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Obligations and Consequences of Ore Reserve Disclosures—Can Your Client and Its Shareholders (And the Sec) Live Happily Ever After?

Michael D. Fricklas and Douglas D. Foote, Proceedings of 39th Annual Rocky Mountain Mineral Law Institute (1993)

As of the date of this writing, a five-year bear market in gold mining stocks and in the price of gold bullion has given way to renewed investor enthusiasm for both the equity and the metal. In order to take advantage of the favorable market, hundreds of millions (possibly billions) of dollars of gold-related securities have been sold to the public in the past few months. At the same time, inflation-adjusted prices of many other commodities produced by mining are at record lows, and the share prices of aluminum, copper, zinc, phosphate, and other commodity producers reflect this. The extreme cyclicality and volatility in commodities prices presents a challenge for securities lawyersofferings must be prepared quickly in order to take advantage of limited windows through which securities can be sold, while the volatility of commodities prices, which frequently is reflected in securities prices, creates a significant exposure to securities litigation.2


One of the principal factors in the valuation of a natural resources company is the extent of the company's reserves, and such companies therefore emphasize the extent of their reserves to investors. Reserves are, in an important sense, forecasts the actual quantity of a mineral in a deposit that can be economically recovered will not be known until the deposit is completely mined and processed. Reserves t