Canada: New Mineral Project Disclosure Standards Coming Into Effect June 30, 2011

Almost a year after issuing a draft for comment, on April 8, 2011, the Canadian Securities Administrators (CSA) published a new and improved National Instrument 43-101 – Standards of Disclosure for Mineral Projects, which is scheduled to come into effect on June 30, 2011. The changes to NI 43-101 reflect the results of consultations with mining industry market participants and is designed to make compliance less costly for mining companies without compromising investor protection.

The following is a summary of the significant changes to NI 43-101.

Acceptable Foreign Codes (Definitions and s. 7.1)

• Amends definitions and replaces prescriptive lists of acceptable foreign codes with objective tests that will accommodate changes without formal amendment. A revised list of acceptable foreign codes is now appended to the Companion Policy (CP).
• Acceptable foreign codes now also include the Chilean Certification Code and the PERC Code (Pan European) along with any other code generally accepted in a foreign jurisdiction that defines mineral resources and mineral reserves in a manner consistent with the definitions of mineral resources and mineral reserves in the new NI 43-101, which adopts the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards.
• Allows issuers incorporated in a foreign jurisdiction, or incorporated in Canada regarding its properties located in a foreign jurisdiction, to make disclosure and file a technical report using mineral resource and mineral reserve categories of an acceptable foreign code, provided they reconcile any material differences between the mineral resource and mineral reserve categories used and those in the new NI 43-101.
• The CP notes that if an issuer wishes to announce an acquisition of a property that contains estimates of quantity and grade that are not in accordance with CIM Definition Standards or an acceptable foreign code, the issuer might be able to disclose the estimate as an historical estimate in compliance with NI 43-101. However, the CP also notes that it may be more appropriate to disclose the estimate as an exploration target if there is not well-documented support for the estimate or if the estimate is not comparable to CIM Definition Standards or an acceptable foreign code.

Qualified Persons and Professional Associations (Definitions)

• Amends definitions of qualified person and professional association, and sets out objective criteria to determine the suitability of a professional association for the purpose of the definition of a qualified person. Appendix A, which lists accepted foreign associations and membership designations, is moved from NI 43-101 to the CP as guidance, and the list is extended to include the Society for Mining, Metallurgy and Exploration, Inc. (SME), the Engineering Council of South Africa (ECSA), and the Chilean Mining Commission. An issuer who wishes to rely on a person as a qualified person who is not a member of a listed professional association but meets the tests may apply to revise the list.

Historical Estimates (Definitions and s. 2.4)

• Redefines historical estimates more broadly to mean "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 maintains the deposit." It is currently defined as "an estimate of mineral resources or mineral reserves prepared prior to February 1, 2001". This means that an estimate made by a third party after February 1, 2001, may also be disclosed as an historical estimate.
• Allows disclosure of historical estimates using the original terminology, provided the disclosure includes, among other things, the key assumptions, parameters and methods used to prepare the historical estimate, comments on the work that needs to be done to upgrade or verify the historical estimate as current mineral resources or mineral reserves, and specific and prominent cautionary language indicating that the qualified person has not done sufficient work to disclose the historical estimate as current mineral reserves or mineral resources and that the issuer is not treating the historical estimate as current mineral resources or mineral reserves. The cautions are required to be made in equal size, type and in proximate location of the disclosure.
• Provided historical estimates are disclosed in compliance with all requirements each time they are disclosed, the disclosure of the historical estimate itself will not trigger the requirement to file a technical report under section 4.2(1)(j) of NI 43-101. However, see the guidance in s. 2.4 of the CP as to when the CSA will consider that an historical estimate is being treated as a current estimate, thereby triggering the requirement to file a technical report.

Preliminary Economic Assessments (Definition and s. 2.3)

• Preliminary assessment is redefined as preliminary economic assessment and allows for economic analysis of the potential viability of mineral resources prepared after the completion of a preliminary feasibility study or feasibility study (as such terms are defined in the CIM Definition Standards).
• The CP notes that preliminary economic assessments may be based on mineral resources and include disclosure of forecast mine production rates that might contain capital costs to develop and sustain the mining operations, operating costs, and projected cash flows.
• While generally prohibited, an issuer may disclose the results of a preliminary economic assessment that includes, or is based on, inferred mineral resources if the disclosure includes certain specified cautions, states the basis for the assessment and any qualifications and assumptions made by the qualified person, and describes the impact of the preliminary economic assessment on the results of any prefeasibility study or feasibility study in respect of the subject property. It is no longer the case that the results of the preliminary assessment have to be a material change or material fact with respect to the issuer in order to disclose the preliminary assessment. Note the exception does not allow an issuer to disclose the results of an economic analysis using an exploration target or an historical estimate.

Restricted Disclosure (s. 2.3(1))

• Adds to list of prohibited disclosure:

Technical Report Triggers (s. 4.2)

Short Form Prospectus (s. 4.2(1)(b))

• The CSA amended the short form prospectus trigger in NI 43-101 requiring an issuer to file a technical report on the filing of a preliminary short form prospectus under National Instrument 44-101 – Short Form Prospectus Distributions if the prospectus discloses for the first time mineral resources, mineral reserves or the results of a preliminary economic assessment that constitutes a material change in relation to the issuer or a change in mineral resources, mineral reserves or the results of a preliminary economic assessment from the most recently filed technical report if the change constitutes a material change in relation to the issuer. In such cases, a current technical report has to be filed at the time of filing the preliminary short form prospectus.

Other Trigger Changes (s. 4.2(1)(j))

• The news release and director's circular trigger formerly in s. 4.2(1)(j) of NI 43-101 was replaced with a requirement to file a technical report that is triggered upon any written disclosure other than as specifically listed in s. 4.2(1) (a)-(i) of NI 43-101 that discloses for the first time mineral resources or mineral reserves or the results of a preliminary economic assessment on a property material to the issuer that constitutes a material change in relation to the affairs of the issuer, or a change in the same from the most recently filed technical report that constitutes a material change in relation to the issuer.
• Removes the exceptions associate with certain annual information forms, so current technical reports are required each time an AIF is filed.

Other Amendments (s. 4.2(5) and (7))

• Clarifies when technical reports must be filed after certain disclosure.
• Amends s. 4.2(5) of NI 43-101 to require the issuance of a news release disclosing the filing of a technical report in all circumstances where the technical report is filed after the disclosure to disclose that the technical report has been filed.
• Introduces in s. 4.2(7) of the new NI 43-101 a new provision allowing a 180-day filing delay for technical reports supporting disclosure of mineral resources, mineral reserves or results of a preliminary economic assessment if these estimates are supported by a current technical report filed by another issuer, subject to certain conditions.

Certificates and Consents (ss. 4.2(8), 8.1 and 8.3)

• Removes requirement to file updated certificates and consents of qualified persons where disclosure requires the filing of a technical report but a current technical report is on file. The provision as to when no new technical report is required to be filed is also revised to clarify the meaning of current.
• New exemption from including certain statements in the consents of qualified persons for technical reports filed only as a result of the issuer becoming a reporting issuer in Canada (s. 8.3(2) and (3)).
• Makes consequential amendment to NI 44-101 to allow a consulting firm that employed the author of a technical report to provide consent to refer to the technical report in a prospectus (subject to certain conditions being satisfied).

Disclosure may be Approved by a Qualified Person (ss. 2.1 and 3.1)

• Allows disclosure of scientific or technical information that is approved by a qualified person. This means that an issuer's qualified person may take responsibility for disclosure that is based on information prepared by or under the supervision of another qualified person.

Independence of Author of Technical Reports (s. 5.3)

• Introduces new exemption for a producing issuer whose securities trade on a specified exchange (e.g., ASE, Johannesburg Stock Exchange, LSE Main Market, Nasdaq, NYSE, or HKSE) from the requirement to have an independent qualified person assume overall responsibility in relation to a technical report filed only as a result of the producing issuer becoming a reporting issuer in Canada.
• Expands current exemption for producing issuers from the independence requirement in relation to a technical report filed under s. 4.2 of NI 43-101 to include all technical report triggers under s. 4.2 of NI 43-101.
• The CP interprets the independence requirement that is applicable where there is a 100 percent or greater change in total mineral resources or total mineral reserves to mean such change in either the total tonnage or volume, or total contained metal or mineral content of the mineral resource or mineral reserve separately.

Royalties (s. 9.2)

• Exempts holders of royalties and similar interests (e.g., revenue or commodity streaming agreements) from the requirement to file a technical report if (i) the operator or owner of the mineral project is a reporting issuer in a jurisdiction of Canada or a producing issuer whose securities trade on a specified exchange, provided it discloses mineral resources and mineral reserves under an acceptable foreign code; (ii) the issuer identifies the source of the scientific or technical information; and (iii) the operator or owner of the mineral project has disclosed the scientific or technical information that is material to the issuer.

Production Decision (CP 4.2(c); Form 51-102FI) 1.4(e)

• Provides issuers should disclose and provide cautions where a decision is made to put a property into production without first establishing mineral reserves supported by a technical report and completing a feasibility study. yyConsequential amendment to NI 51-102FI - Management Discussion and Analysis to have an issuer disclose in its MD&A whether a production decision or other significant decision is based on a technical report.

Amended Form

• Substantial amendments to make form less prescriptive and more adaptable for advanced stage and producing properties.
• Qualified persons have more discretion regarding the amount of information and level of detail based on their assessment of the relevance and significance of the information in relation to the property.
• Replaces item 25 of the current form with eight new items that reflect major components or topics of a preliminary economic assessment, prefeasibility study or feasibility study.
• Allows the qualified person to rely on and disclaim responsibility for certain information provided by the issuer and certain pricing and valuation information provided by experts who are not qualified persons, (see also CP s. 5.1).
• Allows qualified persons to refer to any information in previously filed technical reports to the extent that it is still current, but requires them to summarize or quote this information in the current technical report so it is available to the reader.
• Adds a requirement for the qualified person to comment on the adequacy of data.
• Regarding mineral processing and metallurgical testing, requires more specific information and adds a requirement to discuss any potential processing factors or deleterious elements.
• Exempts producing issuers from the requirement to include information under the heading Economic Analysis for their producing properties.
• The CP notes that any reports containing scientific and technical information that are not technical reports should not be filed on SEDAR but might be posted on the issuer's website.

Amended Companion Policy

• Updates and streamlines guidance on both existing and new provisions

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