On June 27, 2013 the Ontario Securities Commission published Notice 43-705 Report on Staff's Review of Technical Reports by Ontario Mining Issuers. The Notice discusses the results from the OSC's review of compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects, and, in particular, compliance with the technical report form (Form 43-101F1).
Scope of the Review
OSC staff reviewed 50 technical reports, which represented a sample of issuers in the Ontario public markets who had filed a technical report during the 12-month period ending June 29, 2012. The sample included 27 technical reports by issuers listed on the TSX and 16 listed on the TSX Venture Exchange, with the remaining seven listed on the Canadian National Stock Exchange. The sample represented approximately 10% of all the technical reports filed by Ontario issuers during the 12-month period ending June 29, 2012.
Of the technical reports reviewed, 80% had some form of non-compliance with the requirements of Form 43-101F1 and approximately 40% had at least one major non-compliance concern. Only 20% of the reports reviewed were fully compliant with the form requirements.
Significant Areas of Concern
The Notice identifies five areas of "significant concern" regarding compliance with Form 43-101F1.
Mineral Resource Estimate
25% of the technical reports disclosing mineral resource estimates did not provide all required information. Omitted information included how "reasonable prospects for economic extraction" were established and what cut-off grade was used to estimate the mineral resource. Many technical reports did not clearly disclose the assumed metal price or factors related to the mining scenario or mineral processing recovery.
The Notice reminds that if an issuer discloses in writing mineral resources on a property material to it, the issuer and qualified persons must include in the written disclosure, the key assumptions, parameters and methods to support the basis for estimating the mineral resource.
Environmental Studies, Permitting and Social or Community Impact
32% of the technical reports relating to advanced properties failed to adequately disclose information regarding environmental permits or the social or community impacts of developing the mineral project. Others did not disclose how surface rights issues would be addressed or whether there was an exploration agreement in place or under negotiation with First Nations communities.
The OSC noted that when negotiating material contracts and agreements with First Nations, issuers should be mindful of filing requirements under National Instrument 41-101 General Prospectus Requirements or National Instrument 51-102 Continuous Disclosure Obligations and how these requirements affect any confidentiality provisions in such contracts.
The Notice reminds qualified persons to include a discussion of any potential social or community related requirements and plans, the status of negotiations with local communities, and a discussion of mine closure requirements and costs in technical reports on advanced properties.
Capital and Operating Costs
26% of the technical reports relating to advanced properties did not adequately disclose all required information regarding capital and operating cost estimates. Some reports did not provide the main components of the capital cost estimate and others did not address justifications for how the operating cost estimate was determined or why certain costs were assumed.
The Notice reminds that cost estimates should discuss context and justification for capital and operating cost estimates in a technical report for an advanced property.
40% of the technical reports that included a preliminary economic assessment failed to adequately address taxes applicable to the mineral project and 37% of the reports on advanced properties did not sufficiently disclose the economic analysis information required under Form 43-101F1.
The Notice pointed out that it is potentially misleading to disclose only pre-tax cash flows and economic outcomes or to disclose only positive metal price changes or only up-side sensitivity analysis.
Interpretation and Conclusions
In the interpretation and conclusions section where significant risks and uncertainties need to be discussed, the OSC found that 36% of technical reports did not contain a discussion of project specific risks and uncertainties, such as the availability of water rights, use of novel mineral processing technology or the potential impact of a civil war in the region. It was suggested that a table showing the significant project specific risks, potential outcomes and mitigating factors be provided.
Other Areas of Concern
The OSC review found that 24% of the technical reports did not provide a summary as required by Form 43-101F1. The reports also failed to provide a useful overview of the important information and key findings about the mineral project.
28% of the technical reports did not include the cautionary statements required under NI 43-101 when a historical estimate was disclosed. The Notice reminds that qualified persons and issuers must include the required cautionary language every time a historical estimate is disclosed.
Qualified Person Certificate
Of the qualified person certificates provided, the OSC found that 24% were deficient. Some were not signed or dated and, in some cases, the qualified person(s) failed to identify the items of the technical report they were responsible for or provide a summary of their experience related to the commodity, type of mineral deposit and situation under consideration.
Considerations for Ontario Mining Issuers
Given the high level of non-compliance identified, Ontario mining issuers are reminded to review the specific requirements under NI 43-101 and Form 43-101F1 when preparing a technical report. The OSC advises that ongoing review of technical reports will continue, and issuers should anticipate OSC staff requests for re-filings or other staff action, where appropriate, if the issuer has not met the requirements, which may cause delays to public financings and other transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.