Investors could be forgiven for overlooking the Australian Securities Exchange's (ASX) review of its disclosure rules for mining and oil and gas companies.
Potential amendments to the ASX Listing Rules, which incorporate the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code), cover technical aspects of resource-company reporting and look like a matter more for geologists and mining engineers than investors.
But institutional investors who hold resource stocks, especially smaller stocks, would be wise to follow the ASX review and separate issues paper from the Australasian Joint Ore Reserves Committee (JORC) on potential amendments to the JORC Code.
Changes to resource-company reporting could affect almost half of all ASX-listed companies and potentially influence billions of dollars of capital investment. It is a huge step to change some reporting rules in the middle of a mining boom.
The ASX review wants to improve disclosure around exploration results and targets; key assumptions behind mineral resources and reserve estimates; the level of study needed to underpin an initial ore reserve estimate; production targets; and annual reporting and reconciliation of mineral resources and ore reserves.
It said in its "ASX Listing Rules Review Issues Paper (Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies)": "By seeking to address any weaknesses in the public reporting of reserves, resources and exploration information in the Australian market, and by seeking to ensure that the reporting requirements under the ASX Listing Rules continue to represent international best reporting practice, this review aims to facilitate improvements in listed mining and oil and gas companies' access to, and cost of, capital."
Some mining bodies were concerned with the potential changes.
The JORC, the Australian Institute of Geoscientists (AIG) and the Australasian Institute of Mining and Metallurgy (AusIMM) criticised aspects of the consultation paper or process.
These bodies sponsor the JORC Code, which is incorporated in the ASX Listing Rules. JORC decided to release a separate issues paper (the "2011 JORC Code Review Issues Paper"), which required submissions by 27 January 2012, to run in parallel with the ASX issues paper.
The industry concern was that changes to the JORC Code could make it harder for some resource companies to raise capital, and increase their compliance costs, by requiring more information to be disclosed and extending the 'competent person' definition for reporting sign-off.
There was some early concern that resource companies will have to adopt the Canadian NI 43-101 approach, "Standards for Minerals Disclosure", to reporting in Australia. NI 43-101 requires a technical report to be filed in some circumstances to support other formal disclosure documents, such as for the reporting of first-time mineral resources and reserves.
The ASX has effectively recommended against the Canadian approach of requiring a technical report, because of its compliance costs.
But there is a still an expectation that general compliance costs could rise.
From an investor's perspective, tightening resource-company reporting rules seems a good idea.
Much has happened in the mining sector since the JORC Code was last updated in 2004.
Some resource companies publish production targets and other forward-looking information based on inferred mineral resources or exploration targets, which can suggest to investors that the target or prospect will be achieved, even though there is currently a low level of geological certainty.
This has been a problem in prospectuses for resource companies' initial public offerings in recent years.
ASIC said in its submission on the reviews that such information was too uncertain to support production targets. It said exploration targets were "even more tenuous as a basis for statements about future matters implying economic viability".
The corporate regulator is right. More can be done to strengthen requirements before production and exploration targets are published, and to provide more information on key assumptions behind mineral resources and ore reserve estimates.
The challenge is in finding the right balance, where clearer information is provided, without burdening small resource companies with sharply higher compliance costs. After all, investors want resource companies to spend precious capital on exploration, not compliance bills.
Tony Featherstone is a former BRW and Shares managing editor. He provides editing services for some ASX e-newsletters.
