Canada is the home to the majority of the world’s public mining companies, and the majority of mining company financings are completed in Canada. As a result, Canada has one of the most developed regulatory systems for mining companies, and its national rule – National Instrument 43-101: Standards of Disclosure for Mineral Projects – that establishes standards for disclosure of scientific and technical information for mineral projects has become somewhat of an international standard.
Investors know, like, and understand NI 43-101. Often, mining companies with no connection to Canada and therefore not subject to NI 43-101 will prepare technical reports and feasibility studies in accordance with this standard because of its acceptance in the mining and financing industry. NI 43-101 has become an international brand name conveying quality of the scientific and technical information on mineral projects.
On June 30, 2011, amendments to NI 43-101 became effective, to produce an updated and more flexible rule for mining issuers. The new NI 43-101 reflects issuer and regulator experience with the old NI 43-101, and changes in the mining industry that have occurred over the years.
Under the new NI 43-101, the trigger to file a technical report when filing a preliminary short form prospectus has been relaxed.
Before, an issuer had to file a technical report in connection with a short form prospectus if the prospectus contained new material scientific or technical information not contained in a previously filed technical report. This trigger was easy to hit: either because an issuer clearly had new scientific or technical information; or, an issuer was unsure if securities regulators would agree that its technical reports on SEDAR (System for Electronic Document Analysis and Retrieval) were current at the time the short-form prospectus was filed. The result was that issuers usually had to file at least one technical report in connection with a short-form prospectus.
With the new NI 43-101, an issuer must file a technical report with a short-form prospectus only if the prospectus discloses, for the first time, mineral resources, mineral reserves, or the results of a preliminary economic assessment (PEA) that constitutes a material change in relation to the issuer, or a material change in this information.
The securities regulators have said that, in most cases, they think that first-time disclosure of mineral resources, reserves, or the results of a PEA on a property material to the issuer will constitute a material change in the affairs of the issuer. Note that if disclosure of this information was made within 45 days of filing the short-form prospectus, and no technical report was filed in support, then a current technical report would have to be filed with the short-form prospectus.
Thus, the new NI 43-101 should result in significantly less technical reports being filed in connection with short-form prospectus offerings.
Also, these changes remove a significant uncertainty as to whether securities regulators reviewing a short-form prospectus would consider previously filed technical reports still current and suitable to support disclosure in the prospectus.
Issuers should therefore be able to access markets more quickly, and with less uncertainty about the outcome of the regulatory review, under the new NI 43-101.
The definition of “historical estimate” has changed under the new NI 43-101. It now means “an estimate 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, and which was prepared before the issuer acquiring, or entering into an agreement to acquire, an interest in the property that contains the deposit.”
There is also no longer a calendar date (i.e. Feb. 1, 2001) to make an estimate “historical” under the new NI 43-101.
If an issuer treats the old estimates as “historical” and complies with the new NI 43-101, no technical report will be triggered. This has remained the same as under the old NI 43-101.
What has changed under the new NI 43-101, is the time limit for filing a technical report when an issuer treats historical estimates as current. It has been extended to six months.
An issuer will have up to half a year to file a technical report when it discloses information that requires a technical report to be filed under the new NI 43-101 in a document that would not otherwise immediately trigger a technical report (e.g. a press release), and the disclosure is, among other things, supported by a technical report filed by another issuer that holds or held an interest on the same property.
The document would contain first-time disclosure by the issuer that acquired the interest in the property of mineral resources, mineral reserves, or PEA results that constitutes a material change.
An issuer should be aware that it will be easy to have the six-month deadline in mind and forget that it can be shortened if an issuer hits another trigger to file a technical report under the new NI 43-101 before the six months is up.
For example, in the context of an acquisition, if an issuer discloses in a press release resource estimates on a property it is set to acquire, and that information constitutes a material change in the affairs of the issuer, then under the new NI 43-101 the issuer has six months from the date of the press release to prepare and file its own technical report on the property, as long as there is a technical report on SEDAR that supports that information. However, if the issuer then included this information in an information circular or annual information form (AIF) one month later, the six-month deadline would be shortened to the date it filed its information circular or AIF.
These are not the only examples when the six-month deadline would be abridged. An issuer must be aware of all of the triggers that will shorten this time period as set out in the new NI 43-101.
Under the old rules, all disclosure of scientific or technical information made by an issuer had to be prepared by, or under the supervision of, a “qualified person,” or QP. Under the new NI 43-101, this scientific or technical information is no longer required to be prepared or supervised by a QP, as long as it is approved by a QP.
For example, an issuer disclosing scientific and technical information taken from a technical report in a news release is no longer required to name the QP author in the news release as having prepared or supervised the information. The new NI 43-101 allows, as an alternative, a QP employee of the issuer to be named as approving the content in the press release.
Some changes in the new NI 43-101 that facilitate QP consents include: QP consents are limited to parts of the technical report that the QP prepared; QP consents must identify the disclosure that it supports; an in-house QP can approve later disclosure; and updated QP consents and certificates are not required where issuers rely on previously filed technical reports and there is no new material scientific or technical information.
Regarding the in-house QP mentioned above, this means issuers are not required to get the original QP that prepared a technical report to sign off on technical information that is based on that technical report and presented in a later disclosure document.
For example, if an issuer filed a technical report in connection with resource estimates disclosed in a press release, and the issuer then uses that same information in its AIF, the issuer does not need to name the author of the original technical report as having prepared or supervised the preparation of the technical disclosure in the AIF. Instead, the issuer can get its own in-house QP to review and approve the disclosure.
These QP changes also mean that if an issuer already has a technical report on file that supports scientific or technical i
nformation in a document the issuer is now filing (e.g. press release, AIF, information circular, takeover-bid circular, offering memorandum, etc.), and there is no new material information on the property (i.e. the technical report is still current), no technical report is triggered under the new NI 43-101. Therefore, no additional QP consents are required.
In addition to NI 43-101, the prospectus rule NI 44-101 Short-Form Prospectus Distributions requires QPs to be named in the prospectus as experts, and requires a written consent from those named QPs. Before, issuers spent a lot of time trying to locate QPs for written consents when it came time to file a short-form prospectus, or a final short-form prospectus if they were relying on a previously filed technical report. This often proved challenging, as QPs are frequently in remote locations and difficult to track down.
Consequential amendments to NI 44-101 that also came into effect June 30, 2011, allow issuers to file expert consents of the QPs by an authorized signatory of the company that employed or employs the QP instead of the QP himself or herself, if three conditions are met: the QP’s consent is required in connection with a technical report that was not required to be filed with the short-form prospectus; the QP was employed by a person or company at the date of signing the technical report; and the principal business of the person or company is providing engineering or geoscientific services.
A consent filed under the new amendments to NI 44-101 must be signed by an individual who is an authorized signatory of the person or company. Also, this individual must fall within the definition of “qualified person” (which has been revised) under the new NI 43-101, except for the requirement to have experience relevant to the subject matter of the mineral project and the technical report.
The new NI 43-101 contains other changes related to QPs. These include not requiring independence for QPs when preparing technical reports for issuers listed on certain exchanges upon becoming a reporting issuer in Canada, and the expansion of foreign codes allowed to be used in technical reports and other disclosure, by foreign issuers or Canadian issuers with foreign properties. The list of acceptable associations for QPs has also been revised.
The technical-report form under the new NI 43-101 is less prescriptive and gives more discretion to the QP on form content details. Under the new NI 43-101, the technical-report content requirements are different, depending on a property’s development stage.
For example, there are different requirements for illustrations in technical reports under the new NI 43-101 for “exploration project,” “advanced properties other than properties under development,” and “properties under development or in production.”
The “advanced property” definition is new, and means: “a property that has (a) mineral reserves, or (b) mineral resources the potential economic viability of which is supported by a preliminary economic assessment, a pre-feasibility study or a feasibility study.”
In reality, however, when preparing the content of technical reports, there are four levels of development of mineral properties recognized, each with different allowances and requirements under the new technical report form: exploration without mineral resources; exploration with mineral resources; advanced properties and producing properties with a planned material expansion; and producing properties with no material expansion planned.
Under the new NI 43-101, producing issuers are exempt from including economic analysis in technical reports on properties currently in production, unless the technical report includes information on a material expansion of current production. This will provide relief to producing issuers who often do not want to provide this sensitive information in publically available technical reports.
Issuers holding royalty interests are exempt under the new NI 43-101 from filing technical reports if the property’s owner or operator is a reporting issuer in Canada. Producing issuers listed on a specified exchange who have disclosed the scientific and technical information that is material to the royalty holder are also exempt under the new NI 43-101.
In addition, gross value of metal or mineral in a deposit or a sampled interval or drill intersection is prohibited under the new NI 43-101. As well, metal or mineral equivalent grade for a multiple commodity deposit, sampled interval or drill intersection is prohibited, unless the grade for each material or metal used to establish the equivalent grade is also disclosed.
Finally, there are other small changes in the new NI 43-101 that, together with the changes described in this article, have made the new NI 43-101 more flexible and easier to deal with for issuers, once they understand how to take advantage of these changes.
– Laurel Petryk is a Vancouver-based lawyer in the mining and capital markets group of Mcmillan LLP (www.mcmillan.ca). She regularly advises clients on a wide range of NI 43-101 issues, including appropriate disclosure and compliance, and draws on her previous experience working at the British Columbia Securities Commission.
Darrell Podowski is a Vancouver-based partner and Chair of McMillan’s Mining Group, and his business and securities law practice concentrates on the mining and resource industries. He was previously Corporate Counsel with Teck Resources, and was an exploration geophysicist in the oil & gas industry with Amoco Canada prior to his law career.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.