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12/16/13

"The Trouble With 43-101": Garth Kirkham speaks for the defence

This next installment of "The Trouble With 43-101" brings something of a change from the tone of previous posts, both here and over at Mineweb. Peer respected geologist Garth Kirkham is the Chair of the Best Practices Committee of the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), i.e. the people who created, regulate and are in  charge of the NI43-101 standard.

Kirkham today takes the stand and offers a robust defence of the current 43-101 system and once again, I leave you with his words and no further comment.

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Firstly, I believe in NI43-101 and its purpose of protecting the investing public. My first reaction to the comments, especially from a couple of mid-tier publically listed companies, along with a variety of anonymous anecdotal comments, is to discount and disprove.

I must say that the comments by Conway and Johnson should give us all cause for concern in so far as they are saying that all of the projects that they own are garbage because the underlying reports are garbage. Have they listed these risks in the annual MD&A’s? Perhaps they are just referring to everyone else’s? Not sure but I have only seen a small part of the interview. However based on their commitment to short anything NI43-101…are they shorting their own companies? I would suggest before these “relatively” influential persons call something that is designed to protect their shareholders a “joke” that they consider the bigger picture. As a shareholder of either company, I would be highly concerned that the C suite doesn’t believe in the company, whose assets are valued based on the existence of the resources and reserves under NI43-101, nor does the C suite appear to believe in the industry. Again, I am only seeing a small part of the interview so I am sure there is a simple explanation and perhaps this was just off the cuff comments.

A number of comments that followed are attributed to an “old timer”. I respect the fact that anyone of advanced age and experience has stuck with this industry this long, through the good, the bad and the ugly. Notwithstanding the “old timers” did find/develop many, many mines in the past, and have a wealth of historical and practical knowledge. However, I also find that selective memory, myth, anecdote, etc. tend to creep into perceptions, beliefs which gets communicated, as it is here, and given the weight of fact because of the revered source. That said, everyone is entitled to his/her opinion but I would like to try to dispel or clarify some on the misconceptions and misinformation, at least to the extent that I understand it.

Of particular vexation is the statement that he (and others) has very little respect for NI 43-101 because of the QP concept. He talks about the state certified geologist being a QP but under NI 43-101, state certified geologists are not Qualified Persons under NI 43-101. It is true that the NI43-101 system does hinge on the concept of the qualified person and I agree that it can be extremely difficult to hold QP’s to account especially in foreign jurisdictions. I do agree that of there are issues and complexities related to investigation, accountability and responsibility. There are many “self regulating associations” that regulate engineers and geoscientists in Australia, US, Canada, South Africa, Europe, etc., that have varying and differing concepts related to NI 43-101. However, if any association does not have “protection of the public” as one of its prime tenants, mission statements, visions, then it follows that they are focused on membership and by extension protection of their members. These organizations should not be recognized professional organizations under NI 43-101, in my opinion.

So in support of the “old timer”, there are accepted organizations that are accepted under NI43-101 that firstly do not appear to have the public interest in my opinion, as their primary goal but also do not have any practical way for the public to launch a complaint. It is also disturbing that, in many cases, it is difficult for the general public, to get a listing of members to insure that the QP’s are even qualified or are what they say they are.

The comments related JORC, CIM Standards, NI43-101, etc. and that no one is accountable is patently untrue. Under NI43-101 the QP is responsible! However, the company is responsible for how they use and disseminate the technical information and the QP consents to specific use of their technical information.

The statement that the QP can “disclaim”, “hold harmless” are absolutely and completely false. No author of a NI 43-101 can disclaim any technical information and the only exceptions are with respect to legal, environmental, social, marketing, etc. however these items must still be covered. So the statement that any QP can disclaim is false!

The answer to; “who is watching???”, “why isn’t anyone doing something about this???” when there are issues or egregious events is…us all. It is up to us, the professionals and the industry to self police and if there are significant issues then it is up the professional, self regulatory industries to investigate and discipline. 

However, peer review and peer pressure can also be very effective. It is difficult to criticize and hold other geoscientists to task. There is no whistle blower protection and if it gets to a court of law then it would certainly come down to one expert’s opinion against another. However, there exists the concept of the “Reasonable Person” defense and loosely explained it is “what would another reasonable professional/peer, do and would they come up with the same conclusions, under the same circumstances”.

What is the real world? There has to be a complaint with the Professional Association. Was there in the case of the violated CA and what was the case? If so what was the result? If not then, why not?

On the resource comments, the comments appear to have little to do with resource than with other factors and although the thoughts are a little disjointed the “old timer” does a good job of indentifying some poignant issues:
1.       The idea of the “no soup for you” with respect to the client-consultant relationship is not correct. It is paramount that independence is insured; however it is not a dictate by any means. And at the end of the day, the client is entitled to a second or even third opinion. But I agree that the client can feel “bullied” at times. In my opinion, a consultant working in a vacuum without input and guidance from the people who know the deposit best is not good practice. Certainly, the consultant must determine when and if they are being influenced or if there is an attempt to bias the results. These instances must be detected, noted and then penalized but to not consider input from the client under the auspices of independence is not in the best interest of the project or the shareholders in my opinion.

2.       On cutoff, our “old timer” is exercising a time honored tradition of “back of the napkin” economics.  The reason for sensitivities are simple…called price fluxuations! The last 5 years have shown us that predicting future metal prices is a difficult exercise to say the least.

3.       On the Feasibility comment, my interpretation of the issue is that it had nothing to do with bulk sample and everything to do with the estimation of the potential resource and whether it had a “reasonable prospect of economic extraction”. However, Strathcona did exactly what the “old timer” wanted and expected from a professional which was identify what they believe to be significant risks to the project and make those abundantly clear to the client. At the end of the day, the consultant must decide and is obliged, under NI43-101, to make this known to the public. Right or wrong, Strathcona, as per their commitment to protect the public, performed excellently in my opinion!

4.       The one comment I absolutely agree with is related to the underground vein scenario. I agree that these types of deposits and especially the estimating the resources/reserves are extremely difficult. CIM definitions and by extension NI43-101 are not effective in adequately addressing resources and especially reserves for vein deposits.  Creating exploration drifts to drill off a vein makes no sense when you might as well drift on the vein and mine the damn thing. I think that we need to treat these differently but this is a topic for another time.
My point is…NI 43-101 is a guidance and reporting format that is designed to protect the average investor. It is easy to say “this is crap”, “doesn’t protect anyone”, “needs to be much more perceptive”, “needs to be less”, …. arm chair quarterbacking at its best.  For Conway and Johnson to state that they would short more than long is saying that 50% of the companies and their underlying work is flawed and by extension false and misleading. I dispute that claim. If they believe that then perhaps someone will ask which of the two of them is below low tide. Again, I only was able to see a small part of the interview and perhaps their comments were taken out of context. I do hope so.

The concept of NI43-101 hinges on the Qualified Person and I agree that there are chinks in the armor. However, I will defend and protect it, not because of what I do but because I do believe that it brings standards, best practices and uniformity to complex technical data in a way that can be understood by all stakeholders…and it is the law.

Best regards,

Garth Kirkham, P.Geo., Qualified Person under NI43-101
President, Kirkham Geosystems Ltd.
Chair, CIM Best Practices Committee
APEGBC Councilor