Disclosing production targets

Controversy surrounds listed mining companies disclosing their production targets with the ASX and JORC unexpectedly deciding to release separate consultation papers on the issue.

The production target disclosures debate was highlighted in ‘08 with the Midwest Corporation Limited Takeovers Panel decision and arose again in August ’11 when Tigers Realm Coal Limited reissued its prospectus having removed all references to forecast production tonnages and dates, capital development and operating cost estimates for a number of its projects.

Neither the ASX Listing Rules nor the JORC code specifically address the disclosure of production targets in their present form but leave the requirement for having ‘reasonable grounds’ for making a statement contained in s670A(2), s728(2) and s769C of the Corporations Act 2001 (Cth).

ASIC Regulatory Guide 170 gives some colour to what is meant by ‘having reasonable grounds’ but a considerable degree of discretion is retained by individual companies due to the ’08 decision and the lack of detail in the rules and regulations governing the issue.

The ASX has suggested a mandatory minimum reporting obligation whereas JORC has stated that it considers this approach to be overly prescriptive. After failing to agree on a preferred approach to the matter, the ASX and JORC decided to release separate consultation papers on the issue.

So what’s the likely outcome of the dual consultation process?  

In addition to formalising the production targets disclosure requirements applicable to mining companies, the process is likely to require companies to identify:

1. the key assumptions made in calculating the target
2. the key contingencies and risks associated with the realisation of the target
3. a cautionary statement highlighting the aspirational nature of the target.

These elements would all need to be disclosed clearly and unambiguously in an equally prominent manner to the target, as well as being proximately situated to the target in the disclosure.

Two of the more restrictive approaches canvassed in the ASX discussion paper would also see companies banned from disclosing production targets based on exploration targets or inferred mineral resources in greenfields projects respectively.

Let’s see where the debate ends up.