Chapter 8 THE SEC'S MINING DISCLOSURE RULES: QUESTIONS AND ANSWERS
| Jurisdiction | United States |
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THE SEC'S MINING DISCLOSURE RULES: QUESTIONS AND ANSWERS
KIMBERLEY R. ANDERSON is a Partner with Dorsey & Whitney LLP in Seattle. Kimberley has over 20 years of experience helping clients finance their business through strategic public and private offerings of equity and debt securities and advance their strategic goals through mergers, acquisitions and divestitures. She guides clients through complex and ever-changing SEC requirements and listing standards on the NYSE, NASDAQ and NYSE American and the evolving best practices in corporate governance, compliance and disclosure, allowing clients to focus on moving their business forward with confidence. Kimberley has extensive experience in Canadian cross-border transactions and particular depth in the oil and gas, clean energy, mining and natural resources, manufacturing and technology industries. Kimberley is a frequent speaker and author on corporate compliance, SEC disclosure, and other securities law topics, and currently serves as co-editor of Dorsey's corporate governance and compliance blog, Governance & Compliance Insider. Kimberley has served in various leadership roles at Dorsey for the past several years, including currently serving as Co-Chair of the Capital Markets & Corporate Compliance Practice Group, and previously on the firm's Management Committee.
* This paper originally appeared as an article in www.dorsey.com © and is reprinted with minor revisions by permission of Dorsey & Whitney LLP. The original article was authored by Christopher Doerksen, Kimberley Anderson and Jason Brenkert who are members of Dorsey's Natural Resources and Mining Industry Group.
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Table of Contents
A. INTRODUCTION
B. RULES IN QUESTION AND ANSWER FORMAT
1. Why has the SEC adopted new rules for mining companies?
2. When will the new rules become effective?
3. What types of companies will be subject to the new rules?
4. Will foreign private issuers be subject to the new rules?
5. What are the main differences between the SEC's Industry Guide 7 and the new rules?
6. What are the main differences between the SEC's initial proposal in 2016 and the new rules?
7. Are the SEC's new rules the same as the standards under Canada's National Instrument 43-101 (NI 43-101) or other CRIRSCO-based codes?
8. How do the new rules affect the characterization of a mining company and its properties as being in the exploration, development or production stage?
9. Who is a qualified person?
10. What role does a qualified person serve under the new rules?
11. Who has to sign consents and when must they be filed?
12. In what circumstances may a qualified person rely on, or disclaim, information provided by third parties?
13. What are mineral resources and how are they calculated?
14. What are the differences between inferred, indicated and measured mineral resources?
15. How will the new rules affect the definitions of mineral reserves, probable mineral reserves and proven mineral reserves?
16. What are the different types of technical report summary?
17. When must a technical report summary initially be filed?
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18. When must a technical report summary be updated?
19. What information must be included in every technical report summary?
20. What additional information must be included in a technical report summary that reports exploration results?
21. What additional information must be included in a technical report summary that reports the results of an initial assessment and, if applicable, mineral resources?
22. What additional information must be included in a technical report summary that reports the results of a preliminary feasibility (pre-feasibility) study or a final feasibility study and, if applicable, mineral reserves?
23. What information must a registrant disclose in its SEC filings regarding all of its mining properties, including those that are non-material?
24. What information must a registrant disclose in its SEC filings regarding properties that are individually material to the registrant?
25. What other information must a registrant disclose in its SEC filings?
26. May a registrant disclose historic mineral resources, mineral reserves or material exploration results that the registrant has been unable to verify?
27. May a registrant include in its SEC filings supplemental disclosures that do not comply with the SEC's new rules, but comply with a foreign mining code such as Canada's NI 43-101?
28. Could a qualified person be liable if information contained in the technical report summary is incorrect or misleading?
29. What types of registration statements would require early compliance with the new rules?
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A. INTRODUCTION
On October 31, 2018, the U.S. Securities and Exchange Commission (SEC) adopted a major overhaul of the disclosure requirements for companies that are engaged in material mining operations, including royalty companies. The rules replace the SEC's decades-old guidelines, set forth in Industry Guide 7 (Guide 7), with new subpart 1300 of Regulation S-K, which are based on the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). The new rules are the most significant development in the SEC reporting requirements of mining and royalty companies since the passage of the Sarbanes-Oxley Act in 2002.
B. RULES IN QUESTION AND ANSWER FORMAT
This paper presents a short primer covering the SEC's final rules. The complex proposed rules, however, do not easily lend themselves to a nutshell condensation. To simplify the topic, the authors have organized the paper through the use of questions and responses focusing on the key concepts behind the proposed rules. While this approach is useful, the paper is not and should not be treated as a comprehensive summary of the detailed rules. The SEC's summary "Modernization of Property Disclosures for Mining Registrants: A Small Entity Compliance Guide" can be accessed here. The complete SEC release can be accessed here.
1. Why has the SEC adopted new rules for mining companies?
The SEC's guidelines for mining disclosure, previously set forth in Industry Guide 7 (Guide 7), had not been updated for more than 30 years. During this period, mining has become an increasingly globalized industry and several foreign countries have adopted mining disclosure standards based on the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), which significantly differ from Guide 7. For example, unlike Guide 7, CRIRSCO standards:
• Require companies to disclose material mineral resources;
• Require that any public report about a company's exploration results, mineral resources and mineral reserves be prepared by a "competent or qualified person"; and
• Permit disclosure of mineral reserves to be based on a preliminary feasibility (pre-feasibility) study or a final feasibility study.
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Because of the widespread adoption of the CRIRSCO standards,1 industry participants requested revisions to Guide 7, urging the SEC to align its mining disclosure rules with the CRIRSCO-based codes. The SEC's replacement of Guide 7 with a CRIRSCO-based code takes into account these global developments and industry participants' concerns.
2. When will the new rules become effective?
The new rules will become effective for an SEC registrant's first fiscal year beginning on or after January 1, 2021. As an example of what this means, the SEC has stated that a registrant with a December 31 fiscal year end will be required to comply with the final rules when filing an applicable registration statement2 on or after January 1, 2021, and when filing its SEC annual report for the fiscal year ended December 31, 2021. For registrants filing certain types of registration statements in 2021, this has the effect of accelerating public reporting under the new rules. See Question 29. Registrants are permitted to voluntarily comply with the new mining property disclosure rules as of an earlier date, as long as in doing so, they comply with all of the new requirements. Until then, registrants should continue to comply with Guide 7 for their mining property disclosures.
3. What types of companies will be subject to the new rules?
The final rules apply to an SEC registrant that has mining operations that are material to its business or financial condition.
Mining operations is defined under the final rules as including operations on all mining properties that a registrant:
• Owns or in which it has, or it is probable that it will have, a direct or indirect economic interest;
• Operates, or it is probable that it will operate, under a lease or other legal agreement that grants the registrant ownership or similar rights that authorize it, as principal, to sell or otherwise dispose of the mineral; or
• Has, or it is probable that it will have, an associated royalty or similar right.
The SEC has not modified its definition of materiality in the new rules. Information is material if there is a substantial likelihood that a reasonable investor would attach importance to such information in determining whether to buy or sell the securities registered.
Because the new rules define mining operations to include both direct and indirect economic interests, and because the standard for disclosure is materiality, companies that hold royalties, streaming agreements or other economic interests with respect to mining properties, as well as companies that invest in mining companies, will be subject to the new rules if such interests are material to the registrant's business or financial condition.
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4. Will foreign private issuers be subject to the new rules?
Yes. Foreign private issuers that file annual reports or registration statements with the SEC on Forms 20-F, F-1, F-3 or F-4, that voluntarily file on U.S. domestic reporting forms or that prepare offering circulars on...
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