Following the collapse of Bre-X Minerals Ltd. in 1997 in one of the biggest gold mining scandals in history, the Canadian government set out to make it more difficult for mining companies to defraud investors. They had good reason, too.

A screenshot of Silvercorp’s 43-101 Report. Click here to download Silvercorp’s latest 43-101 Report.

In the span of two short years in the late 1990s, Bre-X shares shot up from a penny stock to CAD$286 each (when adjusted for stock splits). The company was allegedly sitting on 8 percent of the world’s gold reserves at its newly-acquired mine at Busang, Indonesia. In fact, the company had been salting samples that it sent to labs with gold that it scraped off jewelry, and the Busang mine was next to worthless. The stock collapsed and more than CAD$6 billion of market cap in the company was wiped out.

Public outrage over the fraud led to new requirements; namely, the 43-101 Report. The technical report is required whenever a mining company has issued shares on the TSX Venture Exchange (TSX-V) or the Toronto Stock Exchange (TSX), and has disclosed new preliminary economic assessments on a gold deposit (i.e. when they’ve made a new discovery or are doing a feasibility or pre-feasibility study).

A “qualified person” must take legal responsibility for the content and accuracy of the report by signing off on it before it’s submitted to the Canadian Securities Administrators. The “qualified person” must also have demonstrable experience in the particular commodity they’re signing off on.

“It’s a thing that’s really to keep the junior companies honest,” precious metals exploration geologist Dr. Keith Barron said recently in an interview on Financial Sense. Barron pours over 43-101 reports on a daily basis and offers several tips for investors who are trying to access the worthiness of a gold or silver mining company. Ask yourself these questions, he says:

• Does the company use an accredited assay lab?
• Does the company put detailed drill results into the report?
• Are the mining maps accurate?

Barron also points out that some companies that don’t trade on Canadian stock exchanges (and thus aren’t required to file 43-101 reports) will issue illegitimate 43-101 reports. They may call them 43-101 reports, but they were never submitted to the Canadian authorities for vetting. It’s a scam designed to make an investment look more trustworthy than it might otherwise be.

“If a 43-101 is filed by a company on the Pink Sheets – an OTC Bulletin Board Company – it’s probably not legit,” Barron says.

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Tags: 43-101 reports, Canadian stocks

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