The Resource Revenue Transparency Working Group (the "Working Group") released its final recommendations for the creation of mandatory transparency standards. These would see mining companies traded on Canadian stock exchanges publicly disclose payments to governments.
The Working Group, consisting of the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay Canada and the Revenue Watch Institute, was formed in September 2012. Its objective is to improve transparency in the mining sector in Canada and overseas.
Legislation is expected to be introduced in Canada this year to implement the Government of Canada's commitment to mandatory reporting. The Working Group's final recommendations will weigh heavily on legislators.
The Honourable Joe Oliver, minister of Natural Resources Canada confirmed the Government's commitment to mandatory reporting on Monday, March 3, 2014 at the PDAC conference in Toronto. He encouraged the provinces to play a leadership role and enact their own equivalent legislation, but noted that if equivalent standards are not implemented the federal government will enact legislation by April 1, 2015.
Scope of reporting
The Working Group's recommendations are for all mining issuers to publicly disclose certain categories of payments made to national and sub-national authorities. This includes: states, provinces, counties, districts, municipalities and state-owned enterprises. In addition, companies will need to detail the mining project to which these payments are associated.
Control of subsidiaries
The Working Group's recommendations ensure reporting by not only parent companies but also subsidiaries, recognizing that projects are often held by subsidiary companies. The recommendations cover parent companies, subsidiaries, jointly controlled entities and/or associated entities.
When to disclose
The Working Group's recommendations suggest that payments should be disclosed over the life of the project—from exploration to remediation—and over the value chain of the project, from exploration to export. This recommendation will ensure comprehensive payment reporting throughout the project life cycle.
What to disclose
The payment categories outlined in the recommendations align with other global standards, including the Dodd-Frank Act, the accounting and transparency directive in the EU and the Extractive Industries Transparency Initiative. The final categories of payments recommended are:
Companies shall be expected to disclose all payments, or a series of related payments above C$100,000, for large issuers, and C$10,000 for venture issuers. The addition of the lower threshold for junior mining companies marks a departure from both the Dodd-Frank Act and the EU requirements, which set the minimum threshold at $100,000.
The Working Group noted this was to ensure the "made in Canada" approach would lead to reporting by all Canadian mining companies, including Canada's important junior mining sector.
Form and forum of disclosure
Following the release of its draft recommendations, the Working Group received comments on both the form and forum of disclosure. In response, the final recommendations include a new section on the form of disclosure, namely that companies shall disclose their payments in a separate form, to be filed on SEDAR, on an annual basis. This ensures that companies will not have to include payment disclosure in a prospectus or other offering document, thereby mitigating any risk of payment disclosure causing delay in public offerings.
The venue of payment disclosure is the next challenge. The Working Group recommends that the venue for payment disclosure be within provincial securities requirements. It recognizes the challenge inherent to passing a new disclosure requirement without a national securities regulator, but cites the Canadian Securities Administrators' past successes in developing national instruments for mandatory disclosure, such as National Instrument 43-101.
Next steps
Mining companies would do well to prepare internal accounting systems to track payment disclosure on a project-by-project basis in the coming years. This can help ensure that compliance with the coming regulations is not a costly or overly burdensome process.
Originally published in Canadian Mining Journal
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