On June 30, 2011, amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects, Form 43-101F1 Technical Report, and Companion Policy 43-101 (collectively the "New Rule") will come into force (prior to the amendments, the "Old Rule"). With a few minor exceptions, the New Rule substantially adopts the draft amendments to the Old Rule which were published in April 2010.
According to the Canadian Securities Administrators the overarching goals of the New Rule are to:
- eliminate or reduce the scope of certain mining disclosure requirements;
- provide greater flexibility to mining issuers in certain areas;
- reflect changes that have occurred in the mining industry; and
- clarify or correct areas where the previous standards were not having the desired effect
While the basic framework of the Old Rule remains in place, the New Rule represents a significant revision to the mining disclosure regime in Canada.
The Most Significant Changes
Short Form Prospectus Trigger
The Old Rule had a broad short-form prospectus (SFP) trigger, which required issuers to file technical reports at the same time they filed their preliminary SFP if the SFP (including any documents incorporated by reference) contained material scientific or technical information about a mineral project on a property material to the issuer if such information was not contained in a previously filed technical report.
The New Rule will relax and narrow this trigger. Under the new rule, the requirement to file a SFP will be limited to circumstances where the SFP discloses for the first time:
- mineral resources, mineral reserves or the results of a preliminary economic assessment on the property that constitute a material change in relation to the issuer; or
- a change in this information from the most recently filed technical report if the change constitutes a material change in relation to the issuer.
This should allow issuers to access the capital markets on a more cost efficient and timely basis.
Introduction of Six Month Filing Window for Technical Reports in Certain Circumstances and Requirement to Issue a Follow-up News Release
Under the old rule, issuers were required to file technical reports to support first-time disclosure of material changes in preliminary assessments, mineral resources or mineral reserves, within 45 days of such information being contained in a news release or directors' circular. Under the New Rule, an exception has been added, so that issuers will have a 180-day window to file technical reports for first-time disclosure of a preliminary economic assessment, mineral resources or reserves if:
- these estimates are supported by a technical report previously filed by another issuer, and
- at the same time it makes the disclosure, the issuer identifies the title, effective date and the name of the other issuer who filed such previous report; it names the qualified person who reviewed the report for the issuera; nd it states that there is no new information that would make the estimates misleading.
This aspect of the new rule should be beneficial in acquisition situations, e.g., when a reporting issuer acquires another reporting issuer with a property for which a technical report has previously been filed. Given the new 180-day period afforded to issuers to file such technical reports, the new rule also requires issuers to issue a subsequent news release disclosing the filing of the technical report in all circumstances where the filing delay applies. Note that this requirement applies to both 45 day and 180 day filings.
The Old Rule required holders of royalty interests to file technical reports subject to certain limited exceptions. Because royalty holders often have limited access to project data, their reports are usually based on the property owner's disclosure, and thus their reports are often duplicative and redundant. The New Rule therefore provides an exemption to royalty holders from the requirement to file a technical report if the operator or owner of the mineral project is either a reporting issuer, or a producing issuer whose securities trade on a "specified exchange" (which includes most major foreign exchanges on which mining issuers are listed), and certain other condition s are met.
The Old Rule defined "historical estimate" to mean an estimate of mineral resources or mineral reserves prepared prior to February 1, 2001. The New Rule revises the definition of "historical estimate" to eliminate that arbitrary date and allows disclosure of historical estimates prepared by third parties before the issuer acquired or agreed to acquire the property, subject to certain conditions, such as the inclusion of mandatory cautionary language.
Qualified Person Certificates and Consents
Elimination of Updated QP Certificates and Consents under NI 43-101
Under the Old Rule, when issuers relied on previously filed technical reports to support technical information in certain disclosure documents, they had to obtain updated certificates and consents of qualified persons. This was often a source of frustration for issuers, because qualitifed persons often work in remote locations, can be unreachable on short notice and often change employers. The New Rule will eliminate this updated QP certificate and consent requirement.
National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101 ): New Alternative "Firm" Consent Requirement
In addition to the NI 43-101 consent requirement, NI 44-101 contains a requirement to file consents of certain experts (including QPs) in connection with short form prospectus offerings. Because issuers can have difficulties contacting qualified persons to provide the expert consents necessary to complete SFP offerings under NI 44-101 in a timely manner, a corresponding amendment to NI 44-101 will allow engineering or geoscientific services firms that prepared the issuer's technical report to consent, in the place of the qualified persons, to the use of the technical report in a SFP.
Changes to Form of Consent
Under the old rule, a qualified person had to consent to each part of the technical report. Under the new rule, the qualified person will only be required to consent to the parts of the report that he or she prepared.
Expanded Definitions under the New Rule
Qualified Persons and Professional Associations
The Old Rule had prescriptive lists that recognized designations for foreign qualified persons and foreign professional associations. The New Rule adopts flexibe objective tests for foreign qualified persons and foreign professional associations. By eliminating the prescriptive lists, there will be increased flexibility for issuers to use other qualified persons under various foreign professional associations, and increased ability for members of foreign professional associations to be able to work with Canadian mining issuers.
Reconciliation of Foreign Codes and CIM standards
The Old Rule also had a prescriptive list of acceptable foreign codes for categorization of mineral resources and reserves. The New Rule eliminates the prescriptive list by adding a definition of "acceptable foreign code." This should create flexibility for foreign standards respecting the classification of reserves and resources. However, foreign issuers who use acceptable foreign codes rather than the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) standards will have to provide a reconciliation respecting the material differences between the foreign code used and the CIM standards.
Preliminary Economic Assessments
The new rule has changed the old defined term "preliminary assessment" to "preliminary economic assessment" in order to reflect industry practice. Also, the definition has been expanded to mean a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources. This should give issuers increased flexibility, as it will allow issuers to disclose preliminary economic assessments at more advanced stages of a project, subject to the disclosure containing certain cautionary language and information pertaining to the impact of the assessment on the results of any pre-feasibility or feasibility study.
Restricted Disclosure of Gross Value
The Old Rule restricted disclosure of certain things such as the quantity, grade, or metal or mineral content of an uncategorized mineral source. The New Rule adds prohibitions on disclosing the gross dollar value of metals or minerals in a deposit and on disclosing the metal or mineral equivalent grade unless the grade for each individual metal or mineral used is also disclosed. The term "gross metal value" has always been considered misleading by Canadian securities regulators.
The new rule sill significantly change the old rule and will provide much needed flexibility for mining issuers in Canada. It should increase issuers' access to markets and ease some of the considerable requirements for technical reports.
Please note that this is a summary only of the most significant changes to NI 43-101. If you have any questions concerning this bulletin or the New Rule, please contact the authors or your usual contact at Davis LLP.