On October 31, 2018, the United States Securities and Exchange Commission ("SEC") issued a Final Rule respecting "Modernization of Property Disclosures for Mining Registrants".
The amendments are intended to provide investors with a more comprehensive understanding of a registrant's mining properties, and to more closely align the SEC's disclosure requirements and policies for mining properties with current industry and global regulatory practices and standards.
Registrants engaged in mining operations must comply with the final rule amendments for the first fiscal year beginning on or after January 1, 2021 and Industry Guide 7 will remain effective until all registrants are required to comply with the final rules.
On June 16, 2016, the SEC proposed revisions to its disclosure requirements and related guidance under the Securities Act and Exchange Act of 1934 for properties owned or operated by mining companies to provide investors with a more comprehensive understanding of a registrant's mining properties and modernize its disclosure requirements and policies for mining properties by more closely aligning them with current industry and global regulatory practices and standards, as embodied by the Committee for Reserves International Reporting Standards ("CRIRSCO"). Numerous industry commenters, however, expressed concern that the proposed 2016 rules deviated, in certain respects, from the CRIRSCO standards or the various international, CRIRSCO-based disclosure codes.
The disclosure rules also define a "Qualified Person" ("QP") as a mineral industry professional with at least five years experience in the type of mineralization and type of deposit under consideration, and in the specific type of activity that the QP is carrying out. A QP must also be a member of a recognized professional association, or board authorized by US federal or state or foreign statutes to regulate professionals in the mining, geoscience or related fields. The professional organization must also have, inter alia, academic experience, qualifications, standards, professional development, disciplinary powers and a public list of members.
As examples, the final rules:
- Require a QP to use a price for each commodity that provides a reasonable basis for establishing the prospects of economic extraction when assessing mineral resources, and that provides a reasonable basis for establishing that the project is economically viable when determining mineral reserves, which may be a historical or forward-looking price, as long as the QP discloses and explains, with particularity, the reasons for using the selected price, including the material assumptions underlying the selection;
- Address when a change in previously reported estimates of mineral resources or mineral reserves, are deemed to be material;
- Require the registrant to provide investors with an overview of its properties and mining operations;
- Provide a summary and individual property disclosure provisions in tables and permit other required disclosure to be in either narrative or tabular format;
- Permit, but not require, a registrant to file a technical report summary to support its disclosure of exploration results;
- Provide that a QP will not be subject to expert liability under Section 11 of the Securities Act for findings and conclusions regarding certain aspects of specified modifying factors discussed in the technical report summary or other parts of the registration statement that the QP has indicated are based on information provided by the registrant; (Note NI 43 101 restricts disclaimers to matters such as legal, taxation, political and environmental.)
- Permit a QP to determine mineral resources and reserves at any specific point of reference, which must be disclosed in the technical report summary;
- Exclude geothermal energy from the definition of mineral resource;
- Require a QP to apply relevant technical and economic factors likely to influence the prospect of economic extraction, rather than all modifying factors as set out in the CRIRSCO standard definitions, when determining mineral resources;
- Permit a QP in the technical report summary to disclose mineral resources as including mineral reserves as long as the QP also discloses mineral resources as excluding mineral reserves;
- Permit a QP to include inferred resources in an economic analysis which is not a pre feasibility study or a feasibility study that the QP opts to include in an initial assessment as long as certain conditions are met;
- Define mineral reserve to include dilution and allowances for losses that may occur when the material is mined or extracted;
- Permit a QP to conduct either a pre feasibility or final feasibility study to support a determination of mineral reserves even in "high risk situations";
- Permit the use of historical estimates of mineral resources or reserves in Commission filings pertaining to mergers, acquisitions, or business combinations if the registrant is unable to update the estimate prior to the completion of the relevant transaction, provided that the registrant discloses the source and date of the estimate, and does not treat the estimate as a current estimate (similar to the cautionary language in NI 43 101); and
- Permit a registrant holding a royalty or similar interest to omit any information required under the summary and individual property disclosure provisions to which it lacks access and which it cannot obtain without incurring an unreasonable burden or expense.
Also included are the following:
- Multiple QPs may prepare a technical report summary if certain conditions are met;
- If a QP is employed by a third-party firm, that firm may sign the technical report summary and provide the written consent required for an expert under the Securities Act (unlike NI 43 101 which requires the individual QP's consents);
- A registrant's disclosure of information regarding its exploration activity and exploration results is voluntary until such information becomes material to investors; and
- A registrant and its QP may disclose exploration targets, similar to "ranges" in NI 43 101, in Commission filings if accompanied by certain specified cautionary and explanatory statements.
The adoption of this Rule is a positive and assists the mineral industry, and is a significant step, in establishing global policies for disclosure given the importance of the United States stock market for the mining industry.
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