"The BCSC reminds issuers that correcting filings may fix disclosure going forward but does not absolve a company from the original breach. In certain serious cases, the BCSC has warned that it will pursue enforcement action."
The British Columbia Securities Commission ("BCSC") released its first ever Mining Report on January 24, 2013. The BCSC is the leading regulator in Canada for junior mining issuers and the 2012 Mining Report highlights common deficiencies found by the BCSC when reviewing the continuous disclosure of mining companies. Issuers in the mineral resource industry will find the recommendations and guidelines in the report helpful to ensure compliance with disclosure rules, in particular National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). This article briefly summarizes some of the key findings.
The BCSC has implemented an ongoing program of review of the continuous disclosure filed by mining companies. These range from high-level reviews focussing on a specific issue to more fulsome reviews of a company's complete continuous disclosure record. When the BCSC finds significant issues, the BCSC notifies the issuer in a letter which will outline the deficiencies in the issuer's disclosure and include suggestions on any required corrective action. The BCSC may take further action depending on the seriousness of the problems identified. The action may include requesting the company to refile certain continuous disclosure documents (such as technical reports, annual information forms, management discussion and analysis) and in situations where the BCSC finds a significant risk to investors, issuing a cease trade order against the issuer's securities until the issuer files or corrects the problematic disclosure. The BCSC reminds issuers that correcting filings may fix disclosure going forward but does not absolve a company from the original breach. In certain serious cases, the BCSC has warned that it will pursue enforcement action.
Some common deficiencies found by the BCSC in their continuous disclosure reviews include:
- Failure to file a current or compliant NI 43-101 report with respect to a material mineral property;
- Disclosure of mineral resources and mineral reserves that do not comply with the requirements of NI 43-101.
- Failure to include cautionary language with respect to exploration results, historical estimates or preliminary economic assessments; and
- Failure to name a qualified person who has reviewed technical disclosure in news releases and other disclosure that includes technical information.
In addition to reviewing a mining issuer's continuous disclosure record as filed with the regulators, the BCSC also reviews disclosure on websites, investor relations materials, email promotions, social media and corporate presentations. In their review, the BCSC notes that issuers tend to be less rigorous in complying with applicable disclosure rules in these types of materials. The BCSC found the most problematic materials on websites, linked third party sites and in corporate presentations. Issuer's should be reminded that all disclosure (not just disclosure made to comply with continuous disclosure rules) are subject to the requirements of NI 43-101.
The BCSC also undertakes reviews of technical reports to assess compliance with the form requirements of NI 43-101 and the core requirements of NI 43-101. The most common problems found from the review of technical reports include:
- certificates and consents of Qualified Persons ("QPs") including missing or altered statements;
- a report not being addressed to the issuer;
- a report including non-compliant disclaimers from the author;
- non-compliant disclosure of estimates, exploration targets, or mineral resources and reserves;
- a lack of a summary of material technical and scientific information for the entire property;
- with respect to mineral resource estimates, the failure to include adequate and sufficiently transparent information on assumptions, parameters and methodologies used to arrive at estimates.
In the Mining Report, the BCSC also highlights certain topical issues for which the BCSC would like to give guidance:
- The BCSC notes that when reviewing technical reports, qualified persons are expected to adhere to best practices of the industry (CIM Best Practices). Where a company's disclosure is inconsistent with such best practices, the BCSC may invite the issuer and its qualified person to explain the basis and the circumstances why best practices are not used.
- In preliminary economic assessments and mining studies, the BCSC expects qualified persons to use pricing assumptions that are consistent with what other QPs and companies are using at the time. When a QP uses prices that are materially different, the BCSC may ask the QP to revise original assumptions.
- With respect to mineral resource estimates, the BCSC reminds issuers that a QP's assumptions regarding reasonable prospects of economic extraction must be disclosed in the technical report. The BCSC reminds issuers that such information is considered material information. In addition the BCSC has seen instances where qualified persons are estimating mineral resources without the application of an appropriate geological model or consideration of geological or grade continuity between individual drill points.
- The BCSC also notes that it has found situations where companies disclose the commencement of mining studies prior to establishing mineral resources. Mining studies are comprehensive studies based on measured and indicated mineral resources or proven or probable reserves. If a company indicates that it is completing a mining study it implies that it has sufficient information to estimate a mineral deposit. If a mineral resource is not yet established, a company does not have sufficient information to base a mining study and stating that a mining study is being commenced is misleading.
By publishing the 2012 Mining Report, the BCSC recognizes the importance of the mining industry to the British Columbia and Canadian economy and capital markets. The report which sets out the views and interpretations of BCSC staff will be very helpful reading for all issuers in the mineral resource industry.