The British Columbia Security Commission's 2012 Mining Report: Cautionary Notes on Technical Disclosure for Mining Companies.
The British Columbia Security Commission (the “BCSC”) has for the first time released a report, the 2012 Mining Report (the “Report”), that summarizes its findings from mining disclosure compliance reviews conducted by the BCSC during 2012 (the full text of the Report may be found here). The purpose of the Report is to provide information and guidance to listed mining companies with respect to areas of disclosure under National Instrument 43-101 and other related securities instruments (the “Disclosure Rules”) where the BCSC has encountered consistent deficiencies over the course of the year.
Continuous Disclosure Reviews
With respect to continuous disclosure requirements of mining companies under the Disclosure Rules, the BCSC has identified the following as the main source of non-compliance:
- Failure to file current or compliant technical reports;
- Non-compliant disclosure of mineral reserves and mineral resources (“MRMR”);
- Disclosure of exploration targets and historical estimates without required cautionary language and context;
- Disclosure that is not timely, factual or balanced; and
- Failure to name the qualified person (“QP”) responsible for the disclosure.
Annual Compliance Reviews
Based on a sample of randomly selected mining companies selected to asses overall compliance with Disclosure Rules, the BCSC has identified a trend whereby the voluntary disclosure made by mining companies is consistently less likely to comply with the requirements of the Disclosure Rules than required filings (such as disclosure via news releases, MD&As and AIFs). Most of the problems arose when mining companies made disclosure via company websites, linked third-party sites and within corporate presentations. Companies need to remember that notwithstanding the medium of the communication, the Disclosure Rules continue to apply to any disclosure made to the public.
Some of the most common deficiencies within such voluntary disclosures were:
- Adding inferred mineral resources to other categories;
- Not disclosing appropriate resource categories;
- Disclosing historical estimates or results of preliminary economic assessments (“PEA”) without providing the appropriate cautionary language;
- Disclosing exploration targets that are not expressed as ranges or with no cautionary language; and
- Not naming the QP responsible for the disclosure.
Guidance on Areas of Frequent Deficiency
Much of the Report is dedicated to providing guidance with respect to the issues that most frequently trip up mining companies in relation to the Disclosure Rules. Mining companies should take care in preparing their disclosure documents as it is likely that the BCSC will pay close attention to compliance with Disclosure Rules that pertain to these items. While most deficiencies can be addressed via corrected future filings, more material deficiencies can result in cease trade orders against the company or lead to the company being placed on the defaulting issuer’s list. Even having to file a news release explaining, retracting or correcting previous non-compliant disclosure can lead to a black eye for the reputation of a mining company, which in today’s difficult equity market can lead to additional roadblocks for mining companies seeking to raise funds via equity financing.
a) Technical Report Deficiencies
The BCSC’s review of technical reports in 2012, identified several problem areas:
- Missing or altered statements in certificates and consents of QPs;
- Technical reports that are not dated, signed, or addressed to the company;
- Non-compliant disclaimers of responsibility of statements of reliance;
- Technical reports that do not provide a summary of all material technical and scientific information;
- Non-compliant disclosure of historical estimates, exploration targets or MRMR; and
- Inadequate or insufficiently transparent information on the key assumptions, parameters, and methodologies used in mineral resource estimates.
b) Industry Standards and Best Practices
The BCSC reminds mining companies that it expects QPs to use procedures and methodologies that are consistent with industry best practices, as established by the Canadian Institute of Mining, Metallurgy and Petroleum and other similar organizations. Disclosure of scientific and technical information should be comparable to similar disclosures made by mining companies that follow industry best disclosure practices. The BCSC may refer to technical reports that follow industry best practices for disclosure as examples of industry consensus. In certain cases, the BCSC may ask a mining company to retain another QP, acceptable to the BCSC, to author or co-author a technical report, or to audit or verify the work of the initial QP.
c) Metal Pricing Assumption Problems
The BCSC views metal or commodity price assumptions as having a significant impact on disclosure that relates to identification of mineral resources or mineral reserves and the resulting economic analysis based on those estimates. While the Disclosure Rules do not provide specific guidance as to how QPs should determine pricing assumptions, the BCSC expects such assumptions to be consistent with industry norms. The Report notes that the US Securities and Exchange Commission accepts, as a maximum metal price assumption allowed, the lesser of the three-year moving average and the current spot price and the BCSC recognizes this approach as a common industry standard. Price assumptions that the BCSC views as anomalous may require the QP to explain the basis for such price assumptions and to provide examples of other technical reports prepared by credible sources where similar price assumptions are made.
The Report also notes the BCSC’s concern that disclosure based on metal price assumptions using only positive price sensitivity could be misleading to investors. Mining companies should disclose sensitivities to both rising and falling metal prices.
d) Improper Mineral Resource Estimation
The Report seeks to remind mining companies that mineral resources must have reasonable prospects of economic extraction, meaning that QPs may need to constrain the mineralization within a conceptual pit shell or mine model to exclude mineralization that falls outside those constraints. The BCSC has found that certain technical reports do not adequately disclose the QP’s assumptions regarding reasonable prospects of economic extraction.
Some technical reports are deficient due to the QP estimating the mineral resource without the application of an appropriate geological model or the consideration of geological and grade continuity between data points. This practice can lead to estimates of mineral resources that are contrary to the Disclosure Rules and to industry best practices. The BCSC may question the compliance of a technical report or the suitability of the mineral resource described therein for public disclosure if details are lacking regarding a proper geological model consistent with the deposit type or if the technical report does not apply reasonable constraints on mineralization.
Finally the BCSC is concerned that technical reports are being prepared by QPs who lack the requisite level of experience relevant to the subject matter of the mineral project and the technical report. QPs must be able to satisfy themselves that they have sufficient relevant experience to prepare resource estimates for the deposit type in question in accordance with industry best practices.
e) Premature Disclosure of Mining Studies
The Report warns mining companies of disclosing the fact of the commencement of a mining study prior to the mining company having established or disclosed a mineral resource with respect to the subject property. This practice could be misleading, contrary to established industry practices and contrary to the Disclosure Rules. The BCSC’s problem with such disclosure is that the mining company may be implying that it has sufficient information to estimate the size, grade and geometry of a mineral deposit suitable for use in a mining study. While mining companies can conduct studies and exploration work that can later be incorporated into a mining study, mining companies are cautioned not to refer to this work as part of a mining study if the work is being done prior to establishing a suitable mineral resource.
AIFs BCSC British Columbia Security Commission comodity Disclosure Rules MD&As metal mineral resources MRMR QP US Securities and Exchange Commission