In 2018, the United States Securities and Exchange Commission (SEC) announced significant changes to the disclosure requirements for mining registrants (link). The new rules apply specifically to “registrants with material mining operations”.
The final rule amendments became effective as of February 25, 2019, except for the amendments to 17 CFR 229.801(g) and 229.802(g) (Items 801 and 802). The latter refers to the requirement for “Technical Report Summaries” to be prepared by “Issuers Engaged or To Be Engaged in Significant Mining Operations.” A registrant will not have to comply with these new rules until its first fiscal year beginning on or after January 1, 2021, in order to allow time for the preparation of the reports.
The goal was to create a regulatory framework “consistent with global standards as embodied by the Committee for Reserves International Reporting Standards (“CRIRSCO”)”.
The SEC has aligned its disclosure requirements and policies more closely with the current global regulatory practices and standards by rescinding Industry Guide 7 and consolidated the requirements for registrants with material mining operations in a new subpart of Regulation S-K (link).
In Micon’s opinion, the critical sections of Regulation S-K are the Technical Report requirements, the adoption of the Qualified Person concept, and the definitions of important newly allowed terms (such as the mineral resource categories) covered in Items 601, 1300 and 1302.
Highlights for many in the mining industry will be the recognition of, and permission to disclose, Measured, Indicated and Inferred Mineral Resources.
In its October 31, 2018, press release the Commission chose to highlight the following principal changes:
- “Require a qualified person to use a price for each commodity that provides a reasonable basis for establishing estimates of mineral resources or mineral reserves, which may be a historical or forward-looking price, as long as the qualified person discloses and explains his or her reasons for using the selected price, including the material assumptions underlying the selection.”
- “Provide that a qualified person will not be subject to expert liability under Section 11 of the Securities Act for certain aspects of specified modifying factors outside the expertise of the qualified person that are based on information provided by the registrant and are discussed in the technical report summary or other parts of the registration statement.”
- “Eliminate the proposed quantitative presumptions regarding when a registrant’s mining operations, and when a change in previously reported estimates of mineral resources or mineral reserves, are deemed to be material.”
- “Eliminate the proposed summary disclosure provision requiring specific items of information in tabular format about a registrant’s top 20 properties and, instead, adopt a more principles-based approach by requiring the registrant to provide investors with an overview of its properties and mining operations.”
- “Reduce the number of summary and individual property disclosure provisions requiring tables from seven, as proposed, to two, and permit other required disclosure to be in either narrative or tabular format.”
- “Permit, but not require, a registrant to file a technical report summary to support its disclosure of exploration results.”
- “Permit the disclosure of exploration targets in Commission filings if accompanied by certain specified cautionary and explanatory statements.”
- “Permit a qualified person to determine mineral resources and reserves at any specific point of reference, which must be disclosed in the technical report summary, rather than at three points of reference.”
- “Permit a qualified person to include inferred resources in an economic analysis that the qualified person opts to include in an initial assessment as long as certain conditions are met.”
- “Define “mineral reserve” to include diluting materials and allowances for losses that may occur when the material is mined or extracted.”
- “Permit a qualified person to conduct either a pre-feasibility or final feasibility study to support a determination of mineral reserves even in high risk situations.”
- “Permit the use of historical estimates of mineral resources or reserves in Commission filings pertaining to mergers, acquisitions, or business combinations if the registrant is unable to update the estimate prior to the completion of the relevant transaction, provided that the registrant discloses the source and date of the estimate, and does not treat the estimate as a current estimate.”
- “Permit a registrant holding a royalty or similar interest to omit any information required under the summary and individual property disclosure provisions to which it lacks access and which it cannot obtain without incurring an unreasonable burden or expense.”
“The final rules also clarify that a third-party firm, which employs a qualified person, may sign the technical report summary and provide the written consent required for an expert under the Securities Act.”
In Micon’s opinion, the most important changes are the alignment of the SEC with the major international mineral resource and mineral reserve codes allowing the disclosure of measured, indicated and inferred resources, the adoption of the Qualified Person concept, and the requirement for a technical report (Technical Report Summary in SEC parlance) for each of a company’s material mining operations.
Clients seeking assistance with meeting the revised disclosure requirements are urged to contact the author or any of Micon’s staff via the contact page on this website. Please note, though: Micon does not offer legal advice or opinions!