The Canadian Securities Administrators (CSA), the coordinating umbrella organization made up of Canada’s 13 provincial and territorial securities regulators, has been trying to review and/or update the country’s rules surrounding mining projects, known as National Instrument 43-101, for the past three years.
In June, it published some proposed revisions. The comment period for that step in the process ends tomorrow, Oct. 10.
The next step is for the CSA to integrate concerns and work on releasing a proposed final revision that could replace the existing instrument. If approved, the CSA will set effective dates, transition rules and possibly staged compliance periods to give issuers time to adjust.
Meantime, the authors of the letter below, who have taught mineral resource estimation in Canadian universities since the introduction of NI 43-101 a quarter century ago, have some concerns.
Letter to CSA
To the Canadian Securities Administrators:
We, the undersigned, are providing these joint comments because we believe that two of the proposed changes are misguided and detrimental to the minerals industry and to the Canadian Institute of Mining (CIM), the organization responsible for developing technical guidance on best practices.
The sections numbered 14(d) and 14(e) in the public consultation document released this summer will not improve NI 43-101 technical reports. If adopted, these changes will require resource reports to include commentary on average distance to samples and on distance to the nearest sample.
Reports that fail to do so could be deemed non-compliant. Neither of the two suggested technical details is mentioned in the CIM definitions of “measured,” “indicated” and “inferred”. What these definitions do mention as the factors to consider when classifying a resource are: confidence in estimates and continuity of mineralization.
The upcoming update of 43-101 should not undermine the CIM definitions. If the goal is to improve reporting of resource classification, the changes should emphasize discussion of the two considerations on which the CIM definition standards are based.
Although sample distance is a factor that impinges on continuity and confidence, insisting on discussion of this one factor above all others enhances the long-outdated assumption that classification begins and ends with sample spacing. Resource estimation practice legitimately regards other factors as more important.
NI 43-101 should not infringe on a professional’s ability to use theoretical and practice-tested improvements when developing a project-specific approach to classification. Their report should not be required to elaborate on details they chose not to use.
Qualified professionals
The CSA often insists they don’t prescribe how qualified professionals (QPs) should do their work, but only prescribe how (and when) that work must be reported to the investing public. Prescribing specific technical content is a slippery slope.
In future, QPs might assume they have satisfied regulatory requirements if they base their classification solely on sample spacing, the only criterion that will be specifically mentioned in the proposed new regulations on technical reports. This is not what CIM guidelines encourage as best practice.
Investors are not well served by changes that tie the hands of the people who know resource estimation best or that curtail a QP’s ability to put project risk ahead of sample spacing.
Finally, these two proposed changes should be reconsidered because they will damage the harmonization of international reporting codes that has been achieved over the past decades. It does not help the CSA for its 43-101 rules to be out of step with reporting codes of other countries.
International harmonization should be supported because many mining projects are obliged to report according to the national reporting codes of two or more countries.
Signed:
Sebastian Avalos, Jeff Boisvert, Clayton Deutsch, Roussos Dimitrakopoulos, Alan Lambden, Oy Leuangthong, Julián Ortiz, William E. Roscoe, R. Mohan Srivastava
There has been over a dozen incidents of material resource over-estimation for Canadian listed companies since the last version of NI 43-101. Most of these have been in precious metal deposits and have cost investors and stakeholders several billion dollars. Although a direct link to optimistic classification is not easily traceable, most cases were followed up with an operator that has increased drill density to better understand the geological risk. The proposed requirement for disclosure of sample spacing statistics is the singular change that has potential to reduce the incidence of resource over-estimation. It is an innocuous disclosure requirement that has four separate positive impacts on the reliability of future disclosure.
1. Creation of Useful Benchmarks: It is currently impossible to compile sample spacing for mineral projects; more specifically operating mines that could be useful analogs. This does not suggest that QPs will be required to fit a specific spacing, as each mineral deposit is unique, however analogous mineral systems will be available for QPs to compare their own results; and defend their classification scheme from the undue pressure from supervisors and clients.
2. Requires a Review of the Classification Result: The most commonly used classification workflow produces results that are often stretched beyond what a QP may intend. This ensures they look more closely at the result.
3. Requires QP to Publish the Result: It is more difficult to provide an aggressively optimistic classification scheme when the resulting risk is clearly disclosed. Ambiguity is a shield.
4. Investor Protection: The current level of disclosure does not permit readers of technical reports to measure the risk on estimation because the drill spacing is not disclosed. There is no other single measure that has a direct impact on the resource risk. When a drill campaign is planned to upgrade a resource class it is without exception expressed in drill spacing. Technical reports should provide disclosure in clear unambiguous terms; and be understandable to a reasonably informed investor. I argue that the inclusion of statistics of drill spacing takes a major step towards achieving this goal.
The proposed changes in 14(d) and 14(e) are basic requirements of disclosure. The inference that disclosing the resulting sample spacing is imposing practice or more specifically: “infringing on a professional’s ability to use theoretical and practice-tested improvements” on the QP is unfounded. There is no inference that the sample spacing is the prescribed method, it just happens to be a practical distillation of the result of the selected classification methodology. In fact, the NI 43-101 form already has similar requirements for stating results of practice: section 16(b) requires disclosure of the mining dilution used in the estimation of reserves. This required disclosure does not impose how the mine is planned or how the dilution is estimated (there are many); simply disclosing the end result of the exercise, expressed in an unambiguous measure the reader can understand. The practice of estimating mining dilution and classification is left to CIM guidelines where they belong, no argument here. Disclosing the unambiguous result of the practice belongs in the NI 43-101 form.
The authors falsely contend that the CIM definitions of resources or classification does not mention sample spacing. For example the definition of Indicated Resources states the following: “Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation.”
The authors state that “Resource estimation practice legitimately regards other factors as more important”. A specific example of a classification practice that is not primarily impacted by the distance from a sample would be helpful to their argument. A simple test could include testing their “risk measurement” from the unnamed methodology within a block before and after a nearby drill hole is removed from the dataset.
The authors do not propose any specific way to deal with the ongoing crisis of over-estimation, instead suggest “the changes should emphasize discussion of the two considerations on which the CIM definition standards are based: confidence in estimates and continuity of mineralization”. A formal proposed improvement from the authors on how to help quantify and unambiguously communicate the risk through these terms is welcome.