Mining Analysts Must Tone Down Rhetoric
By Virginia Heffernan

New proposals designed to clean up the junior mining sector should shield brokers and their clients from the type of overzealous research reports that contributed to the Bre-X debacle.

The proposals, recently published by a task force of regulators, include a recommendation that mining analysts distinguish clearly between their own opinions and information supplied by the company they are researching.

"There has been some concern about the level of boosterism in some analysts reports," says John Carson, Senior Vice-President of the TSE and co-chairman of the mining standards task force.

The task force, a joint effort by the Ontario Securities Commission (OSC) and the Toronto Stock Exchange (TSE), also suggests analysts should disclose their experience and qualifications and state the basis for their opinions.

"Many analysts reports make no overt distinction between information provided by the company and their own opinions and, if stating an opinion, do not provide the basis for that opinion" the task force's interim report says.

Under the new proposals, analysts would also be expected to blow the whistle on anyone providing "questionable information" to the market and to adhere to the same disclosure standards used by mining companies.

Ontario regulators established the task force in the wake of the Bre-X fraud and other lesser-known exploration scandals that have cast doubt on the integrity of junior mining companies and the research analysts who follow them.

Bre-X investors, who collectively lost $3 billion when the Busang gold property in Indonesia turned out to be barren, are suing several brokerage firms and their analysts for allegedly misleading clients about Bre-X.

The Canadian companies implicated include Nesbitt Burns inc., Levesque Beaubien Inc., ScotiaMcLeod Inc., Midland Walwyn Capital Inc., CIBC Wood Gundy Securities Inc. and TD Securities Inc.

The TSE-OSC task force conclusions are the most comprehensive and far-reaching set of proposals for exploration standards ever released in Canada. The 111-page interim report contains recommendations on every aspect of mineral exploration, from the accreditation of assay labs to disclosure about the security of land tenure.

One of the key recommendations is that a "qualified person" sign all disclosure documents relating to exploration programs and be responsible for ensuring that the company follows industry standards. The qualified person would be an engineer or geoscientist with at least five years experience in mineral exploration, and a member of a professional association.

If adopted, the proposals would help Canada to maintain its position as the international capital of mine finance, where about 40% of the world's mining capital originates.

Regulators say the new standards will apply nationwide because most of the task force's proposals have been incorporated into the final draft of National Instrument 43-101, a policy which sets standards of disclosure for exploration properties owned by Canadian companies. The new policy is expected to replace two current policies regarding mining properties - National Policy 2-A and National Policy 22.

In the meantime, the Alberta, Montreal and Vancouver stock exchanges have all published stopgap guidelines for junior mining companies in an effort to alleviate the damage wrought by Bre-X.

"Even though Bre-X wasn't listed here, we paid a significant price for it", says Warren Funt, vice-president of Corporate Finance Services for the VSE, where 60% of the listings are mining-related and most of those are juniors. "Our (latest) policy statement was an effort to address some of the effects of Bre-X." The VSE guidelines, published in late 1997, outline what is expected of exploration companies in terms of disclosure, technical report writing and verification or "check" programs for exploration results. But the guidelines are not nearly as broad or detailed as those proposed by the task force.

"Philosophically we support the recommendations" says Funt. "But the VSE has a different focus from the TSE because of the companies we serve."

The Alberta Stock Exchange (ASE), another popular junior exchange for start-up mining companies, also released revisions to its policy late last year. The revisions include new disclosure requirements with respect to sampling and drilling procedures and results, assaying methodologies and reports of visible mineralization in samples.

"We're quite supportive of the TSE recommendations," says Gerry Romanzin, Executive Vice-President of the ASE. "It is highly likely that we will adopt any recommendations that we haven't already covered."

In Quebec, a group including representatives of the Quebec Securities Commission (QSC), the Montreal Exchange (ME), industry and government is devising its own set of standards for mining companies in that province.

Although the group's report has yet to be released, the ME has already published a new guide to writing press releases containing information about exploration results, property transactions and public or private sector financings.

"The conclusions of the TSE-OSC task force are in line with the thinking and work that is taking place in Quebec" says Louis Doyle, senior advisor of market development for the ME.