GoldMinerPulse Blog, March, 2011
From: OfficeofthePremier, Office PREM:EX
Sent: Thursday, March 24, 2011 9:17 AM
Cc: Minister, FIN FIN:EX
Subject: RE: What's to prevent unscrupulous mining analysts from gaming the B.C. Securities Commission and the mining industry generally?
Thank you for your email related to mining analysts.
This is just a note to let you know that your correspondence has been shared with the Honourable Kevin Falcon, Minister of Finance and Deputy Premier. We are advised that arrangements have been made for a response, specific to your comments, to be sent directly from the B.C. Securities Commission.
Again, thank you for taking the time to write.
From: Leo [mailto:email@example.com]
Sent: Thursday, March 10, 2011 1:09 PM
Subject: What's to prevent unscrupulous mining analysts from gaming the B.C. Securities Commission and the mining industry generally?
Dear Premier Clark,
I've been scrolling through the B.C. Securities Commission (BCSC) excellent three-year service plan and note with interest that professional fees actually declined this year when a number of enforcement actions completed. Well done!
I note, too, that investor education continues to be a priority at the commission, so I have asked it for some guidance regarding the obligations of mining analysts and their reports to investors, namely, how to interpret/evaluate a newsletter or report by an analyst from an influential source, such as a bank or brokerage outlet, when the newsletter or report calls into question information provided by a mining firm in a National Instrument (NI) 43-101 Technical Report? How much discretion do mining analysts have to challenge information provided in a (NI) 43-101, a framework of very strict rules and definitions miners are obliged to follow? Why, I wonder, are analysts immune from these or any similar restrictions when their comments concern the same information - when they are, in fact, selling a derivative of that very same mine?
These questions are especially troubling considering that the analyst's opinion is not available to all investors equally and that it will almost certainly influence stock price, especially in these days of algorithmic or black-box trading, which now accounts for the bulk of all trading.
How does an investor distinguish legitimate, well-reasoned criticism from a deliberate attempt to influence the market for personal gain? I hope as an investor that I am relying on something stronger than the analyst's personal/professional integrity to resist what must be a powerful temptation, and we all know what Oscar Wilde had to say about temptation: 'The only way to get rid of a temptation is to yield to it.' Tut-tut.
Frankly, I wonder if the financial elite isn't exploiting the gap between the reporting obligations of miners and analysts to create uncertainty, effectively gaming the BCSC by compelling its attention and review process ultimately for personal gain.
I'm concerned in particular with Rubicon Minerals' Valentine's Day announcement that its (NI) 43-101 on the Phoenix project had somehow been called into question by the commission. Alas, a subsequent query I made to BCSC proved fruitless. Yahoo stock boards referred to two reports - one by Andrew Kaip, a geologist/analyst with BMO and another by Toll Cross Securities - both of which challenged Rubicon resource estimates using, in my view, highly questionable reasoning. Could either of these have compelled a BCSC review, I wondered? What do similar BCSC Decisions and Orders reveal? My conclusions are troubling.
Of the 111 BCSC Decisions and Orders I reviewed first in February and again March 10/11 following a search of the terms "43-101", almost half (44%) concerned failure to file a technical report or another required document. Rubicon has never been cited for any such omission. Another 13.5% involved OTCBB companies, mostly pink sheets that have never filed documents at SEDAR. No application to Rubicon. Almost a third (31.5%) were routine inquiries, most often applications to be excused from having to provide a certain routine document. Again, no application to Rubicon. Only 10.8% - 12 actual cases - examined in any detail the contents of a particular technical report. A summary of each decision is provided at http://www.goldminerpulse.com/blogs/bcsc.php. I also note that in each case, the source of BCSC's concern is clearly stated.
There is nothing at all on point with the Rubicon inquiry - not one decision or order - so there was no way at all for investors to anticipate this challenge, which was nevertheless sufficient to drive the stock price down by 20% and in a rising gold market!
Certainly no one would question the expertise and authority of Rubicon's report author, Peter George, a geologist with 40 years of experience, much of it in gold mines in the same mining district as the Phoenix project, the subject of the report. He was responsible for the Bruce Channel Exploration Target Potential for Gold Eagle Mines Ltd., a report which prompted Goldcorp's purchase of Gold Eagle for more than C$1 billion. A fortieri, Goldcorp recently allocated an estimated $420 million to develop the Bruce Channel deposit with a planned fourth quarter 2014 production start date. The development includes construction of a five-kilometre tunnel to connect the bottom portion of the Bruce Channel deposit with the Campbell Mine in Red Lake, Ont., a mine less than 10 km from the Rubicon deposit.
For a variety of no doubt sound reasons, Rubicon has declined to expand on the Feb. 14th announcement but, in the meantime, small investors are hemorrhaging. Are you satisfied, as I am not, that the commission is indeed acting appropriately and clearly within the scope of its authority in the case of Rubicon and not on a tip-off by one or more members of the financial elite deliberately creating uncertainty in an effort to manipulate stock price for personal gain?
While I am aware and indeed supportive of B.C.'s recent initiatives with the federal government to develop our mining industry as well as various federal and provincial mandates to streamline Canadian securities regulation post-global financial crisis, I can't help worrying about the increased opportunities for market manipulation such initiatives create - especially in view of the gaps in reporting obligations between miners (legally-enforceable technical reports) and analysts (fuzzily-worded code of professional ethics and IROC regulations - mere guidelines). How easy it would be for an unscrupulous analyst to create a scandal on par with Bre-X by publishing competing resource estimates with no comparable reporting requirements.
I would be most grateful for any assurance you can give me that the current regulatory system is working as intended and that it's fully adequate to the task for which it was created.
Thank-you for your kind attention.