Do Canadian disclosure obligations apply to your mineral project?

Canadian securities laws impose a variety of disclosure obligations on companies in the mining industry that issue securities in Canada, both public and private. The key piece of legislation, National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101), is wide-ranging in application and captures companies who explore for, develop or produce minerals (including industrial minerals and mineral brines), as well as companies with a royalty interest or an interest in the revenue or commodity stream from a proposed or current mining operation.

Such public or private companies are required to ensure that any scientific or technical information that is disclosed to the public, including investors or prospective investors, whether oral or written, is based upon information prepared by or under the supervision of a “qualified person” (QP) or is approved by a QP, as defined in NI 43-101. There are also restrictions on how resources and reserves (whether current or historical) can be presented, and any written exploration information disclosed on a mineral project that is material to the company must be accompanied by detailed supporting information, including: sample types, locations and intervals; as well as sample recovery, quality control and analytical methods.

If you have an interest in a mineral project anywhere in the world, and have issued or will be issuing securities in Canada, you are required to comply with the obligations set forth in NI 43-101. These obligations include: ensuring that any scientific or technical disclosure you make to investors is compliant with the instrument, engaging one or more persons meeting the definition of QP under NI 43-101 to review or supervise the preparation of such information, and, in certain circumstances, preparing and filing a “technical report” in respect of properties that are considered material.

Let us summarize the main obligations arising from NI 43-101, and answer common questions that arise from its application.

1. Who is required to comply?  

If you are an issuer in Canada with an interest in a mineral project anywhere in the world, you are required to comply with NI 43-101, even if you are not listed on a stock exchange or otherwise a reporting issuer.

As a result, even if you are a private issuer, if you make any disclosure of scientific or technical information (orally or in writing), you are required to comply with applicable restrictions in the instrument.

A “mineral project” is defined as any exploration, development or production activity, including: a royalty or similar interest in those activities, in respect of diamonds; natural, solid, inorganic material; or natural, solid, fossilized organic material; including base and precious metals, coal and industrial minerals. This captures brine deposits but does not capture petroleum, natural gas, bitumen sands or shales, groundwater or coal bed methane.

The interest held in the mineral project can be a royalty interest (gross overriding royalty, net smelter return, net profit interest, free-carried interest and product tonnage royalty) or any interest in the revenue or commodity stream from a proposed or current mining operation, such as the right to buy certain commodities produced.

The application of NI 43-101 is not limited to companies that hold mineral properties and engage in exploration, development and production activities on such properties.

2. When is a property considered ‘material’?

Many of the disclosure obligations under NI 43-101, including the obligation to file a technical report, apply only to properties that are considered “material” to the issuer. An issuer should determine materiality in the context of its overall business and financial condition, taking into account qualitative and quantitative factors, assessed in respect of the issuer as a whole. There is no bright line test, but the effect on the market price and value of the issuer’s securities in light of current market activity should be considered. As a result, the number and significance of properties in which the issuer has an interest in is relevant.

The companion policy to NI 43-101 states that in most circumstances, an actively trading mining issuer will have at least one material property and that materiality will generally be assessed based on the issuer’s disclosure record (including whether its disclosure suggests that the results from such property are significant or important), its deployment of resources (i.e., acquisition costs or exploration expenses) and certain other indicators, such as whether money is being raised to explore or develop the property, whether the property is an advanced-stage property or an early-stage property, the size of the issuer’s interest in the property, how the issuer’s interest in the property compares to the issuer’s other active projects, or whether a grouping of non-material properties in an area or region could be material if viewed together.

How you present information to investors will be scrutinized by securities regulators. You should be cautious about the content of public statements made in respect of your properties, and avoid statements like “management is extremely excited” about exploration results on any given property unless it is clear to you that the property is in fact material.

3. What is ‘scientific’ or ‘technical information’?

Although some of the obligations under NI 43-101 apply strictly to disclosure of mineral resources and mineral reserves, many obligations (including the obligation to file a technical report and the obligation that disclosure be approved or based upon information prepared by or under the supervision of a QP) apply more generally to disclosure of “scientific” or “technical information.”

The Ontario Securities Commission has issued presentations suggesting this includes information relating to exploration results (such as sampling, geophysics, drilling and assays), mineral resources and reserves, production information, and information relating to an economic analysis (such as a preliminary economic assessment, prefeasibility study or feasibility study) and capital and operating costs.

The companion policy to NI 43-101 also provides clarity on the type of information that is captured, indicating that it specifically includes geostatistical analyses, charts, data tables, assay certificates and drill logs, and that it may include or be based on metal-price assumptions, cash forecasts, projected capital and operating costs, metal or mineral recoveries, mine life and production rates, and other assumptions used in economic analyses.

4. Who can serve as a QP and what disclosure are they required to prepare or sign off on?

A QP is an individual who (i) is an engineer or geoscientist with a university degree, or equivalent accreditation, in an area of geoscience, or engineering, relating to mineral exploration or mining; (ii) has at least five years of experience in mineral exploration, mine development or operation, or mineral project assessment (or any combination of these) that is relevant to his or her professional degree or area of practice; (iii) has experience relevant to the subject matter of the applicable mineral project and technical report; and (iv) is in good standing with a professional association meeting certain requirements.

NI 43-101 requires that all disclosure of scientific or technical information concerning a mineral project on a property material to an issuer — including disclosure of resources or reserves — be based upon information prepared by or under the supervision of a QP or approved by a QP. In addition, if the disclosure is in writing, the name of the QP and his or her relationship to the issuer must be disclosed.

A technical report, however, must be prepared by or under the supervision of one or more QPs, one of whom must have completed a current personal inspection on the subject property.

Also, in certain circumstances, the QP preparing or supervising the preparation of a technical report must be independent of the issuer. This requirement, however, does not apply if the issuer is a reporting issuer and is also considered a producing issuer under NI 43-101.

You should note that the requirements that apply to QPs under NI 43-101 are different and may be more stringent than those under other disclosure regimes — such as the Joint Ore Reserves Committee (JORC) — therefore issuers reporting in multiple jurisdictions should exercise caution in selecting one or more appropriate QPs.

5. When is a technical report triggered?

Technical reports can be triggered by any written disclosure of scientific and technical information that you make relating to a mineral project on a material property.

A technical report may require significant time and resources to prepare, since the required form of report is quite detailed in scope. Depending on the type of disclosure that triggered the report, the filing is generally due either concurrently with or within 45 days of the release of the disclosure that triggered it. As a result, an issuer who unwittingly triggers the filing of a technical report may have difficulties meeting the applicable filing deadlines. As a result, it is important to be aware of the technical report triggers that may apply to your company and plan accordingly.

For example, private companies can trigger a technical report filing by issuing an offering memorandum to investors that are not solely accredited investors. Presentations and other investor decks can trigger the filing. Also, any written disclosure of resources, reserves or a preliminary economic assessment that constitutes a material change in relation to an issuer can also trigger the filing.

After the Bre-X Minerals scandal of 1997, Canadian securities regulators tightened their grip on companies in the mining industry. The resulting legislation, NI 43-101, can appear daunting to navigate, as its requirements are detailed and wide-ranging in application.

Information must be presented to investors in a balanced way, not be overly promotional or suggest outcomes that may not be justified by the stage of the project.

Many of the pitfalls found by mining issuers in Canada can be avoided with good, custom advice and simple planning.

— Based in Montreal, Carole Gilbert is a corporate and commercial lawyer with Norton Rose Fulbright Canada LLP. She focuses on mergers and acquisitions, corporate finance and securities matters, particularly in the mining sector. She has acted for public and private companies in public offerings, private placement financings, and purchase and sale transactions, and advises reporting issuers on corporate governance and ongoing compliance matters.

Gilbert is also a geologist, and worked in gold, uranium and iron ore exploration in Canada, Australia, Mali and Guyana before becoming a lawyer.

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