LETTER TO THE EDITOR — QP a scapegoat in an imperfect system

Recent letters to the editor have focused on the need for national standards for a “Qualified Person.” I think it would be worthwhile to review the players involved in a process that results in shares being traded on stock exchanges. It seems to me that undue emphasis is being focused on the wrong places in these clean-up efforts.

What we have is a group of geologists or prospectors out doing the real work of finding a property. They then have to promote that property to their bosses or another company. To do further work, these new parties have to raise money, either from the company or by going to the market. If companies take the market route, then mining analysts, stockbrokers and brokerage houses become involved. If the property still manages to move along, data from it will end up in the hands of engineers who calculate “ore reserves.” Things then cycle back through the analysts and brokers to the buying public.

It appears that to improve public confidence in the mineral exploration industry, all these people and institutions should be subject to scrutiny. A chain is only as strong as its weakest link. Only a few of these links are being improved.

The Toronto Stock Exchange has done its bit by raising the standards necessary to get a listing. Whether those changes would have stopped Bre-X from getting its listing is not clear, but the whole affair does point out how difficult it is to regulate an industry that has no tangible assets until a mine is actually opened.

The various securities commissions have been active in formulating regulations that address the quality and type of information being released by companies, and insisting that independent audits be performed.

Then there is the issue of the Qualified Person, a position being created so that when all the other people and institutions screw up, there is someone to blame. What regulatory bodies and the mining industry are failing to acknowledge is that there are a lot of people and institutions involved in the process — blaming only one party simply is not possible.

The mining engineers who receive that data to produce their ore reserve estimations and the mining analysts who then check that data are, in effect, the industry watchdogs. To add an independent audit paid for by the same company wanting a positive report is not doing much to improve the system.

Engineers have been suggested as the salvation of the project geologist. Supposedly, only an engineer can become a Qualified Person, but engineers also make mistakes that deprive shareholders of millions of dollars. Engineering firms that create ore reserve figures have a responsibility, both morally and legally, to ensure that those numbers mean something. Hiding behind the line “We can only work with the data we are given” is not living up to those responsibilities. If you need to send someone out to see the property and check the procedures that generated the data, send him.

Mining analysts can’t as easily use that excuse, not when they’re standing on the property looking at the drill core, drill log in hand, with the drill geologist there to interrogate. That is their job after all, to give any independent opinion they choose.

Next in line are the stockbrokers, a registered group of professionals required to look out for the best interests of their clients. That the brokerage houses are being sued over the Bre-X affair seems only just to me. I acknowledge that some may have been buying and selling according to clients’ wishes, but many were just out to make money.

It seems clear to me how to give investors faith to invest again: more pressure needs to be put on brokerage houses, brokers and mining analysts to behave in a more responsible manner. They have demonstrated time and again that they place themselves first and their clients second.

The regulatory bodies and public need to recognize that having a Qualified Person to blame isn’t going to improve the industry by itself. The system of checks and balances is already in place. Improvement needs to start with the public asking more questions of their stockbrokers and demanding more complete answers. Then perhaps brokers will ask analysts more questions and insist that they produce answers.

Also, there should be full and public disclosure of just what stocks analysts and brokers hold. Information on who holds major positions and when they are buying or selling should be made more readily and quickly available to exchanges.

We can only hope that everyone affected by Bre-X has learned something and will work towards avoiding a repeat occurrence. Looking for parties to blame after the fact is a retroactive approach; let’s do something proactive so that it can’t happen again.

Chris Lloyd

Geologist

Guadalajara, Mexico