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I say things on Twitter

4/2/12

Regarding the trustworthiness of PEAs (scoping studies)

Reader 'M' (an experienced mining professional, by which we refer to the fact that he really, really knows what it means to try and extract metal out of rock for a living rather than him being a financial hanger-on parasite like your author) points IKN's nose towards a most interesting article that was written by Douglas Bryce and Jeremy Fraiberg, partners at Osler, Hoskin & Harcourt LLP, first published in an Osler Update on March 27th and then reproduced at this link by Mining Markets on March 28th.

The article concerns the validity and levels of trust we can or should place in Preliminary Economic Assessments, or PEAs, those documents that used to be called 'scoping studies' by the industry until recently. Bryce and Fraiberg refer to three recent cases when bought deal financings for Extorre Gold (XG.to), Rio Novo Gold (RN.to) and Karnalyte Resources (KRN.to) had to be scrapped because the Canadian regulatory authorities (in turn the BCSC, the OSC and the ASC) threw out the findings of a PEA and wouldn't let the deals go through on the backs of the reports, with the basic argument that they were trying to make themselves out to be "PFS type" reports when they in fact weren't. The article should be read in full, but here's the opening paragraph to what your appetite:
"The failure and termination of several recent Canadian prospectus financings has highlighted the particular disclosure challenges that companies face in the mining sector, and in particular some recent confusion around the rules applicable to preliminary economic assessments (PEAs). It also suggests that regulators have recently been scrutinizing the technical disclosure of mining issuers with particular attention, raising the execution risk associated with public financings and other transactions in the sector." Continues here

As for reader M, his comments on sending over the link were also interesting and amongst them, this:

"From a macro industry point of view, I'm finding it very difficult to believe or rely on many of the PEA-type reports now coming out. You can shop around and find one that will produce something that fits your needs."

Unfortunately I cannot reveal M's real ID, but I can say that when such comments are heard from the caliber of mining brain and reputation that M enjoys I take them very seriously indeed. And with that annoying little teaser your author again exhorts IKN readership to DYODD, dude.