Mining industry efforts to cause the US Securities and Exchange Commission to reform Industry Guide 7 have been ongoing since 2003, but appear to be parked at the SEC for the foreseeable future1, in no small part because of the burdens placed on the SEC by the Dodd-Frank Act2 and by the JOBS Act3. One can also speculate that the recent volatility of trading prices for mining stocks on the Toronto Stock Exchange (TSX) have also slowed the SEC‟s hand.4
On October 1, 2012, the Society of Mining, Metallurgy and Exploration (SME) filed a formal petition with the SEC to amend Guide 7. The SME had been working with the SEC for a number of years prior to filing the petition to try and clarify and update Guide 7. The petition seeks to bring Guide 7 more in line with the less stringent disclosure requirements used by other countries, including Canada‟s National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). SME cites the difficulty of coordinating disclosures in multiple jurisdictions for international mining companies, vagueness intrinsic to Guide 7, and the resulting harm to the US stock exchanges, financial markets and the US economy5 as their main reasons for filing the petition.
In summary, Guide 7 is significantly more restrictive as to what mineral resources can be disclosed in a issuer‟s US prospectus (as well as in its periodic reports filed with the SEC) than would the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) or NI 43-101, most saliently in not allowing the reporting of Mineral Resources as such. 6 Under Guide 7, reserves cannot be disclosed unless they are "proven" or "probable," in other words, until a "final" or "bankable" feasibility study has been conducted and all needed permits, including environmental permits, have been (or imminently will be) obtained. 7 Guide 7 generally prohibits disclosure of non-reserve resource information, "unless such information is required to be disclosed by foreign or state law".8 The presentation of resource information by Canadian issuers was permitted by the SEC after NI 43-101 became law in Canada.9
This article accepts that the SEC will not on a near horizon reform Guide 7 and presents guidance on how mining companies that are contemplating, or have effected, a dual listing in Canada and the US should publicly make mineralization presentations that will not run afoul of Guide 7. Sample disclosures are included. This article does not critique Guide 7 nor the reforms urged by the SME.
As of June 2012, approximately 88 percent of the market value of all mining companies listed on the TSX was comprised of dual-listed mining companies. 10 In turn, as of December 31, 2012, approximately 57 percent of the world‟s mining companies were listed on the TSX (including its Venture Exchange)11. US-organized mining companies, with or without Canadian mineral assets, undertaking a dual-listing in Canada and the US will typically want to have in their US prospectuses the more inclusive (and hence more attractive) mineralization presentations under NI 43-101, in addition to the proven-and-probable presentations mandated by Guide 7 to further a favorable investor reception for the offering in the US.
Canada-organized mining companies, with or without US mineral assets, and whether or not a "foreign private issuer," 12 undertaking a dual listing in Canada and the US must include Guide 7 information but can also freely include NI 43-101 presentations in their US prospectuses.13
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Yet does the SEC permit NI 43-101 disclosure by US companies in their US prospectuses? A canvassing of SEC staff comment letters 15 through the June 2013 impels us to conclude that US mining companies likely cannot include NI 43-101 presentation in the US prospectuses or in documents "filed" with the SEC16, nonetheless, they can make publicly available such presentations by:
- posting NI 43-101 presentations on their websites
- submitting the presentations on Form 8-K
- circulating the presentations in a Free-Writing Prospectus17
- including such presentations in their road-show slides
The SEC staff stated in a comment letter issued in December 2009 that US companies cannot include NI 43-101 presentations in their SEC-filed disclosure documents.
With the passage of National Instrument 43-101 in Canada, disclosure using non-SEC reserve definitions, such as resource estimates, is allowed for Canadian incorporated companies under the exception in Instruction 3 to Paragraph (b)(5) of Industry Guide 7. However, your jurisdiction of incorporation is Idaho and as such, only those terms specified by Industry Guide 7 may be used in U.S. SEC filings. The provisions in Industry Guide 7 preclude the use of any terms other than proven or probable reserves for disclosure in SEC documents.18
This position appears to reverse an earlier tolerance for NI 43-101 presentations by US companies where such information was accompanied by a combination of explanation of the difference of the regulatory requirements between Canada and the US and clarification that investor should not assume that reserves designated with only a pre-feasibility study will be mined.19
By asserting a "duty to disclose" in Canada and resulting disparate disclosure in the US, certain US reporting mining companies have been able to persuade the Staff to allow them to maintain the then current dual disclosures in their Forms 10-K, on the condition that such be deleted from the Form 10-K to be prepared in respect of the following fiscal year. 20
It is difficult for us to envision in the context of an initial dual listing (where an issuer voluntarily elects to list on the TSX and in the US) an issuer persuasively asserting that can there exists a "duty to disclose," in an effort to enable inclusion of NI 43-101 presentations in its US prospectus. 21
While we are aware of at least one US mining company in the process of a dual listing that intends to include NI 43-101 information in its US prospectus until the SEC instructs them to remove such, our recommendations are to:
- Request a pre-filing conference with the staff to address the issue with them and establish any and all ground rules for the use of NI 43-101 information in the marketing and sale of the issuer‟s shares.
- If presenting NI 43-101 estimates in press releases, on websites or in roadshow materials, use the following legend:
Cautionary Note to U.S. Investors - The United States Securities and Exchange Commission limits disclosure for U.S. reporting purposes to mineral deposits that a company can economically and legally extract or produce. We use certain terms in this press release/on this web site, such as "reserves," "resources," "geologic resources," "proven," "probable," "measured," "indicated," or "inferred," which may not be consistent with the reserve definitions established by the SEC. U.S. investors are urged to consider closely the disclosure in our [file name], [file number]. You can review and obtain copies of these filing from the SEC‟s website at http://www.sec.gov/edgar.shtml.
- Similarly, if a US-based mining company is sending an annual report to shareholders that "wraps" its Annual Report around its Form 10-K, and elects to include in the annual report non-Guide 7-complaint mineralization presentations, we recommend the following disclaimer be prominently included in the annual report "wrap."
Cautionary Note to U.S. Investors - The United States Securities and Exchange Commission permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We use certain terms in this annual report, such as “resources,” “other resources,” and “mineralized materials” that the SEC guidelines strictly prohibit us from including in our filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K included with this report.