The filings of the vast majority of Ontario's listed mining companies are not up to scratch, according to a new report - something that should give advisors pause for thought.
Mining shares account for a fifth of Canada's equity market cap, but advisors should be cautious when recommending the sector, and not just because of the outlook for metals and minerals.
Canada's largest securities regulator has found a vast majority of Ontario mining companies are not up to compliance standards when it comes to technical filings.
In a new report, the Ontario Securities Commission has found “an unacceptable level of compliance” in filings by listed Ontario mining firms, with some 80% of reviewed filings being in some form of non-compliance and around 40% having at least one major non-compliance concern.
The OSC said it was "particularly concerned with the major non-compliance issues noted in the technical reports reviewed as these deficiencies may have a significant impact on investors."
Ontario mining firms occupy a sizable portion of Canadian equities. At end-2012, there were 457 Ontario mining issuers with a combined market cap of more than $181 billion, representing 21% of Ontario’s overall market cap. Approximately 41% of Ontario mining issuers are listed on the Toronto Stock Exchange (TSX) and these TSX-listed firms represent 98% of the market cap of all Ontario mining issuers.
"Technical reports are fundamental disclosure documents and ensuring compliance among mining issuers is critical," said Huston Loke, OSC director of corporate finance.
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"It is important that investors have accurate and meaningful information about material mineral properties in order to make informed investment decisions."
The OSC found that 80% of the issuers’ technical reports it reviewed had some form of non-compliance with the requirements of Form 43-101F1. This form, among other things, requires disclosure of environmental issues, assessment of first-time mineral resources, mineral reserves, and the results of economic assessments for mining projects.
Most of the mineral properties described in the technical reports were located in North America (44%) while others were located in either South America (22%), Africa (20%), Russia or China (8%) or Australia (6%). The three primary mineral commodities discussed in the Technical Reports were gold (46%), copper (12%) or iron (10%).
The quality and accuracy of technical reports has been of concern to investors and regulators since the collapse of Bre-X Minerals in the early 2000s after Bre-X was found to have perpetuated a fraud to overstate gold deposits in the late 1990s.
With the company’s collapse Canadian investors – including individuals, major pension funds and institutional investors -- lost billions.
Fallout from the Bre-X case dragged on for years. In end-May this year, an Alberta court dismissed the remaining class action suits by investors seeking to recover losses after determining there was “no realistic prospect of realizing any significant recovery through the litigation and that the costs of proceeding were prohibitive. Parties to the suits would receive a paltry $5.2 million divided among them.
