On June 16, 2016, the U.S. Securities and Exchange Commission (the "SEC") announced proposed rules to modernize the U.S. disclosure requirements for mining properties (the "Proposed U.S. Rules"). The Proposed U.S. Rules would generally align U.S. requirements with current industry and global regulatory practices and standards, including the Committee for Mineral Reserves International Reporting Standards ("CRIRSCO") and Canadian Securities Administrators' National Instrument 43-101 ("NI 43-101"). The SEC is proposing to rescind Industry Guide 7 and codify the new mining property disclosure requirements in a new subpart of Regulation S-K.
The Proposed U.S. Rules would apply to U.S. domestic and foreign issuers (including foreign private issuers who file Form 20-F). However, Canadian issuers that are subject to the Canada-U.S. Multijurisdictional Disclosure System (MJDS) and file a Form 40-F would not be subject to the new U.S. disclosure rules, and could continue to prepare mining disclosure in accordance with NI 43-101 and other Canadian disclosure requirements.
Among other things, the Proposed U.S. Rules seek to:
- Clarify the materiality threshold for disclosure and the classification of a company and its properties:
- A company's mining operations will be presumed to be material if its mining assets constitute 10% or more of its total assets, subject to a quantitative and qualitative analysis (whether above or below the 10% threshold).
- Require companies holding royalties and/or similar economic interests in mineral properties to provide the same type and amount of disclosure as registrants with mining operations.
- Permit and require disclosure of mineral resources:
- Currently, Industry Guide 7 prohibits disclosure of mineral resources in SEC filings unless foreign or state law requires disclosure. Currently, Canada is the only non-U.S. jurisdiction which legally requires such disclosure.
- The Proposed U.S. Rules would define mineral resources, and classify resources as "inferred", "indicated" or "measured" in substantively the same way as CRIRSCO standards and NI 43-101.
- Permit and require disclosure of material exploration results (not currently allowed under Industry Guide 7).
- Permit either a pre-feasibility study or feasibility study to provide the basis for determining and reporting mineral reserves.
- Require that disclosure of mineral resources, mineral reserves and material exploration results be based on information and supporting documentation prepared by a "qualified person".
- Require calculations of mineral resources and reserves be based on commodity prices which do not exceed the trailing 24-month average prices (or in some circumstances on forward sale contract prices).
- Require the filing of technical report summaries by a qualified person.
The Proposed U.S. Rules are based on CRIRSCO standards, and are similar, but not identical, to the requirements of NI 43-101. Among the notable differences, under the Proposed U.S. Rules:
- "Qualified Persons" are not required to be independent of the registrant.
- Mineral reserves would be required to be presented net of allowances for diluting materials and mining losses. This approach will result in discrepancies in reporting of mineral reserves in the U.S. relative to Canada and other CRIRSCO jurisdictions.
- Registrants with multiple mining properties will be required to include in their disclosure (i) maps showing the location of all mining properties (whether or not material), (ii) specified information in tabular form with respect to the 20 largest properties by asset value (whether or not material), and (iii) a summary of all mineral resources and reserves, in tabular form, as of the end of the most recently completed fiscal year.
- In technical report summaries, reliance on reports or opinions of other experts is not permitted.
- There are revised definitions of "exploration stage", "development stage" and "production stage", which definitions must be applied to individual properties as well as to the company as a whole.
The SEC has requested comments on the Proposed U.S. Rules, which comments are due within 60 days of publication in the Federal Register.
The Proposed U.S. Rules would, if enacted, more closely align U.S. disclosure requirements with other major mining jurisdictions, including Canada. However, there would still be differences between the disclosure requirements, which could result in conflicting reporting requirements and confusion.