Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Tuesday, June 19, 2012

More fun with NI 43-101

You wouldn't ordinarily think that more transparency in the reporting of exploration companies would be harmful to the investing public. Yet I think there is the potential of just such a counter-intuitive result from some of the new requirements in reporting according to the most recent updated requirements for NI 43-101 reporting.

According to section 3.3, article 2:
If an issuer discloses in writing sample, analytical or testing results on a property material to the issuer, the issuer must include in the written disclosure, with respect to the results being disclosed,
(a) the location and type of the samples;
(b) the location, azimuth, and dip of the drill holes and the depth of the sample intervals;   
Once again--intuitively speaking, additional disclosure can only benefit the public, right?

I'm not so sure it does in this case. What will the ordinary public do with the location, dip, azimuth, depth, and grades of the samples? This is information which, combined with the appropriate software, can be used to generate resource estimates--particularly if it is carried out by the geological help hired by a large financial institution, thus allowing that institution (and perhaps certain of its well-heeled clients) to front-run the investing public by estimating the resource before the company itself announces it. Does this protect the investing public? It seems to me that this is the exact opposite of protecting the investing public.

Companies need to present results to the market in a timely fashion. These results need to be accurate. But the totality of information offered above shouldn't be available to the market until the company releases a resource estimate. But some information about the spacing of the drillholes needs to be released so that investors can be reasonably sure that good results are not obtained by drilling many holes very close together, but are from holes that are reasonably spaced apart.

A general outline for a method that might work would be to report on the distances between each drillhole and its two (or three) nearest neighbours--the sum total all plotted as a histogram. If the drillholes are clustered together, that will be immediately apparent. It would also be immediately apparent if the drillholes are spaced out evenly over the area. The size of the area of investigation could be reported, thus allowing all investors the ability to assess the significance of the results without allowing any of them the ability to make a resource calculation.

Another approach might be something like this. The advantage of presenting the data this way are obvious--but at the same time there isn't enough there for sophisticated investors to front-run the market. My only objection would be to mandating that companies use a particular program.

When the company reports a resource, all the information about the drill collars can be reported, allowing the resource calculation to be verified.

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