The end of peer comparison disclosures? Regulators continue their march on junior mining company public disclosure

Over the last couple of months, we’ve seen a number of ASX-listed junior mining companies being forced to retract promotional materials containing “peer comparison information”. Hot on the heels of our recent article on ASIC flexing its muscles, this rapidly evolving issue further complicates what junior mining companies can and can’t say about their projects as they attempt the transition from explorer, to developer, to producer.

For some time, regulators have sought to prevent mining companies from making particular statements about potential future production or financial forecasts of their projects at a time when there is limited geological knowledge about the orebody. This is because those statements imply certainty of economic recoverability of that orebody at, in the regulators view, too early a stage in the project development lifecycle. With that issue being largely put to bed, the focus now seems to have shifted onto the practice of “peer comparison” disclosure.

Junior mining companies have often sought to compare the size and potential magnitude of their project to those of other ASX-listed companies in an attempt to promote the attractiveness of their project. When used properly, such comparative information is useful to investors in understanding the project’s characteristics compared to others in its peer group, and assists in answering questions such as “where do I fit in” or “what will I be when I grow up”?

But in providing such comparative information, there is inevitably the danger of being selective in an attempt to promote the merits of one project over another. So it comes as no surprise that regulators have turned their attention to the use and abuse of comparative disclosures to ensure that they provide an “apples with apples” comparison as well as a balanced view as to how the relevant project stacks up to relevant comparisons.

A recent example of comparative information that the ASX has taken issue with was the release of information that sought to compare the company’s project against projects of other ASX-listed companies operating in the same commodity and in the same region. The comparison looked at the grade, metallurgy and the size of the JORC-measured resource, and contained a graphic referencing the companies. The companies were displayed as “bubbles” of different sizes representing their current JORC (2012) measured resource – the bubble representing the relevant company was significant compared to some others in its peer group.

Despite disclosing the source of the relevant information for the peer group comparisons, the company concerned subsequently issued a further announcement stating that after discussions with ASX, it retracts the comparative information provided citing that it:

• only compared resources in the Measured Resource category; and
• did not include Inferred Resources or Indicated Resources, nor demonstrate if any of the Indicated or Measured Resource have been successfully converted to an Ore Reserve.

Put another way, it appears that concerns were raised by the regulators that the comparative analysis had the potential to compare “apples with oranges”.

In another recent example, a detailed peer comparison prepared by a third party was retracted with no explanation as to why. Investors were simply being warned to not rely upon the peer comparison analysis as a basis for an investment decision. The peer comparison involved comparing projects in different geographic locations, with some already in production and others still being in development.

The consequences of a retraction can be serious. It is tantamount to an admission that the information was misleading (or had the capacity to be so). In similar circumstances, ASIC has fined the relevant companies and made orders which restrict short-term fundraising initiatives without prospectus level disclosure being provided.

We expect to see the regulators provide some guidance on the appropriateness of peer comparisons in the short term. However, until further clarity is provided, ASX-listed resource companies should tread carefully in providing comparative information so as to ensure that it is a balanced “apples with apples” analysis, or else risk intervention by the corporate regulator on the basis of it being misleading.