Metal equivalents in exploration reporting: how announcements get rejected

A copper equivalent or gold equivalent grade compresses a polymetallic intercept into one number. Used properly, it helps the market compare results. Used loosely, it overstates a deposit, and ASX has made clear that announcements which report metal equivalents without the required workings are liable to be rejected before release, or to attract a correction or retraction after it, with suspension available where an entity does not take corrective action. For an explorer, a forced retraction of a flagship intercept is a market credibility event that outlasts the announcement.

What the JORC Code requires

The 2012 JORC Code, given force for listed entities by Chapter 5 of the ASX Listing Rules, deals expressly with metal equivalents. In summary, a report of exploration results or mineral resources in metal equivalent terms must disclose:

• the individual grades of all metals included in the calculation, not just the equivalent number;
• the assumed commodity prices for each metal, and the basis for those assumptions;
• the assumed metallurgical recoveries for each metal and the basis for those assumptions, whether from test work, comparable operations or otherwise;
• a clear statement of the calculation formula used; and
• a statement that it is the company’s opinion that all the elements included in the calculation have a reasonable potential to be recovered and sold.

The recovery limb is where most reports fail. If metallurgical recovery data is not available, or is estimated with low confidence, the equivalent grade should not be reported at all. An equivalent calculated on assumed 100% recoveries, or on recoveries borrowed from a dissimilar deposit without justification, does not meet the Code.

Headlines and balance

ASX’s scrutiny is not limited to the table of results. If an announcement header does not convey a fair and balanced impression of the results being reported, or leads with an equivalent grade that the body of the announcement cannot support, ASX may treat the announcement as potentially misleading. The continuous disclosure framework in Guidance Note 8 expects announcements to be complete, accurate and not misleading as a whole, and the header is part of the announcement. Leading with the best intercept from a broad, low-grade zone, burying dilution or true width qualifications, or headlining an equivalent grade dominated by a metal with no recovery data are all patterns that attract query letters.

Consequences of getting it wrong

• Pre-release rejection. ASX can decline to release an announcement until deficiencies are corrected, which for a result the market is waiting on means a trading halt extended on unfavourable terms.
• Correction or retraction. A published announcement that does not comply may need to be corrected or retracted, and the correcting announcement is public and permanent.
• Suspension. ASX may suspend quotation until corrective action is taken.
• Liability exposure. A misleading announcement engages section 1041H of the Corporations Act 2001 (Cth) and, where the market moved on it, continuous disclosure liability. Directors who authorised the announcement are in the frame.

A pre-release checklist for polymetallic results

• Does every equivalent number in the announcement, including the header and highlights, have the full workings disclosed in the body or an appendix?
• Are the commodity price assumptions current and consistent across announcements, with the basis stated?
• Is there genuine support for each recovery assumption, and has the competent person signed off on it?
• Is the reasonable-potential-to-be-recovered-and-sold statement included and true? A metal with no realistic payability should be excluded from the calculation.
• Would the header still be fair if the equivalent grade were removed? If not, rework the header.
• Has the announcement been checked against Table 1 of the JORC Code and the prior reporting of the same prospect for consistency?

How Luma Legal can help

We review exploration and resource announcements before release, respond to ASX price and content queries, and advise boards and competent persons on Chapter 5 and JORC Code compliance. A 30-minute legal review before lodgement is cheap insurance against a public retraction.