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Issuers in the mining industry should be aware that the requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) apply to all types of disclosure, including disclosure on an issuer’s website. On April 9, 2015, the Canadian Securities Administrators published Staff Notice 43-309 Review of Website Investor Presentations by Mining Issuers (the “CSA Notice”). The CSA Notice summarizes the principal findings of geological staff at the BC, Ontario and Quebec securities commissions after completing a review of 130 investor presentations posted on websites by mining issuers. Overall, the staff found there is room for improvement for mining issuers to comply with disclosure requirements.
The CSA Notice highlights certain areas where there were common deficiencies in disclosure. These include:
- Use of overly promotional language. Especially with exploration stage or mineral resource stage issuers, CSA staff found that some issuers used terms and statements that could be interpreted as overly promotional and potentially resulting in a misrepresentation. Issuers should be cautious when using terms such as “world-class”, “spectacular”, “production ready” or “ore”.
- Economic Projections without Technical Report. Issuers should be very careful when disclosing economic outcomes for their mineral project when they do not have a preliminary economic assessment or other compliant technical report to support such disclosure. The disclosure of such items as production rate, operating costs, projected cash flows or mine life will often be considered to be an economic assessment that would trigger a technical report under NI 43-101.
- Naming a Qualified Person (“QP”). NI 43-101 requires that all scientific and technical information be prepared or approved by a QP and that the disclosure provides the name and relationship to the issuer. Issuers should ensure that websites and investor relations materials include required QP disclosure.
- Cautionary Statements for Preliminary Economic Assessments (“PEA”). When disclosing the results of a PEA, issuers must include the appropriate cautionary statements prescribed by NI 43-101. The prescribed language set out in section 2.3(3) of NI 43-101 must be included with equal prominence to the disclosure summarizing the PEA. Any statement implying that a PEA has economic viability is contrary to NI 43-101.
- Cautionary Statement that Mineral Resources are not Mineral Reserves. If an issuer discloses results of an economic analysis based on mineral resources, it must include an equally prominent statement that mineral resources which are not mineral reserves do not have demonstrated economic viability. Also, the CSA has cautioned issuers that when reporting both mineral resources and mineral reserves, a clear statement whether mineral resources include or exclude mineral reserves is required.
- Failure to express exploration targets in ranges and including cautionary language. If an issuer discloses exploration targets which are not mineral resource estimates, it must provide a reasonable basis for the target, express the exploration target in ranges and include an equally prominent cautionary statement as prescribed under section 2.3(2) of NI 43-101.
- Disclosure of Historical Estimates. Stating that a historical resource estimate is “not NI 43-101 compliant” is not enough. NI 43-101 prescribes specific information that must be included when disclosing historical estimates. These include commentary on the relevance and reliability of the estimate, the key assumptions used to prepare the estimate, commentary on the work that needs to be done to upgrade or verify the estimate. Issuers should also include the required cautionary language.
- Information on Quality Assurance, Quality Control and Data Verification. NI 43-101 requires that when disclosing analytical or testing results, a summary of the quality assurance or quality control measures applied must be included. Similarly, NI 43-101 requires issuers to state that a QP has verified the data disclosed and describe how the data was verified. These requirements may be satisfied by including a reference to a previously filed document (naming the title of document and date) such as a news release or technical report.
- Economic Studies should include tax rates. When disclosing results of an economic study (PEA, prefeasibility or feasibility study), cash flow models need to include assumptions that have an economic impact, including taxes, royalties and other government levies.
- Metal or Commodity Price Assumptions. The metal or commodity price assumptions are key factors in determining the economics of a project. Issuers should ensure that the assumed metal price and the cut off grade is clearly stated along with the effective date of the reported estimate.
- True Widths and Higher Grade Intersections. When disclosing drilling results, issuers need to include information on true widths of mineralized zones and results of significantly higher grade intervals in a lower grade intersection. Without this information, drilling results, especially in early stage projects may be potentially misleading.
- Forward Looking Information. Most investor presentations will include forward looking information and it has become common practice to include cautionary statements regarding forward looking information. In compliance with National Instrument 51-102 Continuous Disclosure Obligations, issuers are reminded that they need to identify material factors and assumptions used to develop forward looking statements. These would include metal price assumptions, assumptions used in economic analysis and financial projections in engineering studies.
The CSA Notice will be helpful to mining issuers in understanding the key pitfalls when disclosing scientific and technical information on their websites or other investor relations materials. Issuers should review their website with their QPs to ensure that NI 43-101 requirements are met.
The CSA has indicated that it will continue its review of mining issuers’ website disclosure as part of their overall continuous disclosure review program. When disclosure is deficient, the securities regulators may request the issuer to correct the deficiency by amending the disclosure and filing a correcting news release. An issuer may be placed on the defaulting issuers list or a cease trade order may be issued until an issuer corrects a deficiency. Issuers who propose to complete a financing through a prospectus should be especially mindful that review of a prospectus filing may be deferred until the technical disclosure is rectified.