In the Canadian Institute of Mining, Metallurgy and Petroleum’s new CIMVal Standards and Guidelines for Valuation of Mineral Properties we are seeing the results of an industry that did a lot of self-criticism in the wake of the market excesses of the late 1990s.
CIMVal, which came out in draft form in February, perhaps deserved more attention than it got from society at large. It is yet another sign that the industry is serious about serving society well. It’s not obvious from this seat that other professions have looked as seriously at their obligations to society and to the marketplace, even as some of them were rocked by scandals that (to paraphrase the late Murray Pezim) added some zeros even to Bre-X.
Canadian mining’s choice to live the examined life has produced substantial international agreement on standards for estimating and reporting resources and reserves, and done it double-quick. The first set of best practices for exploration have come out of the same effort; and the first set of best practices for resource and reserve estimation will not be far behind. The people — and not always the companies — have cleaned mining’s house more quickly than most critics ever imagined in 1997. Often they have done it on their own time (although it can be confessed that, over the past few years, some people in this business have had more free time than they might have liked).
The new standards and guidelines for valuation are, like the other advances, a product of the soul-searching this business has done. Officially sponsored by the CIM, the valuation committee is also a specimen of that industry network that operates across corporate and government boundaries — and which is valuable for exactly that reason.
CIMVal is a smart code, stressing independence and competence from the valuator, who will have to take professional responsibility for the work by donning the hat of the Qualified Valuator (QV). Like the Qualified Person in technical reports, the QV would be responsible for the completeness of the information and for ensuring that the information was used coherently and sensibly.
It also doesn’t bind the valuator to a particular method of valuing the property, recognizing that a property at the grassroots exploration stage cannot readily be valued using methods that suit a property with a producing mine. Making the methodology clear, and the information complete, is CIMVal’s point.
In choosing transparency over a rigid format, the committee that developed the standards has sensibly allowed professionals to do what professionals get paid for: using their experience and expertise to get as close to the truth as they can. Doing that is far better than stretching or sawing a valuation to fit a specific set of terms.
As has been observed in recent auditing controversies, it is only in the minds of the unlearned and the unscrupulous that a fixed procedure is the perfect substitute for professional responsibility. And the unscrupulous know that, to the disadvantage of the unlearned. Strict adherence to the letter of the law sometimes makes people less conscious of the law’s spirit — perhaps more so when the law has a great many letters in it. Simpler regulation, placing an emphasis on professionalism and common sense, makes for better practice.
This puts a significant burden on the valuator, who must put both skill and conscience to work when doing a valuation — and possibly run the risk of displaying a little too much skill or a little too much conscience for a client’s liking. The client’s representation that it has provided all the material evidence the valuator needs is an important lever, but that will demand that boards of directors take responsibility for management playing straight with the valuator. If they do not, regulators may force them to take that responsibility: and the regulators will be entirely in the right to do that. What the new standards and guidelines should not be allowed to do is transfer yet more risk from the company to the consultant; that has progressed quite far enough already.
The new standards and guidelines are a welcome addition to the growing body of practice that has come out of the scandals of the late 1990s. All the same, the industry must consider the valuation system a work in progress. In the long run, the role of the QV will be shaped by administrative decisions, if we are lucky, and case law, if we are not.
In that, the QV also resembles the QP. If, rather than waiting for regulators (or worse, the courts) to define “reasonable and prudent” professional practice, the industry puts resources into developing a sophisticated body of knowledge about exploration practice, about resource and reserve estimation, and about valuation — a body of knowledge that QVs and QPs can rely on in their work — then a lot of unpleasantness may be prevented, to everyone’s advantage.