On 23 March 2011, the European Securities and Markets Authority ("ESMA"), the successor body to CESR, issued a feedback statement in relation to proposed changes to CESR's recommendations for the consistent implementation of the Prospectus Regulation (the "CESR Guidelines"). The amendments relate to the sections of the CESR Guidelines applying specifically to mineral companies (the "Mineral Company Guidelines") and were originally proposed by CESR in a consultation paper published on 23 April 2010. The proposed amendments, the feedback on each of them and the result of that feedback are summarised in the attached table (see the link at the foot of this page).
The feedback - key decision
The most significant result of the feedback is that ESMA has confirmed that it will proceed with the removal of the current requirement for a mineral company without a three year trading history to include cash flow forecasts signed off by an independent accountant or auditor in its prospectus. Respondents agreed that estimates of cash flow are of limited value because they rapidly become out of date and there are often a large number of potentially very different outcomes which are highly dependent on the commodity price assumptions used.
ESMA also decided on the basis of the feedback not to implement the replacement provision originally proposed, which would have required 18-month cash flow forecasts prepared by management (but not externally approved) to be included where the fundraising proceeds were to be applied towards specific exploration or development projects. Although more respondents agreed with this than not, ESMA considered that the generality of the Prospectus Directive is already sufficient to provide investors with the required disclosure on the proposed application of the funds they will be investing.
The feedback - other decisions
Other proposed changes which were affected by the feedback are:
- the changes originally proposed which would have required a competent person's report ("CPR") to be prepared (1) on new assets being acquired where the acquisition is a significant gross change, (2) where there has been a (material) first time declaration of reserves and (3) where there has been a significant (100%) change in reserves levels, have all been dropped. In addition, the change which ESMA had proposed to require a CPR on the target's assets in a significant acquisition situation has been replaced with a requirement to extend the general disclosure of the reserves and resources in the prospectus to include the target assets
- The list of reserves and resources codes endorsed as suitable for use in EU prospectuses has been amended and now only includes oil and gas codes derived from the Society of Petroleum Engineers' PRMS system and mining codes aligned with the standards published by the Committee for Mineral Reserves International Reporting Standards
- ESMA has clarified that the detailed CPR content set out in the proposed new appendices to the CESR guidelines is recommended content only and not compulsory content
- ESMA has made amendments allowing an issuer to omit items required by the Mineral Company Guidelines where third country securities laws prohibit disclosure of the items.
The remainder of the proposed changes have been retained substantially as originally drafted. The most significant of these changes are as follows:
- exploration-only companies, which had previously been excluded from the scope of the Mineral Company Guidelines, will now be required to comply in the same way as other mineral companies. The guidelines will also be amended to exclude wholesale debt issuers
- the definition of "mineral company" will be amended to remove the current "principal activity" test and refer instead to a "company with material mineral projects". A new definition of "mineral project" will also be included
- the current requirement for a prospectus to include a CPR where the issuer does not have a three year trading history will be removed and replaced with a revised trigger. The amended provisions set out a general starting position that all mineral company prospectuses must include a CPR but then provide an exemption for a mineral company which is already listed, which has previously published a CPR which measured reserves and resources and exploration results/prospects in accordance with one of the codes prescribed in the CESR Guidelines, and which has continued to report and publish annually details of its reserves and resources and exploration results/prospects in accordance with one of those codes.
Please click here for an overview of the proposed amendments to the Mineral Company Guidelines.