Proposed amendments to NI 43-101 Standards of Disclosure for Mineral Projects
Following a substantive review of National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), the Canadian Securities Administrators (the CSA) have issued for comment an amended draft of NI 43-101 (Amended NI 43-101). Amended NI 43-101 does not alter any of the fundamental principles of NI 43-101, but it does contain a significant number of changes and many improvements.
In the spring of 2009, securities commissions in British Columbia, Ontario and Quebec conducted consultations with mining-industry participants, including issuers, advisors and professionals, as part of an ongoing review to improve and update NI 43-101. Through this process, and with additional input obtained by the commissions in Alberta and Saskatchewan, the CSA collected and considered various feedback and suggestions. Amended NI 43-101 represents the outcome of this process, together with the views and experiences of the CSA since the adoption of NI 43-101. The result includes many improvements that streamline and reduce certain specific regulatory burdens under NI 43-101 in a variety of contexts, including corporate finance and M&A transactions, particularly those involving parties from international jurisdictions. At the same time, Amended NI 43-101 introduces some new requirements, particularly by making changes to the technical report requirements.
Amended NI 43-101, the Amended Form and the amended Companion Policy 43-101CP (the Amended Companion Policy) are currently proposed documents, with a ninety-day comment period that ends July 23, 2010.
The following includes a discussion of many of the proposed changes.
Foreign codes, qualified persons. The added definition of “acceptable foreign code” and amended definitions of “professional association” and “qualified person” all broaden these categories by replacing prescriptive lists with objective tests.
Amended NI 43-101 continues to specify certain codes as acceptable, with the notable addition of the Chilean Certification Code for Mineral Reserves and Mineral Resources, and Appendix A to the Amended Companion Policy contains a list of accepted foreign associations and membership designations, which includes the addition of the Chilean Mining Commission.
In one change of particular note, under Amended NI 43-101 issuers may include disclosure of mineral reserves or mineral resources in accordance with an acceptable foreign code without any reconciliation to the categories as defined by the Canadian Institute of Mining, Metallurgy and Petroleum.
Foreign producing issuers. Upon becoming a reporting issuer in a Canadian jurisdiction, an issuer is required to file a technical report for each mineral project on a property material to the issuer authored by an independent qualified person. However, Amended NI 43-101 creates an exemption from the independence requirement for producing issuers listed on a “specified exchange.” The Australian Stock Exchange, the Johannesburg Stock Exchange, the London Stock Exchange Main Market, the Nasdaq Stock Market, the New York Stock Exchange or the Hong Kong Stock Exchange are “specified exchanges” under Amended NI 43-101.
Certification and consent requirements
Amended NI 43-101 introduces a welcome change with respect to certification and consent requirements. Under the current NI 43-101, an issuer filing a disclosure document that would otherwise trigger the technical report filing requirement is exempt from the requirement if its technical report was previously filed and remains current, and provided that it files an updated certificate and consent from each responsible qualified person, in respect of such previously filed technical report. In many instances, obtaining these certificates and consents has been problematic for issuers.
Under Amended NI 43-101, the obligation to obtain updated certificates and consents in connection with this exemption has been eliminated. The exemption will be available if (1) the previously filed technical report supports the scientific and technical information in the disclosure document, (2) there has been no new material scientific or technical information concerning the subject property that is not included in the previously filed technical report and (3) the previously filed technical report meets the independence requirements.
An additional change in respect of qualified-person consents relates to short form prospectus filings. In connection with the filing of a short form prospectus, National Instrument 44-101 Short Form Prospectus Distributions
These amendments will allow greater efficiency in time-sensitive corporate finance and M&A transactions.
New technical report exemption - conditional six-month filing delay
Under NI 43-101, where in a press release an issuer makes first-time disclosure of mineral reserves, mineral resources or a preliminary assessment that constitutes a material change in respect of the affairs of the issuer (or where the issuer makes disclosure of a change in any of these, where such change constitutes a material change in the affairs of the issuer), the issuer must file a technical report within forty-five days of the date of the press release. The CSA have acknowledged that in the context of a material property acquisition (direct, or indirect in an M&A transaction) this forty-five-day time limit may sometimes be problematic for the acquiring issuer. Accordingly Amended NI 43-101 contains provision for the issuer to file the technical report within six months of the press-release disclosure, if certain conditions are met, including that another issuer has filed a technical report (that remains current) in respect of the acquired property. The Amended Companion Policy acknowledges that a property may become material to an issuer as early as the time the issuer enters into a letter of intent to acquire it.
Other notable changes
Qualified-person preparation, supervision and approval. In a subtle positive change, under Amended NI 43-101, disclosure containing technical information in respect of a mineral project on a property may now be simply “approved by a qualified person.” Under NI 43-101, technical information must be “based upon information prepared by or under the supervision of a qualified person” (this latter is still acceptable under Amended NI 43-101). The change under Amended NI 43-101 flows through to the written disclosure requirements: written disclosure of such technical information may now name the qualified person who approved the disclosure instead of naming the qualified person who prepared or supervised the preparation of the information upon which the disclosure is based. This will be of practical assistance to all issuers where the qualified person preparing or approving the disclosure itself is not the same qualified person who prepared, or supervised the preparation of, the information upon which the disclosure is based – as is frequently the case.
News releases for time-delayed technical report filings. Where the information in a news release triggers an obligation to file a technical report, issuers currently have forty-five days to file the technical report. Under Amended NI 43-101, when an issuer files the technical report, it will be required to issue a news release to announce that the technical report has been filed, and the news release will be required to include a reconciliation of all differences between the news release and the technical report in respect of mineral resource and mineral reserve estimates and preliminary economic assessments.
Project development and production decision disclosure required in MD&A. In recent years concerns have been raised as to disclosure in respect of mines under development or mining production that has proceeded without a feasibility study or estimated mineral reserves (and associated disclosure). Accordingly, the MD&A requirement in Form 51-102F1 has been amended to require resource issuers with producing mines or mines under development to identify milestones such as mine expansion plans, productivity improvement plans to develop a new deposit, or production decisions. In addition, issuers are required to disclose whether these milestones are based on a NI 43-101 technical report, and the Amended Companion Policy provides guidance as to disclosure to be provided, including disclosure of the increased uncertainty and specific economic and technical risks associated with the potential failure of the production decision.
Historical estimates. Under NI 43-101, an estimate by a third party is only an “historical estimate” if it was made prior to February 1, 2001. However, under Amended NI 43-101 an estimate in respect of a deposit made by a third party after February 1, 2001 will also be within the definition of “historical estimate”, if the estimate was prepared prior to the issuer acquiring, or entering into an agreement to acquire, an interest in the property that contains the deposit. Amended NI 43-101 expands the disclosure required in respect of historical estimates to include comments on the work needed to be done to upgrade or verify the historical estimate as a current estimate of mineral reserves and or mineral resources. Amended NI 43-101 also specifies additional cautionary language that must be included with historical estimates.
Cautionary language. Amended NI 43-101 and the Amended Companion Policy are now more specific in prescribing the use of the required cautionary language and explanation in connection with historical estimates, exploration target disclosure, preliminary economic assessments based upon inferred resources, and economic analysis based upon mineral resources. Such cautionary language must be included each time any such disclosure is made and in each instance given equal prominence to the disclosure itself. The cautionary statements should be proximate to the disclosure in each instance, with guidance that the CSA would like issuers to consider including it in the same paragraph as, or in a paragraph following, the disclosure in each instance. In large part, the cautionary language amendments merely codify existing practices.
Royalties. The requirements of NI 43-101 apply to royalties, and often royalties are material to the holder of the royalty. However, the CSA acknowledge that it can be difficult for royalty holders to obtain complete data and that royalty holders may often base their own technical reports on the technical reports of the owners of the mineral projects. Amended NI 43-101 exempts royalty holders from the technical report requirement if the information about the mineral project is publicly available and was prepared by an issuer that is either subject to the requirements of Amended NI 43-101 or is a producing issuer on a “specified exchange.”
Preliminary economic assessments. The definition of “preliminary economic assessment” has been expanded in Amended NI 43-101 to include preliminary economic assessments prepared after the completion of preliminary feasibility studies and feasibility studies. Preliminary economic assessments, most often referred to as "scoping studies," are economic analyses (other than preliminary feasibility or feasibility studies) based upon mineral resources. The change impacts the use of preliminary economic assessments based upon inferred resources. Under NI 43-101, an issuer may disclose preliminary economic assessments based upon inferred resources only if, among other requirements, the results of the assessment constitute a material change or a material fact with respect to the issuer. Under Amended NI 43-101, material change/material fact is no longer a required component of the test; instead the issuer must describe the impact of the preliminary economic assessment on the results of any pre-feasibility or feasibility study in respect of the subject property.
Disclosure of mineral resources, mineral reserves and preliminary assessments constituting material change. NI 43-101 includes the trigger for disclosure of mineral resources, mineral reserves and preliminary assessments where the results being disclosed constitute a material change or a material fact for the issuer. This trigger currently operates in respect of news releases and directors’ circulars, and under Amended NI 43-101 the trigger is expanded to all written disclosure by or on behalf of an issuer (other than another trigger document set out in Part 4).
M&A transactions – “resulting issuer” exemption. In the context of certain M&A transactions where an issuer is involved in a business combination involving one or more issuers, and where an information circular is required to contain prospectus level disclosure in respect of the resulting issuer, NI 43-101 currently has the unfortunate effect of requiring each party to the business combination to file the technical reports of all resulting issuer material properties under its own SEDAR profile. The Amended Companion Policy indicates the CSA view that the issuer filing the information circular does not need to file a technical report under its own SEDAR profile if (1) another party to the transaction has filed the technical report, (2) the circular refers the reader to such other party’s SEDAR profile, and (3) on completion of the transaction, technical reports for all material properties are filed on the resulting issuer’s SEDAR profile or the SEDAR profile of a wholly-owned subsidiary.
An open question – request for comments on proposal to eliminate technical requirement in connection with short form prospectus filings
The CSA are considering whether to keep, amend or eliminate the short form prospectus trigger for technical reports. NI 43-101 requires an issuer to file a technical report if a preliminary short form prospectus includes material scientific or technical information in respect of a mineral project on a property material to the issuer and not contained in a previously filed technical report. The CSA acknowledge that the preparation of a technical report may impact the timing and cost of a short form prospectus offering, and are looking for industry feedback with a view to balancing transaction efficiencies on the one hand with continuing investor protection on the other. The CSA Notice and Request for Comments dated April 23, 2010 includes a table that sets out certain scenarios and outcomes for consideration, and includes specific questions to which the CSA are soliciting industry participants’ responses.
The Amended Form
The Amended Form has been substantially rewritten with the assistance of the CSA Mining Technical advisory and Monitoring Committee. Although generally consistent with current Form 43-101F1 in form and fundamental substance, the Amended Form includes new requirements.
The most significant area of change affects the information required for development properties and producing properties. Item 25 of current Form 43-101F1 has been replaced in the Amended Form with eight new form items. The application of these new items has been broadened to include all properties that are at or beyond scoping-study stage. Specifically, these new items apply to all properties that fall within the new definition in Amended NI 43-101 of “advanced property,” being a property for which the potential economic viability of its mineral resources is supported by a preliminary economic assessment (or scoping study), or for which the economic viability of its mineral reserves is supported by a pre-feasibility study or a feasibility study.
Under the Amended Form, producing issuers may exclude from a technical report the disclosure required under the new item 22 (Economic Analysis) in respect of properties currently in production; however, this exemption will not apply to technical reports including any material expansion of current production.
A new provision of the Amended Companion Policy addresses the shelf life of technical reports, acknowledging that economic information in a technical report, particularly analyses based on commodity prices, costs, sales, revenues and other assumptions and projections can change significantly over relatively short periods of time, causing a technical report to become outdated and misleading. Issuers are encouraged to consider the current validity of the economic assumptions and information in their technical reports to determine whether the reports are still current. In particular, the Amended Companion Policy notes that the shelf life of a technical report may be extended by having a qualified person include appropriate sensitivity analyses of key economic variables.