In January of this year, the Canadian Securities Administrators (CSA) launched an initiative to review and revise National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) to address the concerns of regulators and the mining industry. The industry is currently responding to the CSA’s recent call for comments on NI 43-101, drawing on its experience in working with the instrument since it came into force in 2001. While the B.C. Securities Commission is leading the CSA’s initiative, regulators such as the Ontario Securities Commission (OSC) are proactively setting up meetings with interested parties, including geologists, lawyers and analysts, to discuss particular topics for further review. The CSA has targeted April 2010 to publish draft revisions for comment.
Some of the concerns being raised about NI 43-101 include the following:
- Certificates and Consents of Qualified Persons: NI 43-101 requires technical reports to be filed to support scientific and technical information included in certain disclosure documents. There is an exception if (i) a technical report has already been filed that supports the scientific and technical information contained in the disclosure, (ii) there has been no material change in the scientific and technical information since the date the original report was filed, and (iii) the issuer files an updated certificate and consent of each qualified person (QP) who has been responsible for preparing or supervising the preparation of each portion of the technical report.
Arguably, it is too onerous to require QP certificates and consents to be filed each time an issuer’s disclosure triggers a technical report requirement where a current technical report is on file. While the purpose of the requirement is to ensure accuracy of the issuer’s disclosure and, at the same time, provide some protection for the QP from exposure to liability, the challenges and costs of obtaining consents in these circumstances may outweigh the potential benefits. The QP who prepared the technical report as at a particular date has already consented to both the initial filing of the technical report and the issuer’s scientific and technical disclosure that is based on and actually triggered the filing of the QP’s technical report. A strong case can be made that the issuer rather than the QP who authored the technical report should be responsible for the accuracy of such subsequent disclosure by the issuer that is based on the filed technical report.
However, if this is the case, who, then, is qualified and should be responsible to state that a technical report on file is “current”, i.e., that there has been no material change in the scientific and technical information since the date of filing the technical report, and that the technical report contains all scientific and technical information that is required to be disclosed to make the technical report not misleading? NI 43-101 allows the issuer to determine whether a previously filed technical report is current in connection with the filing of a short form preliminary prospectus and annual information form (AIF) without the need to obtain certificates and consents from the authors of the original reports. It is not clear why the issuer should not also be able to make this determination in connection with the filing of other documents, such as a share exchange take-over bid circular, particularly where the only scientific and technical information in the circular is incorporated by reference from an AIF.
- Technical report triggers: The CSA has tabled for discussion potential additions and adjustments to the triggering circumstances where technical reports are required to be filed. For example, the CSA is considering whether a production decision should trigger a new, additional requirement to file a technical report given the CSA’s concern that some issuers are electing to put properties into production without independently establishing feasibility.
Adjustments should be made to clarify (i) what scientific and technical information is required to be disclosed in particular circumstances, (ii) the triggers and (iii) applicable exemptions, as it is not always clear when a technical report is required. This is partly due to the combination of NI 43-101 with other securities instruments in the broader disclosure regime. One cannot just look to NI 43-101 to determine if a technical report will be required. For example, the disclosure in information circulars for share exchange transactions is governed by NI 51-102 -Continuous Disclosure Obligations, in particular, the form requirements set out in Form 51-102F5, and either NI 41-101- General Prospectus Requirements or NI 44-101- Short Form Prospectus Distributions, as applicable. Different share exchange transaction structures that achieve an equivalent economic result may have different disclosure requirements and result in different technical report requirements. It would be helpful to assess the policy rationale in each case and clarify the requirements in the instrument.
- Form of Technical Report for Advanced Mineral Projects and Producing Properties: Another potential revision being considered by the CSA is the form of technical report to be required. The current form is more appropriate for early stage exploration properties. A different form may be desirable for advanced development and producing properties to limit disclosure to information relevant to producing issuers (currently grouped near the end of the form). A related topic is whether the detailed competitively sensitive economic information, analysis and cash flow forecasts for producing properties should be required in a technical report. Is all of that information necessary for a QP to conclude that there are mineral reserves? If not, but that information still should be disclosed, perhaps such non-scientific and technical information should be disclosed by the issuer in its disclosure rather than by the QP in the technical report.
- Liability for Disclosure of Information as Between the QP and the Issuer: There is confusion about the allocation of liability for disclosure between the issuer and the QP. The issue is further complicated by QP disclaimers and reliance on other experts. In the estimation of mineral reserves and mineral resources, as well as in the preparation of technical reports, QPs are called upon to address areas outside of their expertise, such as legal and financial information. When a QP relies on information prepared by other experts, what is the QP required to do in assessing the reliability of such information? The QP should be entitled to rely on other experts, but in determining to rely on such information, must meet a standard of care. Guidance on this issue would be helpful.
- Industry Input: In addressing the possible changes that may be made to NI 43-101, we should keep in mind the original purposes of the mining disclosure standards, which are, when all is said and done, to ensure the industry has continued access to the capital markets, while simultaneously protecting the public. Deliberations on the instrument should be viewed through this public protection lens. Having said that, the goal of the instrument should be to protect the investor without undue hardship, time and expense to the issuer and the QP.