Clearing the Clutter of Research: NI 43-101 and Due Diligence
Mining companies offer the potential for great investment returns, but they also carry many risks because of the complex science behind mining and mineral exploration. This complexity can deceive, so it is important to have standards on how companies report the technical data.
This infographic comes to us from Prospector Portal and takes a look at the events that led to the creation of the the NI 43-101, and the variety of information a mining project generates.
Why Does Mining Research Matter?
Bre-X and the Creation of the NI 43-101
The 1997 PDAC was the peak for one mineral exploration company, Bre-X. The annual event in Toronto serves as the gathering point for the global mining industry to raise capital, sell services, and highlight successes. It was there that Bre-X received an award for finding one of the largest gold deposits in the world, the Busang gold deposit in Indonesia.
Soon after the conference, Bre-X’s exploration manager fell to his death from a helicopter. There was mounting evidence that the junior’s project was a hoax and that the company’s geologist salted samples with gold from other sources.
In May 1997, the Toronto Stock Exchange (TSE) delisted Bre-X, vaporizing $3 billion in value as the company’s shares became worthless. The fraud deceived investors and undermined confidence in financial markets.
The TSE and the Ontario Securities Commission established the Mining Standards Task Force. This task force recommended stricter disclosure of drill results to ensure accuracy and a requirement to have a qualified geoscientist back up the technical data.
These recommendations culminated in the creation of the National Instrument 43-101 Standards for Disclosure of Mineral Projects.
How the NI 43-101 Can Answer Questions
Understanding the Due Diligence Process
Along with providing clear definitions for mining terms, the NI 43-101 outlines the necessary information for the technical reports in several sections. Each section can help to answer some questions that could arise when researching a company.
- Accessibility, Climate, Local Resources, Infrastructure, and Physiography:
Is a mining project logistically viable at this property’s location?
This portion of the NI 43-101 describes the topography, elevation, and vegetation around the property, along with the means of access, proximity to a population center, and the nature of transport to and from the site. In addition, the report can contain potential climate impacts on the length of operating season, and the availability of power, water, and personnel.
- Property Description and Location:
Are there any potential ownership or issuance problems with the property?
In this section, you will find information about the location and area of the property, type of mineral tenure, and the company’s ownership along with any obligations to retain the property. This section must also include any other risks that can affect access, title, or the right and ability to perform work on the property.
What is the property’s history of development and production?
The history of the project outlines prior ownership and changes of ownership of the property, along with the work and results of previous exploration and development work at the property. Companies include historical mineral resource and mineral reserve estimates and any past production from the property.
What kind of drilling will take place, and what are the results?
This section includes the type and extent of drilling, procedures followed, and a summary of results. These factors could impact the accuracy and reliability of the results.
- Mineral Resource Estimates
How are the mineral resource estimates derived, and what factors are affecting those estimates?
This section outlines the key assumptions and methods used to estimate mineral resources. There is a report of the individual grade of each metal or mineral, along with relevant factors used to estimate this. There is also an outline of any external factors that affect mineral resource estimates such as taxation, environmental, or political.
- Economic Analysis
What is the economic forecast for this property?
This includes any economic analysis for the project such as cash flow forecasts, net present value, and internal rate of return, along with summaries of taxes, royalties, or other interests applicable.
Mining and mineral exploration companies regularly disclose NI 43-101 reports as new information comes in. Management will file any material information on a system called SEDAR. However, SEDAR is an older format that makes the process difficult to search for specific information.
Clearing the Clutter to Know Your Risks
There are many factors that affect an investment decision, especially in the mining industry. This complexity can lead to volatile returns as one of the many variety of factors can affect the outcomes of a mineral project. The first step in understanding these risks is to know where to find the information in the NI 43-101.
“People aren’t allowed to just calculate resources on the back of an envelope anymore…You look at the resource boom we’re going through. The companies that don’t follow the rules, they stand out.”
– Maureen Jensen, Former Chair of the Ontario Securities Commission, 2007
An Introduction to MSCI ESG Indexes
With an extensive suite of ESG indexes on offer, MSCI aims to support investors as they build a more personalized and resilient portfolio.
An Introduction to MSCI ESG Indexes
There are various portfolio objectives within the realm of sustainable investing.
For example, some investors may want to build a portfolio that reflects their personal values. Others may see environmental, social, and governance (ESG) criteria as a tool for improving long-term returns, or as a way to create positive impact. A combination of all three of these motivations is also possible.
To support investors as they embark on their sustainable journey, our sponsor, MSCI, offers over 1,500 purpose-built ESG indexes. In this infographic, we’ll take a holistic view at what these indexes are designed to achieve.
An Extensive Suite of ESG & Climate Indexes
Below, we’ll summarize the four overarching objectives that MSCI’s ESG & climate indexes are designed to support.
Objective 1: Integrate a broad set of ESG issues
Investors with this objective believe that incorporating ESG criteria can improve their long-term risk-adjusted returns.
The MSCI ESG Leaders indexes are designed to support these investors by targeting companies that have the highest ESG-rated performance from each sector of the parent index.
For those who do not wish to deviate from the parent index, the MSCI ESG Universal indexes may be better suited. This family of indexes will adjust weights according to ESG performance to maintain the broadest possible universe.
Objective 2: Generate social or environmental benefits
A common challenge that impact investors face is measuring their non-financial results.
Consider an asset owner who wishes to support gender diversity through their portfolios. In order to gauge their success, they would need to regularly filter the entire investment universe for updates regarding corporate diversity and related initiatives.
In this scenario, linking their portfolios to an MSCI Women’s Leadership Index would negate much of this groundwork. Relative to a parent index, these indexes aim to include companies which lead their respective countries in terms of female representation.
Objective 3: Exclude controversial activities
Many institutional investors have mandates that require them to avoid certain sectors or industries. For example, approximately $14.6 trillion in institutional capital is in the process of divesting from fossil fuels.
To support these efforts, MSCI offers indexes that either:
- Exclude individual sectors such as fossil fuels, tobacco, or weapons;
- Exclude companies from a combination of these sectors; or
- Exclude companies that are not compatible with certain religious values.
Objective 4: Identify climate risks and opportunities
Climate change poses a number of wide-reaching risks and opportunities for investors, making it difficult to tailor a portfolio accordingly.
With MSCI’s climate indexes, asset owners gain the tools they need to build a more resilient portfolio. The MSCI Climate Change indexes, for example, reduce exposure to stranded assets, increase exposure to solution providers, and target a minimum 30% reduction in emissions.
An Index for Every Objective
Regardless of your motivation for pursuing sustainable investment, the need for an appropriate benchmark is something that everyone shares.
With an extensive suite of ESG indexes designed specifically for sustainability and climate change, MSCI aims to support asset owners as they build a more unique and personalized portfolio.
Tracked: The U.S. Utilities ESG Report Card
This graphic acts as an ESG report card that tracks the ESG metrics reported by different utilities in the U.S.—what gets left out?
Tracked: The U.S. Utilities ESG Report Card
As emissions reductions and sustainable practices become more important for electrical utilities, environmental, social, and governance (ESG) reporting is coming under increased scrutiny.
Once seen as optional by most companies, ESG reports and sustainability plans have become commonplace in the power industry. In addition to reporting what’s needed by regulatory state laws, many utilities utilize reporting frameworks like the Edison Electric Institute’s (EEI) ESG Initiative or the Global Reporting Initiative (GRI) Standards.
But inconsistent regulations, mixed definitions, and perceived importance levels have led some utilities to report significantly more environmental metrics than others.
How do U.S. utilities’ ESG reports stack up? This infographic from the National Public Utilities Council tracks the ESG metrics reported by 50 different U.S. based investor-owned utilities (IOUs).
What’s Consistent Across ESG Reports
To complete the assessment of U.S. utilities, ESG reports, sustainability plans, and company websites were examined. A metric was considered tracked if it had concrete numbers provided, so vague wording or non-detailed projections weren’t included.
Of the 50 IOU parent companies analyzed, 46 have headquarters in the U.S. while four are foreign-owned, but all are regulated by the states in which they operate.
For a few of the most agreed-upon and regulated measures, U.S. utilities tracked them almost across the board. These included direct scope 1 emissions from generated electricity, the utility’s current fuel mix, and water and waste treatment.
Another commonly reported metric was scope 2 emissions, which include electricity emissions purchased by the utility companies for company consumption. However, a majority of the reporting utilities labeled all purchased electricity emissions as scope 2, even though purchased electricity for downstream consumers are traditionally considered scope 3 or value-chain emissions:
- Scope 1: Direct (owned) emissions.
- Scope 2: Indirect electricity emissions from internal electricity consumption. Includes purchased power for internal company usage (heat, electrical).
- Scope 3: Indirect value-chain emissions, including purchased goods/services (including electricity for non-internal use), business travel, and waste.
ESG Inconsistencies, Confusion, and Unimportance
Even putting aside mixed definitions and labeling, there were many inconsistencies and question marks arising from utility ESG reports.
For example, some utilities reported scope 3 emissions as business travel only, without including other value chain emissions. Others included future energy mixes that weren’t separated by fuel and instead grouped into “renewable” and “non-renewable.”
The biggest discrepancies, however, were between what each utility is required to report, as well as what they choose to. That means that metrics like internal energy consumption didn’t need to be reported by the vast majority.
Likewise, some companies didn’t need to report waste generation or emissions because of “minimal hazardous waste generation” that fell under a certain threshold. Other metrics like internal vehicle electrification were only checked if the company decided to make a detailed commitment and unveil its plans.
As pressure for the electricity sector to decarbonize continues to increase at the federal level, however, many of these inconsistencies are roadblocks to clear and direct measurements and reduction strategies.
National Public Utilities Council is the go-to resource for all things decarbonization in the utilities industry. Learn more.
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