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
Green Investing: How to Align Your Portfolio With the Paris Agreement
MSCI’s Climate Paris Aligned Indexes are designed to reduce risk exposure and capture green investing opportunities using 4 main objectives.
Green Investing: The Paris Agreement and Your Portfolio
In Part 1 of the Paris Agreement series, we showed that the world is on track for 3.5 degrees Celsius global warming by 2100—far from the 1.5 degree goal. We also explained what could happen if the signing nations fall short, including annual economic losses of up to $400 billion in the United States.
How can you act on this information to implement a green investing strategy? This graphic from MSCI is part 2 of the series, and it explains how investors can align their investment portfolios with the Paris Agreement.
Alignment Through Indexing
When investors are building a portfolio, they typically choose to align their portfolio with benchmark indexes. For example, investors looking to build a global equity portfolio could align with the MSCI All Country World Index.
The same principle applies for climate-minded investors, who can benchmark against MSCI’s Climate Paris Aligned Indexes. These indexes are designed to reduce risk exposure and capture green investing opportunities using 4 main objectives.
1.5 Degree Alignment
The key element is determining if a company is aligned with 1.5 degree warming compared to pre-industrial levels. To accomplish this, data is collected on company climate targets, emissions data, and estimates of current and future green revenues. Then, the indexes include companies with a 10% year-on-year decarbonization rate to drive temperature alignment.
Environmentally-friendly companies may have promising potential. For instance, the global clean technology market is expected to grow from $285 billion in 2020 to $453 billion in 2027. The MSCI Climate Paris Aligned Indexes shift the weight of their constituents from “brown” companies that cause environmental damage to “green” companies providing sustainable solutions.
Some companies are poorly positioned for the transition to a green economy, such as oil & gas businesses in the energy sector. In fact, a third of the current value of big oil & gas companies could evaporate if 1.5 degree alignment is aggressively pursued. To help manage this risk, the indexes aim to underweight high carbon emitters and lower their fossil fuel exposure.
Climate change is causing more frequent and severe weather events such as flooding, droughts and storms. For example, direct damage from climate disasters has cost $1.3 trillion over the last decade. MSCI’s Climate Paris Aligned Indexes aim to reduce physical risks by at least 50% compared to traditional indexes by reducing exposure in high-risk regions.
Together, these four considerations support a net zero strategy, where all emissions produced are in balance with those taken out of the atmosphere.
Green Investing in Practice
Climate change is one of the top themes that investors would like to include in their portfolios. As investors work to build portfolios and measure performance, these sustainable indexes can serve as a critical reference point.
Available for both equity and fixed income portfolios, the MSCI Climate Paris Aligned Indexes are a transparent way to implement a green investing strategy.
Decarbonization 101: What Carbon Emissions Are Part Of Your Footprint?
What types of carbon emissions do companies need to be aware of to effectively decarbonize? Here are the 3 scopes of carbon emissions.
What Carbon Emissions Are Part Of Your Footprint?
With many countries and companies formalizing commitments to meeting the Paris Agreement carbon emissions reduction goals, the pressure to decarbonize is on.
A common commitment from organizations is a “net-zero” pledge to both reduce and balance carbon emissions with carbon offsets. Germany, France and the UK have already signed net-zero emissions laws targeting 2050, and the U.S. and Canada recently committed to synchronize efforts towards the same net-zero goal by 2050.
As organizations face mounting pressure from governments and consumers to decarbonize, they need to define the carbon emissions that make up their carbon footprints in order to measure and minimize them.
This infographic from the National Public Utility Council highlights the three scopes of carbon emissions that make up a company’s carbon footprint.
The 3 Scopes of Carbon Emissions To Know
The most commonly used breakdown of a company’s carbon emissions are the three scopes defined by the Greenhouse Gas Protocol, a partnership between the World Resources Institute and Business Council for Sustainable Development.
The GHG Protocol separates carbon emissions into three buckets: emissions caused directly by the company, emissions caused by the company’s consumption of electricity, and emissions caused by activities in a company’s value chain.
Scope 1: Direct emissions
These emissions are direct GHG emissions that occur from sources owned or controlled by the company, and are generally the easiest to track and change. Scope 1 emissions include:
- Company vehicles
- Chemical production (not including biomass combustion)
Scope 2: Indirect electricity emissions
These emissions are indirect GHG emissions from the generation of purchased electricity consumed by the company, which requires tracking both your company’s energy consumption and the relevant electrical output type and emissions from the supplying utility. Scope 2 emissions include:
- Electricity use (e.g. lights, computers, machinery, heating, steam, cooling)
- Emissions occur at the facility where electricity is generated (fossil fuel combustion, etc.)
Scope 3: Value chain emissions
These emissions include all other indirect GHG emissions occurring as a consequence of a company’s activities both upstream and downstream. They aren’t controlled or owned by the company, and many reporting bodies consider them optional to track, but they are often the largest source of a company’s carbon footprint and can be impacted in many different ways. Scope 3 emissions include:
- Purchased goods and services
- Transportation and distribution
- Employee commute
- Business travel
- Use and waste of products
- Company waste disposal
The Carbon Emissions Not Measured
Most uses of the GHG Protocol by companies includes many of the most common and impactful greenhouse gases that were covered by the UN’s 1997 Kyoto Protocol. These include carbon dioxide, methane, and nitrous oxide, as well as other gases and carbon-based compounds.
But the standard doesn’t include other emissions that either act as minor greenhouse gases or are harmful to other aspects of life, such as general pollutants or ozone depletion.
These are emissions that companies aren’t required to track in the pressure to decarbonize, but are still impactful and helpful to reduce:
- Chlorofluorocarbons (CFCs) and Hydrochlorofluorocarbons (HCFCS): These are greenhouse gases used mainly in refrigeration systems and in fire suppression systems (alongside halons) that are regulated by the Montreal Protocol due to their contribution to ozone depletion.
- Nitrogen oxides (NOx): These gases include nitric oxide (NO) and nitrogen dioxide (NO2) and are caused by the combustion of fuels and act as a source of air pollution, contributing to the formation of smog and acid rain.
- Halocarbons: These carbon-halogen compounds have been used historically as solvents, pesticides, refrigerants, adhesives, and plastics, and have been deemed a direct cause of global warming for their role in the depletion of the stratospheric ozone.
There are many different types of carbon emissions for companies (and governments) to consider, measure, and reduce on the path to decarbonization. But that means there are also many places to start.
National Public Utilities Council is the go-to resource for all things decarbonization in the utilities industry. Learn more.
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