The British Columbia Securities Commission (BCSC) recently issued its 2012 Mining Report (Report). The Report (1) summarizes the findings of BCSC staff from their mining disclosure compliance reviews, and (2) sets out the views of BCSC staff on certain topical issues. The following provides an overview of those findings and views.
Mining Disclosure Compliance Review: Common Deficiencies
Staff of the BCSC conducted continuous disclosure reviews, annual compliance reviews, targeted reviews and prospectus reviews of mining technical disclosure. The Report sets out common deficiencies identified by BCSC staff arising from such reviews. These common deficiencies include:
- Failure to file current or fully compliant technical reports;
- Non-compliant disclosure of mineral reserve and mineral resources (MRMR), including adding inferred mineral resources to other categories, and not disclosing the appropriate resource category;
- Disclosure of exploration targets and historical estimates, or the results of a preliminary economic assessment (PEA) without the required cautionary language and context;
- Disclosure that is not timely, factual, or balanced; and
- Failure to name the qualified person (QP) who is responsible for the disclosure.
The BCSC staff notes in the Report that voluntary disclosure is less likely to comply with the requirements in National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101).
The Report also sets out the most common issues that BCSC staff identified in their review of technical reports. These common issues include:
- Missing or altered statements in certificates and consents of the QPs that are filed with the technical reports;
- Technical reports that are not dated, signed, or addressed to the company;
- Non-compliant disclaimers of responsibility or statements of reliance included in the technical report;
- Technical reports not providing a summary of all material technical and scientific information for the entire property;
- Inclusion of non-compliant disclosure of historical estimates, exploration targets, or MRMR; and
- Technical reports not providing adequate or sufficiently transparent information on the key assumptions, parameters, and methodologies used in mineral resource estimates.
Topical Issues and Guidance
The Report discusses a number of topical issues and provides guidance on those issues, including those described below.
Use of Best Practice Guidelines
In the Report, BCSC staff note their expectation that (1) QPs retained in connection with NI 43-101 disclosure generally use procedures and methodologies that are consistent with industry best practices, as established by The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) and similar organizations in other jurisdictions, and (2) the disclosure of scientific and technical information be comparable to similar disclosure made by other companies.
The Report further notes that staff may question a company’s disclosure, including estimates of MRMRs, and the results of PEAs, if it appears inconsistent with the CIM Best Practice Guidelines. BCSC staff indicate in the Report that in appropriate cases, staff may ask the company to retain another QP acceptable to the BCSC to author the report or audit or verify the work of the first QP.
In the Report, BCSC staff note that metal or commodity price assumptions used to establish cut-off grade and reasonable prospects of economic extraction, and for the financial analyses in PEAs and mining studies, can have a significant impact on the size of the mineral resource or mineral reserve and the resulting economic analysis.
Accordingly, as noted in the Report, BCSC staff expect that such assumptions be explained in the technical report and be consistent with what other QPs and companies are using at the time. Staff further note in the Report that material differences in prices from those used by other QPs may raise concerns that the resulting mineral resources, mineral reserves, and economic analyses will not be reasonably comparable to other similar projects and might be misleading to investors. The Report notes that in such circumstances, BCSC staff may ask the QP to explain the basis for the assumption and to provide examples of other technical reports that use similar pricing assumptions or may alternatively ask the QP to revise the assumptions.
BCSC staff acknowledge in the Report that the US Securities and Exchange Commission method of using the lesser of the three-year moving average and current spot price as the maximum price allowed is a common industry standard.
Mineral Resources Estimation
BCSC staff note in the Report that (1) by definition mineral resources must have reasonable prospects of economic extraction, and (2) typically this is reflected in the cut-off grade selected based on metal pricing assumptions, potential mining scenarios, and other relevant factors.
In the Report, BCSC staff state that some technical reports do not adequately discuss how the QP established reasonable prospects which raises questions as to whether the reported tonnes and grade actually qualify as a mineral resource. The Report confirms the staff position that assumptions regarding reasonable prospects must be disclosed under NI 43-101 and are material information that must be included in the technical report.
BCSC staff also raise concern in the Report regarding QPs estimating mineral resources without the application of an appropriate geological model. In staff’s view, this practice is contrary to the industry best practices, and hence may be questioned by staff.
BCSC staff note in the Report that disclosure of ongoing mining studies (pre-feasibility studies or feasibility studies) prior to establishing or disclosing mineral resources could be misleading and contrary to established mineral exploration practice, and hence contrary to NI 43-101. BCSC staff state their view in the Report that, in the absence of a mineral resource, a company does not have sufficient information in which to base a mining study and hence this may be questioned by staff.
The Report states that if BCSC staff identify significant issues during the review process, staff will typically notify the company by letter, identifying the issue and suggesting corrective actions needed. The Report further notes that as a result of the review, the BCSC staff may take a number of actions, including for example:
- Requesting the company amend disclosure on its website and in investor relations material to comply with NI 43-101;
- Requesting the company amend and re-file disclosure documents, including technical reports;
- Requesting the company issue a news release to correct its disclosure;
- Placing the company on the BCSC defaulting issuers list until the company corrects the disclosure; and
- Issuing a cease trade order against the company’s securities until the required document in the required form is filed.
If significant issues are raised during a prospectus filing, the resolution of the issue may result in significant delays in clearing the prospectus and may negatively impact the filing.