A Primer on Disclosure Standards and Requirements in the Canadian Mining Sector
The mining sector in Canada has been experiencing a resurgence in interest and activity throughout 2020, with a significant rise in the number of financing and M&A deals recorded, together with what appears to be a change in investor sentiment to mining companies. Indeed, Canada's capital markets remain one of the major sources of financing for the mining industry worldwide, with a significant portion of the world's public mining companies listed on stock exchanges in Canada. As interest and investments in the Canadian mining sector is reinvigorated, so too is the number of mining companies seeking to secure financing through the Canadian equity markets, either through private placements or public offerings.
To raise capital through Canadian markets, mining companies will need to comply with the specific disclosure standards established in National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”). The NI 43-101 standards apply to any public disclosure of scientific and technical information regarding mineral projects. Canadian securities regulators require that any such disclosure intended to be, or reasonably likely to be, made available to the investing public must comply with NI 43-101.
What follows in this article is a primer on the NI 43-101 disclosure standards and the core elements that should be part of any Canadian public company’s mining project disclosure.
NI 43-101 Disclosure Standards
Prior to the establishment of the NI 43-101 disclosure standards, investor confidence in the mining sector had significantly eroded as a result of the less thorough disclosure standards. These prior disclosure standards enabled a number of fraudulent mining projects to take advantage of investors through false reports and valuations. NI 43-101 was introduced in response to these incidents.
The goals of the NI 43-101 are to ensure that scientific and technical information disclosed by issuers with respect to mining projects is:
- signed off by a professional qualified person;
- based on reasonable assumptions which are clearly explained;
- consistent in its use of standardized terms and definitions;
- balanced and not misleading and identifies potential risks and uncertainties;
- presented in a format that allows for comparing similar projects; and
- understandable to a reasonably informed investor.
Core Principals Under NI 43-101
There are three core principals underlying NI 43-101:
- that the public disclosure of mineral resources and reserves be made using the categories established by the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”);
- that the disclosure of scientific or technical information with respect to a mineral project on a property that is material to the issuer must be based on a technical report prepared in accordance with Form 43-101F1 – Technical Report (“Form 43-101F1”); and
- that such technical report must be prepared by or under the supervision of a “qualified person” for the purposes of NI 43-101.
1. CIM Definition Standards
Prior to the adoption of NI 43-101, there was little guidance on the terminology used to describe mineral inventory and, as a result, a variety of terms were employed by different companies. Oftentimes, these terms had no clear, standard or definitive understood meaning. This lack of clarity created a problem for investors in mining companies seeking to compare the relative mineral inventories of different mineral projects. The CIM definition standards introduced uniformity and clarity that investors needed to judge the mineral inventories of different mining projects. The complete CIM definition standards and related guidance are published on the CIM website.
In this article, we only reproduce the two categories of mineral inventory, which issuers are restricted to use for disclosure purposes under NI 43-101:
- Mineral Resource: A mineral resource is a concentration or occurrence of solid material of economic interest in or on the earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. Mineral resources are further subdivided into three categories: (i) Inferred Mineral Resources; (ii) Indicated Mineral Resources; and (iii) Measured Mineral Resources.
- Mineral Reserve: A mineral reserve is the economically mineable part of a Measured Mineral Reserve and/or an Indicated Mineral Reserve. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at a pre-feasibility or feasibility level, as appropriate, that include application of modifying factors. Mineral reserves are subdivided into two categories: (i) Probable Mining Reserves; and (ii) Proven Mining Reserves.
Issuers are encouraged to review or engage counsel to review their disclosure materials to ensure they are in compliance with the regulatory framework set out under NI 43-101.
2. Technical Reports
A technical report is a detailed report that provides a summary of material scientific and technical information concerning mineral exploration, development and production activities on a mineral property that is material to the issuer. Technical reports are prepared in accordance with NI 43-101 and Form 43-101F1, and are intended to outline the key findings of a mining company’s material mineral properties. Issuers should keep in mind that the disclosure should focus on what’s important for the stage of development of the property, and not over-estimate what the future potential of the property is.
Selecting the right qualified person for the preparation of the report is critical and will ensure that an issuer is not only compliant with all of the regulatory standards imposed by NI 43-101, but compliant with CIM best practice guidelines as well.
Triggers for technical reports
The requirement for a technical report can be triggered by certain material property milestones, such as:
- first time disclosure of mineral resources, preliminary economic assessment, mineral reserve; or
- a material change to any of the above.
The requirement for a technical report can also be triggered by certain company milestones, such as:
- first time for an issuer reporting in Canada;
- filing any of the following where the material technical information is not already supported by a current technical report: (i) preliminary prospectus (long or short form); (ii) information or proxy circular; (iii) offering memorandum; (iv) rights offering circular; (iv) annual information form; (v) formal valuations; (vi) offering documents; and (vii) take-over bid circulars; and
- any written disclosure made by or on behalf of an issuer in a document that discloses for the first time either:
- 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
- a change in mineral resources, mineral reserves or the results of a preliminary economic assessment from the most recently filed technical report if the change constitutes a material change in relation to the issuer.
3. The Qualified Person(s)
The qualified person is responsible for preparing or supervising the preparation of the technical report and providing scientific and technical advice in accordance with applicable professional standards. The qualified person, based on his/her relevant experience and professional judgment, is responsible for choosing the methods, assumptions and practices used for verifying, interpreting and reporting the technical information.
However, it is the responsibility of the issuer and its directors and officers to ensure that the author is a qualified person and meets the criteria contained in NI 43-101 with respect to qualified persons. Issuers must also remember that the primary responsibility for public disclosure, and the proper use, by or on behalf of the issuer, of the technical report and other scientific and technical information provided by the qualified person, remains with the issuer and its directors and officers.
Generally speaking, for much of the disclosure made by a mining company, a qualified person responsible for disclosure matters need not be independent of the issuer. However, certain triggering events will require that the qualified person signing the technical report be independent from the issuer:
- first-time reporting issuer in Canada;
- filing a preliminary long form prospectus;
- first time disclosure of a mineral resource, mineral reserve or the results of a preliminary economic assessment; and
- >100% change to an existing mineral resource or mineral reserve.
In such circumstances, the issuer will have to ensure that the qualified person signing the report has no affiliation to the issuer. NI 43-101 states that the qualified person is independent of an issuer if there is no circumstance that, in the opinion of a “reasonable person” aware of all relevant facts, could interfere with the qualified person's judgment regarding the preparation of the technical report. The companion policy to NI 43-101 also provides a non-exhaustive list of situations where the qualifying person is not independent, including, but not limited to, if the qualified person: (i) is an employee, insider or director of the issuer; (ii) is an employee, insider or director of a related party to the issuer; (iii) holds or expects to hold securities, either directly or indirectly, of the issuer or a related party of the issuer; (iv) is an employee, insider or director of another issuer that has a direct or indirect interest in the property that is the subject of the technical report or in an adjacent property; or (v) has received the majority of their income, either directly or indirectly, in the three years preceding the date of the technical report from the issuer or a related party of the issuer. Issuers should be aware that Canadian securities regulators have the ability to request additional information or additional disclosure regarding the qualified person engaged, or request that an issuer seek the involvement of another qualified person to complete the technical report, if there are any uncertainties around whether the independence of the qualified person is compromised.
Industry Best Practices Guidelines
While NI 43-101 sets the standards for disclosure of scientific and technical information, collecting, analyzing and verifying information to fit these NI 43-101 standards will require careful procedures and methodologies that are consistent with existing industry practices.
The CIM has published and adopted several industry best practices guidelines to assist qualified persons and other industry practitioners. The Canadian securities regulatory authorities are of the view that:
- a qualified person, acting in compliance with the professional standards of competence and ethics established by its professional association, will generally use procedures and methodologies that are consistent with industry standard practices, as established by the CIM or similar organizations in other jurisdictions; and
- issuers that disclose scientific and technical information that does not conform to industry standard practices could be making misleading disclosure which is an offence under applicable securities laws.
As mentioned earlier in the article, while preparation and accuracy of technical reports should be placed under the supervision of a qualified person, the ultimate responsibility for information contained in any public disclosure, including a technical report, is with the issuer.
In summary, as NI 43-101 and technical reports form one of the cornerstones of disclosure for Canadian public mining companies, it is critical that issuers seeking to use Canadian capital markets to raise funds for mining projects take adequate care in ensuring that they select qualified persons and release technical information about their mining projects that comply with the NI 43-101 standards and the CIM best practice guidelines. All technical reports must be prepared by a thoughtfully selected qualified person, and reviewed for compliance under NI 43-101 and Form 43-101F1.
The Mines & Minerals Group at Aird & Berlis can advise on all aspects of a mining company’s activities, including mining disclosure standards, technical reports and recruitment of qualified persons. For more information, please visit our Mines & Minerals webpage.