The Ontario Securities Commission (OSC) has found an
"unacceptable" level of compliance with Form 43-101F1
Technical Reports for mineral projects, with 80% of the Technical
Reports reviewed having some level of non-compliance and 40% of the
Technical Reports reviewed having at least one major non-compliance
concern. The findings are set out in OSC Staff Notice 43-705
summarizing the results of its review of Technical Reports filed
since the revised National Instrument 43-101 Standards of
Disclosure for Mineral Projects came into force on June 30,
Issuers should anticipate staff requests for refilings or
additional disclosure, or other staff action if an issuer and its
qualified person (QP) have not fully met the requirements of Form
43-101F1 and NI 43-101 in their technical disclosure. In the
context of a financing, such requests could delay the issuance of a
prospectus receipt, particularly for short form prospectus
The OSC also points out that issuers, their directors and
officers are primarily responsible for disclosure in Technical
Reports. The OSC suggests that boards may want to consider their
and management's corporate and technical skill set in order to
be qualified to fulfill this oversight function.
The OSC's findings are consistent with Borden Ladner Gervais
LLP's experience reviewing technical disclosure, particularly
in our role as underwriters' counsel. The requirements set out
in Form 43-101F1 are intricate, detailed and subject to nuances and
traps. Many engineers and geologists, particularly those who are
working in-house, are simply unaware of the level of regulatory
scrutiny these reports attract. We are aware of a number of
prospectus financings, and even private placements, that have been
delayed or, in some cases, terminated due to non-compliance of
Technical Reports with Form 43-101F1. To address these potential
issues, many of our public mining clients have us "scrub"
their technical disclosure before filing a Technical Report or
announcing a financing in order to catch and address any problems
before they are raised by regulators.
GUIDANCE FOR MINING ISSUERS AND QPS IN AREAS OF CONCERN
The OSC identified five significant areas of concern in
Technical Reports and provided the following guidance to assist
issuers and QPs:
Mineral Resource Estimates - QPs and issuers
must disclose how "reasonable prospects for economic
extraction" were established, including the key assumptions,
parameters and methods to support the basis for estimating mineral
resources, such as cut-off grade, metal price assumptions and other
constraints, including the geological model, conceptual pit shell
or mine model.
Environmental Studies, Permitting and Social or
Community Impact - QPs must include a discussion of any
potential social or community related requirements and plans for
the project and the status of any negotiations or agreements with
local communities, as well as a discussion of mine closure
(remediation and reclamation) requirements and costs, in a
Technical Report on an "advanced property".
Capital and Operating Costs - QPs must provide
more context and justification for capital and operating cost
estimates included in Technical Reports for an "advanced
property". Cost estimates should not be a single bottom-line
Economic Analysis - QPs and issuers are
cautioned 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 only up-side sensitivity analysis.
Tabular Disclosure - QPs should consider
including a table showing the significant project specific risks,
potential outcomes and mitigating factors along with supplementary
discussions and possible opportunities, if reasonable.
The OSC also provided guidance on other areas of concern:
Summary - In a Technical Report's Summary,
the QP must briefly summarize important information and "key
findings" about the property, including: property description
and ownership; data verification; site visits; mineral resource and
mineral reserve estimates (if applicable); and mining studies and
economic analysis (if applicable).
History - QPs and issuers must include the
required cautionary language set out in section 2.4 of NI 43-101
every time a historical estimate is disclosed.
QP Certificate - QPs must include in their
certificates all the statements required under section 8.1(2) of NI
43-101. The OSC noted that the QP's certificate is one of the
first things checked by the regulators when reviewing a Technical
A copy of OSC Staff Notice 43-705 is available here.
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In Bank of Montreal v Bumper Development Corporation Ltd, 2016 ABQB 363, the Alberta Court of Queen's Bench enforced the "immediate replacement" provision in the Canadian Association of Petroleum Landmen 2007 Operating Procedure...
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