On October 29, 2020, the Canadian Securities Administrators (CSA) issued Multilateral Staff Notice 51-361, which summarizes the key findings and common deficiencies identified from the CSA’s Continuous Disclosure Review Program, covering the fiscal years ended March 31, 2019 and March 31, 2020. The purpose of the CSA’s Continuous Disclosure Review Program is to assess reporting issuers’ compliance with their continuous disclosure reporting obligations under applicable securities laws and for securities regulators to offer guidance to reporting issuers on how to improve the completeness, quality and timeliness of their continuous disclosure filings.
Specific to mining companies, the Notice provides useful guidance on the disclosure standards required of mining issuers under National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101). The Notice identifies three “hot button” areas of NI 43-101 disclosure in which deficiencies were commonly made: disclosure of mineral resource estimates in technical reports, disclosure of mineral reserves and resource estimates generally, and reliance on hyperlinks to information not filed on SEDAR. The Notice provides the CSA’s recommendations and expectations to help avoid these common pitfalls.
Disclosure of mineral resource estimates in technical reports
The Notice identifies four common issues in technical reports supporting disclosure of mineral resource estimates and the CSA’s recommendations on how to address these issues:
|Inadequate disclosure relating to the significant criteria that the qualified person used, to determine that the mineral resource has demonstrated reasonable prospects for eventual economic extraction. This includes omitting disclosure regarding the proposed mining method(s), metallurgical recovery factors, selected metal price(s) and cut-off grade.||Mining issuers are reminded that the technical report must contain sufficient detail about the key assumptions, parameters, and methods used to estimate the mineral resource. This information should be reported in a way that a reasonably informed reader could understand how and on what grounds the qualified person is making their determinations.|
|Failure to adequately describe the specific procedures the qualified person undertook in verifying the data or providing the qualified person’s opinion on the quality of the data used in the technical report. This issue was most prominent where the qualified person made use of or relied on data generated by an earlier project operator.||Mining issuers must disclose in the technical report all of the steps that the qualified person has taken to verify the data used in the technical report. Importantly, a qualified person cannot simply rely on data verification procedures that was completed by another qualified person in a prior report prepared for another issuer. The qualified person must take steps to verify the project’s legacy data (i.e. data collected before the current project began) if such data was generated using few quality assurance procedures and the results of earlier verification may be unknown to the qualified person or current project operator.|
|Inclusion of tables that show the sensitivity of the mineral resource estimate to changes in cut-off grade without showing the base-case estimate clearly or showing unreasonable cut-off grades.||It is important that tables disclosing an estimate’s sensitivity to cut-off grades are not misleading. For example, cut-off grades set lower than plausible break-even levels could be considered misleading. The actual mineral resource estimate that is disclosed in the technical report must be clearly marked (for example, by bold type or shading) and cut-off grades with reasonable prospects for eventual economic extraction should be used in all cases.Resource estimates with a zero cut-off grade do not meet the definition of a “mineral resource” and are inappropriate.|
|Usage of boilerplate risk factor disclosure that is not specific to the subject mineral project.||When preparing risk factor disclosure, mining issuers should take care to ensure that the risks disclosed are specific to the project that is the subject of the technical report.|
Disclosure of mineral reserves and resources estimates
The Notice also identifies two common issues relating to the disclosure of estimates and one recommendation:
|Failure to state both tonnage and grade of mineral resources or mineral reserves.||Reporting issuers are reminded that stand-alone disclosure of total contained metals or minerals (e.g., ounces of gold) is not permitted under NI 43-101. It is important that both the tonnage and the grade of a mineral resource or reserve is stated each time that an estimate is cited.|
|Failure to disclose whether mineral reserves are included in, or excluded from, a mineral resource estimate.||Where mineral reserves are disclosed, reporting issuers should avoid misleading disclosure by showing clearly and prominently, whether the issuer is “including” or “excluding” mineral reserves in their mineral resources estimate.|
Reliance on hyperlinks to information not filed on SEDAR
Lastly, the Notice provides that the use of hyperlinks in news releases and other SEDAR filings to maps, excerpts or tables in the issuer’s website or by third party dissemination services is contrary to the rules set out in Part 3 of NI 43-101 (Additional Requirements for Written Disclosure). This is because hyperlinks may stop working after disclosure and the reader consequently will be unable to retrieve the associated information. To avoid this, the Notice advises mining issuers to include all pertinent information (including graphical or tabular information) in their disclosure filed on SEDAR in order to form part of the issuer’s permanent disclosure record.