Industry Guide 7

Industry Guide 7 was a set of disclosure guidelines from the U.S. Securities and Exchange Commission (SEC) that for decades dictated how mining companies reported information about their properties and mineral reserves. Think of it as the old rulebook for American mining companies listed on U.S. stock exchanges. Its primary goal was to create a standardized format for disclosures, allowing investors to compare companies on a more apples-to-apples basis. For value investors venturing into the often-treacherous terrain of mining stocks, understanding this guide—and especially its successor—is crucial. The guide required companies to detail their mineral reserves, production history, and property locations, with all reserve estimates signed off on by a qualified person (an industry expert). While it served its purpose for many years, it was widely seen as outdated compared to international standards. As of 2021, Industry Guide 7 has been officially replaced by a new, more comprehensive set of rules known as S-K 1300.

For nearly 40 years, Industry Guide 7 was the law of the land for U.S. mining disclosures. Its influence is still visible in older annual reports and financial filings you might come across during your research. Its core principles were rooted in conservatism, focusing on what was known with a high degree of certainty. The main requirements for companies were:

• Focus on Reserves Only: Companies were only permitted to disclose “proven” and “probable” reserves. These are minerals that have been thoroughly drilled and sampled and are deemed economically viable to mine with a high degree of confidence. Any mention of less certain “mineral resources” was strictly forbidden.
• Backward-Looking Prices: To calculate if a reserve was “economic,” companies had to use a three-year historical average price for the mineral. This meant the price used in the calculation could be wildly different from the current market price, sometimes making a project look profitable when it wasn't, or vice-versa.
• Qualified Person Sign-Off: A certified professional, or “qualified person,” had to review and sign off on the reserve estimates, providing a layer of accountability.

The goal was to protect investors from overly optimistic or speculative claims. However, this strictness came with significant downsides.

While well-intentioned, Guide 7 had several flaws that put U.S. investors at a disadvantage compared to their international counterparts, who relied on more modern reporting codes like Canada's NI 43-101 or Australia's JORC Code. The main problems were:

• An Incomplete Picture: By forbidding the disclosure of mineral resources (categorized as inferred, indicated, and measured), Guide 7 hid the potential upside of a mining project. Investors couldn't see the full extent of a company's assets, only the most de-risked portion. It was like valuing a library by only counting the books that were already checked out.
• Out-of-Sync Valuations: The reliance on a three-year average price for commodities could seriously distort a project's perceived value. If gold prices suddenly doubled, a company's reports would still be using an old, lower price, making its reserves appear less valuable than they truly were in the current market.
• Global Discrepancy: A company dual-listed in Toronto and New York would have to produce two different reports. The Canadian report (under NI 43-101) would show its resources and use a more current commodity price, giving a fuller picture than the U.S. report (under Guide 7).

These shortcomings led the SEC to modernize its rules, leading to the introduction of a new standard.

Effective from January 1, 2021, the SEC replaced Industry Guide 7 with Regulation S-K, Subpart 1300 (S-K 1300). This was a massive step forward, aligning U.S. disclosure rules with global best practices and giving investors far more useful information.

• Resources Are In!: Companies can now disclose mineral resources in addition to reserves. This gives investors insight into the entire mineral inventory, from the most speculative (“inferred”) to the most certain (“proven”).
• More Realistic Pricing: Instead of a rigid historical average, companies can now use a commodity price that is “reasonable and justifiable.” This is often interpreted as a 24-month trailing average, which is much more reflective of current market conditions.
• Clearer Reporting: S-K 1300 mandates detailed technical report summaries for investors, providing greater transparency on the exploration results, assumptions, and methodologies used to estimate resources and reserves.

As a value investor, understanding this regulatory shift is not just academic trivia—it’s a practical tool for analysis. When you're digging into a mining company's financials, pay close attention to the reporting date. If you're looking at filings from before 2021, you're in Guide 7 territory. Be aware of its limitations: the numbers don't show the full picture (no resources) and may be based on outdated prices. For any current analysis, look for disclosures made under S-K 1300. These reports provide a much richer dataset. However, a word of caution: don't be mesmerized by huge “inferred resource” numbers. These are the most speculative estimates and carry no guarantee of ever becoming economically viable. A true value investor should still anchor their valuation in the more reliable proven and probable reserves, which represent the company's most tangible and bankable assets. Ultimately, knowing the difference between Guide 7 and S-K 1300 helps you read between the lines of a mining company's report. It allows you to better assess risk, understand a company's true potential, and make more informed investment decisions in a sector where accurate information is worth its weight in gold.