On June 27, 2013, the OSC issued Staff Notice 43-705 Report on Staff’s Review of Technical Reports by Ontario Mining Issuers summarizing the results of a review conducted on technical reports prepared by Ontario mining issuers. The purpose of the report was to clarify existing disclosure requirements relating to technical reports and to alert mining issuers and qualified persons by identifying common deficiencies to assist in determining what information in technical reports needs to be disclosed, enhanced or supplemented to comply with Form 43-101F1 Technical Reports. Issuers and qualified persons should carefully consider the OSC’s findings when preparing technical reports to avoid re-filings and other delays.
Summary of Results
The OSC selected a sample of 50 technical reports to review as a representative sample of issuers. Of the total number of technical reports reviewed, the OSC found an unacceptable level of compliance with Form 43-101F1, with 80% of the technical reports having some form of non-compliance. Approximately 40% of the technical reports reviewed had at least one major non-compliance issue that may have a significant impact on investors. Only 20% of the technical reports reviewed were in compliance with the requirements of Form 43-101F1. The report states that the OSC “view[s] this level of major non-compliance with the disclosure requirements of Form 43-101F1 to be unacceptable” and that “issuers and qualified persons need to further improve their disclosure”.
Major Areas of Concern
Among the most commonly occurring disclosure deficiencies, the OSC identified the following:
Mineral Resource Estimate
25% of the technical reports disclosing mineral resources failed to provide sufficient discussion of key assumptions, parameters and methods used to estimate such mineral resources. In particular, these reports did not provide requisite information relating to “reasonable prospects for economic extraction”, such as cut-off grades, metal price assumptions and other constraints.
Qualified persons are encouraged to consult the Canadian Institute of Mining, Metallurgy and Petroleum’s Best Practice Guidelines for Estimation of Mineral Resources and Mineral Reserves for guidance in this regard.
Environmental Studies, Permitting and Social or Community Impact
32% of the technical reports relating to advanced properties did not provide adequate disclosure with respect to environmental permits and the social/community impacts of the development, including surface rights issues and exploration agreements with local First Nations communities.
Issuers are reminded that they are required to file material contracts entered in the ordinary course of business under NI 41-101, including any such contracts entered into with local First Nations communities.
Capital and Operating Costs
26% of technical reports on advanced properties did not provide an adequate summary of capital and operating cost estimates, as required. In this regard, common deficiencies included a failure to provide the main components of the capital costs estimate and justifications surrounding the determination of the estimate as well as related assumptions.
37% of technical reports on advanced properties did not provide adequate economic analyses, including annual cash flows, sensitivity analyses and taxes applicable to the mineral project.
The OSC further noted that reporting only pre-tax cash flows and economic outcomes for advanced properties does not fulfill the disclosure requirement and may be construed as misleading.
Interpretation and Conclusions
36% of technical reports reviewed failed to disclose project specific risks and uncertainties, including the availability of water rights, use of novel technology or the potential impact of civil war.
Qualified persons are reminded of the new requirement to discuss any significant risks or uncertainties, including those relating to reliability in the exploration information, mineral resources/reserve estimates, or projected economic outcomes and any reasonably foreseeable impacts related thereto.
The OSC will continue to actively review technical reports by Ontario mining issuers as part of its continuous disclosure review program. As such, issuers should anticipate staff requests for re-filings, additional disclosure, or other staff action, where appropriate, if the requirements of Form 43-101F1 and N1 43-101 have not been fully met.
The OSC has further indicated that the issues raised in a review will be considered when determining whether a prospectus receipt should be issued, and that unresolved issues may delay issuance of such receipts, particularly for short form prospectus filings.