Douglas Bryce, James R. Brown
In an environment of increasing scrutiny of technical disclosure by securities regulators, the British Columbia Securities Commission (BCSC) recently issued a full cease trade order in respect of the securities of Barkerville Gold Mines, a TSX-V listed issuer, on the basis of an allegedly non-compliant technical report. While the facts underlying the cease trade order may be somewhat unusual, it is further evidence of the recent willingness of Canadian securities regulators to impose strict remedies and penalties in the face of what they view to be flawed or inadequate technical disclosure regarding mining projects.
On June 28, 2012, Barkerville Gold Mines Ltd. announced a new indicated mineral resource on its Cow Mountain property of approximately 10.6 million contained gold ounces. The initial press release also disclosed a “total geologic potential” for the company’s broader Cariboo Project of between 65 and 90 million new contained gold ounces – which, if borne out, would make the property one of the largest gold deposits in the world. The new indicated resources represented an enormous increase from Barkerville’s prior indicated mineral resource of 6.6 million tons of gold at 2.23 grams per tonne of gold (approximately 431,000 ounces).
On July 22, 2012, Barkerville issued a clarifying news release, disclosing that the BCSC had completed a technical disclosure review and had requested that Barkerville provide additional information to the BCSC to support the indicated resource estimate and exploration targets. Barkerville disclosed that the company had provided a draft technical report to the BCSC for its review. The press release stated that:
“Upon review of the incomplete draft technical report, the BCSC expressed concerns about certain of the methods, parameters and assumptions that were used to estimate the mineral resources and potential exploration targets at Cow Mountain, as well as the estimates themselves. The BCSC expressed concern that the disclosure in the Original News Release of a 10.6 million ounce indicated gold resource (69 million tons grading 0.154 ounces per ton) and 65 to 90 million additional ounces in "potential" is inadequately supported in the draft technical report and estimated in a manner that appears contrary to normal industry practice and therefore could be construed as misleading.”
The press release also included a number of the specific concerns identified by BCSC staff relating to both the resource estimate and the exploration target, including the fact that the drill-hole assays were not composited before estimating the resource grade and the fact that the estimates did not apply grade capping, despite most of the gold in the reported 2011 drill intersections being in thin high-grade intersections.
On August 13, 2012, Barkerville filed its technical report supporting the resource disclosure, which had been prepared by Mr. Peter George, an independent consultant and qualified person for purposes of NI 43-101. The very next day, August 14, the BCSC issued a cease trade order in respect of Barkerville’s securities for the failure to file a technical report in “in the required form.” The cease trade order will remain in place until Barkerville files an NI 43-101-compliant technical report and the order is revoked. Neither Barkerville nor the BCSC has disclosed the matters in dispute with respect to the filed technical report other than the indications made in the July 22 press release, so many of the specifics of the alleged technical report deficiencies remain unknown.
While the sheer scale of the claimed disclosure made by Barkerville distinguishes it from more run-of-the-mill disclosure challenges, the episode nonetheless demonstrates the willingness of the Canadian securities regulators to scrutinize the technical disclosure made by issuers at a granular level and in light of best industry practices, even where the disclosure is accompanied by a full technical report prepared by an independent qualified person as required by NI 43-101. The implementation of a full cease trade order on the basis of an alleged disclosure deficiency is unusual and follows in the wake of other recent high-profile examples of issuers that have been the subject of difficult technical disclosure review processes (See Osler Update of March 27, 2012). Mining issuers are advised to pay careful attention to these issues.
Part of the Mining Review - September 2012