On June 30, 2011, a new version of National Instrument 43-101 Standards of Disclosure for Mineral Projects (the "New Instrument"), Companion Policy 43-101CP (the "New Companion Policy") and Form 43-101F1 Technical Report (the "New Form") came into effect which substantially amends the disclosure requirements for mineral projects. The New Instrument, New Companion Policy and New Form (collectively the "New Mining Rule") have also resulted in consequential amendments to other regulatory instruments that relate to mineral project disclosure. The Canadian Securities Administrators (the "CSA") had previously published drafts of the New Mining Rule in April 2010, and the final versions of the New Mining Rule contain minor changes and revisions to such drafts. Some of the more significant changes and revisions reflected in the New Mining Rule are summarized below.
Requirements Applicable to All Disclosure
Under the previous version of National Instrument 43-101 (the "Prior Instrument"), all disclosure of scientific or technical information made by an issuer concerning a mineral project on a property 1 material to the issuer 2 must be based upon information prepared by or under the supervision of a qualified person, who must be named in the disclosure. Under the New Mining Rule, all such disclosure now only needs to be approved by a qualified person who needs to be named in the disclosure.
Under the Prior Instrument, an issuer must not disclose: (a) the quantity, grade, or metal or mineral content of a deposit that has not been categorized as an inferred mineral resource, an indicated mineral resource, a measured mineral resource, a probable mineral reserve, or a proven mineral reserve; or (b) the results of an economic analysis that includes inferred mineral resources. Under the New Instrument, such disclosure remains prohibited along with the following disclosure: (a) the results of an economic analysis on exploration targets or historical estimates; (b) the gross value of metal or mineral 3 in a deposit or a sampled interval or drill intersection; or (c) a metal or mineral equivalent grade for a multiple commodity deposit, sampled interval, or drill intersection, unless it also discloses the grade of each metal or mineral used to establish the metal or mineral equivalent grade.
In the New Companion Policy, the CSA states that it considers the use of the word "ore" in the context of mineral resource estimates to be potentially misleading because "ore" implies technical feasibility and economic viability that should only be attributed to mineral reserves.
In the Prior Instrument, historical estimates (which are unverified estimates of the quantity, grade or metal or mineral content of a deposit) could be disclosed subject to certain conditions and supplemental disclosure requirements being met, but were limited to estimates prepared prior to February 1, 2001. This has allowed issuers to disclose legacy information concerning their properties. The New 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 property that contains the deposit. We expect that this change will require some issuers that have relied on reports prepared by the issuer that predate the Prior Instrument to prepare reports on their mineral properties for the first time.
In the New Instrument, disclosure of historical estimates is permitted provided the disclosure includes, in addition to the cautionary language required under the Prior Instrument, new expanded supplemental disclosure including: (a) whether there is an existing technical report; (b) to the extent known, the key assumptions, parameters and methods used to prepare the historical estimate; and (c) comments on what work needs to be done to upgrade or verify the historical estimates as current mineral resources or mineral reserves.
Preliminary Economic Assessment
Under the New Mining Rule, the definition of "preliminary assessment" has been changed to "preliminary economic assessment" and the new definition includes a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources. Such study need no longer have been taken at an early stage of the project prior to the completion of a preliminary feasibility study (which was the case under the Prior Instrument). We understand that this change will ensure the restrictions on disclosure of an economic analysis, discussed below, apply to an economic analysis completed after a pre-feasibility study or feasibility study.
Under the New Instrument, an issuer may now disclose the results of a preliminary economic assessment that includes or is based on inferred mineral resources provided the required disclosure is made. If the preliminary economic assessment is prepared after the completion of a pre-feasibility or feasibility study with respect of the property, the disclosure must describe the impact of the preliminary economic assessment on the results of any such studies (for example, whether the mineral reserves calculated in such studies are still valid).
Written Disclosure of Exploration Information
Under the New Instrument, if an issuer is disclosing in writing sample, analytical or testing results on a property material to the issuer, the issuer must include in the written disclosure, with respect to the results being disclosed, the location, azimuth and dip of the drill holes and the depth of the sample intervals along with the information already required by the Prior Instrument for this type of disclosure.
Short Form Prospectus Technical Report Trigger
Under the New Instrument, the short form prospectus trigger for filing a technical report is limited to situations where the preliminary short form prospectus discloses for the first time: (a) mineral resources, mineral reserves or the results of a preliminary economic assessment on the property that constitutes a material change in relation to an issuer; or (b) a change in this information from the most recently filed technical report, if the change constitutes a material change in relation to the issuer. This is a key amendment to the short form prospectus trigger and will likely reduce the instances of a report being triggered by the filing of a preliminary short form prospectus.
Technical Report Trigger from the Disclosure of Mineral Resources, Mineral Reserves or a Preliminary Economic Assessment
Under the Prior Instrument, one of the triggers requiring the filing of a technical report was 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 from the most recently filed technical report) on a property material to the issuer that, in each case, constitutes a material change to the issuer. The New Instrument extends this technical report trigger to any written document containing such disclosure, other than a document to which another technical report trigger already specifically relates (for example, disclosure contained on websites or in presentations or investor relations material could trigger the filing of a technical report). Generally, a technical report triggered by this requirement must be filed within 45 days of the date of disclosure, except for a technical report filed to support scientific or technical information contained in: (a) a preliminary short form prospectus, in which case the technical report must be filed with the preliminary short form prospectus if the filing occurs within 45 days of the date of disclosure; and (b) a directors' circular in which case the time to file is the earlier of 45 days after the date of the disclosure and three business days before the expiry of the takeover bid. 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.
A new conditional exemption allows an issuer to delay filing a technical report supporting such disclosure (except where such disclosure is also contained in a preliminary short form prospectus) for 180 days 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 the issuer must identify the previously filed technical report and the qualified person who reviewed the technical report on behalf of the issuer, and include a statement that to the best of the issuer's knowledge, information, and belief, there is no new material scientific or technical information that would make the disclosure of the mineral resources, mineral reserves or results of a preliminary economic assessment inaccurate or misleading.
The New 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.
Other Changes to Technical Report Triggers
The New Instrument contains an expanded exemption from the requirement to file a technical report where: (a) the issuer has previously filed a technical report that supports the scientific or technical information in the document being filed; (b) at the date of filing of the document, there is no new material scientific or technical information concerning the property not included in the previously filed technical report; and (c) the previously filed technical report meets any independence requirements under the New 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 New Instrument has removed this "grandfather" exemption which will now create a first-time technical report filing obligation at the first triggering event (such as an AIF filing) for issuers with long running mines that may have been otherwise exempt from the technical report obligation since 2001.
A "qualified person" in the New Instrument must now have a university degree, or equivalent accreditation, in an area of geoscience or engineering, relating to mineral exploration or mining, as well as five years of experience in mineral exploration, mine development or operation, or mineral project assessment, or any combination of these, that is relevant to his or her professional degree or area of practice. 4 Foreign qualified persons must also have a membership designation that requires: (a) attainment of a position of responsibility in their profession that requires the exercise of independent judgment; and (b) either (i) a favourable confidential peer evaluation, or (ii) a recommendation for membership by at least two peers and demonstrated prominence or expertise in the field of mineral exploration or mining.
The definition of "qualified person" in the New Instrument is less prescriptive as it relates to foreign professionals. Under the New Instrument, a qualified person must be in good standing with a "professional association". Acceptable professional associations must now, when admitting members, consider ethical fitness in addition to academic qualifications and experience. They must also require or encourage continuing professional development. The New Instrument has removed the schedule of the prescriptive list of 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 New Companion Policy and this list will be updated periodically.
A producing issuer (i.e. whose gross revenues derived from mining operations were at least Cdn$30 million during the most recently completed financial year and Cdn$90 million in aggregate over the past three completed financial years) whose securities trade on a "specified exchange" 5 and which becomes a reporting issuer in a Canadian jurisdiction need not retain an independent qualified person to prepare the required technical report.
Use of Foreign Code
The New Instrument is more flexible in permitting the use of foreign code. Under the New 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 contained in the Prior Instrument has been removed and is now defined in the New Instrument 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 New Instrument. The CSA has indicated that the foreign codes specifically identified in the definition are the foreign codes that they think currently satisfies the definition. The CSA plans to publish CSA Staff Notices identifying any additional foreign codes that they may determine satisfies the definition.
Under the New Instrument, if an issuer files a technical report that uses mineral resource and mineral reserve categories of an acceptable foreign code, the issuer must include in the technical report a reconciliation of any material differences between the mineral resource and mineral reserve categories used and the categories under the CIM definitions.
Certificates and Consents
The New 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 filing the disclosure document, there is no new material scientific or technical information concerning the property not included in the previously filed technical report.6 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") has also simplified the expert consents required under NI 44-101 when a short form prospectus is filed. The amendment to NI 44-101 permits 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 obtain 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.
Finally, it is worth noting that the New Companion Policy contains a sample form of qualified person consent required under the New Instrument. Consents required under the New Instrument need to identify the document that the technical report supports, need only be addressed to the issuer who commissioned the technical report (and need not be addressed to the securities commissions) and can be limited to the parts of the technical report that the qualified person is responsible for. For first time reporting issuers, a qualified person need only consent to the public filing of the technical report if there is no disclosure document being submitted concurrently with the technical report. An issuer relying on this modified consent will need to have the qualified person deliver a full consent if the technical report is subsequently used to support disclosure in a document that triggers the filing of a technical report.
Exemption for Royalty Interests or Similar Interests
The New 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 or similar interest in a mineral project. The CSA has indicated that it considers a "royalty or similar interest" to include a gross overriding royalty, net smelter return, net profit interest, free carried interest, and a product tonnage royalty. The CSA also considers a "royalty or similar interest" to include an interest in a revenue or commodity stream from a proposed or current mining operation, such as the right to purchase certain commodities produced from the operation. The CSA indicated that the term does not include a participating or carried interest and therefore the exemptions do not apply when the issuer also has a participating or carried interest in the property or the mining operation, either direct or indirect.
This exemption is available if the operator or owner of the mineral project is (a) a reporting issuer in a jurisdiction of Canada or (b) is a producing issuer whose securities trade on a "specified exchange" and that discloses mineral resources and mineral reserves under an acceptable foreign code. To rely on this exemption, an issuer must identify the source of the scientific and technical information in its disclosure document and the operator or owner of the mineral project must have disclosed such scientific and technical information that is material to the issuer.
In the New Companion Policy, the CSA has noted that an issuer holding a royalty or similar interest and which is relying on this exemption should consider, in the absence of a technical report prepared by or on behalf of the issuer, who will be liable under applicable securities legislation for any misrepresentations in the issuer's scientific or technical information. Such liability concerns may cause an issuer to decide to commission its own technical report to be prepared by a qualified person.
The New Form
Generally speaking, the New Form 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.
In the instructions to the New Form, qualified persons have been reminded that the intended audience is the investing public and their advisors who, in most cases, are not mining experts, and as such, technical reports are to be simplified and understandable to a reasonable investor. The instructions further provide that the technical report should include sufficient context and cautionary language to allow a reasonable investor to understand the nature, importance and limitations of the data, interpretations and conclusions summarized in the technical report. In addition, the instructions to the New Form state that since the technical report is a summary document, comprehensive appendices are not generally necessary. The New Form also includes enhanced guidance with respect of the use of illustrations.
Under the New Form, a qualified person authoring a technical report is 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. Following this approach, however, may lead to increased consent requirements in the context of a prospectus offering.
Other new disclosure requirements contained in the New Form include the following:
- with respect to property description and location, to the extent known, any significant factors and risks that may affect access, title or the right or ability to perform work on the property;
- with respect to disclosure about the history of a property, if the technical report includes disclosure of work that was conducted outside the current property boundaries, the report must clearly distinguish this work from the work conducted on the property that is the subject of the technical report;
- if the technical report includes exploration results from previous operators, the report must clearly identify the results of the drilling conducted by or on behalf of the issuer;
- with respect to sample preparation, analyses and security, a summary of the nature, extent and results of quality control procedures employed and quality assurance actions taken or recommended to provide adequate confidence in the data collection and processing;
- with respect to data verification, the qualified person must provide an opinion on the adequacy of the data for the purposes used in the technical report;
- with respect to the disclosure of mineral resource estimates, when multiple cut-off grade scenarios are presented, the qualified person must identify and highlight the base case, or preferred scenario, and all estimates resulting from each of the cut-off grade scenarios must meet the test of reasonable prospect of economic extraction; and
- under the interpretations and conclusions section, the required disclosure has been broadened to apply to projects of various stages of development, and there is a requirement to discuss any significant risk and uncertainties that could reasonably be expected to affect the reliability or confidence in the exploration information, mineral resource or mineral reserve estimates or projected economic outcomes, as well as a discussion of any reasonably foreseeable impacts of these risks and uncertainties to the project's potential economic viability or continued viability.
For technical reports in respect of advanced properties, the New 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; project 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 issuers are exempt from economic analysis disclosure in respect of technical reports on properties currently in production unless the technical report includes a material expansion of current production.
1 In the New Companion Policy, the CSA has more clearly expressed its view that a "property", in the context of the New Instrument, includes multiple mineral claims or other documents of title that are contiguous or in such close proximity that any underlying mineral deposits would likely be developed using common infrastructure.
2 In determining whether a property is material to an issuer, the CSA has indicated in the New Companion Policy that it would generally assess an issuer's view of the materiality of a property based upon the issuer's disclosure record, its deployment of resources and other indicators. The CSA indicated that it would likely conclude a property is material to an issuer if: (a) the issuer's disclosure record is focused on that property; (b) the issuer's disclosure indicates or suggests the results are significant or important; (c) the cumulative and projected acquisition costs or proposed exploration expenditures are significant compared to the issuer's other material properties; or (d) the issuer is raising significant money or devoting significant resources to the exploration and development of the property.
3 In the New Companion Policy, the CSA states that it interprets gross metal value or gross mineral value to include any representation of the potential monetary value of the metal or mineral in the ground that does not take into consideration the costs, recoveries and other relevant factors associated with the extraction and recovery of the metal or mineral. The CSA believes this type of disclosure is misleading because it overstates the potential value of the deposit.
4 In the New Companion Policy, the CSA has clarified that the definition of "qualified person" does not include engineering and geoscience technicians, engineers and geoscientists in training, and equivalent designations that restrict the individual's scope of practice or require the individual to practise under the supervision of another professional engineer, professional geoscientist or equivalent.
5 The Australian Stock Exchange, the Johannesburg Stock Exchange, the London Stock Exchange Main Market, the Nasdaq Stock Market, the New York Stock Exchange or the Hong Kong Stock Exchange.
6 The New Companion Policy also notes that where an issuer has triggered the requirement to file a technical report, it should consider the current validity of economic assumptions in its existing technical report to determine if the technical report is still current. The CSA suggests that an issuer might be able to extend the life of a technical report by having a qualified person include appropriate sensitivity analyses of the key economic variables.
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