The Ontario Securities Commission (the "OSC") published the results of its review of Ontario mining issuers' compliance with the amended disclosure requirements under National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI-43-101"). The results, published on June 27, 2013, are summarized in Staff Notice 43-705 - Report on Staff 's Review of Technical Reports by Ontario Mining Issuers (the "Notice").
The OSC summarized its results and future initiatives as follows:
- There was an unacceptable level of compliance with Form 43-101F1.
- Eighty percent of the technical reports filed by issuers (the "Technical Reports") reviewed by the OSC were non-compliant in some form and 40% had at least one major non-compliance concern.
- The OSC will initiate review of Technical Reports as part of its overall continuous disclosure review program.
- Issuers should anticipate staff requests for refilings, additional disclosure, or other staff action if an issuer and the qualified person ("QP") have not fully met the requirements of Form 43-101F1.
- Issues raised in a review will be considered when determining whether a prospectus receipt should be issued (unresolved issues may delay the prospectus receipt, particularly for short form prospectus filings).
Areas of Concern
The following are the significant areas of concern identified by the OSC:
- Mineral Resource Estimates. Twenty-five percent of the applicable Technical Reports did not provide the required information and often failed to clearly disclose the assumed metal price or factors related to the mining scenario or mineral recovery process.
- Environmental Studies, Permitting and Social or Community Impact. In certain recent cases, the failure to advance projects has been tied to surface and community issues rather than geological or technical issues. A Technical Report regarding an "advanced property" must include a discussion of reasonably available information on environmental permits and social or community factors related to the mineral project, including any potential social or community-related requirements and plans for the project and the status of any negotiations or agreements with local communities. The OSC reminds issuers that material contracts, including those with First Nation communities, must be filed publicly.
- Capital and Operating Costs. A Technical Report in respect of an "advanced property" must include a summary of capital and operating cost estimates, with major components set out in tabular form. The OSC highlights that QPs must include disclosure of the main components of the estimated capital and operating costs and the basis for these costs.
- Economic Analysis. A Technical Report regarding an "advanced property" must include an economic analysis for the mineral project, including a clear statement of, and justification for, the principal assumptions and cash flow forecasts on an annual basis using mineral resources and an annual production schedule for the life of the project. A discussion of net present value, internal rate of return and pushback period of capital with imputed or actual interest must also be included. A Technical Report that discloses only pre-tax cash flows will not satisfy applicable disclosure requirements. The OSC is of the view that disclosing only pre-tax cash flows and economic outcomes or disclosing only positive metal price changes or only an up-side sensitivity analysis is potentially misleading.
- Interpretation and Conclusion. A Technical Report must summarize the relevant results and interpretations of the information and analysis being reported on. Significant risks and uncertainties and their reasonably foreseeable impacts must be discussed. Where a Technical Report provides exploration information, it must include the conclusions of the QP. The QP must include a clear overview of the main risks and uncertainties and their potential impacts on the mineral project and potential future development. The OSC notes that QPs should consider including a table showing the significant project specific risks, potential outcomes and mitigating factors with supplementary discussion.
Although less significant, other areas of concern identified by the OSC include:
- Summary. The summary should address the property description, ownership, geology and mineralization, the status of exploration, development and operations, mineral resources and mineral reserve estimates and the QP's conclusions and recommendations.
- History. Where historical estimates are included, cautionary language is required.
- QP Certificates. Certificates must be signed, dated and note the items of the Technical Report they were responsible for or a summary of their relevant experience related to the commodity, type of mineral deposit and situation under consideration for which they were responsible).
The OSC also reminds issuers that directors and officers hold primary responsibility for disclosure included in a Technical Report, including information provided by the QP. While not identifying a statutory requirement for directors to review the issuer's Technical Reports in full, the Notice highlights the oversight function to be served by an issuer's directors and advises that the composition and technical skill set of the board of directors should be considered to ensure it can meet the issuer's responsibilities with respect to mining-related disclosure.
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