On April 23, 2010, the Canadian Securities Administrators (the "CSA") published for comment proposed amendments to the disclosure requirements for mineral projects (the "Proposed Amendments"). The adoption of the Proposed Amendments would result in an amended and restated National Instrument 43-101 Standards of Disclosure for Mineral Projects (the "Proposed Instrument"), Companion Policy 43-101CP Standards of Disclosure for Mineral Projects (the "Proposed Companion Policy") and Form 43-101F1 Technical Report (the "Proposed Form"). The Proposed Amendments would also result in consequential amendments to other regulatory instruments that relate to mineral project disclosure. The current National Instrument 43-101 (the "Current Instrument") came into effect on December 30, 2005, after some relatively minor amendments. Some of the more significant Proposed Amendments are summarized below.
Short Form Prospectus Technical Report Trigger
The CSA is considering whether to keep, modify or eliminate the short form prospectus trigger for filing a technical report due to the costs and challenges of preparing a new technical report in a timely manner. The CSA has invited comment regarding this issue, specifically asking whether the extra costs and delays are a significant concern to industry participants and whether investors would feel disadvantaged if the scientific or technical disclosure in a short form prospectus was not supported by a technical report.
Qualified Persons
On its face the definition of "qualified person"1 in the Proposed Instrument has been made less prescriptive and more flexible, particularly as it relates to foreign professionals. Under the Proposed Instrument a qualified person must be in good standing with a "professional association" and, in the case of a foreign professional association, satisfy certain specified professional standards (see subsection (c) in endnote 1). The definition of "professional association" in the Proposed Instrument no longer schedules a prescriptive list of the acceptable foreign professional associations and instead requires that foreign associations, in addition to the requirements applicable to all professional associations, be generally accepted within the international mining community as being a reputable professional association. A list of the foreign professional associations that the CSA thinks meets this test is now attached to the Proposed Companion Policy. It remains to be seen how quickly and regularly the Proposed Companion Policy will be updated to add or remove professional associations.
A broader exemption for producing issuers from the independence requirements of the qualified person that is the author of a technical report has also been added.
First-Time Disclosure of Mineral Resources, Mineral Reserves or a Preliminary Economic Assessment
Under the Current Instrument, one of the triggers requiring the filing of a technical report is the first-time written disclosure in a news release or directors' circular of a preliminary economic assessment or mineral resources or mineral reserves or a change in the foregoing on a property material to the issuer that, in each case constitutes a material change to the issuer. Section 4.2(j) of the Proposed Instrument expands this technical report trigger to any written document containing such disclosure, other than a document to which another technical report trigger (such as filing an annual information form or prospectus) already specifically relates. The Proposed Companion Policy also now clarifies that a change in mineral resources or mineral reserves due to mining depletion will generally not constitute material scientific or technical information. There is no new clarification, however, regarding the extent to which economic changes, such as changes to commodity prices, would be factored into a decision regarding whether there had been a material change.
Generally, a technical report triggered under section 4.2(j) of the Proposed Instrument by such first-time disclosure must be filed within 45 days of the disclosure, except for a technical report filed to support a directors' circular in which case the time to file may be abridged to 3 business days before the expiry of the takeover bid. A new conditional exemption, however, allows an issuer to delay filing a technical report supporting such disclosure for 6 months if a prior owner of the property previously made such disclosure and filed a supporting technical report. In order to rely on this exemption, in its initial disclosure an issuer must identify the previously filed technical report and its authors and include a statement that there is no new scientific or technical information that would make the disclosure inaccurate or misleading. When the technical report is filed, the issuer must issue a news release that reconciles any material differences between the initial disclosure and the new technical report.
Certificates and Consents
The Proposed Instrument has removed the requirement to file updated certificates and consents of qualified persons when relying on a previously filed technical report. Issuers can rely on a previously filed technical report to support the scientific and technical information in a disclosure document that would otherwise trigger the filing of a new technical report if, at the date of disclosure, there is no new material scientific or technical information concerning the property. The previously filed technical report must also meet the independence requirements applicable to the disclosure document.
A consequential amendment to National Instrument 44-101 Short Form Prospectus Distributions ("NI 44-101") will also simplify the expert consents required under NI 44-101 when a short-form prospectus is filed. NI 44-101 would be amended to permit an issuer that is required to obtain a qualified person's consent for a previously filed technical report when filing a short-form prospectus to obtain such consent from the firm that employed the qualified person at the time the technical report was prepared rather than the qualified person personally. This amendment will ease the common problem of issuers having to chase down consents from qualified persons who are unavailable or have left the employment of the firm that was engaged to prepare the technical report. A firm consent can only be provided if the firm's principal business is providing engineering or geoscientific services and the person signing on behalf of the firm must be an authorized signatory of the firm and satisfy the general requirements for being a qualified person. Consequently, this relief will not be available if the technical report was prepared by an in-house qualified person that has left the employment of the issuer.
Use of Foreign Code
The Proposed Instrument is more flexible in permitting the use of foreign code. Under the Proposed Instrument, an issuer that is incorporated or organized in a foreign jurisdiction or is making disclosure for its mineral projects in a foreign jurisdiction may make disclosure and file a technical report that uses mineral resource and reserve categories based on an "acceptable foreign code". The prescriptive list of acceptable foreign codes in the Current Instrument would be removed and would instead be defined to include the JORC Code (Australasia), PERC Code (Europe), SAMREC Code (South Africa), SEC Industry Guide 7 (USA), Certification Code (Chile), or any other code generally accepted in a foreign jurisdiction that defines mineral resources and mineral reserves in a manner that is consistent with the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") definitions under the Proposed Instrument. The requirement for a reconciliation of foreign code to CIM under the Current Instrument has also been removed from the Proposed Instrument.
"Grandfather" Exemption for Long Time Producing Properties
When National Instrument 43-101 was first implemented in 2001, issuers were "grandfathered" from the requirement to file a new technical report in respect of scientific or technical information in an Annual Information Form ("AIF") or Short-form Prospectus if this information had been described in an AIF, prospectus or material change report filed before February 1, 2001. This "grandfather" exemption enabled some issuers to avoid having to prepare technical reports regarding long-time producing properties that had been already operating for years prior to the implementation of National Instrument 43-101. The Proposed Amendments, however, will now remove this "grandfather" exemption. This will create a first-time technical report filing obligation at the first triggering event (such as an AIF filing) for some long running mines that may have been otherwise exempt from the technical report obligation since 2001.
Exemption for Royalty Interests
The Proposed Instrument includes a new exemption from the requirement to file a technical report to support scientific or technical information in a disclosure document for an issuer that only holds a royalty interest in a mineral project. This exemption is available if the operator of the mineral project is subject to the requirements of the Proposed Instrument or is a producing issuer whose securities trade on a "specified exchange" (ASE, JSE, LSE Main, Nasdaq, NYSE or HKSE) and discloses mineral resources and mineral reserves under an acceptable foreign code. To rely on this exemption, the royalty interest holder must identify the source of the scientific and technical information in its disclosure document and the operator of the mineral project must have disclosed such scientific and technical information. The Proposed Instrument does not clarify whether the right to purchase a stream of metal from a producing mine will be treated as a "royalty" for the purposes of the instrument and this exemption.
Historical Estimates
In the Current Instrument, historical estimates can be disclosed subject to certain conditions and supplemental disclosure requirements being met, but are limited to estimates of mineral resources and mineral reserves prepared prior to February 1, 2001. This has allowed issuers to disclose legacy information concerning their properties. The Proposed Instrument takes a new approach, allowing only disclosure of third party historical estimates (before or after 2001), provided the estimate was prepared prior to the disclosing issuer acquiring or entering into an agreement to acquire an interest in the mineral project. An intriguing consequence of this proposed change is that there is a different disclosure standard regarding historical information depending on who owns the property.
Historical estimates are limited to estimates of the quantity, grade, or metal or mineral content of a deposit that an Issuer has not verified as a current mineral resource or mineral reserve. In the Proposed Instrument, disclosure of historical estimates is permitted provided the disclosure includes the new expanded supplemental disclosure required in section 2.4 of the Proposed Instrument.
The Proposed Form
The Proposed Form represents a substantial amendment to the current version of Form 43-101F1 Technical Report to make it less prescriptive and more adaptable for advanced-stage and producing properties. Generally speaking, it is intended to allow a qualified person more discretion to determine the level of detail required under each item of the technical report based on their assessment of the relevance and significance of the information. With regard to technical reports for advanced properties, the Proposed Form includes eight new sections that reflect the major components of a preliminary assessment, pre-feasibility study or feasibility study, and require information regarding mineral reserve estimates, mining methods, recovery methods, infrastructure, market studies and contracts, environmental studies, permitting and social or community impact, capital and operating costs and economic analysis. It is noteworthy that producing properties are exempt from economic analysis disclosure.
Under the Proposed Form, a qualified person authoring a technical report would be able to refer to any information in a previously filed technical report filed by the issuer for the subject property if the information is still current and the technical report identifies the title, date and author of the previously filed technical report. However, the Qualified Person must summarize or quote the referenced information in the current technical report and may not disclaim responsibility for the referenced information. Under the Current Form, only certain sections may be cross-referenced.
The "Reliance on Other Experts" section of the Proposed Form has also been slightly expanded. It permits a limited disclaimer of responsibility if the qualified person relies on a report, opinion or statement of another expert who is not a qualified person or on information provided by the issuer regarding legal, political, environmental or tax matters relevant to the technical report or an expert's report concerning valuations or commodity pricing, provided the qualified person provides certain additional disclosure related to the source, content and use of such report, opinion or statement.
Comment Process
The Proposed Instrument will, if adopted, significantly affect the regulatory requirements of issuers involved in the mineral exploration and mining industry. Accordingly, we would strongly encourage industry participants to carefully consider all of the Proposed Amendments, including those discussed above, and provide comments to the CSA prior to the expiry of the comment period on July 22, 2010.
Footnote
1. Under the Proposed Instrument, a "qualified person" means an individual who
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