On April 23, 2010, the Canadian Securities Administrators (the CSA) published for comment proposed changes to National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101). The proposed changes take into account the results of consultations with mining industry market participants and are designed to provide cost savings and efficiencies to mining companies without compromising investor protection. If implemented, the proposed changes will help facilitate the timely execution of M&A and corporate finance transactions.
The changes are contained in a revised draft of NI 43-101 (the Amended Instrument). The Amended Instrument is not a fundamental overhaul of NI 43-101, but there are substantial changes to certain aspects of NI 43-101, including the changes described below. Consequential amendments to related instruments and forms are also proposed.
Potential Changes to Short Form Prospectus Technical Report Trigger
The CSA is considering whether to retain, amend or eliminate the short form prospectus trigger in NI 43-101 requiring an issuer to file a technical report on the filing of a preliminary short form prospectus under National Instrument 44-101 – Short Form Prospectus Distributions (NI 44-101). The CSA has posed specific questions for comment to assist it in making this decision.
NI 43-101 currently requires an issuer to file a technical report if a preliminary short form prospectus includes material scientific or technical information about a mineral project on a property material to the issuer but not contained in a previously filed technical report. This requirement applies regardless of whether the scientific or technical information in question also constitutes a material change in the affairs of the issuer.
The CSA has acknowledged that the requirement to prepare a current technical report when filing a preliminary short form prospectus imposes extra costs and limits an issuer's ability to complete offerings on a timely basis. If the CSA deletes the short form prospectus trigger, issuers would be able to go to market without having to file a current technical report at the same time – even in circumstances where the prospectus contains new material scientific and technical information that constitutes a material change in the affairs of the issuer that would otherwise require a technical report to be filed. In these circumstances, the issuer would only be required to file a technical report including this new information following the filing of a preliminary short form prospectus within the 45 day or six month time limits prescribed by the Amended Instrument (discussed in greater detail below).
Certification and Consent Requirements Significantly Revised and Improved
The Amended Instrument eliminates the requirement to provide updated certificates and consents for a previously filed technical report that is still current and continues to meet applicable independence requirements.
Currently under NI 43-101, if an issuer has a current technical report that supports the scientific and technical information in certain prescribed documents (such as a securities exchange take-over bid circular), there is an exemption from the requirement to file a new technical report in connection with the filing of such documents, provided that the issuer files an updated certificate and consent of each qualified person who has been responsible for preparing or supervising the preparation of each portion of the technical report.
As the CSA notes, qualified persons often work in remote locations and can be unreachable on short notice. In addition, at the time an issuer is seeking an updated certificate and consent, the qualified person who wrote the technical report may no longer be employed by the same firm as when the report was written. Accordingly, the CSA notes that it can be difficult or impossible for an issuer to obtain updated certificates or consents. The CSA also observes that unless the qualified person recently worked on the mineral property, the issuer is in the best position to determine if there is new material scientific or technical information.
The elimination of the requirement to file updated certificates and consents means that the issuer's own internal qualified person will be able to determine whether a technical report is still current. This will greatly facilitate the timely execution of M&A and corporate finance transactions.
In a related move, the proposed consequential amendments to NI 44-101 permit a consulting firm that employed the qualified person who prepared the technical report to consent, in place of the qualified person, to the use of the technical report in a short form prospectus, subject to certain conditions.
Extension of Deadline for Filing Technical Report
Where an issuer acquires a material property that constitutes a material change in the affairs of the issuer, NI 43-101 requires the issuer to file a technical report within 45 days of disclosing a preliminary assessment, mineral resources or mineral reserves regarding the property. The Amended Instrument extends the deadline for filing a technical report to six months if another issuer previously filed a technical report on the acquired property and that report is still current. The CSA has proposed this amendment on the grounds that the extension would not compromise investor protection due to the continued availability of a current technical report.
Permitted Use of Foreign Codes
The Amended Instrument allows issuers incorporated or organized in a foreign jurisdiction, or incorporated in Canada in respect of its properties located in a foreign jurisdiction, to make disclosure and file a technical report using mineral reserve and mineral resource categories of an "acceptable foreign code", without the need to reconcile to the mineral resource and mineral reserve definitions used in the Amended Instrument. An acceptable foreign code includes the same codes previously recognized plus the PERC Code (Pan-European) and the Certification Code (Chile), together with any other code, generally accepted in a foreign jurisdiction, that defines mineral resources and mineral reserves in a manner that is consistent with the definitions of mineral reserves and mineral resources in the Amended Instrument.
Among other things, the Amended Instrument would permit a foreign producing issuer listed on a "specified exchange" to comply with a local acceptable foreign code for its mineral disclosure and would remove the requirement to prepare and file a current NI 43-101-compliant technical report prepared by an independent qualified person when it first becomes a reporting issuer in Canada. The CSA notes that this should facilitate additional Canadian listings by foreign producing issuers.
Form of Technical Report Now More Suitable for Advanced Stage Properties
The Amended Instrument has substantially amended the current form of technical report to make it less prescriptive and more suitable for advanced stage and producing properties. It gives more latitude to the qualified person(s) preparing the technical report to reflect and emphasize in summary fashion what is relevant having regard to the property. Qualified persons may quote from previously filed technical reports to the extent information is still current, provided a summary of the quoted relevant information is included in the technical report and the qualified persons have verified it. A significant change for producing issuers is that they are exempt from the requirement to provide an "economic analysis" for their producing properties unless the technical report includes a material expansion of current production.
Additional changes have been made in the Amended Instrument, including:
- changes to definitions of "qualified person" and "professional association" to clarify qualification requirements and expand the scope of persons that will qualify;
- allowing an issuer to name the qualified person who approved the disclosure of the scientific and technical information, as an alternative to naming the qualified person who prepared or supervised the preparation of the information;
- changes to the definition of "historical estimates" to permit disclosure of estimates prepared by third parties made before or after 2001, subject to meeting certain conditions;
- exempting royalty holders from the requirement to prepare a technical report if information concerning the applicable project is publicly available, and was prepared by an issuer subject to the Amended Instrument or a producing issuer listed on a "specified exchange";
- expanding the definition of "preliminary economic assessment" to include preliminary economic analysis after the completion of a pre-feasibility study or a feasibility study, and permitting disclosure of a preliminary economic assessment that includes or is based on inferred mineral resources, subject to certain new conditions; and
- amending the triggers for the requirement to have technical reports prepared by or under the supervision of independent qualified persons.
The CSA has published the Amended Instrument with a request for comments by July 23, 2010. We are preparing a comment letter in response to the CSA's request.
Jeremy is Chair of Osler's Mining Group. Eden's practice focuses on complex international and domestic corporate and commercial transactions, joint ventures, mergers and acquisitions, financing and restructuring. James' practice focuses on mergers and acquisitions, corporate finance and securities, mining and general corporate matters.
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