Sec reporting restrictions in the mining industry : an examination of the modelling and value-relevance of gold resource estimates

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I investigate the information content of gold mining firms’ estimates of contingent and inferred resources. Contingent resources are distinguished from reserves because contingent resources are not economically viable under current conditions. Inferred resources are distinguished from the others in that they are too preliminary for a reliable assessment of their economic viability. Disclosing these two categories is required in Australia and Canada, but prohibited in the USA by SEC Industry Guide 7. I examine the informativeness of resource estimates in two ways: the association with ex post changes in reserve estimates, and the association with market prices. Following the resource reporting framework, I provide evidence that contingent resources are informative when considered together with gold price movements, and inferred resources are informative when considered together with exploration expenditure and the commercial viability of developed resources. I also provide evidence that the decomposition of estimates of mineralised material into contingent and inferred resources is only weakly associated with corporate disclosure allowed by the SEC. My results inform the regulatory debate over the harmonisation of resource reporting codes by highlighting the utility of the prohibited categories. My result also contributes to the literature that has hitherto focused on reserve estimates. It would appear that, while the SEC prohibition is motivated by concerns of investors being ‘misled,’ by distorting the disclosure of useful information, the SEC is increasing investor confusion.
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