Corporate 5 Minute Fix 11: climate reporting, JORC Code, AGM season, investor presentations, pre-emptive media releases

New climate reporting requirements

Starting 1 January 2025, certain Australian entities will be required to submit a new set of mandatory reports under the climate-related financial reporting regime. If you are unsure whether your business falls under these requirements, the first step is to determine if you are required to lodge accounts under Chapter 2M of the Corporations Act. From there, you must check your financial standing against the specific thresholds.

Key criteria for mandatory reporting as from 1 January 2025

Entities and their controlled entities must meet at least two of the following criteria:

• Consolidated revenue of $500 million or more.
• End of financial year (EOFY) consolidated gross assets of $1 billion or more.
• EOFY number of employees of 500 or more.

If your entity meets these thresholds, you will need to prepare a sustainability report along with your existing financial reports, including the directors' report, financial report, and auditors' report.

What's in the Sustainability Report? The sustainability report will include the entity’s climate-related financial statements for the year, which must adhere to sustainability standards being developed by the Australian Accounting Standards Board.

Key points to watch for in the revised JORC Code

The draft JORC Code was released on 1st August 2024, which is a significant update in mineral resource reporting standards. Stakeholders have the opportunity to provide their input through an open survey, available until 31st October 2024. To participate and review the proposed changes, visit the JORC website at https://www.jorc.org/. The key proposed areas of change are:

Structure and format updates

The JORC Code, Table 1, and Guidance Notes have been reformatted to align with the CRIRSCO template. Table 1 will now feature a checklist and a column specifying where the information appears in the Competent Person’s documentation. Importantly, reporting will now include a phase for each exploration target, mineral resource, and ore reserve, enhancing readability and accessibility.

The JORC Code improvements aim to enhance readability, clarify the purpose and content of Table 1, and ensure a better understanding of its criteria. The revisions will also provide extended guidance where needed, allowing for more frequent updates to the Guidance component without requiring full code update. Subject-specific technical guidance will be provided directly from the Guidance Notes, with practical worked examples added over time to support clearer interpretation. These changes will improve the structure, format, and usability of the Code, ensuring it remains up-to-date and accessible.

What to watch: Keep an eye on the new formatting and checklist, as it may affect how documentation is structured and submitted.

Competence and responsibility

Competent Persons (CPs) will now be required to publicly upload a CV to the JORC website and complete an online induction. Additionally, CPs will need to provide a summary statement of their experience relevant to the report in question. There is also a provision allowing CPs to enlist a Specialist for assistance to complement any gaps in the CP’s skills.

There are additional clauses clarifying the responsibilities of both Competent Persons and companies, particularly regarding reporting obligations.

What to watch: Pay close attention to the new public disclosure requirements and the potential involvement of Specialists, as these may impact the reporting process.

Reasonable prospects clarified

The new draft will remove the term "eventual" from the "reasonable prospects of economic extraction" clause. This change aims to prevent unreasonably delayed project timelines.

Modifying Factors must be assessed at every stage of a project, with greater detail required as a deposit advances from exploration to ore reserves. CPs will now be required to complete a "reasonable prospect assessment"(RPEE) of modifying factors to determine whether a deposit can be economically extracted thus providing better guidance for project viability.

ESG factors will now be explicitly included under Table 1, Section 5 Modifying Factors as part of an RPEE.

Modifying Factors are elements that influence the viability of a project. Under the JORC Code, these factors encompass a broad range of considerations—mining, metallurgical, economic, marketing, legal, environmental, social, and governmental. Essentially, anything that could impact the success of a project falls under the umbrella of Modifying Factors.

While mining, processing, financial and metallurgical factors are the most familiar, social and environmental issues also play a key role; nonetheless, once considered secondary concerns, they now stand as primary considerations, equally important as a project's technical and financial aspects. This shift reflects a growing recognition that long-term project success depends not only on extracting minerals but on responsibly managing the entire lifecycle of operations, from beginning to end.

There is also an added requirement to justify all assumptions made during the RPEE process on an "if so, why so" basis, ensuring transparency and accountability in how assessments are conducted.

What to watch: Be prepared for ESG factors to carry more weight in reports, which could affect how projects are evaluated and approved.

Risks: Opportunities and threats

A new section requires CPs to disclose both risks and opportunities associated with exploration targets, mineral resources, and ore reserves. This is aimed at providing more transparency to investors.

What to watch: Ensure that risk disclosures are thorough and balanced, highlighting both opportunities and potential threats.

Reconciliation requirements

The draft introduces a clearer definition of "reconciliation," which refers to comparing estimates (eg., mineral resources, ore reserves) with prior estimates or production results. The aim is to increase transparency and align with ASX Listing Rules.

What to watch: Ensure reconciliation processes are well-documented and meet the new reporting standards.

Considerations for listed companies ahead of AGM and financial report deadlines

For companies with a June year-end, several important deadlines are approaching:

• Lodgement of Audited Accounts: Statutory audited accounts must be lodged by Monday, 30 September 2024.
• Annual Reports: Listed companies must lodge their annual reports by Thursday, 31 October 2024.

Missing the above deadlines will lead to an automatic suspension of the entity’s securities under ASX Listing Rule 17.5.

Preparing for the AGM

AGMs must be held by 30 November 2024. Remember:

• Plan ahead and allow sufficient time for any ASX or ASIC reviews of your draft notice of meeting.
• If needed, apply for relief with ASIC before the accounts or AGM due date to avoid being in breach of the Corporations Act.
• Avoid scheduling shareholders’ meetings during the ASIC imposed blackout period (16 December 2024 to 10 January 2025), to ensure shareholder participation.

ASX Guidelines for investor presentations

Investor presentations for listed mining entities have been a focus of the ASX which has issued new guidelines to ensure transparency and compliance.

Here are the key aspects to keep in mind:

Market-sensitive information: If a presentation contains market-sensitive information, it must be clearly disclosed in the header. Ideally, such information should be provided as a stand-alone announcement, not embedded within broader presentations.

Clear, factual communication: Presentations must be free from promotional, political, or vague language. Terms like “single digit” or “double digit” are discouraged as they fail to provide clear value for investors.

Investor presentation for listing mining entities

Proximate cautionary statements: Cautionary statements should be clearly visible and presented alongside the relevant information. They should be given equal prominence in size, colour, and style to ensure clarity.

Competent person statements: When reporting exploration results, mineral resources, or ore reserves, the presentation must include a competent person statement. If no new information is reported, a streamlined statement can be used.

Categorisation of mineral resources and ore reserves: When reporting mineral resources (see clause 26 of JORC), entities must clearly categorise them as “Inferred,” “Indicated,” or “Measured” without combining categories unless individual category details are provided. Additionally, resources cannot be reported in terms of contained metal unless tonnages and grades are also disclosed.

For ore reserves, similar rules apply (see clauses 34 and 36 of JORC). Reports must clarify whether mineral resources are inclusive of or additional to ore reserves, and estimates for both must not be combined into a single figure.

Peer comparisons and visual estimates: Mining entities must avoid misleading peer comparisons. Comparisons should disclose resource categories and stage differences between projects. Visual estimates of mineralisation without proper data are discouraged.

Mining entities must avoid comparing resources or reserves without disclosing specific categories (eg., “inferred” vs. “measured”), or comparing exploration targets to actual reserves. Additionally, comparisons between projects at different development stages (like a scoping study vs. a feasibility study) are flagged as misleading.

Entities must ensure all peer comparisons include clear material assumptions, sources, and proper disclosure of categories and development stages. Misleading comparisons may result in required retractions, so it's best to avoid publishing peer to peer comparisons altogether.

Social media and public reports: Content shared via social media, advertorials, or sponsored articles must comply with ASX guidelines. Market-sensitive information must always be disclosed on the market announcements platform before appearing on social media.

Pacific Smiles fresh takeover bid

The takeover battle for Pacific Smiles has taken a new turn with a fresh bid from Genesis Capital, just weeks after the sudden departure of the CEO and key executives. Genesis, through its subsidiary Beam Dental Bidco, has launched an off-market offer of $1.90 per share, presenting shareholders with the option of cash, scrip, or a combination, amounting to a total value of $298 million if all cash is accepted. The offer is backed by a $175 million facility and $100 million in equity commitments from investors. Notably, this bid is lower than the recent $2.05 per share offer from Crescent Capital, which shareholders rejected (noting that Genesis has a 19.9% shareholding in Pacific). However, Genesis has added a 90% minimum acceptance condition, upping its stakes for success.

In this context, the potential role of stub equity becomes relevant. Generally, stub equity allows key shareholders—or those with high confidence in the business—to retain a stake post-takeover. This tactic can also ease the financial burden on bidders by reducing the upfront cash needed to close the deal.

Stub equity tends to be more common in schemes of arrangement than in traditional takeover offers due to the legal flexibility and certainty schemes provide. Once a scheme is approved by the majority of shareholders and the court, all shareholders are bound by the deal, simplifying the issuance of stub equity and mitigating the risk of holdout shareholders.

The cash offer price under the Genesis offer provides an equivalent cash amount to one of the previous offers under the NDC Scheme which at the time was agreed to by Pacific Smiles and unanimously recommended by the Pacific Smiles board of directors.

Interestingly, in 2020, ASIC raised concerns about the lack of transparency in some deals involving stub equity. ASIC’s recommendation amongst other things has been that directors clearly make a recommendation on the stub equity alternative.

As Genesis pursues Pacific Smiles, it will be intriguing to see how the Pacific board navigates the complex considerations of scrip versus cash for shareholders in their recommendation to shareholders.

ASIC’s crackdown on pre-emptive media releases

The Australian Securities and Investments Commission (ASIC) is intensifying its efforts to ensure the integrity and accessibility of Australian financial markets by cracking down on pre-emptive media reporting and insider trading during significant financial activities like fundraising, mergers, and takeovers. Key points include:

1. Impact of media leaks: Media leaks can significantly affect share prices and investor decisions, as evidenced by the monitored price movements of an ASX-listed company. Investors who sold their shares before the publication of a news article missed out on subsequent price increases, highlighting the impact of such leaks.
2. Consequences of market leaks: Market leaks can distort prices, reduce investor confidence, decrease market participation, and increase trading and capital costs for companies.
3. ASIC's actions:
• Establishment of a dedicated criminal investigation team to handle insider trading cases.
• Consideration of the UK’s “put up or shut up” rule, which would enforce stricter timelines for formal proposals following media leaks.
4. Recommendations for companies: ASIC advises companies to have robust policies and procedures to manage and monitor confidential information to prevent leaks.