Following focus group discussions with market participants from various sectors in the spring of 2009, the Canadian Securities Administrators ("CSA") on April 23, 2010 published a CSA Notice and Request for Comment (the "2010 Proposal") in respect of National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("NI-43-101"), which governs the disclosure of scientific or technical information by securities issuers in Canada. During the 90 day comment period that followed, the CSA received 50 submissions from, among others, mining issuers, law firms, financial institutions, technical consultants and other mining industry participants.
In May 2010, Fasken Martineau issued a Bulletin describing the significant elements of the 2010 Proposal. Our firm was also among the commenters to the CSA in respect of the proposed changes to NI 43-101.
This Bulletin highlights the material revisions made to the 2010 Proposal by the CSA.
The Notice of Repeal and Replacement of National Instrument 43-101 - Standards of Disclosure for Mineral Projects, Form 43-101 F1 Technical Report, and Companion Policy 43-101 CP (collectively, the "New NI 43-101") was published by the CSA on April 8, 2011. Subject to obtaining all necessary Ministerial approvals, the New NI 43-101 will come into force on June 30, 2011.
A complete text of the New NI 43-101 is available here.
Summary of Amendments in New NI 43-101 to 2010 Proposal:
Definitions and Interpretation
- The New NI 43-101 will not define the terms "preliminary feasibility study", "pre-feasibility study" and "feasibility study" in the instrument itself but will incorporate by reference the definition of those terms under the CIM Definition Standards, as amended. The rationale for this amendment is to provide flexibility for changes that occur in the mining industry without requiring continual statutory amendments.
- The definition of "mineral project" has not been amended as originally contemplated in the 2010 Proposal. The New NI 43-101 retains the words "or similar interest" in the definition to capture metal streaming agreements in addition to royalty interests.
- The definition of "qualified person" has been revised in the New NI 43-101 to require a university degree or equivalent accreditation in an area of geoscience or engineering for a qualified person rather than a membership designation in a professional association. A qualified person must also be subject to continuing professional development within the professional association. The requirements for membership designations in a foreign association have been reduced in the New NI 43-101 from the requirement for a recommendation for membership by "at least three peers and at least 10 years of post-degree practical experience or demonstrated prominence" to "at least two peers and demonstrated prominence or expertise". The CSA has provided more flexibility by replacing the requirement for 10-years of post-degree practical experience or demonstrated prominence in mineral exploration or mining with the concept of just "demonstrated prominence or expertise in either field".
Requirements Applicable to All Disclosure
- The New NI 43-101 amends the 2010 Proposal language in subsection 2.3(1)(c) to clarify that the prohibition of disclosure of the "gross value of metal or mineral in a deposit" refers to the disclosure of its monetary value. The quantity of metals or minerals may be disclosed, as may the metal or mineral equivalent grade for a multiple commodity deposit, sampled drill interval, or drill intersection, provided that the grade of each metal or mineral used to establish the metal or mineral equivalent grade are also disclosed. The Companion Policy 43-101 CP of the New NI 43-101 ("43-101 CP") has also been revised to provide guidance on this point.
Obligation to File a Technical Report
- The 2010 Proposal contemplated the elimination of the trigger to file a technical report with the filing of a preliminary short form prospectus. The technical report trigger for a preliminary short form prospectus has been retained and amended under the New NI 43-101. Now the technical report trigger under subsection 4.2(1)(b) only applies in cases where the preliminary short form prospectus discloses for the first time (i) mineral resources, mineral reserves, or the results of a preliminary economic assessment on the property that constitute a material change in relation to the issuer, or (ii) a change in such resources, reserves or results from the most recently filed technical report, if the change constitutes a material change in relation to the issuer. Previously, a technical report had to be filed if the prospectus included any material scientific or technical information about a mineral project on a property material to the issuer but not contained in a previously filed technical report. #
- Subsection 4.2(5) has been revised to clarify that in cases where a preliminary short form prospectus discloses for the first time (i) mineral resources, mineral reserves, or the results of a preliminary economic assessment on the property that constitutes a material change in relation to the issuer, or (ii) a change in this information from the most recently filed technical report, if the change constitutes a material change in relation to the issuer, the technical report supporting such disclosure must be filed by the earlier of the date of filing of the preliminary short form prospectus and the 45 days after the first time written disclosure.
- Subsection 4.2(7) has also been revised to clarify that despite subsection 4.2(5), in cases where first time disclosure of mineral resources, mineral reserves, or the results of a preliminary economic assessment on a property that constitutes a material change in relation to the issuer, is supported by a technical report filed by another issuer who holds or previously held an interest in the property if such disclosure is also contained in a preliminary short form prospectus prepared by the issuer, the technical report supporting such first time disclosure must be filed by the earlier of the date of filing of the preliminary short form prospectus and 180 days after the first time disclosure.
Use of Foreign Code
- The 2010 Proposal had eliminated the requirement in Part 7 for a technical report to provide a reconciliation of mineral resource and mineral reserve categories of an "acceptable foreign code" to CIM Definition Standards. The New NI 43-101 has re-instated the technical report requirement to provide such a reconciliation but only where there are "material differences" between the mineral resource and mineral reserve categories used in foreign code and those in the CIM Definition Standards.
- Section 9.2 of the New NI 43-101 expands the exemptions available to include both royalty and "similar" interests in order to capture metals streaming agreements that are similar to royalty interests.
- Section 9.2(a)(1)(i) was amended to limit the exemption from filing a technical report in support of subsection 4.2(1) disclosure to, among others, operators or owners of mineral projects who are reporting issuers in Canada as reporting issuer disclosure requirements are more rigorous than those required by NI 43-101.
Amendments to Form 43-101 F1
- The Form 43-101 F1 of the New NI 43-101 ("Form F1") includes an instruction to item 6 that requires issuers to distinguish clearly work that was conducted outside the current property boundaries from work conducted on the property that is subject to the technical report.
- Form F1 now includes an instruction to item 10 that requires issuers to identify clearly the results of drilling performed by previous operators from those performed by the issuer.
- The CSA has removed references to "preliminary feasibility study" or "feasibility study" in paragraph (a) of item 15 of Form F1. Item 15(a) requires a detailed discussion of all factors involved in the conversion of mineral resources to mineral reserves. The CSA was of the view that by directing the discussion to factors in the "preliminary feasibility study" or "feasibility study" it was directing the disclosure obligation to specific reports that may no longer be current.
- Paragraph (a) of item 19 of Form F1 has eliminated the requirement to disclose the results of relevant market studies or similar analysis. The CSA has now included a requirement that the qualified person discuss the general nature of the studies conducted and confirm that they have reviewed these studies and analyses and that the results support the assumptions in the technical report. The CSA was of the view that requiring emerging producers to provide disclosure with respect to actual results of relevant market studies or similar analyses could involve the disclosure of the issuer's proprietary confidential information thereby providing an unfair advantage to existing producers. The CSA also considered the repercussions of disclosure of confidential and proprietary information that would disadvantage certain industry participants.
Amendments to the Companion Policy
- The 43-101 CP provides guidance on the CSA's expectations with respect to updating the lists of "acceptable foreign codes" and "professional associations" listed in Appendix A to 43-101 CP. Appendix A of 43-101 CP is a list of foreign associations that the CSA thinks meets all of the tests in the definition under the New NI 43-101. The ability to use a qualified person other than a Canadian qualified person provides more flexibility to mining issuers.
- Through 43-101 CP, the CSA has provided guidance on its interpretation of (i) good standing requirements for qualified persons and the meaning of "demonstrated expertise", (ii) restrictions against disclosing gross value of contained metal or mineral, (iii) triggers with permitted filing delays, and (iv) the exemptions for royalty or similar interests under section 9.2 of the New NI 43-101.
- The final paragraph under section 2.4 of Companion Policy 43-101 CP included as part of the 2010 Proposal has been removed as its requirements were essentially an unnecessary repeat of the requirement in subsection 4.2(1)(j) of the New NI 43-101.
- The guidance provided in 43-101 CP on the preliminary short form prospectus trigger was amended as the trigger still applies under the New NI 43-101.
- Appendix A of 43-101 CP was amended to reflect the changes to the definition of "qualified person".