Securities Law

LPS 3-01 - Factors to be Considered in Arriving at a Decision that a Natural Resource Property Has Sufficient Merit to Justify an Expenditure Thereon of Risk Capital Derived From Public Subscription [Rescinded]

Published Date: 1987-01-16
Effective Date: 1987-02-01
Rescinded Date: 1999-06-24

1.0          IMPLEMENTATION

1.1          This Local Policy Statement has been revised to conform to provisions of the Securities Act S.B.C. 1985 c.83 and the Regulations thereto.  The major portion of the former Local Policy Statement 3-01 can now be found in Forms 54 and 55.

1.2          This revised Local Policy Statement incorporates the "Supplementary Notes and Comments Relating to Reports on Mining Properties", and "Supplementary Notes and Comments Relating to Oil and Gas Reports" found as a supplement Local Policy Statement 3-01 dated March 4, 1986.  These notes and comments now supplement the disclosure requirements set out in Forms 54 and 55.

2.0          FACTORS TO BE CONSIDERED IN ARRIVING AT A DECISION THAT A PROPERTY HAS SUFFICIENT MERIT TO JUSTIFY AN EXPENDITURE THEREON OF RISK CAPITAL DERIVED FROM PUBLIC SUBSCRIPTION

2.1          The merits of the following types of property are capable of identification and classification with some degree of confidence:

2.1.1       a property in production

2.1.2       a property which has been subjected to a feasibility study

2.1.3       a property on which a significant mineral deposit has been developed.

2.2          The following conditions make it difficult if not impossible to assess the merits of a property:

2.2.1       the geology is inferred only

2.2.2       there is no known mineralization

2.2.3       the nearest outcrop and/or the nearest mining activity is located at some considerable distance

2.2.4       the sole feature appears to be a weak geochemical or geophysical anomaly

2.2.5       the geology is taken from a small scale government geology map.

Whereas in the Section 2.1 examples the risk of initiating further programs on the property has been established and reduced to some extent, in the Section 2.2 examples above, the risk is unknown.  In such a case as the latter, where the risk is unknown, the founders should consider funding further exploration and development programs from private sources and deferring solicitation of public funds until the property has been sufficiently developed to merit public funding.

2.3          Where a property reported on falls between the extremes described in Sections 2.1 and 2.2 above, the use of a checklist has been instituted by the Superintendent to profile such factors as size of property, geology, mineralization, geochemical and geophysical response, alteration, location relative to other mineral deposits and exploration activity, accessibility, successful result of previous exploration.

2.4          Mineral deposits are diverse in their mode of occurrence and there are numerous and varied techniques which may be employed to search for and evaluate them.  It would, consequently, be inappropriate to make sweeping generalizations concerning what factors are likely to contribute to a favourable profile.  However, by utilizing the guidelines set out in Section 3.0, it is anticipated that consistent evaluations can be made based on the disclosure in each technical report.  These guidelines should assist in determining what type of data gathering techniques are acceptable in each mineral environment and what standards apply to disclosure of the information.

2.5          Where the Superintendent elects to seek a profile from his advisors on a property described in a technical report, he will receive in addition to the profile a brief comment for each point noted and/or a brief summary statement justifying the evaluation and highlighting features of unusual merit or any serious deficiencies in the potential of the property.  Such comments and/or summary statements will be released to the issuer.

3.0          GUIDELINES ON CONTENT OF FORM 54

3.1          Geology and Metal Content

3.1.1       Sufficient geological information must be presented to:

3.1.1.1  establish that the geological environment is favourable (or at least permissive) for the type exploration.

3.1.1.2  assist in evaluating any samples taken, or other exploration accomplished.

In the case of location ground in the vicinity of an important mineral deposit, some geological information on this important deposit should be included.  If the property has not been mapped, an explanation must be provided.  Where the location ground lacks a specific target, size of claim block becomes increasingly important in establishing the merits of a property.

3.1.2       Where reserves are referred to in the text, the confidence factor (proven, probably or possible) must be disclosed.  Where these reserves are not shown on maps or sections, it must be clearly stated that such maps and sections cannot be provided and the reason for such unavailability given.

3.1.3       All assays must be accompanied by qualifying data indicating the significance of the results (grab sample, bulk sample, chip sample, drill core sample, selected specimen and length, width and area covered by the sample).

3.2          Geochemistry

3.2.1       The report should be accompanied by a plan showing the sample location for rock, silt and/or soil geochemistry, and results of significant metals, with a notation on an accompanying map or in the text stating the type of sampling (channel, grab, specimen, silt, soil), a description of the sample, the type of analytical procedure and a copy of the analytical certificates.

3.2.2       The location of the survey should be disclosed relative to the boundaries of the property.

3.3          Geophysics

3.3.1       The report should contain a plan and where appropriate, sections showing the relevant geophysical responses and/or anomalies or conductors.

3.3.2       If the surveyed area does not cover the entire property, the location of the survey should be disclosed relative to the boundaries of the property.

3.3.3       An acceptable geophysical survey must relate to the type of mineralization being sought.  For example:

3.3.3.1    a VLF EM anomaly will be rated as acceptable only if other substantiating correlations are presented.  Such substantiating correlations could include a geochemical anomaly, other definite substantiating geophysical anomalies and/or geological interpretation or projections.

3.3.3.2    a magnetic anomaly, by itself being generally merely indicative of bedrock geology, should have other correlative data directly indicative of the mineralization.  An exception would be the search for magnetite-rich or pyrrhotite-rich deposits.

3.3.3.3    an airborne geophysical anomaly should have ground follow-up to locate and evaluate the correlative anomaly and this follow-up should be supported by acceptable correlative information and techniques.

4.0          FACTORS TO BE CONSIDERED IN ARRIVING AT A DECISION THAT AN OIL AND GAS PROPERTY HAS SUFFICIENT MERIT TO JUSTIFY EXPLORATION AND DEVELOPMENT EXPENDITURE THEREON OF RISK CAPITAL DERIVED FROM PUBLIC SUBSCRIPTION

4.1          The following factors are indicative of properties which may have some merit:

4.1.1       Producing property providing some assurance of continuing yield of net revenue to issuer (i.e. the property is not near depletion and there is some prospect of enhancement of value through addition of acreage or through adoption of some form of enhanced recovery to increase the ultimate production).  If a prospect of enhanced recovery is held out, examples of successful schemes carried in nearby reservoirs with similar horizons should be filed.

4.1.2       A property offset (but not drained) by existing production appearing to have the potential to produce and contiguous to additional acreage available for exploration and development.

4.1.3       An exploratory property of sufficient areal extent for which, on the basis of sound geological conclusions (surface/subsurface) confirmed by reliable geophysical evidence, there is an indication of the existence of hydrocarbon substances in commercial quantities.

4.2          The following conditions are indicative of a property lacking sufficient merit:

4.2.1       The property has been depleted or nearly depleted by primary and even secondary production or the offsetting acreage has drained the tract.

4.2.2       The reservoir is so marginal in nature that the expected life is less than that required to pay out.  One or more of the following may truncate the productive life of a reservoir:

4.2.2.1    thin pay

4.2.2.2    insufficient reservoir energy

4.2.2.3    lack of natural water drive

4.2.2.4    rapid unexpected lateral changes in reservoir sediments (e.g. cementing of sands, plugging of carbonates, shaling out).

4.2.3       The tract is small (e.g. 160 acres or less) and there is no provision for acquiring additional acreage by option or drilling commitment.

4.2.4       The property comprises producing or non-producing wells with no prospect or provision for further development.

4.2.5       The acreage has little or no geological attractiveness on the basis of results from subsurface drilling.  Potential beds are either absent or, if present, the deposition of sediments is erratic in nature.

4.3          The oil and gas industry has been actively engaged in researching techniques such as enhanced recovery.  Where an issuer seeks to try our any such techniques, the costs of such experimentation should appropriately be met from private funding.  Where the issuer can demonstrate that its application of some experimental technique has produced results likely to enhance the merits of a property, it may be appropriate to seek public funding for a full scale application of the technique.

5.0          GUIDELINES ON CONTENT OF FORM 55

5.1          In complying with Sections 3 and 4 of Form 55, a distinction should be made in the types of property being reported on, e.g. -producing (with or without enhanced recovery), partly developed (being drilled), exploratory.

5.2          The discount factor selected should relate to the discount rates currently prevailing in the monetary market.  The "non- escalated" case only should be disclosed until such time as world market conditions support assumptions of escalation in price.

5.3          Where some or all properties included are prospects, the report must state the location of the prospect with respect to established producing areas, if any.

6.0    LAHEE CLASSIFICATION OF WELLS

 

DATED at Vancouver, B.C. this 1st day of February, 1987.

 

Jill Bodkin
Chairman
B.C. Securities Commission