The SEC has announced that it plans to modernize its mining disclosure rules and reduce regulatory conflict for international mining companies by better aligning its disclosure regime with accepted global standards, including Canada's National Instrument 43-101. The SEC is mindful that its anomalous regime may be hurting the U.S. capital markets by discouraging mining companies, particularly junior ones, from raising money in the United States and listing on a U.S. stock exchange.
Citing the CRIRSCO-based codes, and noting that the U.S. regime has not been updated in more than 30 years, the SEC is proposing to rescind Guide 7 and replace it with detailed regulations.1 The key proposed changes include the following:
- Disclosure about mining operations would be required if they are material to a company’s business or financial condition. Materiality would be presumed if mining assets constitute 10% or more of the company's total assets.
- The longstanding rule permitting only proven and probable reserves in SEC reports would be eliminated. Inferred, indicated and measured resources and exploration results would also be disclosable within specific constraints.
- Internal controls used in estimating exploration results and mineral reserves and resources, including quality control and assurance programs, verification of analytical procedures and comprehensive risk inherent in the estimates, would have to be described.
- Reserves, resources and exploration results would have to be based on supporting documentation prepared by a qualified mineral industry professional—a "Qualified Person," who would be deemed an expert for purposes of U.S. public offerings.
- Qualified Persons would not have to be independent, but if they are affiliated with either the company or another entity with an interest in the mining property, the nature of that relationship would have to be explained.
- A technical report summary, written by a Qualified Person in plain English, would have to be filed with the SEC.
- Determinations of mineral reserves could be based on either a feasibility study or a preliminary feasibility study.
In addition to aligning the U.S. regime more closely with global standards, some of the proposed rules reflect a codification of unwritten requirements of SEC staff. These requirements have historically been communicated to mining companies through the comment letter process when staff review and request revisions to a prospectus or other disclosure document. Codification is meant to reduce the regulatory uncertainty caused by such informal rule-making.
SEC-registered mining companies, both U.S. and foreign, would be subject to the new rules. The only exception is Canadian MJDS issuers, who would continue to be exempt. Accordingly, the new rules would apply to Canadian issuers that are not MJDS-eligible. Although the U.S. and Canadian rules would be substantially harmonized, they would not be identical, and non-MJDS Canadian issuers would have to comply with both sets of requirements.
Below is a link to the full text of the SEC’s proposed rules and request for comments. Comments are due within 60 days of the rule proposal being published in the Federal Register.
1 The Committee for Mineral Reserves International Reporting Standards, comprised of representatives of mining standard-setting organizations in Australasia, Brazil, Canada, Chile, Europe, Mongolia, Russia, South Africa and the United States.
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