What is National Instrument 43-101?
Canadian resource companies frequently mention "National Instrument 43-101: Standards of Disclosure for Mineral Companies" (or simply NI43-101) in their press releases, on their websites and in published technical reports. Although Canadian resource investors are fairly familiar with NI43-101, investors outside North America are frequently confused firstly by what NI43-101 is, and secondly by what it means to companies such as Fortuna [Fortuna's website is the source of this info].
In short, NI43-101 is a set of rules developed in the late 1990s by the Canadian Securities Administrators (CSA), and administered by the various Canadian provincial securities commissions, governing how Canadian-listed resource companies disclose scientific and technical information about their mineral projects to the investing public. Since its introduction, NI43-101 has become widely acknowledged within the resource industry as the most rigorous disclosure policy in the world.
NI43-101 covers all oral statements, written documents, presentations and website content released by Canadian resource companies. It was developed in response to a series of high profile Canadian resource stock scams in the 1990s which culminated in the huge Bre-X scandal in 1995. Retail and institutional investors lost billions of dollars when Bre-X's stock collapsed after its much-touted Busang gold project --thought at the time to contain more than 70-million ounces of gold- turned out to be a fraud; core samples from the drills had been tampered with and expertly "salted" with gold dust.
The Bre-X fraud highlighted the need for close monitoring of the information mining companies report to the investing public and how they report it. Booming markets will always attract rogue individuals and companies who refuse to play by the rules to grab the unwary investor's dollar, and the need for shareholders to do their own due diligence has not been removed. However, NI43-101 has restored some confidence to the Canadian resource sector. In fact, many North American analysts, and increasingly analysts and professional investors in the European markets, will ignore information or reports that have not been written under the NI43-101 guidelines.
NI43-101 rules require that all disclosure be based on advice by a "Qualified Person" (QP). In some circumstances, the QP must be independent of the issuer and the property. To be designated a QP, it is not sufficient to simply be an experienced geologist or an engineer. The budding QP must be a member in good standing of a professional engineering or geoscience association which has an enforceable code of ethics (the Association of Professional Engineers of British Columbia, for example). New applicants to these associations are increasingly being forced to sit detailed ethics, law and professional liability examinations before they are admitted, ensuring they should (in theory) be familiar with their responsibilities as QPs.
In practical terms, NI43-101 is a tool used by market surveillance geologists to ensure the investing public can be reasonably confident that the information they are reading is as accurate and truthful as possible. For example, all mineral reserve and resource calculations must be vetted and authorized by third-party engineers before they can be released to the public. And companies cannot quote historic reserves and resources as factual and up to date (in this case, historic means prepared prior to the implementation of NI43-101). Instead, they are required to point out to potential investors that they are old figures which should not be relied upon. In all cases, the QP responsible for overseeing the design of the company's exploration programs and for monitoring the company's reporting of the results must be named. That person then has a legal liability in the event that a particular report or press release is found to be deliberately misleading or otherwise fraudulent.
It's important to remember that NI43-101 applies to a company's entire technical information disclosure anywhere in the world. So Fortuna cannot publish information in Mexico that wouldn't pass muster by the Canadian regulators for publication in Canada. In reality, the global scope of NI43-101 means that Canadian companies at least meet, and usually exceed, the minimum technical information disclosure standards in overseas jurisdictions where they may have secondary listings.
For further reading on NI43-101, including the actual policy and the guidelines that go with the policy, the following links are recommended reading (this write-up draws heavily on some of these sources):
www.ccpg.ca/guidelines/index.html
www.ccpg.ca/guidelines/43_101CP.pdf
www.ccpg.ca/guidelines/ni43_101(1).pdf
www.osc.gov.on.ca/Regulation/Rulemaking.pdf
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