On December 21, 2011, the U.S. Securities and Exchange Commission (SEC) published its final rules implementing the mine safety disclosure requirements under Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173, or "Dodd-Frank"). These rules impact public companies that are operators, or that have a subsidiary that is an operator, of a coal or any other mine subject to the Federal Mine Safety and Health Act of 1977 (MSHA). By way of background, Section 1503 requires that these public companies disclose in their periodic reports certain information regarding specified health and safety violations, orders and citations, related assessments, legal actions, and mining-related fatalities. On balance, the SEC's final rules track the statutory language of Dodd-Frank. In a number of areas, the SEC rejected broader interpretations advocated by environmental and shareholder activists that would have significantly expanded Section 1503's disclosure requirements. In the preamble to the final rules, the SEC emphasized that issuers subject to mine safety disclosure rules need to be mindful that the Dodd-Frank disclosures do not displace or supersede disclosures that may be required under the securities laws more broadly.

Annual and Quarterly Reports Disclosure

Section 1503(a) of Dodd-Frank mandates that every public company that is "an operator, or that has a subsidiary that is an operator, of a coal mine or other mine" provide specified mine safety disclosures in its periodic and annual reports. The SEC's final rules adopt the definition of "subsidiary" from Rule 12b-2 of the Securities Exchange Act of 1934, which is identical to the definition of "subsidiary" found in Item 1-02(x) of Regulation S-X and which applies to other elements of an issuer's periodic report disclosures. In doing so, the SEC essentially rejected proposals to include unconsolidated assets and joint ventures within the definition of "subsidiary." As such, with respect to the mine safety disclosure requirements, the term "subsidiary" means: an affiliate controlled by such person directly, or indirectly through one or more intermediaries. For issuers, this interpretation should, to a certain extent, simplify the reporting process, as issuers can use the same definition of "subsidiary" for purposes of mine safety disclosures that they use for other disclosures in periodic reports. 

The SEC also clarified how the required information must be presented. Going forward, coal and any other public mining companies will be required to include a brief statement in the body of the annual or quarterly report that the Dodd-Frank disclosures may be found in Exhibit 95 to the report. The SEC's final rules do not require the disclosure of information regarding fatal accidents or receipt of notice that a mine has a pattern of violations in the body of the report. While there is no particular presentation format required, the final rules include a sample format for the required Exhibit 95:

The final rules regarding reporting fatalities require issuers to report all fatalities at mines that are subject to MSHA, but only those that are mining-related. 

The SEC also confirmed that Section 1503(a) of Dodd-Frank requires that each periodic report include disclosure "for the time period covered by such report." On this important point, the SEC clarified that a Form 10-K need only contain the required information for the full fiscal year and need not provide a separate disclosure for just the fourth quarter. The SEC found that requiring the Form 10-K to include the mandated information for the entire year as well as for the fourth quarter separately "would add incrementally to the burden of the rule, is not required by the Act, and may not add significant information to the report." On the other hand, issuers may not "exclude information about orders or citations that were received during the time period covered by the report but subsequently dismissed, reduced or vacated." The final rules note that a registration statement is not a "periodic report" and no Section 1503 disclosures are therefore required therein, although, as noted above, full disclosure may suggest that an issuer disclose the types of information required under Section 1503. 

The final rules track the proposed rules in that they require disclosure of only those citations received under Section 104 of MSHA that present an "S&S violation." On this point, the SEC agreed with commentators that disclosure of more than "significant and substantial" violations went beyond the disclosure requirements called for by Section 1503 of Dodd-Frank. The final rules further confirm that disclosure is required of "any dollar amounts or penalty assessments proposed during the referenced time period that the issuer is contesting with the Commission." The SEC did note, however, that an issuer may include additional disclosure explaining the status of such orders, citations, and assessments, including pending challenges.

The SEC has interpreted the "pending legal action" disclosure requirement under Section 1503 to require, for each mine, the disclosure of the identity of the mine, the number of legal actions that were pending before the MSHA Commission as of the last day of the period covered by the periodic report, the aggregate number of legal actions instituted during the reporting period, and the aggregate number of legal actions resolved during the reporting period. The disclosure must also categorize these "pending legal actions" according to the categories established in the procedural rules of the MSHA Commission: 

  • contests of citations, orders, and contests of proposed penalties;
  • complaints for compensation by miners idled by closure orders;
  • complaints of discharge, discrimination, or interference by miners;
  • applications for temporary relief by a mining company from any order issued under Section 104 of MSHA; and
  • appeals of judges' decisions or orders to the MSHA Commission. 

These final rules do not require disclosure of material developments regarding pending legal actions or other explanatory information with respect to each pending legal action, as was originally proposed by the SEC.

Foreign private issuers will not be subject to the new Item 1.04 Form 8-K reporting requirements described below, but the SEC is adopting amendments to Forms 20-F and 40-F that require a foreign private issuer to disclose in each annual report the items described in Section 1503(a) of Dodd-Frank. This is the same information that is required of domestic issuers.  

Current Reports Disclosure

The final rules also clarify that an Item 1.04 Current Report on Form 8-K must be filed within "four business days after the receipt by the issuer [or its subsidiary]" of the orders for which Section 1503 requires real-time Form 8-K disclosure. These include: (a) an imminent danger order under Section 107(a) of MSHA, (b) written notice from the MSHA Commission of a pattern of violations of mandatory health or safety standards that are of such a nature that could have significantly and substantially contributed to the cause and effect of coal or other mine, health or safety hazards under Section 104(e) of MSHA, and (c) written notice from the MSHA Commission of the potential to have such a pattern. These orders must also be reported in the applicable periodic report for the period during which such order was received. Although some commentators pushed for a longer period of time for issuers to file this Item 1.04 Form 8-K, the SEC stated that the four-business-day deadline provides adequate time to prepare and report accurate and complete information. 

In addition, the SEC's final rules add new Item 1.04 as part of the list of Form 8-K items as to which untimely filing "will not result in the loss of Form S-3 eligibility." On the other hand, the SEC did not include this Form 8-K reporting requirement in its list of items that are not "deemed a violation of Section 10(b) or Rule 10b-5." This decision reflects the SEC's view that this safe harbor "is appropriate if the triggering event ... requires ... a rapid materiality determination," and that the four-business-day reporting period under new Item 1.04 does not require such a rapid materiality determination. 

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