Things just got real for Canadian busybody activist group Mining Watch.
Mining Watch decided to walk into Canada Carbon’s fight to be allowed to build a graphite mine and marble quarry near the little Quebec Municipality of Grenville-sur-la-Rouge (GSLR). The bullet is that Canada Carbon had obtained municipal clearance for its project to proceed to CPTAQ review, then there was an election and that clearance was withdrawn. Canada Carbon sought judicial review and the matter is before the Courts.
Meanwhile, Canadian anti-development activist group, Mining Watch, saw a great opportunity for headlines and fundraising. Realizing that GLSR had a very weak case in Court, Mining Watch joined with local activists to pump a public opinion victory.
But PR was, apparently, not enough. Without prior permission from the landowners, activists, including at least one Mining Watch operative, decided to trespass on the Canada Carbon Miller graphite claim area and tamper with samples bagged for assay. As public relations savvy activists, they recorded video of these crimes and posted the video to FaceBook on May 8, 2019. Paul Piché appuie Grenville-sur-la-Rouge! Genius! It is very rare for people to video their criminal actions and post them to Facebook.
A criminal complaint was filed on May 28, 2019, against a number of the people in the video which, along with the allegation of s. 430 Criminal Code of Canada Mischief also alleges the significantly more serious s. 396 Offences in Relation to Mines allegation with respect to the participants tampering with the bagged samples.
The alleged Mischief and Tampering occurred well before Mining Watch kicked off its smear campaign against Canada Carbon with a press release in late May. However, a Mining Watch operative has been tentatively identified in the video.
Mining Watch filed a BC Securities Commission complaint against Canada Carbon. Mining Watch, in a press release dated 22 May, 2019 “claims that the company and its representatives fail to comply with the N.I. 43-101 Standard when they assert publicly a $96 million economic value to their project, while the later is based on inferred resources and a preliminary economic assessment. Ugo Lapointe, Mining Watch Canada spokesperson, comments, “Without proper cautionary statements, this clearly appears to be contrary to the securities standards.”
Apparently, Mr. Lapointe has not actually read the Canada Carbon PEA otherwise he would have found, inter alia, at page 1-3 the following, standard, cautionary statement, “The Mineral Resource estimate was conducted following the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for Mineral Resources in accordance with NI 43-101 Standards of Disclosure for Mineral Projects. Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability.”
In fact, the entire NI43-101 process is all about cautionary statements, a fact the BCSC is intimately familiar with.
Mining Watch also commissioned Jim Kuipers, a Montana engineer to look over the Canada Carbon PEA. Mr. Kuipers is quoted in Mining Watch’s press release as stating, “Of the company’s $96 million claim, the Montana-based engineer says: “There is no valid technical basis for estimation of compensatory damages relative to a project based on speculation and that has not demonstrated economic viability. In our experience, claims that are not based on a valid economic analysis are generally considered speculative and are often used as a “threat” in legal proceedings.”
According to his resume, Mr. Kuipers has served as an expert witness in various mining cases and he knows how expert testimony is dealt with by the Courts. However, Mining Watch is not really very interested in the evaluation of expert testimony as evidence. It wanted a headline and, writing its own, came up with “New Expert Report Finds Canada Carbon Project Uneconomic, $96 Million Damage Claim Against Municipality Unfounded”.
Mr. Kuipers bases his negative assessment largely on Canada Carbon’s NI 43-101 compliant 2016 PEA which was based entirely on “inferred” mineralization. He acknowledges that in early 2017 a revised 43-101 Resource Estimate which included “an indicated resource of 2.65Mt (“million tonnes”) with an average grade of 0.80% graphite, and an inferred resource of 7.56Mt with an average grade of 0.77% graphite, within the boundaries of an optimized open pit mine model.”
National Securities Regulation 43-101 attempts to regulate the exploration process by standardizing terms and requiring disclosure at various stages. Critically, 43-101 formalizes the concepts of inferred and measured and indicated resources. While inferred resources may be used in a Preliminary Economic Assessment (PEA) they are not considered mineral reserves. A fact which every PEA discloses.
A 43-101 compliant PEA, suitably disclaimed, can be used for a variety of purposes. Many companies use PEAs as part of their presentation to potential investors. They are used to evaluate whether a project is worth continuing to invest in. They are used to get a “feel” for the economics of a project. And they are used to give an approximation of the potential value of a project.
As the process continues inferred resources are drilled and where possible moved to the more certain “indicated” category. This, in turn, de-risks the project and makes its economics more certain.
Enter the lawyers.
When a lawyer is building a case he or she looks for evidence. Critically, and this is often misunderstood by people without legal training, evidence is not, in most cases, certain. What a judge is asked to do is “find facts” based on the evidence before the Court.
A Preliminary Economic Assessment is “evidence”. Evidence of the work completed, evidence of the opinion of a 43-101 Qualified Person and evidence of the potential economics of a project. It can be evidence going to the estimated value of a project and therefore of the potential loss which may be suffered by a project’s owner in the event that the project is blocked. Critically, the assumptions and uncertainties which surround any early stage mining project are disclosed in a properly constructed NI43-101 PEA.
A subsequent, revised, 43-101 Resource Estimate moving inferred resources to the indicated column is further evidence going to the viability and value of the project.
In ongoing litigation with the various opponents of the proposed Miller graphite/marble project, Canada Carbon’s lawyers have submitted an estimate of the damages Canada Carbon will likely suffer in the event that it is improperly thwarted in its pursuit of the Miller graphite project. The best estimate of those damages available to the company is the PEA which it filed March 4, 2016 supplemented with the revised 2017 Resource Estimate. That PEA, publicly disclosed, is a set of best estimates made by an independent third party. So, when Canada Carbon’s lawyers needed to provide an estimate of the potential loss which Canada Carbon might suffer as a result of the improper actions of the various opponents of its Miller project they went right to publicly disclosed third party documents.
Mr. Kuipers, in his rather shorter report and without conducting any on site research or consulting with any Canada Carbon officers, directors or qualified persons, disagrees. And he goes so far as to suggest that the use of PEA value estimates are “often used as a “threat” in legal proceedings.
Now that is a nasty bit of innuendo and it reflects Kuipers’ and Lapointe’s legal inexperience. The numbers in a PEA are well researched estimates made by qualified third parties. They were confirmed by the 2017 Revised Resource Estimate. Using a PEA to back a claim for damages is sound lawyering. If anything, it actually reduces the potential claim for damages by tying that claim back to conditions in 2016.
If Mining Watch was able to gain standing to participate in the ongoing litigation (unlikely at this late date) it might seek to qualify Mr. Kuipers as an expert witness to give expert testimony going to his reservations about Canada Carbon’s PEA. However, by the time the Court was dealing with the quantum of damages it would have already decided that the Municipality of Grenville-sur-la-Rouge had, indeed, acted improperly. Canada Carbon would have introduced its PEA into evidence going to damages and the various Tetra Tech authors of that PEA would have been qualified as expert witnesses and would have given evidence in support of that PEA.
In a battle of experts, the experts who have actually walked the ground, examined the core, looked at the internal mining plans, revised the Resource Estimates and worked in the particular jurisdiction tend to be a tad more persuasive than a Montana mining engineer whose entire report is nothing more than a difference of opinion with the authors of the underlying and somewhat dated PEA report.
Mining Watch and Ugo Lapointe are grandstanding. The Courts and the Securities Commissions take a dim view of activists using laws and regulations designed to protect the public and investors, to further their own agendas. A lesson Mr. Lapointe is likely to learn quite soon.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.