Competent Person

A Competent Person is a highly qualified and experienced professional, typically a geologist or engineer, recognized by a professional body to assess and report on mineral or petroleum assets. This isn't just a fancy title; it's a specific designation with significant regulatory weight, particularly in the mining, oil, and gas sectors. The primary role of a Competent Person is to prepare a Competent Person's Report (CPR), which provides an independent and expert opinion on a company's exploration results, Mineral Resources, and Ore Reserves. For investors, this report is a crucial piece of due diligence. It translates complex geological data into a standardized format, helping to prevent companies from making exaggerated claims about the value of their assets. Think of them as the official, independent auditors of what's hidden underground, ensuring that when a company says it has struck gold, the claim is backed by credible, professional analysis.

The Competent Person acts as a crucial gatekeeper between a resource company and the investing public. To earn the title, an individual must have a minimum of five years of relevant experience in the specific style of mineralization or deposit type they are reporting on and must be a member of a recognized professional organization. This ensures they are not only educated but also practically experienced. Their most important attribute is independence. They are bound by a strict code of ethics to provide an objective, unbiased assessment of a project's potential. For a Value Investing practitioner, this independence is the difference between a sound investment based on verified assets and a speculative gamble based on corporate marketing. A Competent Person's signature on a report provides the credibility required by stock exchanges, regulators, and, most importantly, careful individual investors looking for real, underlying value.

For anyone investing in the natural resources sector, understanding the role of the Competent Person is not just helpful; it's essential. Their work directly impacts the valuation and perceived risk of a company.

The CPR is the cornerstone document for any resource company seeking to raise public funds, such as during an Initial Public Offering (IPO) or a secondary share issue. It is in this report that you will find the official breakdown of a company’s assets. These assets are not lumped together; they are carefully classified based on the level of geological confidence:

• Inferred Resources: The lowest level of confidence. It implies that a mineral deposit's existence can be estimated, but its quality and quantity are not yet verified. This is a high-risk category.
• Indicated Resources: Confidence is high enough to allow for appropriate application of technical and economic factors. You're getting a much clearer picture.
• Measured Resources: The highest level of confidence. The deposit is well-defined, and its size, shape, and grade can be estimated with a high degree of accuracy.

A project with a high proportion of Measured and Indicated resources is substantially de-risked compared to one based solely on Inferred resources.

A savvy investor doesn't just check if a CPR exists; they read it critically. Here’s what to look for:

• Who is the Author? Is the Competent Person an employee of the company or from a reputable, independent consulting firm? While an employee can be a Competent Person, an independent report often provides an extra layer of objectivity.
• Check the Assumptions: A project's viability depends heavily on economic assumptions. What commodity prices were used to calculate the reserves? Are they realistic compared to current and historical market prices? What are the estimated costs for extraction and processing? Overly optimistic assumptions can make a marginal project look like a world-beater.
• The Fine Print: Pay close attention to the sections on risks and uncertainties. The Competent Person is obligated to highlight potential challenges, such as regulatory hurdles, infrastructure deficits, or complex geology. These are not just legal disclaimers; they are vital clues to the project's real-world risks.

To protect investors and create a level playing field, several countries have established rigorous reporting codes that define the standards for a Competent Person and their reports. This standardization means that key terms have the same meaning across the globe, allowing for more reliable comparisons between companies. The most influential codes include:

• The JORC Code: Originating in Australia, this is one of the world's most recognized standards for reporting on mineral assets.
• NI 43-101: This is the equivalent standard in Canada, required for all companies listed on Canadian stock exchanges like the TSX.
• The SAMREC Code: The primary code used in South Africa, another major global mining hub.

The existence of these codes ensures that when you read a report from a company listed in Sydney, Toronto, or Johannesburg, it's not just marketing material. It's a technical document prepared to a high, enforceable standard by a qualified professional. For the value investor, this system of oversight provides a solid foundation upon which to build an investment case.