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Proposed Amendments to NI 43-101 Standards of Disclosure for Mineral Projects

Published: 07/07/2010

By Mark T. Bennett, Andre Boivin, Andrea FitzGerald, Jennifer Traub

The deadline for providing comments on the Canadian Securities Administrators’ proposed amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) is fast approaching on July 23, 2010. The amendments are being proposed as a result of market participant feedback concerning the challenges faced by public mining companies in complying with the current mining disclosure rules. They are the first major changes to NI 43-101 being proposed since its inception in 2001. They are aimed at increasing flexibility and providing cost savings and efficiencies to mining companies while at the same time maintaining investor protection.

There are a number of significant changes and improvements to the instrument being proposed, including those highlighted below.

Qualified Person Certificates and Consents

Issuers would no longer be required to file updated qualified person certificates and consents for previously filed technical reports, provided (i) there is no new material scientific or technical information concerning the property not included in the previously filed technical report, and (ii) the technical report is still current and continues to meet any independence requirements as may be applicable in connection with the subsequent filing trigger.

There would be a new exemption for the inclusion of certain statements in a qualified person consent in connection with technical reports filed only as a result of becoming a reporting issuer in Canada.

An amendment to National Instrument 44-101 Short Form Prospectus Distributions is being proposed to permit an issuer that is required to obtain a consent from a qualified person in connection with a previously filed technical report to instead obtain a consent from the firm (that must be providing engineering or geoscientific services) that employed the qualified person at the date of signing the technical report. This is an important change given the tight timing in the context of short form prospectus offerings and the difficulty issuers often face in obtaining consents from qualified persons who may be unreachable or who may have left the firm since preparing the technical report.

Approval of Scientific or Technical Disclosure

Issuers would be permitted to have a qualified person approve disclosure of any scientific or technical information concerning a mineral project on a property material to the issuer, as opposed to such disclosure being based upon information prepared by or under the supervision of a qualified person.

Short Form Prospectus Trigger

The Canadian Securities Administrators are considering whether to keep, modify or eliminate the short form prospectus trigger for filing a technical report. They recognize that the requirement to prepare a technical report for the sole purpose of filing a preliminary short form prospectus imposes extra costs and limits an issuer’s ability to access capital markets using a short form prospectus in a timely manner. In addition to soliciting comments, a survey of certain issuers is being conducted to help determine whether the reduced costs to issuers of eliminating this trigger outweighs the benefit to investors of keeping it.

Property Acquisitions

The requirement to file a technical report within 45 days of first time disclosure of scientific and technical information on a target property by an issuer would be extended to six months, provided that current preliminary assessment, mineral resources or mineral reserves are supported by a current technical report filed by a previous owner. This six month period should allow the new owner to prepare a technical report in a more reasonable time frame and provide issuers with an alternative to disclosing the information as a historical estimate or having the previous report re-addressed to the new company. Note that if an issuer takes advantage of the six month filing delay they must issue a news release announcing the filing of the technical report and reconciling any material differences from the previous disclosure it supports.

Royalty Interests Exemption

Issuers with a royalty interest only in a project would be exempt from the requirement to file a technical report with respect to such project, provided the information concerning the project is publicly available and was prepared by either (i) an issuer subject to NI 43-101, or (ii) a producing issuer (those having revenue from mining operations of at least C$30 million in the most recent year and aggregate revenue of C$90 million over the most recent three years) whose securities trade on a specified exchange (ASX, JSE, LSE Main, Nasdaq, NYSE, HKSE) and that discloses mineral resources and mineral reserves under an acceptable foreign code. This exemption would avoid duplicative disclosure, with no additional benefit, as such information is often already disclosed by the owner of the mineral project. There is uncertainty whether this new exemption will extend to issuers who have a right to purchase metal streams from other issuers.

New Reporting Issuer Exemption from Independence Requirement

Producing issuers whose securities trade on a specified exchange would be exempt from the independence requirement in relation to a technical report filed only as a result of becoming a reporting issuer in Canada. This exemption is expected to facilitate additional Canadian listings by foreign producing issuers by recognizing that they already satisfy comparable foreign standards for scientific or technical disclosure.

Form of Technical Reports
 

Amendments to the form requirements for technical reports are intended to make it less rigid and more adaptable, particularly for advanced-stage and producing properties. Qualified persons would have more control over the amount of information and level of detail to include in the report, based on their assessment of the relevance and significance of information when compared to the status and stage of development of the specific property. For advanced-stage properties, there are eight new sections proposed that reflect the major components of a preliminary assessment, pre-feasibility study or feasibility study, namely mineral reserve estimates, mining methods, recovery methods, infrastructure, market studies and contracts, environmental studies, permitting and social or community impact, capital and operating costs, and economic analysis. Note that producing properties would be exempt from economic analysis disclosure unless the technical report includes a material expansion of current production.

Qualified persons would be permitted to (i) rely on, and disclaim responsibility for, certain information provided by the issuer and certain pricing and valuation information provided by experts who are not qualified persons, and (ii) refer to any information in previously filed technical reports, to the extent that it is still current, but require them to summarize or quote this information in the current technical report so the reader does not have to find and read multiple reports. Qualified persons would have to comment on the adequacy of the data provided.

Use of Foreign Code

The list of acceptable foreign codes would be removed and instead be defined to include the JORC Code (Australasia), the PERC Code (Europe), the SAMREC Code (South Africa), SEC Industry Guide 7 (United States), the Certification Code (Chile) or any other code generally accepted in a foreign jurisdiction that defines mineral resources and mineral reserves in a manner consistent with the Canadian Institute of Mining, Metallurgy and Petroleum. The requirement that issuers reconcile foreign resource and reserve categories to categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum would also be removed. An issuer incorporated in a foreign jurisdiction or a Canadian incorporated issuer with respect to a foreign property would be able to use mineral resource and mineral reserve categories under acceptable foreign codes.

Preliminary Economic Assessments

Issuers would be allowed to disclose preliminary economic assessments that include or are based on inferred mineral resources, as long as the disclosure, among other things, describes the impact of the preliminary economic assessment on the results of any pre-feasibility or feasibility study in respect of the subject property.

Historical Estimates

Issuers would be allowed to disclose historical estimates prepared before or after February 1, 2001 (the current rule only permits disclosure of historical estimates made prior to February 1, 2001), provided such estimates were prepared by a third party before the issuer acquired the property. Historical estimates are limited to estimates of the quantity, grade, or metal or mineral content of a deposit that an issuer has not verified as a current mineral resource or mineral reserve.

Removal of “Grandfather” Exemption for Long-Time Producing Properties

When NI 43-101 was first implemented in 2001, issuers were “grandfathered” from the requirement to file a new technical report to support scientific or technical disclosure in an annual information form or a short form prospectus if such information was contained in an annual information form, prospectus or material change report filed before February 1, 2001. This exemption has enabled some issuers to avoid having to prepare technical reports for long-time producing properties that were already operating prior to the implementation of NI 43-101. Issuers with long-time producing properties should be mindful that the proposed amendments may create a first-time technical report filing obligation at the first triggering event following the effective date of the amendments (for example, the filing of an annual information form or prospectus).

MD&A Disclosure

Issuers would be required to disclose in their MD&A (i) whether a significant milestone such as a production decision is based on a filed technical report, and (ii) associated risks if an issuer’s production decision is not based on a feasibility study or on mineral reserves.

Full details of the proposed amendments can be found on the various securities commission websites, including on the Ontario Securities Commission website at www.osc.gov.on.ca/en/15019.htm.