On October 31, 2018, the US Securities and Exchange Commission ("SEC" or "Commission") issued a final rule (Final Rule) to modernize required property disclosures for mining registrants. The requirements are currently set out in Item 102 of Regulation S-K and Industry Guide 7. The rule is intended to provide investors with a more comprehensive understanding of a registrant's mining properties, which should help them make more informed investment decisions. In addition, as the Commission did in 2008 to Industry Guide 2 with respect to oil & gas reporting, the SEC is rescinding Industry Guide 7 and relocating the Commission's mining property disclosure requirements to a new subpart of Regulation S-K, thereby replacing staff guidance with a Commission Rule.
Key Points of the Final Rule
The Final Rule will more closely align the Commission's disclosure requirements and policies for mining properties with current industry and global regulatory practices and standards. Under the final rule and consistent with global standards as embodied by the Committee for Reserves International Reporting Standards (CRIRSCO), a registrant with material mining operations must disclose specified information in its Securities Act and Exchange Act filings concerning its mineral resources (which are characterized by a lower level of recovery certainty), in addition to its mineral reserves. Current Commission rules and guidance permit the disclosure of non-reserve estimates only in limited circumstances. Requiring the disclosure of mineral resources in addition to mineral reserves will provide investors with important information concerning the registrant's operations and prospects.
Also, as had been proposed and consistent with the CRIRSCO standards, the Final Rule's amendments require a registrant's disclosure of exploration results, mineral resources or mineral reserves in Commission filings to be based on and accurately reflect information and supporting documentation prepared by a mining expert—the "qualified person." This requirement will further the protection of investors by helping to foster proper risk assessment and disclosure, which is key to an investor's understanding of each stage of a mining project.
As was also proposed, the Final Rule's amendments require a registrant to obtain a dated and signed technical report summary from the qualified person(s), which summarizes the information reviewed and conclusions reached by each qualified person about the registrant's mineral resources or reserves on each material property. A registrant must file the summary as an exhibit to the relevant Commission filing when disclosing mineral reserves or resources for the first time or when there is a material change in the reserves or resources from the last summary filed. The technical report summary filing requirement will not only help ensure that the registrant's disclosure in the Commission filing is accurate and reliable but also enhance investor understanding of a registrant's material mining properties. Changes in the Final Rule from the proposed rule are described in the Fact Sheet included in the SEC's related press release; however, one important change from the proposal was to explicitly acknowledge that multiple qualified persons may complete the technical report and that, if employed by a third-party firm, such firm may sign the related technical report and provide the written consent required for an expert under the Securities Act of 1933, as amended.
Practical Implications
The Final Rule provides a two-year transition period so that a calendar year reporting registrant will not be required to begin to comply with the new rules until its annual report for 2021, due in 2022. A registrant can voluntarily begin complying with the new requirements prior to required compliance, provided that it does so completely.
In bringing the US mining property disclosure rules more in line with the CRIRSCO, the Commission makes it easier for dual-listed mining companies (particularly in Canada and Australia) to comply with US rules.
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