Staff of the Ontario Securities Commission ("OSC") have found an unacceptable level of compliance with the requirements of Form 43-101F1 based on a review of 50 of the 460 technical reports filed by Ontario mining issuers between June 30, 2011 and June 29, 2012. Of the technical reports reviewed, 80% had some form of non-compliance, with 40% having at least one major non-compliance concern.
OSC Staff Notice 43-705 – Report on Staff's Review of Technical Reports by Ontario Mining Issuers (the "Report") summarizes the results of the their review, which was intended to assess compliance with the recent revisions to National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") and Form 43-101F1. The Report provides both issuers and the persons who prepare technical reports (referred to as "Qualified Persons" or "QPs") with guidance with respect to following areas of concern.
Significant areas of concern
- Mineral resource estimates. Technical reports are required to provide a sufficient discussion of the key assumptions, parameters and methods used to estimate the mineral resources for a reasonably informed reader to understand the basis for the estimate and how it was generated. Certain of the reviewed technical reports did not disclose how the prospects of economic extraction were established or the cut-off grade used for the estimate. Many did not clearly disclose the assumed metal price or factors related to the mining scenario or mineral processing recovery. The Report reminds QPs and issuers to include the required disclosure, and specifically reminds QPs that mineral resources, by definition, must have reasonable prospects for economic extraction based on justifiable technical and economic factors.
- Environmental studies, permitting and social or community impact. Technical reports are required to include disclosure related to environmental permits and the social or community impacts of developing the mineral project. Among other deficiencies, certain of the reviewed technical reports failed to disclose how surface rights issues would be addressed or whether an agreement was in place with local First Nation communities. The Report reminds QPs to include a discussion of any potential social or community related requirements, the status of negotiations or agreements with local communities and mine closure requirements and costs in technical reports on "advanced properties".1
- Capital and operating costs. Technical reports for advanced properties are required to include a summary of capital and operating cost estimates, with major components set out in tabular form, and an explanation and a justification for the basis for the cost estimates. The Report notes that cost estimates should not be a single bottom-line number and reminds QPs to provide more context and justification for capital and operating cost estimates in advanced property technical reports.
- Economic Analysis. Technical reports on advanced properties must provide an economic analysis for the mineral project which includes, among other things, a clear statement of and justification for the principal assumptions, cash flow forecasts on an annual basis and sensitivity or other analysis using variants in commodity price, grade, capital and operating costs or other significant parameters as appropriate with a discussion of the impact of the results. The Report notes that it is potentially misleading for a technical report on an advanced property to disclose only pre-tax cash flows and economic outcomes or to disclose only positive metal price changes or up-side sensitivity analysis.
- Interpretation and conclusions. The interpretations and conclusions section must include a discussion of significant risks and uncertainties and any related reasonably foreseeable impacts of these risks and uncertainties. This is a new requirement resulting from amendments to Form 43-101F1 as of June 30, 2011. Examples of project specific risks include the availability of water rights, the use of a novel mineral processing technology or the potential impact of a civil war in the region. The Report suggests that QPs should consider including a table that identifies specific risks, potential outcomes and mitigating factors.
Other areas of concern
Summary. Technical reports are required to include a brief summary of important information in the report. QPs may refer to section 5.4 of Form 51-102F2 – Annual Information Form as a possible template for what to include in the summary section.
- Historical estimates. QPs and issuers are reminded to include the required cautionary language in section 2.4 of NI 43-101 every time a historical estimate is disclosed. Simply stating that the estimate is not compliant with NI 43-101 is not sufficient.
- QP certificates. The form of QP certificate is set out in section 8.1 of NI 43-101. QP certificates must be signed, dated, disclose the QPs relevant experience and also identify the items for which the QP was responsible. Each section of the technical report must have a QP with appropriate relevant experience taking responsibility for the information provided. The QP certificate is one of the first things checked by the regulators when reviewing technical reports.
Given the extent of non-compliance identified in the Report and the continued scrutiny of technical reports by the OSC as part of their continuous disclosure review program, issuers and QPs should carefully consider the guidance provided in the Report and the requirements of NI 43-101 when preparing technical reports. Issuers should expect OSC staff requests for re-filings, or other staff action, where the requirements of NI 43-101 are not fully met. Issuers are cautioned that unresolved issues raised by OSC staff in reviewing an issuer's technical reports can delay the issuance of a receipt for a prospectus, particularly for short form prospectus filings.
1 An "advanced property" is a property that
has (a) mineral reserves, or (b) mineral resources the potential
economic viability of which is supported by a preliminary economic
assessment, a pre-feasibility study or a feasibility study.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
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