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The VALMIN Code - the Australian experience

"Valuation 1 Session" Mining Millennium 2000 PDAC/CIM, 5-10 March 2000, Toronto, Canada.

Michael J Lawrence, FAusIMM(CPGeo), FIMM(CEng), MMICA

CEO & Chief Valuer, Minval Associates Pty Limited, Croydon, NSW, Australia, 2132 Past President 1999, The Australasian Institute of Mining and Metallurgy

ABSTRACT

The VALMIN Code was developed and formally adopted by The Australasian Institute of Mining and Metallurgy (AusIMM) in 1995 and a revision was issued in 1998. The VALMIN Code applies to all relevant reports under the Australian Corporations Law, including submissions to the Australian Stock Exchange (ASX) and the Australian Securities and Investments Commission (ASIC).

The VALMIN Code and Guidelines sets standards for the preparation and commissioning of independent assessment and/or valuation reports on mineral and petroleum assets or mineral and petroleum securities.

It is mandatory for AusIMM's members to follow this Code in these relevant circumstances and failure to do so will result in serious sanction of the member by the AusIMM's Ethics Committee. Public support for the use of this Code has been given by regulators (ASX/ASIC) and market participants (eg major accountancy firms). It is also endorsed as a guide to general best practice in project assessment and valuation.

This paper will discuss how the VALMIN Code has worked in practice over the past few years. It

examine areas where the Code could be improved and how it could form the basis of a new Canadian Code for

mineral property valuation.

will also

RESUME

Mike Lawrence is a geologist who graduated from the School of Applied Geology, University of New South Wales in 1966. He also gained a Graduate Diploma (Distinction) in Public Sector Management in 1985, from the University of Technology Sydney.

He has been a consultant for almost all of his 33 years of professional experience, working mostly for major international resource consultancies (eg BRGM France and the UK Robertson Group). In 1991 he set up his own consultancy (Minval Associates Pty Limited, based in Sydney, Australia), which specialises in independent technical audits and resource asset/securities valuations, as well as the provision of expert witness and litigation support services.

He has been a Fellow of the UK's Institution of Mining and Metallurgy since 1975, being a Chartered

Engineer (CEng) since 1972. He has been a Fellow of the Australasian Institute of Geoscientists since

1987. He joined the Mineral Industry Consultant's Association in 1989 and has represented AusIMM's

Council on its Board of Management since 1991

He joined AusIMM in 1966 as a student and became a Fellow in 1976, being granted Chartered Practising Status in Geology in July 1997. He has been an AusIMM Councillor since 1991, a Vice President since 1994, and he is its President for 1999.

Mike made a significant contribution to the AusIMM Mineral Valuation Committee's original VALMIN Code (1995) and the revised VALMIN Code (1998) and is now its Chairman. He was also responsible for the development of the AusIMM's Chartered Practising Status concept (ie, accreditation/registration and continuing professional development of geologists, mining engineers, metallurgists and environmental scientists), that was introduced in 1996.

Mike is well known to many Canadians from his objective writings and addresses on the proper regulatory response to mining fraud from an Australian perspective; as well as being an internationally recognised commentator on due diligence and mineral property assessment and valuation best practice, particularly the recognition of "red flags" in the disclosed data.

BACKGROUND ON THE VALMIN CODE (1998) History of the Development of the VALMIN Code

The Australasian Institute of Mining and Metallurgy's (AusIMM) has provided leadership in the codification of best practice in the technical assessment and valuation of resource assets and securities by developing the VALMIN Code 1 ; and in the public reporting of listed companies' exploration results and Resources/Reserves through the JORC Code 2 ,. The VALMIN Code is the more recent development with a primary focus on all the aspects involved in the preparation of capital raising and merger/takeover documentation. Hence, its reach is wider with compliance with JORC being fundamental to establishing one's compliance with VALMIN.

In a world where international competition for mineral exploration and development funds has intensified; and where such expenditure is increasingly made by global mining companies, many proactive jurisdictions are moving to establish regulatory regimes with a common fabric. The existence of common approaches to the proper reporting of exploration, development and mining results not only hastens the creation of a global minerals industry but it also facilitates the mobility of the technical professionals engages in that industry and maximised employment opportunities. Reliable and comparable reporting aids not only the market participants (particularly financiers), but also those responsible for surveillance and equitable operation of the market in the public interest.

The Australian Corporations Act 1989 (which came into effect from 1 January 1992) virtually abandoned the various clear-cut Guidelines that had been issued previously by the National Companies and Securities Commission (NCSC) for the valuation of mineral assets. It signalled a changed governmental view, with a retreat from "black letter law" in favour of self-regulation and devolution of various responsibilities to the relevant professional body (like AusIMM). NCSC Release 149 dealt with minimum standards for the preparation of Expert Reports concerned with mineral and petroleum resources securities and other assets, particularly best practice in the area of technical auditing and resource asset valuation. Whilst Release 149 was not formally adopted by the NCSC’s successor organisation, the Australian Securities and Investments Commission (ASIC; formerly the Australian Securities Commission), ASIC regarded it as "highly persuasive but not binding" on valuers.

The Mineral Valuation Committee first met on 5 April 1991 to produce a replacement to NCSC Release 149 - the VALMIN Code. Committee membership was drawn from AusIMM, Mineral Industry Consultants Association (MICA), Australian Institute of Geoscientists (AIG), ASIC, Australian Stock Exchange (ASX), Minerals Council of Australia (MCA), Petroleum Exploration Society of Australia (PESA), and Securities Institute of Australia (SIA). The author, its current Chairman (after being AusIMM Council's Representative since its inception in 1991), contributed significantly to the generation of the VALMIN Code and its promotion worldwide.

1 VALMIN Code (1998). Code and Guidelines for Technical Assessment and/or Valuation of Mineral and Petroleum Assets and Mineral and Petroleum Securities for Independent Expert Reports (and Aide Mémoire to Assist in its Interpretation), issued by the Mineral Valuation Committee of The Australasian Institute of Mining and Metallurgy (AusIMM), February, 23p (AusIMM: Melbourne).

2 JORC (1996). Australasian Code for Reporting of Identified Mineral Resources and Ore Reserves, issued by the Joint Ore Reserves Committee (JORC), comprising AusIMM, AIG and MCA, July, 19p (AusIMM: Melbourne). Its 16p revision, JORC Code (1999), took effect from 1 September 1999 for AusIMM Members and it will be incorporated into the ASX's Listing Rules from 1 July 2000.

Its task is the development of best practice dealing with the technical assessment and valuation of mineral assets and securities for inclusion in Independent Expert/Specialist Reports (Reports) that are required under the Corporations Law. The first edition (VALMIN, 1995) was issued in June 1995 (after adoption by Council on 17 February 1995) and it applied to all relevant Reports, dated on or after 1 July 1995, that were prepared by Corporate and Company Members of AusIMM.

The current version, VALMIN Code (1998), is a revision that is based upon the experience gained over the previous three years and its scope has been widened to include petroleum assets and securities (crude oil and natural gas). This updated version was approved by AusIMM's Council on 22 November 1997 and it was issued in February 1998. It applies to all relevant Reports issued on or after 1 April 1998 by AusIMM Members, with compliance with it remaining mandatory in appropriate circumstances. See Lawrence (1998b and f) for assistance with its interpretation.

Lawrence (1989a) described the pre-VALMIN Expert Report regulation era in Australia. Hein (1994) provides the regulator's view (ASIC) of the usefulness of the VALMIN Code (1995) just prior to its formal introduction and Lawrence (1995b) dealt with its introduction. Lawrence (1998f), Lawrence (1999) and Cole (1999) dealt with the introduction of the VALMIN Code (1998) from the originator's perspective. Ellis (2000) discusses the problems using VALMIN in the US -context.

Outline of Main Changes to VALMIN Code (1995)

A thorough review of the original VALMIN Code (1995) was undertaken in 1996/97, by a task force

(under the leadership of the author and J Kelly), to identify and rectify any unintended consequences or shortcomings in it after it had been in operation and to include crude oil and natural gas within its coverage. Other tasks were the correction of spelling; improvement of cross-referencing; re- numbering of paragraphs; updating of ASIC/ASX references; and the introduction of prefixes to paragraph numbers for clarity. The four pillars upon which the Code rests were retained (Transparency, Materiality, Independence and Competence). However, practitioners seemed to have major problems with the Transparency requirement (and still do so today).

Other text changes were made to provide clarification of the intent of certain paragraphs, to remove unintended consequences or to be more specific. An important example of this work was to ensure that "must" and "should" were used in all appropriate places (see also below). Another was to ensure that the term "geologist" (not "geoscientist") was used in appropriate places within the VALMIN Code, to be consistent with AusIMM's Chartered Practising Status initiative's definitions. Also, the paragraph dealing with sources of information quoted in the Report and the necessary consents

involved was expanded to make sure that full texts of relevant Specialist's Reports (where appropriate) are included in the main document published as the Independent Expert Report. AusIMM expects those members, whose work is to form part of a Report which is significantly below VALMIN standards (irrespective of whether or not the author of the other Report is an Institute member and bound to follow VALMIN), to withhold their consent until it does. The Ethics Code is the mechanism

to

enforce this approach.

It

was important to better explain that the VALMIN Code applied to both Technical Assessment and

Valuation Reports (ie, all relevant Independent Expert/Specialist Reports), but only to those that are required under the Corporations Law. For example, it is not restricted solely to Technical Assessment Report prepared for a valuation, but it would apply also to any Technical Assessment Report in a Prospectus that did not include a valuation. Equally, it does not apply to internal company technical assessments and/or valuations. In time, it is hoped that the voluntary use of the Code will increase as it gains greater stature and industry acceptance in the market place and at law.

Another important issue was to clearly establish that compliance with the accompanying Guidelines was not purely optional and at the whim of the Expert/Specialist. The Guidelines can be only ignored by those subject to the Code if they can establish reasonable grounds that it was not material to the Report to comply with them. This element of discretion was introduced only for practical reasons, not to provide an excuse for poor work or to be a defence against ethical complaints of non-compliance with the VALMIN Code. One must not assume, because an issue is addressed by a Guideline (rather than in the Code) paragraph, that it is not necessary information which must appear in the text of the Report. To assist, the use of the word "should" was specifically explained, pointing out that it is the particular circumstances that allows the element of discretion to be used to avoid compliance with a Guideline in a material matter.

Thus Materiality was further emphasised, ie if the reader needs to see something in the text of the Report in order to make an informed assessment of the subject of the Report, then it must be included. Note that over-riding the whole VALMIN Code is the mandatory requirement for adequate disclosure and the avoidance of mere technical compliance 3 . Note that nothing is to be interpreted from the text of the VALMIN Code which reads down the obligations of authors of Reports to be transparent and to always provide material information.

RECENT PROBLEMS WITH OPERATION OF THE VALMIN CODE (1998)

To date, lack of transparency in the description of the assessment and valuation methodology used and ignorance of the materiality provisions have been the main areas of non-compliance. Too many valuers still do not provide adequate information in their Reports so that a reader can follow the reasoning employed to generate the value quoted, ie they fail the transparency test. It is akin to the plea, "Trust me, I'm a valuer!" . Too often the valuer writes that many matters were into account, but then a big round number is given as the value, with no clue as to its derivation.

Often, too, there is demonstrable lack of logic in the way the valuation method has been employed. A common problem is to postulate events or make assumptions without using a related discount to account for the probability of the them actually occurring. There is no issue with the quantum of the discount (since that is the province of the valuer), but there must be a discount!

There are also clear examples of lack of independence with the valuer ignoring some data to provide the client with the required value - high if the "prey" (or seller), or low if the "predator" (or buyer).

Other cases reveal inexperience or incompetence in the valuer, who simply misuses a method or miscalculates the value from the available data. A good example of misuse of a method is the Joint Venture Terms Method. Here, valuers can get confused as to whose interest they are valuing (the party farming out or the one farming in) from misunderstanding the terms of the JV Agreement. Another is the Multiple of expenditure method, where all "ancient" expenditure by all past explorers on the subject area is included, not the relevant and effective expenditure.

Some concern does exist that AusIMM does not have a strong and clear position on the appropriate valuation methods to use. Without this "formula list" (or "recipe book") it is claimed that it is much harder to effectively sanction valuers who produce valuations that are viewed as unacceptable. However, valuation is a rather subjective process that heavily relies upon the repute and competence of the valuer. A true market will not be influenced for long (if at all) by spurious mineral property values.

3 VALMIN Code (1998), Clause 6: AusIMM Members should "aim for maximum rather than minimum disclosure, and for substantive rather than mere technical compliance with the VALMIN Code"

This is where responsible and informed media and brokers/analysts fulfil their proper role, otherwise they become part of the problem not the solution.

The author has long favoured the recommendations of the Canadian MSTF on tightening controls on brokers/analysts and those manipulators of the media. They should be made accountable for conducting doing their own due diligence before they uncritically use company releases.

A similar problem exists with the gross misuse of inputs in a particular valuation method. Whilst it is

annoying to see such shoddy work, it is still better for the market to assess it as incompetent, rather that opt for a system that is too specific about what methods must be slavishly followed. That said, AusIMM is reviewing recent breach-of-ethics cases and examples of materially poor valuation practice

so that it can publish guidelines on unacceptable valuation practice in a compromise move.

Also, the Code is not mandatory for use by anyone other than members of AusIMM. Hence, if a party

wished a valuation (even for a merger/takeover or capital raising purposes) many have concerns that it could be legally done without following the VALMIN Code. This would be an uncommon event, since the market expects such valuation reports in these situations to be by Institute members and according

to the VALMIN Code, which has been publicly endorsed by many influential parties (such as by ASX,

ASIC, major accounting firms, shareholders' and directors' associations, etc). However, it is something that warrants attention by the Australian regulators.

Any system will only work if it is logical and reasonable. More importantly, it must be considered so by the majority of market participants (eg, companies, financiers, consultants, regulators and the public). They must all play their part as responsible "whistle-blowers" when shoddy practice is detected. Unfortunately a certain percentage of market players thrive on questionable behaviour by some technical professionals. It is our problem to fix - not one for governments.

DUE DILIGENCE ASPECTS OF THE VALMIN CODE

Essentially, all material aspects of the project must be described and assessed as part of a due- diligence review. This is best done after a site visit has been made. However, the detail required and the approach adopted must reflect the stage to which the project has been developed and the risk definition needs of the funds provider. Simply put, under VALMIN, an assessment/valuation Report must contain all information (whether technical, financial or administrative/legal) that investors and their professional advisers reasonably require (and could reasonably expect to have made available) before making any decision to deal in the relevant securities or asset.

It will not matter whether it is subject of an acquisition (or takeover/merger/strategic alliance), a

disposal, or a capital raising (IPO 4 or otherwise). This principle should also apply whether or not a third party provides debt or equity for the transaction that requires the valuation. Also, it should apply whether or not such a Report is required by law, simply because it is good business practice.

All data should be reviewed from an independent viewpoint by reputable competent (qualified and experienced) professionals. They must be examined to establish that they are reasonable in the circumstances that apply to the project under review and whether it is reasonable to use these data as inputs. Always, there will be a trade-off between the additional cost and time involved in establishing with absolute certainty that all is well through a due diligence study and the acceptability of the remaining potential risk.

4 IPO - Initial Public Offering, a float or Prospectus issued in connection with capital raising.

Any conclusions made must be supported by showing the workings and identifying the assumptions used (to ensure transparency and ease of understanding, or checking by others).

One must be always alert for "red flags" 5 ., by checking the available project information, either from documentation to hand, or by interrogating the parties involved, and confirming that it is consistent with reliable information available from other sources. The quality of disclosure to investors and the market involves a chain of parties, all of whom must properly play their part for the system to work. The issues are mainly technical in nature, but legal issues of land tenure and access, and the equitable interest actually held in a project, are just as important. The participants in the chain, who are responsible for exercising varying degrees of due diligence when confronted by incomplete, confusing or contradictory data and information, are:

® exploration and mining companies (directors, officers and employees, as well as technical and legal consultants), who are responsible for the timeliness, thoroughness and accuracy of the material data and information disclosed orally or in written form (in Press Releases, on the Internet, or in Annual and Quarterly Reports), ie so it is easily understandable, complete, accurate and true and it is not misleading in any way;

® promoters, brokers, analysts and investment advisers, who are generally responsible for authenticating, interpreting and disseminating these data and information to investors in the public arena, according to its suitability; and

® investors themselves (whether a mutual fund/financial institution or private investor), who must take some responsibility for their investment decisions, based on their own financial circumstances.

Conducting a documented, timely and material, systematic checking process of the relevant data in accordance with a set system of procedures monitored by an appropriate supervisory mechanism (due diligence study) achieves two important goals. Firstly, the information used in the assessment/valuation is more likely to be complete, accurate and true, producing better quality Reports and results, which is obviously good business practice. Secondly, in today's increasingly litigious world, one may be able to limit one's personal liability for any deficiencies in the work. Technical professions are often unaware that any material defect, whether direct or indirect, can result in civil or criminal proceedings that place personal assets at risk and even may involve imprisonment.

Thus, if a due diligence process is followed, then all parties involved should be in a position to prove that they took reasonable precautions to ensure compliance with the law and that there had been adequate checking of the data, which minimising their liability (the due diligence defence). However, the foundation of such a defence is that a reasonable degree of skill, care and diligence can be demonstrated. The use of outside technical auditors is a useful way to demonstrate independence in the process, besides "bulletproofing" directors from liability claims (Vaughan, 1997). For more details on personal liability and due diligence issues see also Lawrence et al (1992), Sharwood and Seymour (1994), Williamson-Noble and Lawrence (1994) Lawrence (1995a), Lawrence (1996), Lawrence et al (1996), Lawrence (1997a and b) and Lawrence (1998a). Christensen (1997) outlines the Australian and Canadian regulatory and legal frameworks, within which valuation practice should be viewed.

5 "Red flags" are defined by the author as those adverse data and information that it is reasonable to assert resource professionals would have had to take cognisance of when carrying out their work in a professional manner and in accordance with best practice in existence at the time. See Lawrence (1998e) in the context of the Busang fraud.

Although this paper has an Australian focus, the above comments clearly have relevance project assessment and valuation no matter what country the project is in and whether or not the project belongs to a listed company (being also irrespective of the country of origin of the stock exchange).

The early 1997 exposure of the Indonesian Busang gold fraud, involving the Canadian-listed Bre-X Minerals Limited (Bre-X), focused attention once again on the constant need for effective and truly independent periodic due diligence at relevant stages of a project's development, since effective third party technical assessment is the foundation of any acceptable valuation.

INTERNATIONAL ACCEPTANCE AND ENDORSEMENT OF VALMIN

A major breakthrough for the revised VALMIN Code (1998) has been the widespread support it has

received in Australasia, particularly from the key players involved in the commissioning and preparation

of Reports required under the Corporations Law. However, it is not yet mandatory for all. However,

pressure is increasing on Australasian regulators.

In the wake of the Bre-X/Busang debacle and in the light of the growing international acceptance of

the JORC Code, overseas countries have been seriously examining the VALMIN Code to see if they can improve their corporate governance regime and ensure adequate public disclosure in the assessment and/or valuation of mineral properties. Also see Baker (1997); Lawrence (1997c), Lawrence (1998a, c, d, e, g and h) and Lawrence (2000a and b); Grace (1998); and Spence (2000).

Canada

The discovery of the Bre-X gold salting scandal in early 1997 was the trigger for the formation of the Mining Standards Task Force (MSTF) by the Toronto Stock Exchange/ Ontario Securities Commission (TSE/OSC) on 28 July 1997. The MSTF's task was to recommend new best practice standards for mineral exploration and mining companies as to how exploration programmes should be conducted and how the results obtained should be reported and certified.

The main recommendations of the MSTF Report (TSE/OSC Mining Standards Task Force, 1998) 6 were the creation and recognition of a "Qualified Person" 7 ; of a code for estimating, classifying and reporting Resources/Reserves 8 ,; of a manual of exploration and field best practices; of measures to improve the design, implementation and assessment of exploration and development programmes; accreditation of assay laboratories and improvement of the reliability of their results; better and more timely disclosure of exploration results to the public, involving independent reporting and verification of

6 The proposed new standards and outline of the new requirements for mining company listing on the TSE are outlined in the 141 page MSTF's Final Report (TSE/OSC Mining Standards Task Force, 1999) which was released on 2 February 1999. The MSTF Final Report is an improvement on its Interim Report (released in June 1998), for which credit must be given to the MSTF.

7 A "Qualified Person" must be an individual engineer, geologist, geophysicist or other geoscientist who has at least three years of appropriate experience in mineral exploration, mine development, operations or assessment and who is a member in good standing of a recognised professional association. The Australasian approach is to require the analogous individual "Expert/Specialist (or "Competent Person" in JORC context) to have 5 years of relevant experience to enhance accountability and responsibility.

8 Resources and Reserves terminology was supposed to be according to the Ad Hoc Committee Report of the Canadian Institute of Mining, Metallurgy and Petroleum, published in September 1996 (similar to that used in the JORC Code), but this is not finalised to date.

data; better corporate governance and better broker/analyst reporting and ethical standards; as well as greater investor education.

During 1995, the OSC started reformulating as rules the legislative parts of its National Policies (NP) 2-A 9 (terminology and contents required in a mineral property report) and NP22 10 (additional disclosure guidance). The result, which benefited from the MSTF recommendations, was the Proposed National Instrument 43-101 and Companion Policy 43-101CP (including NIN#98/36, collectively the Proposed NI, Standards of Disclosure for Exploration, Development and Mining Properties). It was released by the Canadian Securities Administrators (CSA) 11 on 2 July 1998 for comment by 30 October 1998. The Proposed NI, planned for release sometime in 2000, will take the form of a rule, regulation or policy, depending upon the jurisdiction. Obviously, the more stringent the requirement, the better for those wanting proper disclosure.

It is accepted that the final NI will contain such matters as the required terminology in respect of resources/reserves; the contents required in a written or oral report on a mineral property; provisions related to the requirement to file a report; specification of the qualifications of the person(s) on whose work the disclosure is based or who authored such reports; and stipulation of when it is necessary to obtain an independent report.

Whilst the Canadian regulators have put their own slant on the best way forward for the new millennium, it is gratifying to note that much of their thinking has been influenced by the experiences of other jurisdictions, like Australia. The TSE/OSC and MSTF have shown considerable understanding of the problems by recommending the difficult but necessary changes to bring Canada up to world best practice. The Canadian legislature need the same courage because the MSTF's Recommendations have yet to be all adopted nationally into enforceable laws.

The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) is presently working on the development of its own VALMIN-style Code (? CIMVal), which will build on the MSTF model. The CIMVal Committee's main task seems to be providing technical input into the valuation methodologies to be acceptable to the regulators. This path is fraught with difficulties in the author's view, given Australian experience.

It is a far better system, philosophically, to avoid the "recipe book" approach and leave the mechanics to the professional judgement of the QP (Expert/Specialist). As discussed above, there is still a need to identify and expose unacceptable valuation practice, but a vigorous Ethic Committee which relies upon technical judgement by your peers is infinitely more desirable (in the author's opinion) that a codified bureaucratic system.

Indonesia

It is also noted that Indonesia plans to introduce accreditation of technical professionals (both Indonesian and expatriates). This is partly in response to the Busang scandal, but also because it is timely to do so in a global context. AusIMM signed Memoranda of Understanding with IMA

9 NP2-A:

the 1983 National Policy, Guide for Engineers, Geologists and Prospectors Submitting Reports on Mining

Properties to Canadian Provincial Securities Administrators.

10 NP22:

Others.

the 1971 National Policy, Use of Information and Opinion re Mining and Oil Properties by Registrants and

11 CSA is an ad hoc national association of the securities regulatory bodies of the ten provincial and two territories of Canada.

(Indonesian Mining Association) in 1991 and PERHAPI (Association of Indonesian Mining Professionals) in 1998. ,Hence, AusIMM is providing both IMA and PERHAPI, as well as the Bursa Efec Surabaya (Surabaya Stock Exchange), with information on its approach to accreditation/registration of its geologists, mining engineers, metallurgists and environmental scientists/engineers; and with advice on how they could adopt appropriate aspects of the VALMIN and JORC Codes for their own use.

COMMENTS ON PREFERRED AUSTRALIAN VALUATION METHODOLOGY

It has been stated already that the selection of an appropriate method is the domain of the Expert/Specialist in the context of the VALMIN Code. However, the actual method(s) chosen depend primarily upon the availability of information about the mineral property. In essence, Income Methods (eg DCF/NPV modelling and its variants) are preferred for properties at an advanced stage of development or in operation. Exploration properties are valued by methods which are relatively much more subjective. Especially see Lawrence (1994) for an overview of Australasian methods of valuing exploration properties as well as specific papers in the VALMIN '94 Volume 12 .

Cost Methods (eg Joint Venture Terms Method or Multiple of Exploration Expenditure Method) are generally preferred over Market Methods (eg Comparative Sales) or Yardstick/Rules-of-Thumb Methods (which are usually derived from mineral property transaction databases).

In malevolent hands all methods can be manipulated to be a form of financial engineers. Sometimes, methods are accidentally misused or contain errors of logic. See Lawrence and Dewar (1999) and Lawrence (2000a) for examples.

North America seems to have developed a penchant for the real estate approach using comparable sales. This is mainly a problem when there is not a deep, well informed market. Such methods should not be considered a priori to be superior t other methods because they are just as subjective.

CURRENT UNRESOLVED ISSUES IN AUSTRALASIA

Although the JORC Code is already incorporated in the ASX's its Listing Rules, there is much more yet to be done with the VALMIN Code and related matters.

Firstly, the ASX must quickly move to incorporate the VALMIN Code (1998) into the Listing Rules. The already expressed strong support for the use of the VALMIN Code by regulators, major accounting firms, shareholders' and directors' associations is gratifying, but its use should be formalised in legislation (especially to require compliance with it by merchant bankers and brokers/analysts).

Next, it must adopt the US Gold Institute's methods of calculating and reporting gold production costs (as well as develop methods for other commodities as soon as possible with the help of AusIMM).

ASIC must move to require similar formal clarification of the role of securities firms and analysts as proposed by the TSE/OSC, especially in the area of formal standards of professionalism and supervision of mining analysts (see also above). They must be required to conform to the VALMIN Code and be required to distinguish in their research reports between what is their opinion and what is data supplied by the company and used uncritically by them. Companies, themselves, must be proactive in ensuring that they correct the disclosure of any misleading information by others. Also,

12 Mineral Valuation Methodologies 1994 (VALMIN '94), No 10/94, Sydney, October (Australasian Institute of Mining and Metallurgy: Melbourne).

ASIC's market fraud units must be expanded in size, funding and scope to better coordinate between the various other regulatory surveillance, compliance, investigation and prosecution bodies in respect of mineral companies and their associated advisers and promoters. They must recruit relevantly trained and accredited technical professionals to assist in this work.

CONCLUSIONS

These small changes outlined above will make Australia's system more directly comparable with the promising intended TSE/OSC scheme.

The strength of the VALMIN Code (1998) lies in its clear demand for transparency in reporting the valuation process and the fact that is does not (like JORC) get bogged down in the minutiae of how the valuation must be done. This may encourage excessive "innovation" at times, but it is more responsive to the market this way. However, there is no simple single way to stop another Busang fraud. Regulators worldwide need to do more than simply embrace the Australasian VALMIN and JORC Codes and their Expert/Competent Person concepts, or analogues of them.

No one country has all the answers as to how investors can be protected from excessive promotional behaviour (even fraud), yet be kept informed in a timely way. Some, like Australia, have a political and administrative history that produced some natural advantages in the fight against unscrupulous promoters and even criminal activity. They are: one language; a national securities regulator; a national stock exchange; and a national single institute of mineral industry professionals with effective ethical sanctions and best practice due diligence codes (JORC and VALMIN) in place, as well as a national scheme of self-regulatory accreditation/registration of its technical professionals.

Australia's present system relies upon supervision of the technical professionals by AusIMM, in both technical and ethical contexts (See Lawrence 2000b). For its part, AusIMM, happily fulfils this role. However, it has not the time nor financial resources to do so forever. Also, AusIMM is always ready to negotiate mutual recognition protocols with relevant national overseas professional bodies in appropriate disciplines, anywhere in the world to play its part in facilitating the global mobility of its Members. The problem is the difficulty in locating a single equivalent kindred body in many foreign jurisdiction with national coverage of all the disciplines and an enforceable Ethics Code.

Canada, for example, has had a number of recent mining frauds on its various stock exchanges 13 . Hence, the rapid response of the TSE/OSC (and its MSTF) to the Bre-X challenge is to be highly commended because its current approach containing many useful lessons for all jurisdictions. Australia, should not become complacent as the global mining scene continues to evolve. Australia has much to do to keep up with the latest Canadian initiatives.

REFERENCES

BAKER, R, 1997. Disclosure averts foreclosure - a stock meltdown in Canada could help make Australia a world centre for resource shares, The Bulletin, 6 May, pp 38-40.

CHRISTENSEN, PJ, 1997.

Corporate and securities regulation in relation to companies (including mining

companies) in Australia, in Proceedings of World Gold '97, pp 239-248, Singapore, 1-3 September, 28p (Australasian Institute of Mining and Metallurgy: Melbourne).

13 Josh gold deposit in Nevada, USA (Delgratia Mining Corporation);

Stenpad gold deposit in Ghana (Golden

Rule Resources Limited); Alberta-listed Naxos Resources ; Timbucktu Gold Limited's gold deposit in Mali, Africa; and Vancouver-listed New Cinch Limited's gold property in Texas, USA.

COLE, NH, 1999. The risks in Experts' Reports: a valuer's perspective (VALMIN Code compliance checklist), in Proceedings of 23rd Annual Australian Mining and Petroleum Law Association Conference, Sydney, 28-30 July, 13p (AMPLA: Sydney).

ELLIS, TR, 2000 Lessons learned about standards from applying both VALMIN and USPAP on a complex appraisal project. Preprint of a paper presented to SME Annual Meeting Valuation Session, Salt Lake City, USA, 28 February to 4 March 2000, 7p

GRACE, KA, 1998. Setting new standards for the Canadian Mining Industry and listing mining companies on the Toronto Stock Exchange, Proceedings of Mining Indonesia 1998, Indonesian Mining Investment Summit - Tomorrow's Wealth, Today's Challenge, Jakarta, 3-5 March, 5p (IMA/PERHAPI: Jakarta).

HEIN, J, 1994.

The regulator's view of the valuation of mineral assets in expert reports, in Mineral Valuation

Methodologies 1994 (VALMIN '94), No 10/94, Sydney, October, pp 287-292 (The Australasian Institute of Mining and Metallurgy: Melbourne).

LAWRENCE, MJ, 1989a. Expert reports: recent developments in the regulation of resource project valuation and reporting of Mineral Resources/Ore Reserves, in Proceedings IIR Gold '89 Conference, Sydney, December, 19p (IIR: Sydney).

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