Corporate Update, October 2006

Is the regulator checking your ASX announcements?
by Grant Hummel

If your company has a market cap of less than $500m and is in the mining, energy or biotech sectors, the chances are that ASIC will soon check your ASX announcements, if it is not already doing so. This is what was revealed in an ASIC report issued last week on the continuous disclosures of small and mid-cap miners. The report also provided insight into what ASIC looks out for in ASX announcements, which is particularly valuable since ASIC now has the power to fine companies if it has reasonable grounds to believe there has been a contravention of continuous disclosure obligations.

ASIC considers its role is to ensure that ASX announcements are timely and accurate. The word "timely" does not add to the obligations in the ASX listing rules and the Corporations Act to immediately release (subject to specified exceptions) any information concerning the entity that it becomes aware of that a reasonable person would expect to have a material effect on the price or value of its securities. However, the word "accurate" is defined by ASIC to mean that "entities should disclose information that is factually correct, is easily understandable, gives due prominence to both positive and negative information and avoids unnecessary repetition of previously disclosed information." ASIC notes that it has focussed on the mining, energy and biotech sectors because, "uncertainties are prevalent and references to technical information or use of industry jargon is common". However, in our view, it is well worth noting that public reporting of exploration results, mineral resources and ore reserves is governed by the JORC Code and the biotech sector should seek to comply with the Code of Best Practice for Reporting by Life Science Companies. Nevertheless, it is prudent for all ASX-listed companies to carefully consider ASIC's view, as described above, when drafting an ASX announcement in addition to the ASX's guidance note on continuous disclosure and the ASIC's guidance principles, "Better disclosure for investors".

ASIC conducted a study of ASX announcements by all small and mid cap mining companies. For each company, ASIC analysed the share price movement, number and type of announcements, whether directors traded their shares and whether ASX had made any queries. Those companies with the greatest share price movement and most announcements were short-listed as potential "self promoters" and their ASX announcements are currently under review by ASIC. In the near future, the same analysis may be applied to companies in the biotech and energy sectors, with perhaps an additional analysis of trading before and after price-sensitive announcements.

Whilst ASIC's power to fine companies for continuous disclosure breaches is important, there are other potential sanctions to consider, including:

• the broad ranging discretion of the ASX, as witnessed recently when ASX requested that CuDeco clarify its exploration results
• Jubilee Mining NL was successfully sued for $1.8m by one of its shareholders for late disclosure. Please see our energy and resources update for more details click here...
• the Federal Court imposed on Chemeq Ltd a $500,000 penalty plus costs for failing to disclose both the increase in construction costs for its manufacturing facility and the (lack of) commercial significance of the grant of a US patent

• civil and criminal liability under the Corporations Act for breach of continuous disclosure obligations.

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