Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Securities, May 2011
- The CSA have narrowed the circumstances in which issuers will be required to file a new technical report concurrently with a preliminary short form prospectus containing new scientific or technical information regarding material mineral properties
- More flexibility on qualified person consent requirements, including providing for new exemptions from the requirement to file updated consents and qualified person's certificates and allowing, in certain circumstances, the consulting firm that employed the qualified person to file qualified person consents
- Changes to the restricted disclosure provisions, including a new definition of "historical estimates" that allows reliance on recent third-party estimates in a wider set of circumstances
- Amendments are to come into force on June 30, 2011
The Canadian Securities Administrators (the CSA) published amendments to the rules regarding standards of disclosure for mineral projects, which represent the most substantial amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) since it was adopted in 2001.
According to the CSA, the amendments are designed to "eliminate or reduce the scope of certain requirements, provide more flexibility to mining issuers and qualified persons in certain areas, provide more flexibility to accept new foreign professional associations, professional designations and reporting codes as they arise or evolve, reflect changes that have occurred in the mining industry and clarify or correct areas where the previous mining rule was not having the effect we intended." The amendments are substantially similar to those initially proposed by the CSA in April 2010. The most significant new development is the narrowing of the circumstances in which an issuer will be required to file a new technical report along with a preliminary short form prospectus which contains new scientific or technical information about its material mineral projects.
Subject to obtaining all necessary Ministerial approvals, the amendments are set to come into force on June 30, 2011.
Following are the most significant changes represented by the amendments.
CHANGES TO OBLIGATION TO FILE A TECHNICAL REPORT
Narrower Prospectus Trigger
The CSA have narrowed the circumstances in which an issuer is required to file a new technical report to support scientific and technical information contained in a preliminary short form prospectus. It had been recognized by the CSA that this requirement could impose extra costs and limit the ability of an issuer to complete a public offering on a timely basis.
Under the amended prospectus trigger, an issuer will only be required to file a new technical report to support scientific and technical information about a material mineral project in situations where the preliminary short form prospectus discloses for the first time, or a change in, mineral resources, mineral reserves or the results of a preliminary economic assessment that constitute a material change in relation to the issuer. Under the current NI 43-101, an issuer must, except in limited circumstances, file a technical report to support all new scientific or technical information in a preliminary short form prospectus no later than the time the preliminary short form prospectus is filed regardless of whether that information constitutes a material change to the issuer. Under the amended prospectus trigger, issuers will now be permitted to file a preliminary short form prospectus without filing a new technical report in situations where the preliminary prospectus discloses new scientific and technical information on a material property that is not a material change in relation to the issuer. Even if the new information in the preliminary prospectus does constitute a material change, a new technical report will not be required if the disclosure in the preliminary prospectus does not include first time disclosure of, or a change in, mineral resources, mineral reserves or the results of a preliminary economic assessment. It should be noted that, even under the amendments, the new scientific or technical information will still need to be prepared under the supervision of a qualified person and otherwise meet the requirements applicable to all written disclosure on mineral projects material to the issuer.
Expanded Written Disclosure Trigger
Under the current NI 43-101, an issuer is required to file a technical report where it has filed a "news release or directors' circular" containing first time disclosure of, or a change in, a preliminary economic assessment or mineral resources or mineral reserves that constitutes a material change in respect of the affairs of the issuer. The amendments to NI 43-101 expand this requirement. An issuer would now be required to file a technical report where any written disclosure made by or on behalf of the issuer discloses for the first time, or a change in, mineral resources, mineral reserves or the results of a preliminary economic assessment that constitutes a material change in relation to the issuer (the Written Disclosure Trigger), other than written disclosure contained in a document whose filing would, independently of the Written Disclosure Trigger, require the issuer to file a technical report.
Under the new Written Disclosure Trigger, an issuer would have 45 days from the date of the triggering disclosure to file a technical report supporting the written disclosure (the 45 Day Rule) unless the written disclosure is contained in a (a) preliminary short form prospectus, in which case the technical report must be filed by the earlier of (i) 45 days from the date of the Written Disclosure Trigger and (ii) the date of the filing of the preliminary short form prospectus, or (b) directors' circular, in which case the technical report must be filed by the earlier of (i) 45 days from the date of the Written Disclosure Trigger and (ii) three business days before the expiry of the take-over bid to which the directors' circular relates. An issuer that files a technical report in reliance on the 45 Day Rule must issue a news release at the time the technical report is filed to alert the market to the filing of the technical report.
The amendments to NI 43-101 provide an exemption from the 45 Day Rule if the mineral resources, mineral reserves or the results of the preliminary economic assessment disclosed by the written disclosure was, among other things, prepared by or on behalf of another issuer who holds or previously held an interest in the property and is supported by a technical report filed by the other issuer under NI 43-101. In these situations, the issuer has 180 days, rather than 45 days, to file a technical report supporting its disclosure of the mineral resources, mineral reserves or the results of the preliminary economic assessment unless such disclosure is also contained in a preliminary short form prospectus, in which case the technical report must be filed by the earlier of 180 days from the date of the disclosure and the date of filing the preliminary short form prospectus.
AUTHOR OF A TECHNICAL REPORT
Under the current NI 43-101, the author of a technical report filed by an issuer upon becoming a reporting issuer in Canada must be independent of the issuer (the Independence Requirement). The amendments to NI 43-101 provide an exemption from the Independence Requirement for "producing issuers" whose securities trade on a specified exchange (which includes the Australian Stock Exchange, the London Stock Exchange Main Market, the Nasdaq Stock Market and the New York Stock Exchange). A "producing issuer" is defined in the amendments to NI 43-101 as an issuer with annual audited financial statements that disclose gross revenues from mining operations of at least C$30-million for the issuer's most recently completed financial year or C$90-million in the aggregate for the issuer's three most recently completed financial years.
NEW FLEXIBILITY ON CONSENT REQUIREMENTS
The CSA have made two changes to address the common problem of locating a particular qualified person in a timely manner to meet a filing deadline for a qualified person's consent or certificate. Under the amendments to NI 43-101, reporting issuers would no longer be required to file updated qualified persons' consents and certificates for a previously filed technical report that is still current upon a triggering event.
In addition, the CSA have made a consequential amendment to National Instrument 44-101 Short Form Prospectus Distributions which would allow the consulting firm which employed the author of the technical report to provide a consent to the use of the technical report in the prospectus. The current rules only permit the individual author of the report to execute the consent, which can be problematic when that person is not available or has left the employ of the consulting firm retained to write the technical report.
THE HISTORICAL ESTIMATE EXEMPTION
Both the current version of NI 43-101 and the amendments provide an exemption from the restricted disclosure provisions for disclosure of "historical estimates" in certain circumstances. Under the current NI 43-101, an historical estimate means an estimate of mineral resources or mineral reserves prepared prior to February 1, 2001. The amendments to NI 43-101 introduce an expanded definition of "historical estimate" as "an estimate 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, and which was prepared before the issuer acquiring, or entering into an agreement to acquire, an interest in the property that contains the deposit." The new definition would capture certain third-party estimates made after February 1, 2001.
The amendments to NI 43-101 also mandate additional disclosure, not required by the current NI 43-101, that must accompany the disclosure of an historical estimate, such as the key assumptions, parameters and methods used to prepare the historical estimate, to the extent known, and commentary on what work needs to be done to upgrade or verify the historical estimate as current mineral resources or mineral reserves.
NEW EXEMPTION FOR ROYALTY HOLDERS
The amendments to NI 43-101 provide an exemption to holders of royalty or similar interests from the requirement to file a technical report in respect of a mineral project material to the holder of the royalty or similar interest. Under the existing NI 43-101, the requirements to file a technical report are equally applicable to royalty holders. However, under the amendments, the holder of the royalty or similar interest would be exempt from the technical report requirement where the operator/owner of the project is a reporting issuer in Canada or is a producing issuer whose securities trade on one of the specified exchanges described above and the mineral resources and mineral reserves are reported under an "acceptable foreign code", as defined in the amendments to NI 43-101.
EXPANDED DEFINITION OF "QUALIFIED PERSON"
The amendments to NI 43-101 replace the prescribed list of acceptable foreign associations and designations for "qualified persons" with a more flexible objective test. Under the new test, an individual in good standing with any professional association in a foreign jurisdiction would qualify as a "qualified person" provided, among other things: (i) he or she is an engineer or geoscientist with a university degree or equivalent accreditation in an area of geoscience or engineering relating to mineral exploration or mining; and (ii) that individual's membership designation requires attainment of a position of responsibility in their profession that requires the exercise of independent judgment and has certain peer evaluation and recommendation requirements as detailed in the amendments to NI 43-101. The existing prescribed list is preserved in the proposed Companion Policy to serve as guidance.
EXPANDED CIRCUMSTANCES WHERE INFERRED RESOURCES CAN BE INCLUDED IN AN ECONOMIC ANALYSIS
The amendments to NI 43-101 expand the circumstances where an issuer can report the results of an economic analysis of a project which includes inferred mineral resources. The current NI 43-101 prohibits an issuer from doing so except in connection with a "preliminary assessment", which is defined as a study of a project taken at an early stage prior to a preliminary feasibility study. Under the amendments to NI 43-101, the definition of "preliminary assessment" has been replaced and the exclusion to allow reporting of an economic analysis that includes inferred resources is now applicable to a "preliminary economic assessment", which is defined to include any study which includes an economic analysis of the potential viability of mineral resources that is not a pre-feasibility or feasibility study.
While the scope has been expanded, the amendments to NI 43-101 still do not allow inferred resources to be included in an economic analysis resulting from a pre-feasibility or feasibility study.
AMENDED FORM REQUIREMENTS FOR TECHNICAL REPORTS
The CSA have made substantial amendments to the current Form in order to make it less prescriptive and more adaptable for advanced stage and producing properties, in addition to giving more discretion to the author of a technical report to exercise judgment in determining the importance given to certain matters in the technical report. The new Form is also designed to provide greater detail regarding disclosure for development stage companies and producers. Significantly, it would allow producers to exclude an economic analysis for projects in production unless the technical report includes a material expansion of the project.
Under the amended Form, a technical report may include a limited disclaimer of responsibility (currently prohibited) if the qualified person who prepared all or part of the report is relying 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, provided the qualified person identifies, among other things, prescribed information regarding the source of the information relied upon and the extent of the reliance.
AMENDMENTS TO THE RESTRICTED DISCLOSURE PROVISIONS
The CSA have retained existing restrictions on disclosure contained in the current NI 43-101, such as the prohibition on disclosure of a quantity, grade or metal or mineral content of a deposit that has not been categorized in accordance with the standards prescribed by the Canadian Institute of Mining, Metallurgy and Petroleum. However, the amendments to NI 43-101 add two additional categories of prohibited disclosure: (i) the gross value of metal or mineral in a deposit or a sampled interval or drill intersection; and (ii) other than in certain circumstances, a metal or mineral equivalent grade for a multiple commodity deposit, sampled interval or drill intersection. According to the CSA, the inclusion of these additional items to the list of restricted disclosure is simply a clarification to reflect the CSA's interpretation of the current NI 43-101.
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