On April 8, 2011, the Canadian Securities Administrators (the CSA) published in final form amendments to National Instrument 43-101 – Standards of Disclosure for Mineral Projects and its related form of technical report and companion policy (NI 43-101). These amendments will help facilitate the timely execution of corporate finance and M&A transactions by mining companies.
The CSA had first proposed amendments to NI 43-101 on April 23, 2010 after extensive consultation with market participants and advisory committees (the 2010 Amendments). The CSA received submissions from 50 commenters on the 2010 Amendments.
The changes are the most significant since the adoption of NI 43-101 and are contained in a revised version of NI 43-101 (the Replacement Instrument). The Replacement Instrument is not a fundamental overhaul of NI 43-101, but there are substantial changes to certain aspects of NI 43-101, including the changes described below. The Replacement Instrument and consequential amendments to applicable securities laws are expected to come into force across Canada on June 30, 2011.
Changes to Short Form Prospectus Technical Report Trigger Will Make it Easier to Raise Money in the Capital Markets
The short form prospectus trigger in NI 43-101, which requires an issuer to file a technical report on the filing of a preliminary short form prospectus under National Instrument 44-101 – Short Form Prospectus Distributions (NI 44-101), has been narrowed. This will help issuers complete offerings on a timely basis.
NI 43-101 currently requires an issuer, except in limited circumstances, to file a technical report if a preliminary short form prospectus includes material scientific or technical information about a mineral project on a property material to the issuer but not contained in a previously filed technical report. This requirement applies regardless of whether the scientific or technical information in question also constitutes a material change in the affairs of the issuer.
Under the Replacement Instrument, a technical report will only be required to be filed with a preliminary short form prospectus to support scientific and technical information about a material mineral property where the prospectus discloses for the first time mineral resources, mineral reserves or the results of a preliminary economic assessment that constitute a material change in relation to the issuer or a change in the information from the most recently filed technical report if the change constitutes a material change in relation to the issuer.
Although a number of commenters urged the CSA to eliminate the short form prospectus technical report requirement in its entirety, as the CSA had offered as a possibility when it published the 2010 Amendments for comment, the CSA has chosen to maintain the requirement in the circumstances noted above.
Certification and Consent Requirements Significantly Revised and Improved, Providing More Flexibility
The Replacement Instrument eliminates the requirement to provide updated certificates and consents upon a triggering event for a previously filed technical report that is still current and continues to meet applicable independence requirements. This will greatly facilitate the timely execution of M&A and corporate finance transactions.
As the CSA noted when the 2010 Amendments were published, qualified persons often work in remote locations and can be unreachable on short notice. In addition, at the time an issuer is seeking an updated certificate and consent, the qualified person who wrote the technical report may no longer be employed by the same firm as when the report was written. The CSA also observed that unless the qualified person recently worked on the mineral property, the issuer is in the best position to determine if there is new material scientific or technical information.
The elimination of the requirement to file updated certificates and consents means that the issuer’s own internal qualified person will be able to determine whether a technical report is still current.
In a related move, consequential amendments to NI 44-101 permit a consulting firm that employed the qualified person who prepared the technical report to consent, in place of the qualified person, to the use of the technical report in a short form prospectus, subject to certain conditions.
Extension of Deadline For Filing a Technical Report in Connection with the Acquisition of a Material Property
Under the current rule, where an issuer acquires a material property that constitutes a material change in the affairs of the issuer, the issuer must file a technical report within 45 days of disclosing a preliminary assessment, mineral resources or mineral reserves regarding the property. The Replacement Instrument extends the deadline for filing a technical report to 180 days, provided, among other things, that the disclosure is supported by a technical report filed by another issuer that holds or previously held an interest in the property. Where the disclosure is also contained in a preliminary short form prospectus, the deadline is the earlier of 180 days from the date of the initial disclosure and the filing of the preliminary short form prospectus.
Permitted Use of Foreign Codes Should Facilitate Additional Listings by Foreign Producing Issuers
The Replacement Instrument allows issuers incorporated or organized in a foreign jurisdiction, or incorporated in Canada in respect of its properties located in a foreign jurisdiction, to make disclosure and file a technical report using mineral reserve and mineral resource categories of an “acceptable foreign code.” Reports prepared using such codes now need only include reconciliation to the categories in the Replacement Instrument where there are material differences. An acceptable foreign code includes the same codes previously recognized plus the PERC Code (Pan-European) and the Certification Code (Chile), together with any other code, generally accepted in a foreign jurisdiction, that defines mineral resources and mineral reserves in a manner that is consistent with the definitions of mineral reserves and mineral resources in the Replacement Instrument.
Form of Technical Report Now More Suitable for Advanced Stage Properties
The Replacement Instrument has substantially amended the current form of technical report to make it less prescriptive and more suitable for advanced stage and producing properties. It gives more latitude to the qualified person(s) preparing the technical report to reflect and emphasize in summary fashion appropriate disclosure having regard to the property. Qualified persons may quote from previously filed technical reports to the extent information is still current, provided a summary of the quoted relevant information is included in the technical report and the qualified persons have verified it. A significant change for producing issuers is that they are exempt from the requirement to provide an “economic analysis” for their producing properties unless the technical report includes a material expansion of current production.
Additional changes have been made in the Replacement Instrument, including:
- changing the definition of “preliminary assessment” to “preliminary economic assessment” and expanding it to include preliminary economic analyses after the completion of a pre-feasibility or feasibility study;
- expanding the categories of restricted disclosure to include, among other things, the gross value of metal or mineral in a deposit or a sampled interval or drill intersection. The CSA is of the view that this does not reflect a change in law but merely reflects the CSA’s current interpretation of NI 43-101;
- changing the definitions of “qualified person” and “professional association” to clarify qualification requirements and expand the scope of persons that will qualify by introducing a more flexible, objective test;
- allowing an issuer to name the qualified person who approved the disclosure of the scientific and technical information, as an alternative to naming the qualified person who prepared or supervised the preparation of the information;
- changing the definition of “historical estimates” to permit disclosure of estimates prepared by third parties made before the issuer acquired or entered into an agreement to acquire an interest in the property that contains the deposit;
- exempting royalty holders from the requirement to prepare a technical report if information concerning the applicable project is publicly available, and was prepared by an issuer subject to the Replacement Instrument or a producing issuer listed on a “specified exchange”; and
- providing an exemption for producing issuers whose securities trade on a specified exchange from the requirement to have a technical report prepared by or under the supervision of an independent qualified person when filing a technical report upon becoming a reporting issuer in Canada.