Disclosure policy benefits mining

The Canadian Securities Administrators recently adopted National Policy 51-201 — Disclosure Standards, which addresses concerns regarding selective disclosure. Selective disclosure occurs when a public company discloses material non-public information to one or more individuals but not broadly to the investing public.

The CSA believes selective disclosure creates opportunities for insider trading and undermines investor confidence in the fairness and integrity of the capital markets. The new policy does not create a law but instead provides interpretative guidance on existing legislative prohibitions on selective disclosure. It also lists some “best disclosure practices,” which can be adopted by companies to help manage their disclosure obligations.

The policy reminds issuers of the existing legislative prohibitions on “tipping,” which provide that no reporting issuer and no person or company in a “special relationship” with a reporting issuer is permitted to inform, other than in the “necessary course of business,” any person or company of a material fact or material change regarding the reporting issuer before such information has been “generally disclosed.”

The policy goes on to provide guidance as to, among other things,

q the determination of “materiality,”

q when disclosure is in the “necessary course of business,” and

q the meaning of “generally disclosed.”

The materiality of a particular event or piece of information may vary between companies based on their relative size. For example, an event or development that is significant for a smaller company may not be material to a larger company. In addition, a development that might not be considered material under normal market conditions may be material in volatile markets based on the likelihood that it may significantly affect the issuer’s share price in a volatile market. The new policy contains an extensive list of examples of developments that would ordinarily be considered material to an issuer.

Disclosure that would ordinarily be considered “in the necessary course of business,” would include internal disclosure, such as to employees, officers and directors, and, on a limited basis, externally to professional advisors such as legal counsel and auditors, as well as to lenders, regulators or third parties who are in negotiations with the issuer. However, under the policy, this exception does not permit selective disclosure of material information to analysts or other market professionals, whether or not they have signed a confidentiality agreement. Until any material information disclosed in this limited manner is generally disclosed, the issuer should ensure that those receiving the information understand that they cannot pass on the information to others or trade in the issuer’s securities.

Typically, an issuer would disseminate material information required to be “generally disclosed” by way of news release, or occasionally through a press conference or conference call where the public has received advance notice of the date and time when they may attend or listen in person by telephone. However, the policy clearly provides that the posting of information on an issuer’s web site will not satisfy the “generally disclosed” requirement.

In the context of a public mineral exploration or mining company, the policy creates disclosure considerations for the issuer in addition to the disclosure requirements found in National Instrument 43-101 — Standards of Disclosure for Mineral Projects. For example, following the disclosure of drilling results by way of a press release, an issuer will now have to consider whether it has an obligation to update such disclosure by press release or otherwise where modifications have occurred to the announced results arising from further testing and analysis on the drill core (similar to a follow-up press release made on the receipt of actual financial results that were previously referenced in announced company projections or financial guidance). Also, management of the issuer should generally be mindful of the policy when meeting with geological consultants if a market analyst is also in attendance or otherwise made privy to the mineral resource information discussed.

The suggested “best disclosure practices” include: establishing a written corporate disclosure policy; appointing one or more persons to act as authorized spokesperson(s) for the issuer; and adopting an insider trading policy which provides for “blackout periods” during which trading by insiders, officers and employees may not take place.

— Michael Bourassa is a partner at Aird & Berlis LLP and head of the firm’s Natural Resources Team. He can be reached by telephone at (416) 865-3421 and at mbourassa@airdberlis.com. Kevin Rooney is a partner at Aird & Berlis LLP and a member of the firm’s Corporate/Commercial Group and Natural Resources Team. He can be reached by phone at (416) 865-3415 and at krooney@airdberlis.com.