Codes being firmed up to protect SA against mining fraud

31st July 2006 By: Helene Le Roux

It is almost ten years since the Bre-X scandal rocked the investment world.

However, the ghost of Bre-X still haunts the mining industry, which has been battling to reclaim its credibility in the face of one of the largest frauds in history involving mineral resources.

Between 1995 and 1997, Canada-based junior mining company Bre-X swindled investors out of billions of dollars by alleging that it had discovered the largest gold resource in the world at Busang, on the Indonesian Island of Borneo.

It was subsequently discovered that the original ore samples, on which the evaluation of the mineral resource at Busang was based, were salted with gold dust, which was believed to have been shaven off gold jewellery.

The deposit did, in fact, contain negligible amounts of gold.

In the wake of Bre-X, the mining industry worldwide was forced to do some frank self-assessment.

Speaking at the Geological Society of South Africa's (GSSA's) Geoforum 2006 conference, Anglo American technical division vice-president: mineral resource evaluation Dr Christina Dohm said that the Bre-X scandal focused the spotlight on mineral-classification methodologies.

Where national reporting codes for mineral-resource classification were in existence, they were adapted, and, where they were nonexistent, teams of mining-industry professionals started to work on their compilation.

In South Africa, the South African Code for the Reporting of Mineral Resources and Mineral Reserves (Samrec) came into effect in March 2000.

The code set out minimum standards, recommendations and guidelines for the public reporting of exploration results, mineral resources and mineral reserves in South Africa.

The rewrite of Samrec 2000 by the South African Institute for Mining and Metallurgy (SAIMM) and the GSSA began in 2004.

At the same time, the development of the first South African Code for the Valuation of Mineral Assets (Samval) - which had begun in 2002 - was progressed.

Samval establishes a set of minimum standards, recommendations and guidelines for the valuation of mineral assets.

More than a hundred people - mostly mining-industry professionals, assisted by members of the financial and investment community - participated in the updating of Samrec and the development of Samval.

The rewritten Samrec code was released as an exposure draft in June.

The four principles of the rewritten code - materiality, transparency, competence and impartiality - act as a shield, protecting the investment community from misleading information concerning the evaluation of mineral resources and mineral reserves.

In South Africa, Samrec 2000 was incorporated into Section 12 of the listing requirements of the JSE dealing with mineral companies.

Once the rewritten code has been finalised, it will also become part of the JSE's listing rules and replace the previous version.

Under Section 12, a listed mining company is obliged to publish a public report on its mineral resources and mineral reserves in line with Samrec.

The principles of the code form the basis of the public report.

Transparency requires that the readers of a public report are provided with sufficient information, the presentation of which is clear and unambiguous, to understand the report and are not misled.

Materiality entails the provision of all the relevant information that investors and their professional advisers would reasonably require and expect in order to make a balanced judgement on the mineralisation reported.

Competence requires that the public report be based on work that is the responsibility of a suitably-qualified and experienced person, who is subject to an enforceable professional code of ethics. The competent person, who must sign off the public report,must be one who is registered with the South African Council for Natural Scientific Professions (SACNASP), the Engineering Council of South Africa (Ecsa), the South African Council for Professional Land Surveyors and Technical Surveyors or any other statutory or South African or international body approved by Samrec.

Among other changes, the rewritten code proposes that a competent person could also be a member or a fellow of the SAIMM or the GSSA, or a recognised overseas professional organisation, such as the Australasian Institute of Mining and Metallurgy, the European Federation of Geologists or the Canadian Council of Professional Geoscientists.

The Samrec-Samval committee will promulgate the complete list of approved organisations from time to time.

Speaking at the official launch of the codes, Samrec-Samval committee chairperson, SRK's Roger Dixon, said the fact that the Samrec code would be binding on the members of the SAIMM and the GSSA, would allow for quick and effective discipline in the case of misconduct.

“These two bodies have professional codes of conduct and disciplinary procedures which can quickly administer discipline.

“This will facilitate the timeous and fair handling of all complaints,” Dixon said.

The requirement that a competent person should have at least five years' experience relevant to the style of mineralisation, the type of deposit and the activity that is being undertaken, remains unchanged.

New principle added
Impartiality, the fourth principle of the updated Samrec code, was added during the rewrite.

Samrec working group chairperson, BHP Billiton's Matt Mullins, makes the point that impartiality does not mean independence.

Instead, impartiality requires that the preparer of the public report must be satisfied that the work done has not been unduly influenced by the commissioning entity, that all assumptions are documented and that adequate disclosure is made of all material aspects that the informed reader may require in order to make a reasonable and balanced judgment.

Mullins says that Samrec was updated to review, improve and develop the code and eliminate possible contradictions and inconsistencies.

The rewrite aligns the updated code with recent changes to other international codes, and ensures that, in keeping with international best practice, the reporting of exploration results, mineral resources and mineral reserves are consistent and reliable.

The definitions in the new edition of Samrec are either identical to, or not materially different from, the accepted international definitions of the Combined Reserves International Reporting Standards Committee (Crirsco).

The main changes to the code are an improved format, the inclusion of a section on definitions, the addition of a list of recognised overseas professional organisations to which competent persons can belong, the tightening up of the use of inferred resources, improved explanations for resources and the establishment of a minimum level of study to declare reserves.

It is also proposed that the updated code should be branded to strengthen the promotion of the initiative.

Mullins says that, although the updated code is principles-based, it does involve some prescription.

While the code does not aim to tell mining-industry professionals how to perform their jobs, he points out that it does imply certain actions.

The implementation of more prescriptive requirements, as opposed to principle-based guidelines, is one of several issues that have been placed in the Samrec 'parking lot'.

Postupdate Samrec or international standing committees will then tackle these 'parking lot' issues.

These issues also include best-practice guidelines; the establishment of inclusive, as opposed to exclusive, resources; the addition of more categories, such as a category lower than inferred resources; and a separate working group for oil-and-gas resources and reserves, under the chairpersonship of Venmyn's Andy Clay.

Samrec-Samval twinning
The SAIMM and the GSSA released the exposure draft of the Samval code at the same time as the exposure draft of the updated Samrec code.

Samval working-committee chairperson, AngloGold Ashanti's Rob Croll, explains that, while Samrec focuses on resource-reserve evaluation, Samval focuses on resource-reserve valuation.

Nevertheless, the principles of the two codes are the same and the codes are generally compatible.

On completion, Samval will also be included in Section 12 of the JSE's listing rules.

Croll says that Samval will also require a competent valuator to sign off on public reports and, again, it is proposed that a competent valuator should have at least five years' relevant experience.

It is also mooted that a register of competent persons and competent valuators should be created, which could record vouched-for experience and training, similar to the current Ecsa and SACNASP registration processes.

Croll cites the possibility of the SAIMM and the GSSA creating a separate “registered professional” membership category to cater for such registration, along the lines of one the Society for Mining, Metallurgy and Exploration of the US has adopted.

Already accepted are Australia's Valmin code and Canada's Cimval code for mineral resource-reserve valuation and now the mining industry and general public have until the first week of August to submit their comments to the SAIMM on the Samrec and Samval drafts, after which the codes will be finalised.

A global initiative
The value of reporting codes for mineral resources and reserves - whether they are solid minerals or liquid energy - are that they provide a standardised reporting system.

Samrec and Samval drafters cooperated closely with Crirsco, which is assisting the United Nations Economic Commission for Europe (UNECE) in its drive to create an international framework classification for mineral resources and reserves.

Crirsco board member Dr Ferdi Camisani tells Mining Weekly that the UN Framework Classification (UNFC) will enable the UN's member countries to assess and report on global mineral resources and reserves, particularly in countries such as Russia and China, which do not have well-established classification systems.

In this way, the UNFC will provide extractive-industry investors with greater transparency and facilitate cross-border communication to investors and stock exchanges.

The UNFC has appointed Crirsco to develop and maintain the solid-mineral portion of the UNFC and the American Society of Petroleum Engineers (SPE) to develop and maintain the oil-and-gas portion.

The first international UN classification for solid-mineral reserves and resources may be completed by the end of next year.

Camisani says that Crirsco, which consists of several professional mining institutes worldwide, is maintaining an international classification for the standardisation of definition for mineral reserves and resources, which is being updated continuously.

That classification is known as the 'template' and consists of all the salient aspects of the family of reporting codes that include Samrec and Jorc.

The template is a guide for countries that want to join South Africa, Australia, Canada, the US, the UK and Chile and most of the stock exchanges of these countries in having the same reporting standard for solid minerals, which would also facilitate cross-border communication and reporting.

However, the template plays an advisory role only and, where national codes already exist, these will take precedence.

The SPE has been conducting a similar initiative for the reporting of liquid-energy reserves and resources for several years.

The International Accounting Standards Board is involved with Crirsco, the SPE and UNECE initiatives, and might issue new financial reporting standards in line with the requirements of the new UNFC.