long way toward restoring investor confidence, as will the recommendations relating to statutory civil liability for misleading continuous disclosure. We agree that the TSE and OSC should beef up their surveillance units to ensure compliance. Moreover, it is critical that proper funding be provided to the various agencies involved in investigations and enforcement. And it is imperative that the TSE be given the authority to demand independent data verification when warranted.

There are, however, some areas of weakness in the report, particularly the reluctance to prescribe specific best practices. The task force suggests that only interim guidelines be adopted, with the long-term goal being industry self-regulation. This is adequate for the well-established senior companies on the board, but perhaps too generous for certain juniors that have been pushing the edge of the best-practices envelope for too long.

Rather than re-invent the wheel, the TSE should take a page from the Junior Mining Standards of the Vancouver Stock Exchange (VSE).

It is somehow ironic that Vancouver, long perceived and unfairly reviled as “the scam capital of the world,” has emerged with some of the best guidelines for junior companies. This is because officials there have seen every trick in the book, and are all the wiser for their experiences.

International Platinum, Naxos and Delgratia, for example, could not have executed their cooked-assay scams there without running afoul of the VSE’s disclosure policy on assaying.

The old saying, “east is east and west is west, and never the twain shall meet,” should not apply when it comes to protecting investors.