Since National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) came into effect in 2001, most market participants would agree that the quality of technical disclosure by mining companies has much improved. There are, however, still areas to which issuers and underwriters should continue to pay attention, both to avoid the need to correct or re-file technical reports and disclosure documents (with resulting expense and delay) and to ensure they are taking adequate steps to protect themselves from liability. The following selected points to watch are drawn from our recent experience and from recent commentary by securities regulators.
- Use Of Terminology — Issuers are still
sometimes running into problems when using the terms
"feasibility study" and "preliminary (or pre-)
feasibility study." Because the popular use of these
terms can be imprecise, they are specifically defined in NI
43-101 and their usage in technical reports and disclosure
documents must be consistent with these definitions.
Technical reports that use these terms in reference to less
comprehensive studies will need to be re-named and re-filed,
and any disclosure made in reliance upon them similarly
re-cast.
- Economic Analyses — To the extent a
lesser study, such as a scoping study, results in IRRs, NPVs
or other measures of economic viability, even if not a
feasibility or pre-feasibility study for NI 43-101 purposes,
such a study may be considered a "preliminary
assessment" and its disclosure permitted, subject in
certain cases to cautionary statements being included in the
disclosure. However, an economic analysis of a pure
exploration target, where not even inferred resources have
been delineated, is not permitted.
- Use Of Proceeds — Where a technical
report is prepared in connection with a prospectus financing,
and some or all of the proceeds are to be used to fund
further exploration or development of a property, the
"use of proceeds" section of the prospectus should
be generally consistent with any recommendations for further
work that are made by the qualified person (QP) in the
technical report. Too often these two are not consistent (or
inconsistencies are not adequately explained), with the
result that Canadian regulators will require the prospectus
and/or the technical report to be amended so the two can be
reconciled.
- Websites/Presentations — Remember that
NI 43-101 applies to all disclosure of scientific or
technical information made by or on behalf of an issuer, and
not just to disclosure in paper or printed form. Issuers,
their underwriters and counsel are generally very careful in
the preparation of prospectuses and offering memoranda, but
sometimes the same rigour in ensuring compliance with NI
43-101 is not applied to issuers' websites or
investor presentations.
In all cases, the QP should be identified by name, and certain other disclosure (including required statements regarding verification of the information and underlying data by a QP, as well as those surrounding disclosure of exploration results or reserves and resources) must be included either directly or by reference to another document. Increasingly, regulators are scrutinizing issuer websites and presentations in connection with continuous disclosure reviews and cracking down on non-compliers. Such reviews, which can also involve scrutiny of issuers' press releases, have resulted in cease trade orders among other penalties.
- Appropriate QP Sign-Off — If a QP is
purporting to sign off on all technical information disclosed
in a technical report or company disclosure, the issuer
should ensure that the QP is appropriately qualified for all
the information on which he or she is opining. Failure to
comply with this requirement occurs more often in reports
prepared by in-house QPs than in those prepared by consulting
geologists. This sometimes arises because QPs who are opining
about geology do not realize that disclosure of metallurgical
results and conclusions also requires appropriate QP support.
The Canadian securities commissions recently reiterated that
NI 43-101 applies equally to metallurgical information as it
does to drilling and reserve/resource information.
- Conflicts With Foreign Disclosure Rules
— Sometimes inconsistencies between the disclosure
rules in Canada and those in foreign jurisdictions can make
compliance a challenge. One such conflict we have run into
recently arises in the context of issuers applying for
admission to AIM and doing a concurrent private placement in
Canada. In order to keep disclosure to investors consistent
in the different jurisdictions, it is often desirable for the
issuer and its underwriters to use the AIM admission document
(which incorporates a competent person's report (CPR)
prepared under AIM rules) together with a wrapper as an
offering memorandum for the Canadian private placement.
However, while it is a cardinal rule under NI 43-101 that
inferred resources cannot be added to any other category of
resources, AIM rules require the CPR in some places to
combine inferred resources not only with other categories of
resources, but with reserves as well. This results in a
direct conflict between the requirements of the two
jurisdictions. While we have pointed out this discrepancy to
the Canadian securities commissions, there is no obvious
remedy for it in NI 43-101. We have seen issuers and their
underwriters approach this conflict in a number of ways,
including obtaining exemptive relief from the
commissions.
- Private Placements And QP Certificates
— Where an offering memorandum containing technical
information is being prepared in Canada but no NI 43-101
technical report is required (for example, in a private
placement to accredited investors), it is good practice to
provide the QP at the outset of work with a form of
certificate similar to one that would be required to be
signed and filed in connection with a formal technical report
under securities laws for a prospectus financing. This tends
to focus the individual's mind on the rules in NI
43-101, including having the individual confirm that he or
she is actually a QP and the basis for this conclusion. One
can easily imagine a situation where only on the eve of a
proposed financing does it come to light that a foreign
geologist is not in fact a QP under Canadian rules, resulting
in delay and cost in trying to locate an appropriately
qualified person on short notice to support the
issuer's disclosure.
This article previously appeared in McCarthy Tétrault: Mining Prospects.
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.