Ethics Case No. 4 - Resource Sector - Disclosure of Negative Information

AnonymousBrief Statement of the Situation

Rather than presenting a case this month, the ethics column will simply pose a question to raise awareness of an ethical issue affecting common practice today. Lately, the securities regulators have increased the degree of regulation to protect the public by creating regulations around the concept of improving the quality of disclosure. Isn't the disclosure of negative information just as important as good results? Much of this negative information is not materializing in the current public releases of information.

Disclosure of negative test results, which may materially affect the public, is an ethical issue facing practicing professionals and it is a requirement of issuers under the securities acts. There is no debate on this issue. Disclosure of negative test results that may affect the investing public is required, and yet, it seems to be treated differently by companies and practicing professionals.

Current practice in the resource sector is to disclose press releases indicating positive drill and assay results as well as positive feasibility study results. The intent behind reporting positive results is often to support company stock prices in order to raise additional risk capital for ongoing exploration. The regulators have recognized that the issuing of positive press releases is an essential element of raising risk capital and keeping investors informed, however, they have also made it clear that issuers are obliged to report information that is both material and negative.

Many exploration geoscientists work for companies that issue press releases indicating upcoming phases of exploration or that a feasibility study has been awarded to an engineering company and results are expected by a certain date. Many times this is the last we ever hear of these proposed expenditures as the results of the planned work turn out to be negative. Most often when the results are negative, these results are not being disclosed to the public by issuers.

The failure to report the lack of encouraging assay results in an exploration program could be easily argued that the lack of results is a normal part of exploration and therefore is not news-worthy and will not materially affect the value of publicly held shares. Results of feasibility studies on advanced exploration programs, however, present a much different picture. These projects have typically undergone a significant amount of investment by the issuer resulting from infill drill programs, bulk sampling, extensive metallurgical test work, environmental impact assessment, geotechnical studies etc. As a result, a fair amount of a stock's value may be tied up with the results of a single feasibility study. Release of a negative feasibility study is material and therefore requires disclosure as it could have a significant impact on the valuation of the project and a company's value. Not disclosing negative information is both illegal and unethical.

APGO does not necessarily advocate the solutions in this case. APGO’S intent in publishing this case is simply to stimulate discussion and thought.
-------------------------------------------------------------------------------------------------------
Wanted: Ethical cases regarding incomplete disclosure, problems with conflicting test data results, insufficient information with which to draw stated conclusions, pressure to rewrite conclusions or any others that you can think of that affect geoscientists. Authors will remain anonymous. Articles to be published in future issues of Field Notes.

For more information on APGO, please contact info@apgo.net

Delivery Notice: This newsletter is issued 10 times per year to all APGO members. Non-members may also subscribe and receive the newsletter with access to non-member-only content. For more information, please see www.apgo.net.

Field Notes is published by APGO and is edited by Wendy Diaz, P.Geo. If you have comments or wish to contribute material to this newsletter, please contact Wendy Diaz, P.Geo., or Norman Williams, P.Eng., Executive Director/Registar.

Copyright 2006, Association of Professional Geoscientists of Ontario (APGO)