Sifting Bulldust From The Copper
Sydney Morning Herald
Tuesday July 18, 2006
"An inferred mineral reserve is that part of a mineral resource for which tonnage, grade and mineral content can be estimated with a low level of confidence ... It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability."SO NOW we know. Wayne McCrae's great find, the one he said could become the world's biggest copper mine, has 25 million tonnes of inferred resource - which, as CuDeco (formerly Australian Mining Investments) said yesterday, is the classification of "least confidence" under rules governing descriptions of reserves.
The 34 million tonnes of additional mineralisation the company had previously "inferred" now, it appears, were "conceptual" in nature. They are what CuDeco hopes it might find rather than anything that has been found. They are now in the "target" classification, which means they are hypothetical. At this point they don't exist and may never exist - although that concession had to be dragged from the company and it did its best to qualify it. So much for McCrae's references to the resource being similar to the nearby Ernst Henry mine and looking good when compared with Chile's giant Escondida mine. And what was the factual base for the highly publicised (but still unpublished) "research report" by a broker with links to the company, which described the "find" as one of the most important discoveries of the past 20 years, said there could be $17.5 billion of copper at Rocklands and put a target price of $25 a share on the stock? CuDeco's nine-day suspension from trading has at least blown some of the hyperbole out of the company's descriptions of its findings and, judging by the sharemarket response to its re-listing, created quite a few more "dickheads" - McCrae's label for those who question whether there is enough hard data to postulate a resource worth billions. That has been the key issue underlying the confrontation between the ASX and the company - whether there is enough data on the resource to extrapolate, not just the 59 million tonnes of copper mineralisation originally claimed, but the outrageously bullish conclusions McCrae and his boosters have reached from quite limited exploration. Whether McCrae is ultimately proved right or not is beside the point. It is apparent from yester- day's revised report that there isn't anywhere near enough data yet to support those claims. Those claims, those who made them and those who published them uncritically (a certain national daily broadsheet springs to mind) were irresponsible. The ASX requires mining explorers to comply with the Joint Ore Reserve Committee Code (JORC), whose core principle is that any report contains enough information, presented unambiguously, so a reader can understand it and not be misled. It is evident from the ASX's lengthy suspension of CuDeco and the revisions it was forced to make, that the exchange did not believe the original reports were JORC-compliant. It remains to be seen whether the Australian Securities and Investments Commission takes issue with any of the statements made outside the exchange. JORC was developed after the Poseidon boom, when spruiking of exploration stocks was rampant and many investors were fleeced.While there have been some outbreaks of over-promotion since - the diamond and gold booms in the 1980s for example - the degree of controversy surrounding CuDeco and the nature of the media coverage of the company suggest it has been an aberration.With the ASX suspending another junior, Frontier Resources, last week for issuing a report that contained a "hypothetical" valuation of its reserves of more than $1 billion, however, there were signs that the commodities boom was starting to promote the kind of behaviour that discredits markets. It would be easy to point the finger at the ASX for the CuDeco fiasco but, with 100,000 announcements pouring through the exchange a year, it isn't physically possible for it to vet every statement. The onus is on listed companies to ensure their public statements are responsible. The exchange is entitled to rely on the "competent person" who signs the exploration reports as its first line of defence. It is to the ASX's credit that it acted quickly, suspending the company and forcing it to pay for an ASX-appointed geologist to review its data and the conclusions it had drawn from it.The company would have remained suspended if it hadn't issued the revised reports. ASIC's intervention, halting a planned shareholder vote on an issue of options to directors while the true status of the reserves was thrashed by the ASX and the company, also deserves credit.Regulators can't protect investors from their own cupidity but they should guard the market's reputation and ASX and ASIC seem prepared to do that. Promoters have been given notice of the regulators' intent. If that isn't a sufficient deterrent, the sight of class-action lawyers circling should do the trick.
© 2006 Sydney Morning Herald