This is Part 2 of the blog post discussing junior mining scams and the sanctioning of those responsible. Part 1 can be found at this link “Junior Mining Shams and Scams – Part 1” and can be read first to get some background.
Part 2 provides examples involving professional Qualified Persons (QPs). We may have the feeling that QP’s are never held accountable for their work, but that is not always the case. There are numerous instances of QP’s being hauled off in front of their professional organizations for unprofessionalism. This blog will highlight some of those cases.
The lesson is that QP’s signing off on technical information for clients should be proficient in the nature of their work and need to know the reporting rules very well. Some of these incidents involve error and poor judgment, not outright fraud.
These examples involve in-house QP’s that work for a company while others involve independent QP’s that have been contracted by the company.
In most of these cases, any sanctions, if applied, were mainly doled out by the professional engineering or geological associations. The legal courts are often not involved.
Examples (Part 2)
Inaccurate QP Resource Estimate: This example relates to the Barkerville Gold Mines resource estimate complete in 2012. The mineral resource estimate had numerous errors and issues related to assays, capping, cutoff grades, etc. The allegation was the QP had demonstrated incompetence, unprofessional conduct, and negligence. The sanctions on the QP included a $15,000 fine, $20,000 legal costs, re-training, and license suspension.
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False QP Statements: Here is an example from 2011. The QP / company Director was charged with multiple allegations, including stating the mine was in commercial production (when it wasn’t), leaving the impression there were mineral resource (which there weren’t any), and generally approving information that was not accurate. Ultimately the allegation was demonstrating incompetence, unprofessional conduct, and negligence. The resulting sanctions included 2 year license suspension, re-training, payment of $80,000 to the professional association.
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False QP Statements: This is case were a resource QP failed to comply with the NI43-101, Form 43-101F1, CIM Standards, and CIM Guidelines. The Panel concluded that the Member was guilty of non-compliance with the standards and hence guilty of professional misconduct. Its not clear what specifically was not complied with, but this illustrates that QP’s will be held accountable for their work. The two reports in question were either amended or withdrawn to address the concerns of the regulator in British Columbia, although there had been no intentional non-compliance and no economic impact. The penalty was 2 months suspension (deferred), and the QP had to work under a mentor for 9 months and pay a maximum $10,000 for the mentor’s fees.
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False QP Statements: Here is another example of sanctioning a QP in 2018. The person was charged with unprofessional conduct and incompetence. He stated that he was responsible for the preparation of the technical report, had no prior involvement in the project, and was independent of the issuer. This was false. Sanctions included three month license suspension, taking some re-training, require peer review of the report. In 2022, further sanctions consisted of a $75,000 penalty, further sanctioned along with an executive in the company for insider trading issues (see Link 3 below).
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False QP Statements: This is an example for 2017 when an independent QP took responsibility for the resource estimation work in section 14 of the report, yet they did not have the experience to take responsibility. They also misrepresented that the Report complied with 2014 CIM standards, yet it didn’t, resulting in an overestimation of the mineral resource in both confidence and magnitude. Other claims include relying on non-QP experts but not stating that, failing to adequately discuss the nature of sample quality control procedures as required. The sanctions included license suspension of 3 months, must work with a technical supervisor, re-training, and $7,500 in legal fees.
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False QP Statements: This is another example from 2019, when the QP / Director permitted the disclosure of information to the public in multiple news releases where they should have known that that information was misleading. An example is the disclosure of inferred reserves when there were no reserves and “inferred” is not even a classification of reserves. The sanctions were a license suspension of 4 months, $5,000 legal costs, re-training, and requirement not to act as a QP again.
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QP Resource Estimate Error: This occurred in 2012 when a QP and consulting firm delivered a incorrect resource estimate and reportedly withheld negative opinions on the project from the client. The company spent $3 million on a feasibility study during which the resource estimate error was discovered. The “corrected” resource made the project uneconomic, meaning the feasibility study should not have been done. The mining company sought compensation from the consulting firm, ultimately receiving $1.25 million. The Link 3 references is interesting in that it states “As this case demonstrates, it is critically important for professional service firms to be forthcoming about any reservations they may have regarding the work they are being employed to undertake.” Whatever that really means?
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Disclaimers
Many QP’s realize the legal responsibility and liability they have. Hence in 43-101 reports QP’s sometimes attempt to mitigate this by putting in broad disclaimers to limited that liability. If the securities commission notices such disclaimers, they will require that they be removed.
For example, sometimes the QP of a chapter may have other geologists or engineers (i.e. experts) assisting them. They may then put in disclaimers saying “They disclaim responsibility for such expert content” for the work done by the others. A QP essentially has to sign off on the work of others in the sections they are responsible for. A recent example is a Generation Mining technical report prepared by G-Mining, that had to be amended from (March 31_2023 to May 31_2024) removing several QP liability limiting disclaimers.
43-101 regulations state that “An issuer must not file a technical report that contains a disclaimer by any qualified person responsible for preparing or supervising the preparation of all or part of the report that
(a) disclaims responsibility for, or limits reliance by another party on, any information in the part of the report the qualified person prepared or supervised the preparation of;
or (b) limits the use or publication of the report in a manner that interferes with the issuer’s obligation to reproduce the report by filing it on SEDAR.“
” These disclaimers are also potentially misleading disclosure because, in certain circumstances, securities legislation provides investors with a statutory right of action against a qualified person for a misrepresentation in disclosure that is based upon the qualified person’s technical report.
That right of action exists despite any disclaimer to the contrary that appears in the technical report. The securities regulatory authorities will generally require the issuer to have its qualified person remove any blanket disclaimers in a technical report that the issuer uses to support its public offering document.“
Conclusion
This ends Part 2 of this blog post. It hopefully highlights the importance of QP’s being knowledgably on the disclosure rules and the technical aspects of what they are hired to do.