Unfinished codes already shaping mining asset values: forum

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(Left to right) Ivy Chen, Leigh Slomp, Chris McLoughlin and Pauline Vamos on the K2fly panel
‘If you want the money, we’ve got to talk about ESG and our codes have to help us do that’

New risk-based discounting of mining resource and reserve values is occurring ahead of higher ESG reporting hurdles, a forum in Perth, Western Australia, has heard. The reset is likely to become more pronounced as work to get the industry’s disclosure standards better aligned with fast-changing investor and community expectations comes to a head over the next few years.

A panel featuring former Australian Securities and Investments Commission (ASIC) national advisor, Ivy Chen, president of the Governance Institute of Australia, Pauline Vamos, the Australasian Institute of Mining and Metallurgy’s (AusIMM) chief professional standards advisor, Leigh Slomp, and managing director of environmental accounting firm Greenbase, Chris McLoughlin, was hosted by ASX-listed mining software company, K2fly.

Vamos is also now chair of K2fly, which is selling mining enterprise reporting software into a growing corporate governance market it believes could be worth more than $500 million a year.

Another hat she wears is director of Mercer Superannuation Trust, part of a $57 trillion global pension trust sector Vamos says is under heavier regulatory scrutiny focused on how and where it invests member funds. “They [regulators] want to make sure that when we say we are investing in companies that take into account non-financial risk that we actually are doing that. I have been in the industry a long time and I have never seen so many questions and queries from members of super funds about how we invest. So all those stakeholder forces are joining together,” she said.

K2fly CEO Nic Pollock earlier told the forum high levels of resource and reserve disclosure and governance remained fundamental to mining company valuations.

“It’s a very big G [in ESG],” he said.

“It’s one of the most regulated parts of the industry, historically, for very good reason. It remains the foundation of value [for mining companies].

“Today, though, you can create that value but you can also destroy value overnight [through] destruction of cultural heritage, lack of stakeholder engagement, dams failing and killing people, etc, etc.”

Industry groups in Australia and other parts of the world working to modernise resource and reserve reporting standards, and asset valuation codes, were grappling with how to measure and tie environmental and social risks into typical assessments of these core industry value drivers, the forum heard.

“These things are changing so rapidly all of us are struggling to keep up,” Pollock said.

Australia’s JORC 2012 resource and reserve reporting code was slated to become JORC 2021, but could now be JORC 2024 or 2025, said Chen, who is a principal with consultancy CSA Global. Delays can at least partly be attributed to the mounting ESG risks miners must account for in their assessment of reserve economics and asset values.

“If you want the money [from investors and/or financiers], we’ve got to talk about ESG and our codes have to help us do that,” Chen said.

Similar codes in Canada and South Africa will likely follow in JORC’s wake.

The US Security Exchange Commission (SEC) S-K 1300 reporting rule related to mineral exploration results and targets “has elements of ESG already written into it”, according to industry veteran Slomp.

“There’s absolutely been a push across all of these codes … If they haven’t done it already they’re probably in a process to introduce requirements to at least disclose and discuss any risks to a resource or reserve that may be present from an ESG perspective.”

Chen said, based on experience with the introduction and adoption of JORC 2012 across the industry, it would likely take up to two years from the time the new code was launched before it became pervasive. However, she agreed new rules governing reporting of resources and reserves, asset values, and possibly even disclosure around high-profile topics such as tailings dam engineering and management, and “expert” opinions, could significantly improve industry transparency levels this decade.

“I anticipate that tailings will become a lot more transparent than currently because currently it’s opaque,” Chen said.

“It’s easy to go up from right down the bottom.

“I think that, generally, we’re an industry that innovates a lot and we change a lot. It’s like a whack-a-mole … You whack this mole and another mole pops up somewhere else. Our codes will always be playing catch up, but given that we’re aiming for best practice I would like to hope that most of us would aim to hopefully anticipate the mole and build a little hat on top of it to stop the mole popping up, as an analogy.”

McLoughlin said “that pension industry with $57 trillion in assets wanting to know what’s going on will be one of the drivers and incentives for the industry to get this right”.

Slomp said: “We’ve outlined why it’s required, so the industry must move in that direction. I think we’re doing everything we can. It’s not going to be an easy journey, but I think in five years’ time we’re absolutely going to be a lot better than where we are today.”

Asked if improved reporting standards and higher levels of transparency could be reflected in reserve and asset accessibility, and value, adjustments, Chen said experience with JORC 2012 indicated it would.

“It will be the transparency that will force that to happen,” she said. “There was a big change when JORC 2012 came in [with its] if not, why not [disclosure clause]. The if not, why not forced a lot more disclosure.”

Slomp said he didn’t see material changes to operating reserves emerging, “but I think there will be some undeveloped reserves that will have a big question mark over them when they’ve made some fairly broad assumptions about being able to access certain property”.

“I think what we’re actually seeing more practically already is resources that may have become reserves in the past aren’t making it across those hurdles.”

Where stock standard tailings management solutions, and costs, were no longer options, for example, calculations and plans were already being adjusted, he said.

“So I think a bigger impact – rather than existing reserves going backwards necessarily – is that we’ve already stopped some of these reserves that would otherwise have been reported.”

 

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