The U.S. Federal Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act" or the "Act") was signed into law on July 21, 2010. The Act constitutes one of the largest changes to financial regulation in the United States since the 1930's.

Several sections of the Dodd-Frank Act will have a direct impact on, or require disclosure from, Canadian natural resource companies, including:

a.payments made to a government;  

b.conflict minerals from the Democratic Republic of the Congo; and  

c.mine safety records.  

These new rules generally apply to an issuer who is subject to U.S. Securities and Exchange Commission (the "SEC") reporting requirements. Many Canadian companies are foreign private issuers (as defined under US securities rules) and thus may not be required to meet all the outlined disclosure requirements.

However, the SEC is currently drafting and seeking public comment on rules it will create pursuant to the Act, which must be released by April 17, 2011. When the final rules are released there may be additional disclosure requirements for Canadian foreign private issuers than discussed below.

Payments to Governments

The Dodd-Frank Act requires the SEC to enact rules regarding the payment of monies to "a foreign government or the U.S. Federal Government" by reporting issuers and their subsidiaries involved in the commercial development of oil, natural gas or minerals. The required disclosure includes any non de minimis payment, the currency used and the government which was paid. The definition of "payments" includes any taxes, royalties, fees, license fees, production entitlements, bonuses and other material benefits. The Dodd-Frank Act is much broader than the Foreign Corrupt Practices Act and requires disclosure of all payments to foreign governments.

Annual disclosure is to be made starting the first fiscal year ending on or after the first anniversary of the SEC's final rules. Information disclosed must be in interactive data format and also made available on the company website.

Conflict Minerals

The Act is concerned with confl ict minerals from the Democratic Republic of the Congo (the "DRC") and neighbouring countries. The purpose of disclosure is to reduce the trade of minerals used to finance confl ict within the DRC. The Act defines "conflict minerals" as gold, coltan (columbite-tantalite), cassiterite, wolframite and their derivatives, as well as any other mineral or derivative as may be later determined by the U.S. Secretary of State.

The Act requires a chain of custody to be created in respect of possible confl ict minerals. Specifi cally, U.S. reporting issuers must disclose if minerals "necessary to the functionality or production" of a product are from the DRC or a neighbouring country. If so, the issuer must submit an annual report to the SEC and post on its company website what steps it is taking to ensure that the minerals used are confl ict free. This includes a mandatory independent audit of the report made to the SEC, a description of products that are not DRC confl ict free, the country where the conflict minerals originated and the specific efforts made to determine the exact mine or location of origin of the minerals.

Many of the key terms, including "necessary to the functionality or production," are still undefined and require further clarification in the SEC rules. The U.S. Secretary of State will also release a map of mineral trade zones, trade routes and areas "under the control of armed groups." The map will be based on data provided by the United Nations Group of Experts on the DRC, as well as governments and nongovernmental organizations. In the meantime, issuers will want to start considering practises which they can implement once the SEC rules are released.

Mine Safety

Until the final SEC rules are released, it appears that the requirement to disclose mine safety only apply to mines already subject to the regulations of the U.S. Federal Mine and Safety and Health Act. Therefore, mines operating outside the U.S. may not be affected by these requirements. However, the obligation to disclose fatalities may extend to mines operating outside the U.S.

According to the Act, issuers who operate coal or other mines must disclose health and safety records, closure orders, fatalities and legal proceedings under the Mine and Safety and Health Act. Disclosure is to be made in each periodic report and some disclosure is to be made on Form 8-K, a form which foreign private issuers are currently not required to fi le. Again, the full effect of the Act on Canadian issuers will not be known until the SEC releases its rules.

Summary

The passage of the Dodd-Frank Act will potentially have a large impact on Canadian natural resource companies and their duty to disclose payments to governments, use of confl ict minerals from the DRC and mine safety records. The SEC's draft rules will provide a better and more full picture of what is required by Canadian companies and we will provide an update soon after their release.