The Ontario Securities Commission (OSC) has found an “unacceptable” level of compliance with Form 43-101F1 Technical Reports for mineral projects, with 80% of the Technical Reports reviewed having some level of non-compliance and 40% of the Technical Reports reviewed having at least one major non-compliance concern. The findings are set out in OSC Staff Notice 43-705 summarizing the results of its review of Technical Reports filed since the revised National Instrument 43-101 Standards of Disclosure for Mineral Projects came into force on June 30, 2011.
Issuers should anticipate staff requests for refilings or additional disclosure, or other staff action if an issuer and its qualified person (QP) have not fully met the requirements of Form 43-101F1 and NI 43-101 in their technical disclosure.
In the context of a financing, such requests could delay the issuance of a prospectus receipt, particularly for short form prospectus filings.
The OSC also points out that issuers, their directors and officers are primarily responsible for disclosure in Technical Reports. The OSC suggests that boards may want to consider their and management’s corporate and technical skill set in order to be qualified to fulfill this oversight function.
The OSC’s findings are consistent with Borden Ladner Gervais LLP’s experience reviewing technical disclosure, particularly in our role as underwriters’ counsel. The requirements set out in Form 43-101F1 are intricate, detailed and subject to nuances and traps. Many engineers and geologists, particularly those who are working in-house, are simply unaware of the level of regulatory scrutiny these reports attract. We are aware of a number of prospectus financings, and even private placements, that have been delayed or, in some cases, terminated due to non-compliance of Technical Reports with Form 43-101F1.
To address these potential issues, many of our public mining clients have us “scrub” their technical disclosure before filing a Technical Report or announcing a financing in order to catch and address any problems before they are raised by regulators.
GUIDANCE FOR MINING ISSUERS AND QPS IN AREAS OF CONCERN
The OSC identified five significant areas of concern in Technical Reports and provided the following guidance to assist issuers and QPs:
- Mineral Resource Estimates – QPs and issuers must disclose how “reasonable prospects for economic extraction” were established, including the key assumptions, parameters and methods to support the basis for estimating mineral resources, such as cut-off grade, metal price assumptions and other constraints, including the geological model, conceptual pit shell or mine model.
- Environmental Studies, Permitting and Social or Community Impact – QPs must include a discussion of any potential social or community related requirements and plans for the project and the status of any negotiations or agreements with local communities, as well as a discussion of mine closure (remediation and reclamation) requirements and costs, in a Technical Report on an “advanced property”.
- Capital and Operating Costs – QPs must provide more context and justification for capital and operating cost estimates included in Technical Reports for an “advanced property”. Cost estimates should not be a single bottom-line number.
- Economic Analysis – QPs and issuers are cautioned that it is potentially misleading for a Technical Report on an “advanced property” to disclose only pre-tax cash flows and economic outcomes or to disclose only positive metal price changes or only up-side sensitivity analysis.
- Tabular Disclosure – QPs should consider including a table showing the significant project specific risks, potential outcomes and mitigating factors along with supplementary discussions and possible opportunities, if reasonable.
The OSC also provided guidance on other areas of concern:
- Summary – In a Technical Report’s Summary, the QP must briefly summarize important information and “key findings” about the property, including: property description and ownership; data verification; site visits; mineral resource and mineral reserve estimates (if applicable); and mining studies and economic analysis (if applicable).
- History – QPs and issuers must include the required cautionary language set out in section 2.4 of NI 43-101 every time a historical estimate is disclosed.
- QP Certificate – QPs must include in their certificates all the statements required under section 8.1(2) of NI 43-101. The OSC noted that the QP’s certificate is one of the first things checked by the regulators when reviewing a Technical Report.
A copy of OSC Staff Notice 43-705 is available here.