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OSC takes action to reduce burden for mining issuers
On June 6, 2019, the Ontario Securities Commission (“OSC”) announced the adoption of an important pre-filing review process for mining issuers (see Staff Notice 43-706 Pre-filing Review of Mining Technical Disclosure).
This development is a result of consultations undertaken by the OSC to alleviate unnecessary and unexpected regulatory burdens on reporting issuers in the mining sector. Among stakeholders’ concerns with the former regime was the potential for costly delays in public offerings under a short form prospectus due to issues with mineral property and mining technical disclosure. Often, these issues would not become known until after a mining issuer had filed its preliminary prospectus and the OSC began its review.
By submitting an application through the OSC’s online filing portal, mining issuers can now request a review of their publicly filed technical disclosure in advance of filing a preliminary short form prospectus. The scope of the pre-filing review will include technical disclosure in documents of the reporting issuer previously filed on SEDAR, and disclosure on the reporting issuer’s website, including:
- the issuer’s current annual information form;
- news releases and material change reports;
- current technical reports; and
- investor presentations.
The focus of the review will be on any material issues that could affect the ability of the reporting issuer to obtain a receipt for a short form prospectus on a timely basis.
The BCSC has offered this service since September 1, 2009
Despite its novelty in Ontario, an advance review process has been available to mining issuers in British Columbia since 2009. The British Columbia Securities Commission (BCSC) was prompted by similar concerns of market participants, namely, the uncertainty associated with potential technical disclosure issues that delay receipt of a preliminary prospectus.
This is an important service for two reasons
Deal delay or completion risk: In part due to the success of NI 43-101 – Standards of Disclosure for Mineral Projects, Canada has the largest concentration of mining companies in the world. Over 50% of the public mining companies globally are headquartered in Canada and more than half of capital investment in the mining business went through the Toronto Stock Exchange. The capital-intensive nature of the mining industry makes it particularly important that companies have timely access to funds to advance their projects while minimizing deal delay and/or financing completion risk. This new pre-filing review initiative is intended to reduce these risks.
The quality of mining technical disclosure can often be improved: The risk of identifying issues with a mining company’s technical disclosure is not insignificant. In 2013, the OSC undertook to assess technical reports by mining issuers in Ontario and found an “unacceptable level of compliance” with NI 43-101. The OSC’s report (OSC Staff Notice 43-705) states that 80% of the total number of technical reports reviewed were non-compliant with the requirements, and 40% contained at least one “major non-compliance concern.”
The BCSC undertook a similar review and published a Mining Report in 2012 that helpfully set out some of the most common technical report deficiencies, which included:
- missing or altered statements in certificates and consents of the Qualified Person;
- missing dates, signatures, and addresses;
- non-compliant disclaimers of responsibility or statements of reliance;
- missing summary of all material technical and scientific information for the entire property;
- non-compliant disclosure of historical estimates, exploration targets, or mining rock mass rating; and
- inadequate or insufficient transparent information on the key assumptions, parameters, and methodologies used in mineral resource estimates.
The technical disclosure review process carried out by the OSC during a prospectus review often uncovers issues that must be resolved by the issuer prior to obtaining a receipt for a final short form prospectus, causing delays in a very time-sensitive transaction. Many mining issuers have experienced the unfortunate costly and unexpected delays in the offering process under the old regime.
The new pre-filing review process is a positive step towards a more streamlined and efficient offering process for mining issuers whose principal regulator is the OSC. It is expected to foster improved deal and timing certainty, while maintaining investor confidence in an industry that plays a vital role in our country’s economy.
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