2012 JORC – Tougher Code for All [Coal Asia Vol. 27]

2012 JORC – Tougher Code for All

By Ian Wollff

The author is an expatriate principal geologist of about 28 years experience in the Indonesian exploration & mining industry, and is employed by an international consultant company.

 

The Joint Ore Reserves Committee (JORC) was established in 1971 wherein it’s 2004 Code on public reporting of ore reserves has become the preferred standard for most Asian investors. A revised Code was issued on 20 December 2012, with further details to follow on the web about the transition period to November 2013, and full implementation from 1 Dec 2013. The 2012 edition of the Code is largely unchanged, though has a number of modifications that serve to further clarify or define some aspects, plus some new components. Discussion of draft changes (with emphases on coal) was undertaken with a number of leading Indonesian independent consultants, and their concerns are included in this review below. This review looks at some of the more significant changes that may interest Indonesian and Asian parties.

In the forward section there is further recognition that many countries have National Reporting Organizations (NRO) working towards consistent reporting standards throughout the world. The JORC template has been recognized as a commodity specific Code in UNFC 2009. The JORC code is widely used in Indonesia by investors (IPO’s & business to business), and varies from NSI codes that are partly designed to quantify national resources. The 2012 Code also mentions that a Recognized Professional Organization (RPO) list will be posted on the ASX web site from time to time.

The scope section significantly expands the principals of the Code in each of the transparency, materiality and competence aspects to be more detailed & revealing, particularly about the omission of information. The guidelines statement reflects this outlook – “The Competent Person must not remain silent on any issue for which the presence or absence of comment could impact the public perception or value of the mineral occurrence”. In some Indonesian cases this aspect may now exclude a more limited scope of a JORC report, and some disclaimers may be modified.

There is a relaxation of requirement to obtain the Competent Persons prior written consent ( clause 9) when a company is re-issuing information in the form of a presentation with some provisions, including that such information is not changed from the initial disclosure. This may make it easier for concession owners to promote their projects to investors, and at seminars etc.

The Code now places the Indicated & Measured Mineral Resource categories (Clause 22 & 23) on a more similar bases wherein the each is now required to provide :-
A) reliable exploration – wherein we may see JORC reports no longer simply stating “work was undertaken according to Indonesian standards” type statement, but we may see more detailed descriptions of each component of the work, and the use of JORC table 1 more frequently used, plus demonstration of suitable supervision.
B) geological and grade/quality continuity between points – wherein open holes (no samples for grade) may be replaced by more reliable core drill programs.

The Exploration Target term (Clause 17) has been more formally defined as a recognized aspect of the JORC code. This may assist some companies in the early stages of exploration to make formal statements, and thereby improve their ability to raise their profile.

Where Resources are derived from extrapolation from the last data point, then greater rational and justification is required. In practical terms we may see more caution applied to this aspect, and thus smaller Resources stated in such cases.

“A mineral resource cannot be estimated in the absence of sampling information”

• This new aspect of Clause 20 may see some Indonesian exploration move away from open holes, or touch coal coring for thin seams. In some cases, closer spaced drilling may be needed to determine the “appropriate spacing” for coal quality parameters – particularly sulphur, ash analysis or coking properties.
• In new mining areas we may see statistical studies or more correlation with down hole logging to determine suitable spacing for sampling, though areas in established mining districts may be able to draw upon the experience of nearby producing mines.

The Technical Studies (Scoping Study, Pre-Feasibility and Feasibility) have been formally defined and replace the more general term “appropriate assessments”. The Pre-Feasibility & Feasibility studies now includes financial analysis that contribute towards the Modifying Factors, for developing Reserves from Resources. The Feasibility Studies also require social, environment and government permits to be in place within the development time table. The emphases on determining the confidence level of such studies is largely that of the Competent Person.

• Indonesia has many smaller companies that have limited funds to initiate exploration, and seek JORC reports to obtain finance for the latter phase of feasibility & construction. Typically JORC Probable Reserves is the minimum requirement to satisfy investors, however simpler Scoping Studies are now replaced with a more expensive and time consuming Pre-Feasibility study.
• Feasibility Studies are sometimes seen as principally focused on defining the volume and extraction of the Reserve, while the issuance of permits is seen as a “flexible” aspect separate to the JORC report. This new requirement to link the Feasibility Study to the issuance of permits may place a “use by” date on some Indonesian JORC reports. Feasibility Studies that provide for different production options may need to be linked more closely to environmental permits etc.
• These tighter requirements will make it more difficult for all companies.

Reporting of Ore Reserves (clause 29) has clarifications that require :

• The reference point of Reserves be defined, typically the crushing plant, and the difference to the point of sale also defined.
• Mine designs & production schedules are required.

These requirements will not be suited for the simple mine plans & schedules as encountered in some reports, but place greater demands on the Competent Persons to sign off on more sophisticated reports.

Reporting of Coal Resources and Reserves (clause 44) is modified with a further comment that :- “Since investors need to be informed on the products intended to be sold, reporting of Marketable Coal Reserves is encouraged”. This will require a clearer distinction of products to be derived, and take into consideration coal losses etc.

Table 1 – Checklist of Assessment and Reporting Criteria now provides:

• Direction on excluding commercially sensitive information from public reports.
• Guidelines on site visit reporting, which will emphasize the need to include site visits by those charged with issuing the report.
• For reserve reporting the table now includes a section on social – wherein stakeholder agreements and such are to be considered in the reports.

This wider range of commercial and stakeholder information may be more difficult for some concession holders to reveal, and sometimes the documentation can be complex. The JORC statement has always been clearly separated from a legal & financial due diligence, however some of these new provisions may require closer consideration of these areas, or appropriate disclaimers.

Comments on table 1 should now be provided on an “if not why not” bases. Table 1 sets out detailed components for sampling techniques & data, reporting of exploration results, estimation and reporting of mineral resources & ore reserves.

• This may make changes in the approach of exploration programs. It is common practice to undertake some general outcrop mapping & initial few drill holes with relatively little supervision to balance cost and risk factors. The point at which this simple & cheap approach is switched to the JORC standard may now be earlier in an exploration project’s planning, otherwise much redrilling & mapping may be needed to be repeated for a JORC report.
• Previously some consultants considered using statements such as “subject to further studies on geotechnical / environment matters etc” when issuing statements on Reserves. It is likely they may now require more complete data.

The new JORC code has been released in conjunction with an update (Sep 2012) of the Australian Stock Exchange (ASX) disclosure rules. These are important to a number of ASX listed companies with exploration & mining activities in Indonesia and other Asian countries. The new ASX rules largely mirror the new JORC code, plus:

• Both have new clauses for reporting on historical and foreign estimates of targets, resources and reserves wherein appropriate additional evaluation or exploration will be required before such mineralization/coal can be considered for inclusion in the JORC / ASX reports. Companies are prohibited from including such historical and foreign estimates in economic studies and production targets.
• The ASX has introduced additional reporting requirements for resources & reserve reporting where production projections are not supported by an operating mine.
• The ASX has further requirements on reporting of resources & reserves in quarterly & annual reports. The annual reports are to also include a summary of the governance arrangements and internal controls that have been put in place for its resource & reserve estimation process.

Conclusion

1. Overall these changes will be good for investors but will likely make preparation of a JORC report more detailed, longer to complete and thus more expensive.
2. Should a 2004 compliant JORC report need to be updated, with the same data, then the new 2012 report might now down grade the previous assessment of Resources & Reserves. Thus financiers or project buyers may push for revised JORC reports, to improve their negotiating position.
3. The aspect of preparing a JORC report may become more standardized in the data gathering aspect (better defined minimal requirements), and perhaps leading to a wider team under the supervision of the Competent Person to deal with the broader issues of financial analysis, schedules, coordination with permits etc.
4. Concession holders seeking funds in Indonesia often prepare JORC reports to satisfy initial investment, but once having secured finance (including options to list on IDX) thereafter often do not need to comply with ongoing JORC standard reporting. Explorers & miners listed on the ASX with concessions in Indonesia have ongoing tighter JORC compliance requirements (with associated costs), and are thus more openly responsible towards good governance and shareholders.
5. The RPO currently does not list any Asian professional organizations. The industry should work together to achieve such listing for Indonesia and other Asian countries.