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Claire Woodside - PWYP Montreal Conference 2009


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What is and what is not available on the TSX, and how to interpret the framework for publically available information

Claire Woodside, Publish What You Pay Canada

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Claire Woodside - PWYP Montreal Conference 2009

  1. 1. PWYP Canada Claire Woodside PWYP Canada Consultant [email_address]
  2. 2. Lifting the Veil Exploring the Transparency of Canadian Extractive Companies
  3. 3. Motivation <ul><li>Establish a working agenda for PWYP Canada </li></ul><ul><li>Improve general understanding of transparency in Canada </li></ul><ul><li>Help groups, such as PWYP Canada, to utilize publicly available information to hold companies accountable for their actions and decisions. </li></ul>
  4. 4. Research Question <ul><li>What regulations/laws govern disclosure in the extractive industries in Canada? </li></ul>
  5. 5. Aim <ul><li>Map the regulations/laws governing disclosure of information amongst Canadian extractive companies </li></ul><ul><li>Reserve, Pricing and Cost Data </li></ul><ul><li>Payments to host governments </li></ul><ul><li>Contracts/Leasing/Rights (not discussed in this presentation) </li></ul><ul><li>ESG Factors </li></ul>
  6. 6. Limitations <ul><li>Focuses solely on public companies </li></ul><ul><li>Looks at disclosure guidelines and not industry practices </li></ul><ul><li>Focus solely on Canada </li></ul>
  7. 7. Findings
  8. 8. Conclusions <ul><li>Canada has relatively strong disclosure regulations, therefore, Canadian companies should be quite transparent. </li></ul><ul><li>Despite strong regulations, actions can be taken to improve Canada’s disclosure regime </li></ul><ul><ul><li>Weaknesses: </li></ul></ul><ul><ul><ul><li>based on the concept of materiality </li></ul></ul></ul><ul><ul><ul><li>variation between sectors </li></ul></ul></ul><ul><ul><ul><li>Disclosure aimed at shareholders and not stakeholders </li></ul></ul></ul><ul><li>Publicly available information is underused by NGOs and other stakeholders </li></ul>
  9. 9. Implications for PWYP Canada <ul><li>1. Increase PWYP Canada’s engagement with the TSX, the provincial stock exchanges, and Canadian accounting organizations. </li></ul><ul><li>2. Support domestic and global initiatives which would improve the clarity of Canadian reporting and which would increase the level of disclosure in Canada </li></ul><ul><li>3. Play a role in helping to disseminate information disclosed by companies and made publicly available through SEDAR </li></ul><ul><li>4. Address gaps in the legislation and advocate for mandatory and not ‘material’ disclosure </li></ul>
  10. 10. Future Research <ul><li>Research transparency in practice in the Canadian context. </li></ul><ul><ul><li>Compare what companies are required to disclose with what they actually disclose. </li></ul></ul><ul><li>Compare disclosure regulations in different countries. </li></ul><ul><li>Conduct similar research in other countries with influential stock exchanges </li></ul>
  11. 11. What is available and where to find it?
  12. 12. Country-by-Country Disclosure <ul><li>Generally, information is disclosed on a country-by-country or mine-by-mine basis </li></ul><ul><li>Oil and gas companies can receive an exemption to disclose by ‘foreign geographic area’ for operations outside of North America (rarely used). </li></ul><ul><li>Companies listed on two stock exchanges can apply for an exemption to file in accordance with another exchanges regulations (this can affect country-by-country based disclosure) </li></ul>
  13. 13. Materiality <ul><li>Only information considered material is disclosed. </li></ul><ul><ul><li>A Material fact or change consists on something that has or could be expected to affect the share price </li></ul></ul><ul><li>Materiality is a subjective concept, that is interpreted by companies </li></ul><ul><ul><li>Professional advice and guidance is relied upon to determine what is material </li></ul></ul><ul><li>Smaller companies must disclose more than larger companies </li></ul>
  14. 14. Reserve Data <ul><li>Regulations NI 51-101, 43-101, 51-102. </li></ul><ul><li>Documents to look for Annual Reports, Annual Information Forms, Technical Reports </li></ul><ul><li>There is a high level of disclosure of pricing, production, and cost data. </li></ul><ul><li>Importance: </li></ul><ul><ul><li>Provides information about future revenue flows of a particular project </li></ul></ul><ul><ul><li>Provides information about how long an extractive project might last </li></ul></ul>
  15. 15. Reserve Data Cont’d <ul><ul><li>When production and pricing data alongside average costs are examined a rough estimate of the revenues of a project can be generated </li></ul></ul><ul><ul><li>Production X Price - Costs = rough estimate of revenues from a particular period </li></ul></ul>
  16. 16. Example: Banro Corp. DRC, Twangiza Property (Information taken from the 2009 Feasibility Study/Technical Report available at <ul><li>Total Proven and Probable Reserves - 4.54 million ounces of gold. </li></ul><ul><li>Capital costs - US$377.43million. </li></ul><ul><ul><li>Average annual production of 312,979 ounces of gold over the first three years of the project at average operating cash costs of US$261 per ounce. </li></ul></ul><ul><ul><li>Gold price of US 850.00/ounce </li></ul></ul><ul><ul><li>Price of gold/ounce - Operating costs/per ounce X Production = revenues (after costs) </li></ul></ul><ul><ul><li>850 - 261 X 312, 979 = 184,344,631 </li></ul></ul><ul><ul><li>Life of the mine 20.86 years. </li></ul></ul>
  17. 17. Payments to Host Governments <ul><li>Regulations NI 43-101, NI 51-101, NI 51-102 </li></ul><ul><li>Look for Annual Reports, Annual Information Forms, Material Change Reports, Technical Reports, and MD & A reports. </li></ul><ul><li>Significant information is available concerning royalties and tax payments made by extractive sector companies to host governments. </li></ul><ul><li>Companies with mineral properties are required to provide more detailed information concerning royalties, taxes, and any other government levies applicable to a project, than is required of oil and gas companies. </li></ul>
  18. 18. Payments <ul><ul><li>When royalties paid per quarter/per barrel/per day are disclosed alongside average daily production rates (different in each quarter) the amount of royalties paid by a company to a host country can be approximated. </li></ul></ul><ul><ul><li>Canadian Natural Resource Limited in the Ivory Coast </li></ul></ul><ul><ul><li>Average daily production: 28.5 </li></ul></ul><ul><ul><li>Royalties per barrel/per day in that quarter: $3.70 </li></ul></ul><ul><ul><li>Number of days in a quarter: 91 </li></ul></ul><ul><ul><li>Royalties Paid to the Ivory Coast: 9 617 040 </li></ul></ul><ul><ul><ul><ul><ul><li>First quarter 2008 </li></ul></ul></ul></ul></ul>
  19. 19. Example: Banro Corp. <ul><li>The Twangiza Property is not subject to any royalties, back-in rights, payments or other agreements or encumbrances. </li></ul><ul><li>10 year tax free holiday, after 10 years taxes of 30% </li></ul><ul><li>5% administrative tax on the importation of machinery and consumables </li></ul><ul><ul><li>Est. 4 million over project life span </li></ul></ul><ul><li>In the 11th year Banro estimates that they will pay 13 694 000 in tax. This will steadily decline over the next 10 years reaching just over 10 million in the 20th year of the mine. </li></ul>
  20. 20. Banro cont’d <ul><li>Employment - estimate a need for 200 local, expatriate and senior level staff </li></ul><ul><ul><li>Local labour costs of 822, 464/annum </li></ul></ul><ul><ul><li>Expat costs of over 1 million for the first four years and 411,000/annum for the next five years </li></ul></ul>
  21. 21. Social and Environmental Factors <ul><li>Regulations NI 51-101, NI 43-101, NI 51-102, TSX Policy on Timely Disclosure. </li></ul><ul><li>Information that might be available </li></ul><ul><ul><li>Risks and uncertainties believed to be material </li></ul></ul><ul><ul><ul><li>Including political and social risks </li></ul></ul></ul><ul><ul><li>Environmental and political issues that can affect property development </li></ul></ul><ul><ul><li>Social and environmental issues policies fundamental to a companies operations </li></ul></ul><ul><ul><ul><li>Ex. Human rights policies </li></ul></ul></ul><ul><ul><li>Environmental data </li></ul></ul><ul><ul><ul><li>Waste disposal, liabilities </li></ul></ul></ul>
  22. 22. Social and Environmental Factors Cont’d <ul><li>Mining companies are required to disclosure far more social and environmental information than oil and gas companies. </li></ul><ul><li>Mining companies can rely upon external experts with knowledge specific to social, political and environmental issues, </li></ul><ul><li>Must include a discussion of the political, legal, and environmental issues that can effect resource estimates. </li></ul>
  23. 23. Banro - Social and Environmental Policies <ul><li>6,000 per annum for Community relations </li></ul><ul><li>20,000 per annum for years 1 to 4 for training, 13, 700 for years 5 and up </li></ul><ul><li>5,500 per annum per month for environmental monitoring, nursery upkeep </li></ul><ul><li>Environmental assessment - aim to follow Equator principles standards </li></ul><ul><li>Banro commits to hold public disclosure meetings to discuss the draft of the environmental and social impact assessment before it is released. </li></ul>
  24. 24. Banro Cont’d <ul><li>Anticipates social conflict over resettlement. </li></ul><ul><ul><li>Cost of the resettlement actions plan is estimated to be 13.2 million. </li></ul></ul><ul><ul><li>$20/ fruit tree </li></ul></ul><ul><ul><li>3.5 million for replacement of primary and secondary housing </li></ul></ul><ul><li>Anticipates political conflict between regional and local governments. Local governments are involved with artisinal mining, which will be displaced by this large scale mine </li></ul>
  25. 25. Banro: Potential Social and Environmental Impacts <ul><ul><li>Deterioration in surface water quality </li></ul></ul><ul><ul><li>Reduction in stream flow </li></ul></ul><ul><ul><li>Disturbance of aquatic fauna, terrestrial fauna and flora,and soil and geology </li></ul></ul><ul><ul><li>Depression of groundwater table due to dewatering activities </li></ul></ul><ul><ul><li>Employment creation (positive impact) </li></ul></ul><ul><ul><li>Possible reduction in river blindness (positive impact) </li></ul></ul><ul><ul><li>Displacement of social infrastructure and local livelihoods </li></ul></ul><ul><ul><li>Deterioration in community water supply. </li></ul></ul>
  26. 26. Thank You
  27. 27. Resources <ul><li> </li></ul><ul><ul><li>Choose a language </li></ul></ul><ul><ul><li>Decide whether to search the database or look for a particular company’s profile </li></ul></ul><ul><ul><li>Look for the document that interests you </li></ul></ul><ul><li>Company websites often have links. Look in the investor section for a link entitled “regulatory filings” or “sedar filing’ or “stock exchange filing” </li></ul>