NIN 98/36 - Proposed National Instrument 43-101 and Companion Policy 43-101CP Standards of Disclosure for Mineral Exploration and Development and Mining Properties [NIN - Rescinded]
| Published Date: | 1998-07-03 |
|---|---|
| Effective Date: | 1998-07-02 |
The proposed National Instrument and Companion Policy are initiatives of the CSA. The proposed National Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan and as a policy in all other jurisdictions represented by the CSA. The proposed Companion Policy is expected to be implemented as a policy in all of the jurisdictions represented by the CSA.
Terms used in the proposed National Instrument and Companion Policy that are defined or interpreted in a definition instrument in force in the jurisdiction should be read in accordance with that definition instrument, unless the context otherwise requires.
Substance and Purpose of Proposed National Instrument and Companion Policy
The proposed National Instrument originated with reformulation of National Policy Statement No. 2-A: "Guide For Engineers, Geologists and Prospectors Submitting Reports on Mining Properties to Canadian Provincial Securities Administrators" ("NP2-A") and National Policy Statement No. 22: "Use of Information and Opinion Re Mining and Oil Properties by Registrants and Others" ("NP22"). NP2-A sets out the requirements for the preparation of reports that must be filed under securities legislation. Securities legislation in most jurisdictions represented by the CSA requires issuers with mineral exploration, development or production activities to file reports prepared in accordance with NP2-A in connection with certain prospectus offerings. NP22 addresses the use of information and opinions regarding natural resource properties by registrants and issuers and sets standards for references to technical data in reports, letters or other publications used directly or indirectly to sell securities.
The proposed National Instrument will replace NP2-A in its entirety. It will also replace NP22, in its application to mineral exploration, development and production activities. It is anticipated that NP2-A will be rescinded effective upon the date that the proposed National Instrument comes into force. NP22 will not be rescinded until a national instrument has been developed to replace NP2-B, which sets standards for oil and gas reports.
The proposed National Instrument consolidates and expands significantly on the current disclosure and reporting requirements. The objective of the CSA is to ensure that the public receives reliable information, reflecting professional opinions presented using standard terms.
More specifically, the purpose of the proposed National Instrument is to enhance the accuracy and integrity of public disclosure in the mining sector. The proposed National Instrument establishes standards for all oral and written disclosure made by or on behalf of an issuer concerning mineral exploration and development and mining properties and reasonably likely to be made available to the public, including disclosure in press releases, prospectuses and annual reports.
The proposed National Instrument is consistent with the recommendations of the June 8, 1998 Interim Report of the TSE/OSC Mining Standards Task Force. The CSA are of the view that the proposed National Instrument will enhance both investor protection and fair and efficient capital markets.
The purpose of the proposed Companion Policy is to set forth the views of the CSA as to the manner in which the proposed National Instrument is to be interpreted and applied and to discuss such matters as materiality.
Summary of Proposed National Instrument and Companion Policy
The proposed National Instrument sets out requirements for disclosure concerning mineral exploration, development and production activities.
Some of the key aspects of the proposed National Instrument are as follows:
- "qualified person". There is a new requirement that all disclosure concerning mineral exploration and development and mining operations on a property material to an issuer be based on information prepared by a qualified person. This new requirement expands on the existing requirements of NP22. The CSA are of the view that the broader requirement will enhance the quality and reliability of disclosure and the confidence that investors place in it.
- "resource" and"reserve". Any disclosure concerning exploration information and resources and reserves on a property material to the issuer must be prepared using the applicable resource and reserve categories set out in the proposed National Instrument. The specific requirements concerning written disclosure of exploration information and resources and reserves are based on the Vancouver Stock Exchange’s Mining Standards Guidelines, which came into effect in November 1997
- Report required. An engineering report prepared in accordance with the detailed provisions of the proposed National Instrument must be filed when an issuer becomes a reporting issuer and at the time of filing certain disclosure and offering documents with securities regulatory authorities. An engineering report is also required to be filed with securities regulators in connection with the filing of a press release or other document that discloses, for the first time, reserves or resources on a property that is material to an issuer or that discloses a material change in previously reported reserves or resources.
- Independent report. In certain circumstances, an engineering report will have to be prepared by a qualified person who is independent of the issuer. An independent engineering report is required when the issuer becomes a reporting issuer, in connection with certain prospectuses, information circulars and take over bid circulars and in connection with certain press releases.
The proposed National Instrument offers relief from the requirement for an independent engineering report. Independence is not required for certain engineering reports filed by an issuer eligible to use the POP system and for a "senior resource issuer", defined as an issuer with gross revenues from mining operations of an average of at least $50 million per year in each of the three most recently completed financial years.
- Preparation of report. The proposed National Instrument provides more detail than NP2-A as to what is expected to be discussed in the engineering report, similar to the requirements for prospectus disclosure relating to resource properties.
- Plain language. The Companion Policy suggests that written disclosure be presented in an easy to read format using clear and unambiguous language. This differs from the requirement in NP22 that all technical facts and opinion be quoted from verbatim in any disclosure.
- Exemption concerning "qualified person". The CSA recognize that professional accreditation of geoscientists is not currently provided in all provinces and that, for this or other reasons, certain individuals who currently provide expertise to mining issuers will not be "qualified persons" as defined in the proposed National Instrument. In British Columbia, there is a professional association for geoscientists (the Association of Professional Engineers and Geoscientists of the Province of British Columbia.) The Companion Policy notes that the CSA will consider applications for exemption from the requirements for involvement by a qualified person where the applicant can demonstrate that the individual is competent and qualified to support disclosure or prepare an engineering report despite not being a member of a professional association.
- Disclosure by others. The Companion Policy discusses the use of information concerning mineral exploration activities and results by analysts and others. It encourages those persons to review the engineering reports on the public file and base their disclosure on these engineering reports using exact quotes.
Transition
The CSA anticipate that the proposed National Instrument will come into effect in 1999. The CSA are considering whether transitional measures for implementation of the National Instrument would be appropriate but, with the exception discussed below, no specific transitional measures are proposed at this time.
The coming into force of the proposed National Instrument would not itself necessarily trigger an immediate obligation to file an engineering report prepared in accordance with the proposed National Instrument. For most issuers affected by the proposed National Instrument, the requirements concerning engineering reports would first apply in connection with an annual report, annual information form or preliminary prospectus filed after the National Instrument comes into effect. In some cases, these requirements would apply earlier, for example, in connection with disclosure of new or materially changed resources or reserves.
Issuers are urged to begin taking into account the proposed requirements, particularly in connection with the preparation of engineering reports on which issuers may seek to rely after implementation of the National Instrument. Subject to any further notice to the contrary, an engineering report prepared after the date of publication of this notice in accordance with the proposed National Instrument (including use of terminology set out in the proposed National Instrument) will be considered to comply with NP2-A.
Anticipated Costs and Benefits
The proposed National Instrument would require that public disclosure of mineral exploration or mining data be supported by conclusions and, in certain circumstances, engineering reports of qualified persons. The CSA are aware that these requirements will impose burdens of time, cost and personnel. These incremental costs are likely to be most significant for issuers that do not currently employ professional engineers or geologists. Issuers will also incur incremental costs in complying with expanded requirements for independent engineering reports.
The CSA believe that incremental costs of compliance with the proposed National Instrument will be outweighed by the very significant benefits provided to investors, namely more reliable and, with the use of standard terminology, more understandable and comparable public information. A further benefit should be greater confidence in the integrity of the Canadian capital markets, itself a significant benefit to issuers.
Specific Requests for Comment
In addition to welcoming submissions on any provision in the proposed National Instrument and Companion Policy, the CSA seek comment on the specific matters referred to below.
Impact of Requirement for a Qualified Person
Part 2 of the proposed National Instrument provides that all disclosure concerning exploration, development and mining operations must reflect the views of a qualified person. The CSA believe that this new requirement will enhance the quality and reliability of, and public confidence in, the disclosure. The CSA recognize, however, that this new requirement may place a burden on certain issuers and, for that reason, specifically seek comment on
- whether the requirement would impose excessive costs on junior resource issuers and, if so, the anticipated extent of those costs;
- whether the requirement would negatively affect the timely disclosure by issuers of all material changes; and
- if any of these results is anticipated, alternative measures that would ensure equivalent investor protection.
Extension of Time Period for Filing of Reports in Certain Circumstances
Section 3.2(3) of the proposed National Instrument relaxes the general requirement that an engineering report be filed not later than the filing of the document it supports. This provision permits a delay of up to 30 days in the filing of an engineering report to support a news release disclosing new or materially increased resources or reserves. This provision is intended to balance the goals of (i) sound disclosure, supported by professional work and filed engineering reports, with (ii) prompt disclosure of material changes. The provision does not relieve the issuer of the requirement that its disclosure reflect the views of a qualified person, but recognizes that the preparation of a formal engineering report may be impractical within the time required for disclosure of a material change.
The CSA seek comment on this provision, including the appropriateness of the proposed length of the permitted engineering report filing delay.
Attributes and Exemption of Senior Resource Issuer
The proposed National Instrument would relieve senior resource issuers of the obligation to file an engineering report prepared by an independent qualified person in connection with the disclosure in an information circular or take-over bid circular and in connection with press releases and other disclosure of reserves and resources on material properties. A senior resource issuer is defined as an issuer with gross revenues derived directly or indirectly from mining operations of an average of at least $50 million per year in each of the issuer’s three most recently completed financial years.
The CSA consider that an issuer with substantial revenues from mining operations will typically have developed its own professional expertise and be exposed to continuing external monitoring (for example, by market analysts), both enabling and motivating them to maintain high standards of disclosure to such an extent that the added check of independent reporting would be unnecessary.
The CSA seek comment on whether senior resource issuers should be exempted from specified independent engineering report requirements, and on the appropriateness of the proposed attributes of a senior resource issuer (notably, the $50 million average mining operating revenue threshold).
Requirements for Filing an Independent Engineering Report
The proposed National Instrument would require an issuer to file an engineering report prepared by a qualified person who is independent of the issuer, when the issuer becomes a reporting issuer and in connection with non-POP prospectus offerings and certain other disclosure. The circumstances in which the proposed National Instrument would require an independent engineering report reflect the assessment of the CSA as to when an independent engineering report would be of benefit to the public.
The CSA seek comment on the appropriateness of the circumstances in which the proposed National Instrument would require an independent engineering report, and on whether an independent engineering report should be required, as proposed in Quebec, to support an offering memorandum.
Comments
Interested parties are invited to make written submissions with respect to the proposed National Instrument. Submissions received by October 30, 1998 will be considered.
Submissions, in duplicate, should be sent to all the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission
British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, Government of New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territory
c/o Daniel B. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario
M5H 3S8
Submissions should also be addressed to:
Claude St. Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montreal, Quebec
H4Z 1G3
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained
Questions may be referred to any of:
Derek Patterson
Legal Counsel
British Columbia Securities Commission
(604) 899-6645
Or 1-800-373-6393 (in B.C.)
Wayne Redwick
Director, Corporate Finance
British Columbia Securities Commission
(640) 899-6699
Or 1-800-373-6393 (in B.C.)
Terry Macauley
Mining Consultant
British Columbia Securities Commission
(604) 899-6723
Or 1-800-373-6393 (in B.C.)
Agnes Lau
Deputy Director, Security Analysis
Alberta Securities Commission
(403) 442-2191
Stephen Murison
Legal Counsel
Alberta Securities Commission
(403) 297-4233
Kathy Soden
Manager, Market Operations
Ontario Securities Commission
(416) 593-8149
Barbara Hendrickson
Legal Counsel, Market Operations
Ontario Securities Commission
(416) 593-8084
Hugh Squair
Technical Consultant, Market Operations
Ontario Securities Commission
(416) 593-8054
Pierre Martin
Legal Counsel
Commission des valeurs mobilières du Québec
(514) 873-5326
DATED at Vancouver, British Columbia, on July 2, 1998
Joyce C. Maykut, Q.C.
Vice Chair