Part seven of a series on NI 43-101 myths
Nobody works in the mining business for very long without realizing that knowledge of what’s under our feet is variable, conditional and revised whenever new information surfaces. But problems can arise when investors, who may not have had similar surprises from Mother Nature, read estimates of mineral potential or predictions of future production and cash flows. That’s where cautionary language comes in: whoever reads your disclosure should know how uncertain it is. It turns out William Shakespeare’s plays have some cautionary language of their own—and, as always, Willie’s words are very much to the point.
“Nature disclaims in thee; a tailor made thee!”
One of the myths surrounding cautionary language is that it’s a “disclaimer”—a statement made to push away responsibility for information you’re telling the public. It is no such thing. The company that discloses information requiring a cautionary statement, and the qualified person approving the disclosure, remain responsible for it.
Cautionary statements aren’t meant to be weasel words disavowing responsibility for information you make public. They are the opposite, there to rub the reader’s nose in the uncertainties of your disclosure. Cautionary language is prescribed by the mining disclosure rule for three kinds of disclosure: historical estimates, exploration targets and preliminary economic assessments.
“Presume not that I am the thing I was”
Historical estimates need cautionary language for a mass of reasons: they were done at another time, by other operators, possibly using other categories, often with unstated assumptions or without verification. But the most important thing is that they aren’t yours, and until the company is ready to put its name to them (and an estimator is willing to sign off on that mineral resource estimate), you shouldn’t invite the public to think they’re correct or current.
The cautionary language means what it says: nobody is signing off on the old work, an investor should not rely on it and the company isn’t going to rely on it until it has its own estimate. Do not undermine that with statements about “building on the historical resource,” or by making economic projections on a resource you don’t have.
“Until I know this sure uncertainty, I’ll entertain the offered fallacy”
National Instrument 43-101 specifies cautionary language for exploration targets too, and CIM’s newly proposed definition and guidance tells you a lot about what the cautionary statement needs to say. Exploration targets are estimated ranges of tonnage and grade on projects where there has been “insufficient exploration to estimate mineral resources.”
Protection from misleading disclosure and keeping information about exploration targets transparent are the reasons cautionary language is required when exploration targets are disclosed. Due to high uncertainty around exploration targets, they cannot be categorized using CIM definitions of mineral resources. A company that decides to estimate a metal or commodity content should not pretend it has a resource.
Any estimate around an exploration target should be disclosed as a range of tonnes and grade to demonstrate the high level of uncertainty around the potential target. These ranges must be accompanied by accepted cautionary language as outlined in s.2.3(2) of NI 43-101.
Companies have attempted to showcase their exploration targets by using misleading terminology. Recently, we have seen language to describe exploration targets as “potential resources.” Describing exploration targets as “resources,” even with a qualification to the term, will result in a comment letter from regulators to remove this language. These are not resources, as defined by CIM, as they have not seen sufficient work to classify them as such.
“Promising is the very air o’ th’ time”
Early-stage economic projections are the mythical sprites of the mineral industry, ranging from honest uncertainties to airy nothings with a net present value. The industry knows these weak spots too well: inferred and indicated resources that dissolve into waste, capital cost estimates that inflate like the Hindenburg and meet the same end, and economic analyses that promise much and deliver little. Not only is cautionary language necessary on those projections, the disclosure shouldn’t over-sell the results with hype words like “robust” or “rigorous” or with claims of “exceptional economics.”
A quaint little expression pops up three times in Part 2 of the Instrument: “states with equal prominence.” Oddly enough, it means what it says—clarity demands that the cautionary statements be just as prominent as the disclosures they apply to. Footnotes or long paragraphs of boilerplate texts don’t cut it. Warnings need to be delivered centre stage, not as an aside, whispered from the wings.
Chris Hachkowski is a senior geologist at the Ontario Securities Commission. James Whyte retired in 2023 from his role as a senior geologist at the Ontario Securities Commission. Both authors are writing in their private capacity.
The subheads come from Shakespeare in King Lear, II:2; Henry IV, V:5; Comedy of Errors, II:2; and Timon, V:1. Or maybe from the Earl of Oxford, Francis Bacon, Kit Marlowe or the Earl of Derby. A qualified literary critic has not done sufficient work to determine authorship.
