[Federal Register Volume 83, Number 246 (Wednesday, December 26, 2018)]
[Rules and Regulations]
[Pages 66344-66461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26337]
[[Page 66343]]
Vol. 83
Wednesday,
No. 246
December 26, 2018
Part II
Securities and Exchange Commission
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17 CFR Parts 229, 230, 239, et al.
Modernization of Property Disclosures for Mining Registrants; Final
Rule
Federal Register / Vol. 83 , No. 246 / Wednesday, December 26, 2018 /
Rules and Regulations
[[Page 66344]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 230, 239, and 249
[Release Nos. 33-10570; 34-84509; File No. S7-10-16]
RIN 3235-AL81
Modernization of Property Disclosures for Mining Registrants
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: We are adopting amendments to modernize the property
disclosure requirements for mining registrants, and related guidance,
currently set forth in Item 102 of Regulation S-K under the Securities
Act of 1933 and the Securities Exchange Act of 1934 and in Industry
Guide 7. The amendments are intended to provide investors with a more
comprehensive understanding of a registrant's mining properties, which
should help them make more informed investment decisions. The
amendments also will more closely align the Commission's disclosure
requirements and policies for mining properties with current industry
and global regulatory practices and standards. In addition, we are
rescinding Industry Guide 7 and relocating the Commission's mining
property disclosure requirements to a new subpart of Regulation S-K.
DATES: Effective date: The final rule amendments are effective February
25, 2019, except for the amendments to 17 CFR 229.801(g) and
229.802(g), which will be effective on January 1, 2021.
Compliance date: Registrants engaged in mining operations must
comply with the final rule amendments for the first fiscal year
beginning on or after January 1, 2021. Industry Guide 7 will remain
effective until all registrants are required to comply with the final
rules, at which time Industry Guide 7 will be rescinded.
FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, in
the Division of Corporation Finance, at (202) 551-3430, U.S. Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: We are amending 17 CFR 229.102 (``Item 102
of Regulation S-K'') under the Securities Act of 1933 (``Securities
Act'') \1\ and the Securities Exchange Act of 1934 (``Exchange
Act''),\2\ adding new exhibit (96) to 17 CFR 229.601(b) (``Item 601 of
Regulation S-K''), adding new 17 CFR part 229, subpart 229.1300
(``subpart 1300 of Regulation S-K''), amending 17 CFR 230.436 under the
Securities Act, amending Form 1-A,\3\ amending Form 20-F,\4\ and
rescinding 17 CFR 229.801(g) and 229.802(g) under the Securities Act
and Exchange Act.
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 17 CFR 239.90.
\4\ 17 CFR 249.220f.
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Table of Contents
I. Introduction
A. Summary of, and Commenters' Principal Concerns Regarding, the
Commission's Proposed Revisions to the Current Mining Property
Disclosure Regime
B. Summary of Principal Changes to the Final Rules
II. Final Mining Property Disclosure Rules
A. Consolidation of the Mining Disclosure Requirements
1. Rule Proposal
2. Comments on the Rule Proposal
3. Final Rules
B. Overview of the Standard for Mining-Related Disclosure
1. The Threshold Materiality Standard
2. Treatment of Vertically-Integrated Companies
3. Treatment of Multiple Property Ownership
4. Treatment of Royalty Companies and Other Companies Holding
Economic Interests in Mining Properties
5. Definitions of Exploration, Development and Production Stage
C. Qualified Person and Responsibility for Disclosure
1. The ``Qualified Person'' Requirement
2. The Definition of ``Qualified Person''
D. Treatment of Exploration Results
1. Rule Proposal
2. Comments on the Rule Proposal
3. Final Rules
E. Treatment of Mineral Resources
1. The Mineral Resource Disclosure Requirement
2. Definition of Mineral Resource
3. Classification of Mineral Resources
4. The Initial Assessment Requirement
5. USGS Circular 831 and 891
F. Treatment of Mineral Reserves
1. The Framework for Determining Mineral Reserves
2. The Type of Study Required To Support a Reserve Determination
G. Specific Disclosure Requirements
1. Requirements for Summary Disclosure
2. Requirements for Individual Property Disclosure
3. Requirements for Technical Report Summaries
4. Requirements for Internal Controls Disclosure
H. Conforming Changes to Certain Forms Not Subject to Regulation
S-K
1. Form 20-F
2. Form 1-A
I. Transition Period and Compliance Date
III. Other Matters
IV. Economic Analysis
A. Baseline
1. Affected Parties
2. Current Regulatory Framework and Market Practices
B. Analysis of Potential Economic Effects
1. Broad Economic Effects of the Final Rules and Impact on
Efficiency, Competition, and Capital Formation
2. Consolidation of the Mining Disclosure Requirements
3. The Standard for Mining-Related Disclosure
4. Qualified Person and Responsibility for Disclosure
5. Treatment of Exploration Results
6. Treatment of Mineral Resources
7. Treatment of Mineral Reserves
8. Specific Disclosure Requirements
9. Conforming Changes to Certain Forms Not Subject to Regulation
S-K
V. Paperwork Reduction Act
A. Background
B. Summary of Collection of Information Requirements
C. Estimate of Potentially Affected Registrants
D. Estimate of Reporting and Cost Burdens
VI. Final Regulatory Flexibility Act Analysis
A. Need for, and Objectives of, the Final Rules
B. Significant Issues Raised by Public Comments
C. Small Entities Subject to the Final Rules
D. Reporting, Recordkeeping, and Other Compliance Requirements
E. Duplicative, Overlapping or Conflicting Federal Rules
F. Agency Action To Minimize Effect on Small Entities
VII. Statutory Authority
I. Introduction
On June 16, 2016, the Commission proposed revisions to its
disclosure requirements and related guidance under the Securities Act
and Exchange Act for properties owned or operated by mining companies
to provide investors with a more comprehensive understanding of a
registrant's mining properties to help them make more informed
investment decisions.\5\ The Commission also proposed to modernize its
disclosure requirements and policies for mining properties by more
closely aligning them with current industry and global regulatory
practices and standards.\6\ The Commission's disclosure requirements
are currently
[[Page 66345]]
found in Item 102 of Regulation S-K, and the related guidance appears
in Industry Guide 7.\7\
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\5\ See Modernization of Property Disclosures for Mining
Registrants, Securities Act Release No. 33-10098 (June 16, 2016) [81
FR 41651] (``Proposing Release'').
\6\ We proposed to modernize our disclosure requirements for
mining properties following a request by some industry participants
to revise Guide 7. See Petition for Rulemaking from Society for
Mining, Metallurgy and Exploration, Inc. to Elizabeth M. Murphy,
Secretary, U.S. Securities & Exchange Commission (Oct. 1, 2012),
(``SME Petition for Rulemaking''), http://www.sec.gov/rules/petitions/2012/petn4-654.pdf. In accordance with 17 CFR 201.192
(Rule 192 of the Commission's Rules of Practice), the Secretary of
the Commission will notify the petitioners of the action taken by
the Commission following the publication of this release in the
Federal Register.
\7\ See U.S. Sec. & Exch. Comm'n. Industry Guide 7: Description
of Property By Issuers Engaged or to Be Engaged in Significant
Mining Operations (``Guide 7'').
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We received over 60 comment letters on the proposed revisions \8\
primarily from participants in, or representatives of, the mining
industry, including mining companies,\9\ mining standards groups,\10\
mining consulting groups,\11\ professional and trade associations,\12\
law firms,\13\ mining royalty companies,\14\ and individual geologists
and mining engineers.\15\ We also received comments from several groups
expressing various environmental or sustainability concerns in
connection with the mining industry.\16\
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\8\ See Comments on Proposed Rule: Modernization of Property
Disclosures for Mining Registrants, U.S. Sec. & Exch. Comm'n,
https://www.sec.gov/comments/s7-10-16/s71016.htm.
\9\ See, e.g., letters from Alliance Resource Partners, L.P.
(Sept. 23, 2016) (``Alliance''); AngloGold Ashanti Limited (Aug. 22,
2016) (``AngloGold''); BHP Billiton (Sept. 23, 2016) (``BHP'');
Cloud Peak Energy Inc. (Sept. 22, 2016) (``Cloud Peak''); Coeur
Mining, Inc. (Aug. 19, 2016) (``Coeur''); Energy Fuels Inc. (Sept.
29, 2016) (``Energy Fuels''); Freeport-McMoRan Inc. (Sept. 23, 2016)
(``FCX''); Gold Resource Corporation (Aug. 26, 2016) (``Gold
Resource''); Newmont Mining Corporation (Sept. 26, 2016)
(``Newmont''); Northern Dynasty Minerals Ltd. (Aug. 15, 2016)
(``Northern Dynasty''); Randgold Resources Ltd. (Sept. 26, 2016)
(``Randgold''); Rio Tinto plc (Sept. 26, 2016) (``Rio Tinto''); Ur-
Energy Inc. (Sept. 26, 2016) (``Ur-Energy''); and Vale S.A. (Aug.
26, 2016) (``Vale'').
\10\ See, e.g., letters from Australasian Institute of Mining
and Metallurgy (Sept. 26, 2016) (``AusIMM''); Canadian Institute of
Mining, Metallurgy and Petroleum (Aug. 26, 2016) (``CIM''); Comissao
Brasileira de Recursos e Reservas (Sept. 5, 2016) (``CBRR'');
Committee for Mineral Reserves International Reporting Standards
(Sept. 23, 2016) (``CRIRSCO''); Joint Ore Reserves Committee of
Australasia (Sept. 26, 2016) (``JORC''); SAMCODES Standards
Committee (Sept. 22, 2016) (``SAMCODES 1'') and (Sept. 26, 2016)
(``SAMCODES 2''); and Society for Mining, Metallurgy and
Exploration, Inc. (Aug. 4, 2016) (``SME 1'') and Aug. 25, 2016)
(``SME 2'').
\11\ See, e.g., letters from Amec Foster Wheeler (Sept. 26,
2016) (``Amec''); CPM Group (Aug. 24, 2016) (``CPM''); Golder
Associates, Inc. (Sept. 26, 2016) (``Golder''); and SRK Consulting
(U.S.), Inc. (Aug. 19, 2016) (``SRK 1'') and Sept. 26, 2016 (``SRK
2'').
\12\ See, e.g., letters from American Institute of Professional
Geologists (Aug. 22, 2016) (``AIPG''); Mining and Metallurgical
Society of America (Sept. 26, 2016) (``MMSA''); and National Mining
Association (Sept. 23, 2016) (``NMA 1'') and Sept. 29, 2017 (``NMA 2
and SME 3''). The latter letter from NMA was co-signed by SME and
was submitted at the meeting between representatives of the National
Mining Association and Ur-Energy and staff of the Commission's
Division of Corporation Finance on October 10, 2017. That letter is
available at: https://www.sec.gov/comments/s7-10-16/s71016-2633677-161226.pdf. See also letters from National Society of Professional
Engineers (Aug. 16, 2016) (``NSPE''); National Stone, Sand & Gravel
Association (Sept. 26, 2016) (``NSSGA 1'') and (Apr. 28, 2017)
(``NSSGA 2''); Prospectors & Developers Association of Canada (Oct.
12, 2016) (``PDAC''); and U.S. Chamber of Commerce (Sept. 26, 2016)
(``Chamber'').
\13\ See, e.g., letters from Andrews Kurth Kenyon LLP (Sept. 26,
2016) (``Andrews Kurth''); Cleary Gottlieb Steen & Hamilton LLP
(Sept. 30, 2016) (``Cleary Gottlieb''); Crowell & Moring LLP (Sept.
16, 2016) (``Crowell and Moring''); Davis Polk & Wardwell LLP (Sept.
26, 2016) (``Davis Polk''); Dorsey & Whitney LLP (Sept. 26, 2016)
(``Dorsey & Whitney''); Shearman & Sterling LLP (Sept. 26, 2016)
(``Shearman & Sterling''); Sullivan & Cromwell LLP (Aug. 15, 2016)
(``Sullivan & Cromwell''); Troutman Sanders LLP (Sept. 26, 2016)
(``Troutman Sanders''); and Vinson & Elkins LLP (Sept. 26, 2016)
(``Vinson & Elkins'').
\14\ See, e.g., letters from Natural Resource Partners L.P.
(Sept. 26, 2016) (``NRP''); and Royal Gold, Inc. (Sept. 26, 2016)
(``Royal Gold'').
\15\ See, e.g., letters from Ted Eggleston, Ph.D. (Aug. 19,
2016) (``Eggleston''); Douglas H. Graves, P.E. (Sept. 21, 2016)
(``Graves''); Keith Laskowski (Aug. 26, 2016) (``Laskowski'');
Michael Moats (Aug. 31, 2016) (``Moats''); Dr. Pierre Mousset-Jones
(June 20, 2016) (``Mousset-Jones''); and Dana Willis, P.G. (Aug. 4,
2016) (``Willis'').
\16\ See, e.g., letters from Carbon Tracker Initiative (Aug. 26,
2016) (``Carbon Tracker''); Center for Science in Public
Participation (Sept. 22, 2016) (``CSP\2\''); Columbia Water Center
(Sept. 26, 2016) (``Columbia Water''); Earthworks (and 21 other
environmental advocates) (Sept. 26, 2016) (``Earthworks et al.'');
Montana Trout Unlimited (Sept. 25, 2016) (``Montana Trout''); and
Sustainability Accounting Standards Board (Aug. 26, 2016)
(``SASB'').
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Most commenters supported modernizing the Commission's property
disclosure requirements for mining registrants by more closely aligning
them with current industry and global regulatory practices and
standards,\17\ as embodied by the Committee for Reserves International
Reporting Standards (``CRIRSCO'').\18\ Numerous industry
commenters,\19\ however, expressed concern that the proposed rules
deviated, in certain respects, from the CRIRSCO standards \20\ or the
various international, CRIRSCO-based disclosure codes.
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\17\ See, e.g., letters from Andrews Kurth, AngloGold, AusIMM,
CIM, CSP\2\, Cleary Gottlieb, Coeur, Columbia Water, CBRR, CRIRSCO,
Davis Polk, Dorsey & Whitney, Earthworks et al., Golder, Graves,
JORC, MMSA, Montana Trout, Newmont, PDAC, Randgold, Rio Tinto, SME
1, Chamber, Ur-Energy, Vale, and Willis.
\18\ CRIRSCO is an international initiative to standardize
definitions for mineral resources, mineral reserves, and related
terms for public disclosure. CRIRSCO has representatives from
professional societies involved in developing mineral reporting
guidelines in Australasia (Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves (JORC)),
Brazil (Brazilian Commission for Mineral Resources and Reserves
(CBRR)), Canada (Canadian Institute of Mining Metallurgy and
Petroleum (CIM)), Chile (Minera Comision), Europe (Pan-European
Reserves and Resources Reporting Committee (PERC)), Indonesia (the
KCMI Joint Committee (KOMPERS)), Kazakhstan (Kazakhstan Association
for Public Reporting on Exploration Results, Mineral Resources and
Mineral Reserves (KAZRC)), Mongolia (Mongolian Professional
Institute of Geosciences and Mining (MPIGM)), Russia (National
Association for Subsoil Examination (NAEN)), South Africa (South
African Code for Reporting of Exploration Results, Mineral Resources
and Mineral Reserves (SAMREC)), and the USA (Society for Mining,
Metallurgy and Exploration, Inc. (SME)). CRIRSCO's website is
located at: http://www.crirsco.com.
\19\ See, e.g., letters from Amec, AIPG, Andrews Kurth,
AngloGold, AusIMM, BHP, Chamber , CIM, Cleary & Gottlieb, Coeur,
CRIRSCO, Davis Polk, Dorsey & Whitney, Eggleston, Energy Fuels, FCX,
Gold Resource, Golder, Graves, JORC, Newmont, NMA 1, NMA 2 and SME
3, Northern Dynasty, NSSGA 1 and 2, PDAC, Randgold, Rio Tinto,
SAMCODES 1 and 2, Shearman & Sterling, SME 1, SRK 1, Ur-Energy,
Vale, and Willis.
\20\ The CRIRSCO standards are found in its International
Reporting Template. See, e.g., Committee for Mineral Reserves
International Reporting Standards, CRIRSCO International Reporting
Template, cl. 18 (2013), http://www.crirsco.com/templates/international_reporting_template_november_2013.pdf.
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As explained below, in a number of instances, we have revised the
proposed requirements in line with commenters' suggestions to be more
consistent with the CRIRSCO standards and improve the comparability of
mining property disclosures, which should help decrease, relative to
the proposed rules, the expected compliance costs and burden of the
final rules and enhance investor understanding of registrants' mining
operations. In other instances, we have not changed the proposed
requirements because we believe that those requirements are necessary
to protect investors. Overall, we believe that the final rules reflect
an appropriate consideration of the extent to which the final rules
promote efficiency, competition, and capital formation in addition to
the protection of investors.\21\ The final rules will modernize the
Commission's mining property disclosure regime by amending or removing
requirements that may have placed U.S. mining registrants at a
competitive disadvantage \22\ and by adding other requirements that
will help investors make more informed investment decisions about those
registrants.
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\21\ See Section 2(b) of the Securities Act [15 U.S.C. 77b(b)]
and Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)]. See also
infra Section IV.
\22\ See, e.g., infra Section II.E.1.iii (discussing the
treatment of mineral resources).
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A. Summary of, and Commenters' Principal Concerns Regarding, the
Commission's Proposed Revisions to the Current Mining Property
Disclosure Regime
In light of global developments in the mining industry's disclosure
standards and industry participants' concerns, we proposed to align the
Commission's disclosure rules for properties owned or operated by
mining companies with the CRIRSCO-based codes in several respects. For
example, we proposed to require a registrant with material mining
operations to disclose, in addition to its mineral reserves, mineral
resources that
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have been determined based upon information and supporting
documentation by one or more qualified persons. We proposed to use the
CRIRSCO standards' classification scheme regarding mineral resources
and reserves, and proposed substantially similar definitions of many of
the technical terms used under the CRIRSCO-based codes, such as the
definition of the various categories of mineral resources and mineral
reserves, qualified person, pre-feasibility study, and feasibility
study. We also proposed to permit the qualified person to use the
results of either a pre-feasibility study or a final feasibility study
to support a determination of reserves in most situations.
Further, we proposed to establish a single set of rules for mining
property disclosure by rescinding Guide 7, replacing it with a new
subpart of Regulation S-K, and amending Item 102 of Regulation S-K to
refer to the new subpart. The proposed mining property disclosure rules
would require a registrant with material mining operations to provide
both summary disclosure concerning its properties in the aggregate as
well as more detailed disclosure about individually material
properties.
While most commenters supported the Commission's goal of
modernizing its mining property disclosure requirements in light of
global standards, numerous commenters expressed concern that the
proposed rules deviated from the CRIRSCO standards in several respects.
Their principal concerns included that:
Requiring both mineral resource and reserve estimates
to be based on a price, which may not exceed the average price for
the preceding 24 months, except when a contract has defined the
price, would diverge from global industry practice, which permits
the qualified person to use any reasonable and justifiable price,
and which is typically a price based on forward-looking pricing
forecasts;
The proposed summary and individual property disclosure
requirements are overly prescriptive, burdensome to meet, and do not
account for the diversity of operations within the mining industry;
Prohibiting the use of inferred resources in a
quantitative assessment of resources would be inconsistent with the
CRIRSCO standards, and in particular Canadian mining disclosure
requirements, which permit the inclusion of inferred resources to
demonstrate the potential economic viability of a deposit;
Requiring the use of a feasibility study, rather than a
pre-feasibility study, to support a determination of reserves in
high risk situations would run counter to the CRIRSCO-based codes,
which leave the decision of what type of technical report is
required to support the determination of reserves, including in high
risk situations, to the discretion and judgment of the competent or
qualified person;
The proposed prohibition against disclaimers would be
contrary to the CRIRSCO-based codes, and in particular the Canadian
requirements, which permit disclaimers in certain circumstances;
Prohibiting the use of historical estimates would be
contrary to the Canadian and Australian approaches, which allow such
use, and might preclude the consummation of some mergers,
acquisitions or business combinations because there would not be
enough time to verify an estimate provided by the target company;
Requiring all applicable mining property disclosure
from a royalty, streaming, or other similar company would be
burdensome for such companies because they generally have no rights
beyond receiving royalties and lack access to the technical data and
other information available to the owner or operator, and which is
necessary to comply with the mining property disclosure
requirements; and
The proposed rules could compel a registrant to
disclose its exploration results before they become material to
investors, which would run counter to the CRIRSCO-based codes.
Many commenters maintained that, unless the Commission revised the
proposed rules, their adoption would result in mining registrants
incurring an unnecessarily heavy compliance burden, increase the costs
of compliance for mining registrants that also report in CRIRSCO-based
jurisdictions, and result in inconsistent disclosure that could cause
investor confusion and diminish comparability. Some commenters also
maintained that, if adopted, the proposed rules would continue to place
U.S. registrants at a significant competitive disadvantage and leave in
place significant barriers to entry for foreign mining companies that
would otherwise list or raise capital in the United States.
We have carefully considered all of the comments received on the
proposed rules. As discussed below, the final rules reflect changes
from the rule proposal that were made in response to many of these
comments.
B. Summary of Principal Changes to the Final Rules
The final rules include several revisions to more closely align the
Commission's mining property disclosure requirements with the CRIRSCO
standards and thereby help decrease, relative to the proposed rules,
the compliance burden and costs for the many registrants that are
subject to one or more of the CRIRSCO-based codes while still providing
important investor protections. For example, the final rules:
Require a qualified person to use a price for each
commodity that provides a reasonable basis for establishing the
prospects of economic extraction when assessing mineral resources,
and that provides a reasonable basis for establishing that the
project is economically viable when determining mineral reserves,
which may be a historical or forward-looking price, as long as the
qualified person discloses and explains, with particularity, his or
her reasons for using the selected price, including the material
assumptions underlying the selection;
Eliminate the proposed quantitative presumptions
regarding when a registrant's mining operations, and when a change
in previously reported estimates of mineral resources or mineral
reserves, are deemed to be material;
Eliminate the proposed summary disclosure provision
requiring specific items of information in tabular format about a
registrant's top 20 properties and, instead, adopt a more
principles-based approach by requiring the registrant to provide
investors with an overview of its properties and mining operations;
Reduce the number of summary and individual property
disclosure provisions requiring tables from seven, as proposed, to
two, and permit other required disclosure to be in either narrative
or tabular format;
Permit, but not require, a registrant to file a
technical report summary to support its disclosure of exploration
results;
Provide that a qualified person will not be subject to
expert liability under Section 11 of the Securities Act for findings
and conclusions regarding certain aspects of specified modifying
factors discussed in the technical report summary or other parts of
the registration statement that the qualified person has indicated
are based on information provided by the registrant;
Permit a qualified person to determine mineral
resources and reserves at any specific point of reference, which
must be disclosed in the technical report summary, rather than at
three points of reference;
Exclude geothermal energy from the definition of
mineral resource;
Require a qualified person to apply relevant technical
and economic factors likely to influence the prospect of economic
extraction, rather than all modifying factors, when determining
mineral resources;
Permit a qualified person in the technical report
summary to disclose mineral resources as including mineral reserves
as long as he or she also discloses mineral resources as excluding
mineral reserves; \23\
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\23\ However, as proposed, the final rules prohibit a registrant
from including mineral reserves when disclosing mineral resource
estimates in a prospectus or other Commission filing.
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Permit a qualified person to include inferred resources
in an economic analysis that the qualified person opts to include in
an initial assessment as long as certain conditions are met;
Define mineral reserve to include diluting materials
and allowances for losses that may occur when the material is mined
or extracted;
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Permit a qualified person to conduct either a pre-
feasibility or final feasibility study to support a determination of
mineral reserves even in high risk situations;
Permit the use of historical estimates of mineral
resources or reserves in Commission filings pertaining to mergers,
acquisitions, or business combinations if the registrant is unable
to update the estimate prior to the completion of the relevant
transaction, provided that the registrant discloses the source and
date of the estimate, and does not treat the estimate as a current
estimate; and
Permit a registrant holding a royalty or similar
interest to omit any information required under the summary and
individual property disclosure provisions to which it lacks access
and which it cannot obtain without incurring an unreasonable burden
or expense.
We also are clarifying our position on a few issues raised by
commenters that were not fully addressed in the Proposing Release.
For example:
Multiple qualified persons may prepare a technical
report summary if certain conditions are met;
If a qualified person is employed by a third-party
firm, that firm may sign the technical report summary and provide
the written consent required for an expert under the Securities Act;
A registrant's disclosure of information regarding its
exploration activity and exploration results is voluntary until such
information becomes material to investors; and
A registrant and its qualified person may disclose
exploration targets in Commission filings if accompanied by certain
specified cautionary and explanatory statements.
In addition, we are adopting a two-year transition period so that a
registrant will not have to comply with the new rules until its first
fiscal year beginning on or after January 1, 2021, although a
registrant may voluntarily comply with the new rules prior to the
compliance date, subject to the Commission's completion of necessary
EDGAR reprogramming changes.
II. Final Mining Property Disclosure Rules
A. Consolidation of the Mining Disclosure Requirements
1. Rule Proposal
The combination of the overlapping structure of the current
disclosure regime for mining registrants (in Item 102 of Regulation S-K
and Industry Guide 7) and the brevity of Guide 7, which has led to a
significant amount of staff interpretive guidance through the comment
process, may have created some regulatory uncertainty among mining
registrants, particularly new registrants.\24\ To help address this
uncertainty, we proposed to rescind Guide 7 and create new subpart 1300
of Regulation S-K that would govern disclosure for registrants with
mining operations. In addition, we proposed to amend Item 102 of
Regulation S-K to replace the instruction that directed issuers to the
information called for in Guide 7 with a new instruction requiring all
mining registrants to refer to and, if required, provide the disclosure
under new subpart 1300 of Regulation S-K. We also proposed to provide
the same instruction on Form 20-F \25\ and Form 1-A.\26\
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\24\ See Proposing Release, supra note 5, at Section II.A.
\25\ Foreign private issuers use Form 20-F to file their
Exchange Act registration statements and annual reports, and also
refer to Form 20-F when filing their Securities Act registration
statements on Forms F-1 and F-4. See 17 CFR 249.220f.
\26\ Form 1-A is the offering statement used by issuers that are
eligible to engage in securities offerings under Regulation A. See
17 CFR 230.251-230.263.
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2. Comments on the Rule Proposal
Many commenters stated that they supported the Commission's
proposal to rescind Guide 7 and replace it with a single set of
disclosure standards as long as those standards are consistent with the
CRIRSCO standards.\27\ Several commenters also reiterated that the
Commission's current disclosure regime for mining properties has caused
uncertainty for mining registrants.\28\ Two commenters, however, urged
the Commission to withdraw its proposal and, instead, make more modest
revisions to Guide 7 out of concern that the proposed rules were overly
prescriptive and deviated from the CRIRSCO standards in several key
respects.\29\
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\27\ See letters from AIPG, Amec, AngloGold, BHP, CBRR, Coeur,
Eggleston, Golder, MMSA, Midas Gold Corp. (June 23, 2016)
(``Midas''), Randgold, Rio Tinto, SAMCODES 1 and 2, Ur-Energy, Vale
and Willis.
\28\ See letters from Amec, BHP, Crowell & Moring, Eggleston,
Golder, Midas, Rio Tinto and SRK 1.
\29\ See letter from NMA 2 and SME 3.
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Regarding the content of the new mining property disclosure rules,
some commenters recommended that the Commission specifically
incorporate the CRIRSCO template by reference.\30\ Other commenters
requested that the Commission adopt Canada's legal instrument, NI-43-
101, establishing mining property disclosure requirements, or recognize
the use of Canada's Form 43-101F as the basis for a mining registrant's
technical reports.\31\ A few commenters stated that the Commission's
mining property disclosure rules should follow Australia's JORC or
South Africa's SAMCODES on the grounds that Canada's NI 43-101 is too
prescriptive.\32\
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\30\ See, e.g., letters from AIPG and Rio Tinto.
\31\ See, e.g., letters from AIPG, Coeur, Gold Resource, Graves,
SME 1, SRK 1, and Willis.
\32\ See, e.g., letters from JORC, Randgold, and SAMCODES 2.
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3. Final Rules
We are adopting final rules that will rescind Guide 7, as proposed,
and codify the Commission's mining property disclosure requirements in
new subpart 1300 of Regulation S-K.\33\ We are also amending Item 102
of Regulation S-K, as proposed, to state that registrants engaged in
mining operations must refer to and, if required, provide the
disclosure under subpart 1300 of Regulation S-K \34\ in addition to any
non-mining property disclosure required by Item 102.\35\ Having one
source for mining disclosure obligations should facilitate mining
registrants' compliance with their disclosure requirements by reducing
the complexity resulting from the existing disclosure structure.
Moreover, consolidating the mining property disclosure requirements
into Regulation S-K should eliminate the uncertainty noted by several
commenters concerning the Commission's current mining property
disclosure regime.\36\
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\33\ 17 CFR 229.1300 through 229.1305. Subpart 1300 will apply
to registration statements under the Securities Act and the Exchange
Act as well as to annual reports under the Exchange Act.
\34\ Instruction 3 to Item 102 of Regulation S-K [17 CFR
229.102]. We are similarly amending Form 20-F and Form 1-A to
provide the same instruction and reference to Regulation S-K subpart
1300. See infra Section II.H.
\35\ Registrants that have material non-mining operations will
continue to provide non-mining property disclosures under Item 102
of Regulation S-K.
\36\ See supra note 28. For this reason, we continue to believe
that codification of our mining property disclosure requirements is
a better approach than revising Guide 7, as suggested by two
commenters. See letter from NMA 2 and SME 3. Moreover, we note that
the final rules are less prescriptive and conform more closely to
CRIRSCO standards than the proposed rules.
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Many commenters supported our proposal to consolidate the
Commission's mining property disclosure requirements under a single set
of rules as long as the final rules align with the CRIRSCO
standards.\37\ As discussed throughout this release, the final rules
include revisions that will substantially more closely align the
Commission's mining property disclosure requirements with the CRIRSCO
standards as compared to the proposed rules.\38\ The final rules also
[[Page 66348]]
emphasize transparency, materiality, and competence--the three
governing principles of the CRIRSCO standards.\39\ We therefore believe
that the final rules are responsive to commenters' overarching concern
that the Commission's mining property disclosure requirements be
substantially more consistent with current industry standards.
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\37\ See supra note 27.
\38\ Some commenters noted that, although the proposed rules
differed from the CRIRSCO standards in certain respects, they did
generally align with the CRIRSCO standards in several other
respects. See, e.g., letter from AusIMM (``Most of the CRIRSCO
Standard definitions have been incorporated in the release as they
were in the 2014 SME Guide'').
\39\ See CRIRSCO International Reporting Template, supra note
20, at cl. 3 (``The main principles governing the operation and
application of the Template are transparency, materiality and
competence. Transparency requires that the reader of a Public Report
is provided with sufficient information, the presentation of which
is clear and unambiguous, so as to understand the report and not to
be misled. Materiality requires that a Public Report contains all
the relevant information which investors and their professional
advisers would reasonably require, and reasonably expect to find in
a Public Report, for the purpose of making a reasoned and balanced
judgement regarding the Exploration Results, Mineral Resources or
Mineral Reserves being reported. Competence requires that the Public
Report be based on work that is the responsibility of suitably
qualified and experienced persons who are subject to an enforceable
professional code of ethics and rules of conduct'').
---------------------------------------------------------------------------
We do not believe it would be appropriate, however, to incorporate
by reference or otherwise adopt in its entirety on a going forward
basis the CRIRSCO international template, Canada's NI 43-101, or
another specific CRIRSCO-based code or guide, as requested by some
commenters. Granting such a request would effectively bind the
Commission's rules both to current and future iterations and
interpretations of the CRIRSCO standards, codes or guides, over which
the Commission would have little to no control or influence. It also
would ignore the need to adopt mining property disclosure rules that
are consistent with the unique purposes and characteristics of the U.S.
federal securities laws.\40\
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\40\ See, e.g., consideration of the qualified person as an
expert under Section 11 of the Securities Act in Section II.C.1.
below.
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B. Overview of the Standard for Mining-Related Disclosure
1. The Threshold Materiality Standard
i. Rule Proposal
Item 102 of Regulation S-K currently requires registrants to
disclose information about principal mines, other materially important
physical properties, and significant mining operations. Guide 7 only
applies to registrants engaged or to be engaged in significant mining
operations. However, Guide 7 does not define ``significant'' mining
operations while Item 102 does not specify the particular quantitative
factors to be considered in determining the materiality of a mine.
For registrants that have one or more principal mines or other
materially important properties but lack significant mining operations,
Item 102 requires less detailed information. For registrants that have
significant mining operations, Guide 7 calls for more extensive
disclosures. However, although both Item 102 and Guide 7 refer to
``significant'' mining operations, the staff historically has advised
registrants to apply a materiality standard in determining what
disclosures to provide, and has used 10% of a registrant's total assets
as the benchmark for determining the materiality of a registrant's
mining operations.
In order to clarify the mining property disclosure standard, we
proposed that a registrant would be required to provide the disclosure
under new subpart 1300 of Regulation S-K if its mining operations are
material to its business or financial condition.\41\ The Commission
also proposed specific steps a registrant would have to take when
determining the materiality of its mining operations.\42\
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\41\ As proposed, the term ``material'' would have the same
meaning as under 17 CFR 230.405 [Securities Act Rule 405] and 17 CFR
240.12b-2 [Exchange Act Rule 12b-2].
\42\ See Proposing Release, supra note 5, at Section II.B.1.
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The Commission further proposed that a registrant's mining
operations are presumed to be material if its mining assets constitute
10% or more of its total assets. The proposed rules also instructed,
however, that if a registrant's mining assets fall below the 10% total
assets threshold, it would need to consider if there are other factors,
quantitative or qualitative, which would render its mining operations
material.\43\
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\43\ See id.
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ii. Comments on the Rule Proposal
Many commenters supported the Commission's proposal to require
disclosure if a registrant determines that its mining operations are
material to its business or financial condition.\44\ Some commenters
supported the proposed provision that a registrant's mining operations
are presumed to be material if they consist of 10% or more of its total
assets, but only if the provision is a presumption and not a bright
line test, and not exclusive of other factors.\45\
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\44\ See, e.g., letters from AngloGold, CBRR, CIM, Eggleston,
Midas, Rio Tinto, SRK 1 and Vale.
\45\ See, e.g., letters from CBRR, Midas, and SRK 1.
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Some commenters supported using a quantitative measure for
determining the materiality of a registrant's mining operations for
purposes of the proposed rules, but recommended that the Commission
adopt the U.S. GAAP thresholds for segment reporting under Accounting
Standards Codification (``ASC'') 280,\46\ rather than the proposed 10%
asset metric.\47\ Those commenters preferred this particular U.S. GAAP
approach because of their concern that large companies may not meet the
proposed 10% asset test or because, in their view, the U.S. GAAP
approach is more suitable and equitable.\48\
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\46\ Accounting Standards Code (``ASC'') 280 requires an
enterprise to report separately information concerning an operating
segment if any of the following quantitative thresholds are met: (i)
Its reported revenue, including both sales to external customers and
intersegment sales or transfers, is 10% or more of the combined
revenue, internal and external, of all operating segments; (ii) the
absolute amount of its reported profit or loss is 10% or more of the
greater, in absolute amount, of either the combined reported profit
of all operating segments that did not report a loss, or the
combined reported loss of all operating segments that did report a
loss; or (iii) its assets are 10% or more of the combined assets of
all operating segments. Under ASC 280, information about operating
segments that do not meet any of the quantitative thresholds may
also be considered reportable, and separately disclosed, if
management believes that information about the segment would be
useful to readers of the financial statements. See ASC 280-10-50-12.
\47\ See letters from Alliance, SAMCODES 1 and SME 1; see also
letter from JORC (stating that materiality should be determined
under GAAP without specifying the particular GAAP provision) and
letter from SRK 1 (stating that the actual and projected
expenditures, revenues and income as well as the amount of capital
raised or planned to be raised have a direct impact on materiality,
and that if any of those amounts comprise 10% or more of a
registrant's value, they should be considered material).
\48\ See letters from JORC, SAMCODES 1, and SME 1.
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Other commenters recommended that the Commission avoid a specific
materiality test and instead adopt the approach taken in Canada's
Companion Policy 43-101CP.\49\ That approach requires an issuer to
``determine materiality in the context of the issuer's overall business
and financial condition taking into account qualitative and
quantitative factors, assessed in respect of the issuer as a whole.''
\50\ Another commenter \51\ opposed ``special materiality tests (such
as 10% of total assets)'' and advocated instead using the standards for
materiality established by the U.S. Supreme Court in TSC v. Northway
\52\ and Basic v. Levinson.\53\
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\49\ See letters from CIM, Eggleston, and Vale.
\50\ National Instrument Companion Policy 43-101CP, pt. General
Guidance (4), https://www.bcsc.bc.ca/Securities_Law/Policies/Policy4/PDF/43-101CP__CP___February_25__2016/. That document then
lists several factors that are likely to support the conclusion that
a property is material. See id. at (5).
\51\ See letter from Chamber.
\52\ 426 U.S. 438 (1976).
\53\ 485 U.S. 224 (1988).
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[[Page 66349]]
Several commenters specifically addressed the Commission's proposal
to require the aggregation of all mining properties, regardless of size
or type of commodity produced, when assessing the materiality of a
registrant's mining operations.\54\ A number of commenters generally
supported this proposal, with one noting that aggregation of the mining
properties represents the actual composition of the registrant's
value,\55\ and two others concurring so long as the aggregation
correlated to the segment disclosure mandated under the accounting
framework.\56\ Two commenters supported the aggregation of assets based
on shared infrastructure and product integration, but only if the
assets are in the same geographic region,\57\ with one also asserting
that very different commodities, such as coal and metalliferous metals,
should not be aggregated.\58\ Another commenter, however, opposed the
aggregation of assets because ``it does not allow investors to
determine the significance of a property, or understand that asset.''
\59\
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\54\ See letters from Alliance, Amec, AngloGold, CBRR,
Eggleston, Midas, Rio Tinto, and SRK 1.
\55\ See letter from SRK 1; see also letter from CBRR.
\56\ See letters from Alliance and AngloGold. Another commenter
stated that no commodity should be excluded, but suggested that only
commodities from material properties should be included in technical
reports although ``[n]on-material mines could be aggregated for
annual disclosures.'' Letter from Eggleston.
\57\ See letter from Rio Tinto; see also letter from Amec
(opposing the aggregation of assets in different countries, and
recommending that the Commission follow the guidance in the Canadian
Companion Policy 43-101CP, which states that a property includes
multiple claims that are contiguous or in such close proximity that
any underlying mineral deposits would likely be developed using
common infrastructure).
\58\ See letter from Amec.
\59\ Letter from Midas.
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Several commenters addressed the Commission's proposal, as part of
the materiality determination, to require a registrant to include for
each property all related activities from exploration through
extraction to the first point of material external sale, including
processing, transportation and warehousing.\60\ One commenter supported
this proposal because it is required by Canada's NI43-101, is the
benchmark for mineral project reporting, and provides investors with
the information they need to understand the project.\61\ Another
commenter generally supported using the first point of material
external sale as the appropriate cut-off because this is generally
where a mining company loses control of the product.\62\
---------------------------------------------------------------------------
\60\ See, e.g., letters from Amec, CBRR, Earthworks, Eggleston,
Midas and SRK.
\61\ Letter from Midas.
\62\ Letter from SRK 1. This commenter recommended that, ``for
companies that have significant downstream processing, there should
be a requirement to calculate the materiality based on the point in
the supply chain where that raw material would be purchased if the
company did not own the mining assets.'' Id. Another commenter
stated that exploration through the first point of external sale is
appropriate, but noted that not all properties will include all
activities. See letter from Eggleston. See also letter from CBRR
(stating that ``comprehensive, end-to-end reporting can assist the
investors with the relevant information in order to understand
mineral projects for exploration and development stage issuers''
but, for production stage registrants, ``the materiality criteria
should be applied and exploration results are not necessarily
relevant'').
---------------------------------------------------------------------------
Another commenter, however, did not support the first point of
material external sale as the appropriate cut-off because it believed
that a registrant's materiality determination should account for costs
associated with mine reclamation on the grounds that reclamation
constitutes one of the greatest environmental and social liabilities
mining registrants should disclose to investors.\63\
---------------------------------------------------------------------------
\63\ See letter from Earthworks. Two other commenters stressed
the importance of considering environmental and sustainability
factors in the materiality determination. See letters from CSP\2\
and Montana Trout.
---------------------------------------------------------------------------
iii. Final Rules
We are adopting the proposed provision that a registrant must
provide the disclosure specified in subpart 1300 of Regulation S-K if
its mining operations are material to its business or financial
condition.\64\ We are also adopting the provision, as proposed, that
for purposes of subpart 1300, the term material has the same meaning as
under Securities Act Rule 405 or Exchange Act Rule 12b-2.\65\
Commenters generally supported basing the Commission's mining property
disclosure threshold on whether a registrant's mining operations are
material to its business or financial condition.\66\ Establishing
materiality as the threshold for disclosure is consistent with the
CRIRSCO standards, which lists materiality as one of the three
governing principles underlying those standards.\67\ Moreover, by
providing that materiality is to be determined pursuant to Securities
Act Rule 405 and Exchange Act Rule 12b-2, we are clarifying that,
although, as described below, a registrant must consider certain
factors when determining the materiality of its mining operations, the
ultimate governing considerations in this regard are the general
principles reflected in those rules.\68\
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\64\ 17 CFR 229.1301(b) [Item 1301(b) of Regulation S-K].
\65\ Id; see also supra note 41 and accompanying text. Pursuant
to Securities Act Rule 405 and Exchange Act Rule 12b-2, a matter is
material if there is a substantial likelihood that a reasonable
investor would attach importance to it in determining whether to buy
or sell the securities registered. This definition is consistent
with the U.S. Supreme Court's holding in TSC Industries v. Northway,
Inc., 426 U.S. 438, 449 (1976), that a fact is material if there is
a substantial likelihood that the fact would have been viewed by a
reasonable investor as having significantly altered the ``total
mix'' of information made available.
\66\ See, e.g., letters from AngloGold, CBRR, SRK 1, and Rio
Tinto.
\67\ See CRIRSCO's International Reporting Template, supra note
20, at cl. 3.
\68\ See supra note 65.
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In a change from the proposed rules, and as suggested by one
commenter,\69\ we are not including an instruction to the materiality
provision stating that a registrant's mining operations are presumed to
be material if they consist of 10% or more of its total assets. Even as
a presumption, we are concerned that such an instruction could become a
de facto threshold. We also believe that an assessment that takes into
consideration all relevant facts and circumstances will lead to better
materiality determinations. For similar reasons, we are not adopting a
quantitative measure of materiality based on the reportable segment
disclosure thresholds in U.S. GAAP. Rather than referring to a specific
U.S. GAAP provision, we believe it is appropriate to rely on a more
principles-based approach to the materiality provision.
---------------------------------------------------------------------------
\69\ See letter from Chamber.
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Consistent with comments received,\70\ we are adopting the proposed
provision that, when determining whether its mining operations are
material, a registrant must:
---------------------------------------------------------------------------
\70\ See supra note 44 and accompanying text.
Consider both quantitative and qualitative factors,
assessed in the context of the registrant's overall business and
financial condition;
Aggregate mining operations on all of its mining
properties, regardless of the stage of the mining property, and size
or type of commodity produced, including coal, metalliferous
minerals, industrial materials, and mineral brines; \71\ and
---------------------------------------------------------------------------
\71\ As explained in Section II.E.1., below, we are removing
geothermal energy from the scope of these rules, and have therefore
eliminated geothermal energy from the list of commodities required
to be aggregated.
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Include, for each property, as applicable, all related
activities from exploration through extraction to the first point of
material external sale, including processing, transportation, and
warehousing.\72\
---------------------------------------------------------------------------
\72\ See 17 CFR 229.1301(c) [Item 1301(c) of Regulation S-K].
[[Page 66350]]
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Although some commenters sought to exclude certain commodities or
properties in the aggregation process,\73\ we continue to believe, and
agree with those commenters who asserted, that the aggregation of all
mining properties, regardless of the mined commodity, is necessary to
gauge accurately the materiality of a registrant's mining
operations.\74\ For example, the exclusion from the aggregation process
of properties that a registrant believes are not individually material
\75\ would overlook and improperly remove from the scope of the mining
property disclosure rules a registrant that owns two or more
properties, neither of which is individually material, but which, when
considered in the aggregate and in the context of the registrant's
overall business, constitute material mining operations. Therefore, the
final rules require such a registrant to provide summary disclosure of
its overall mining operations,\76\ although it will not be subject to
the more extensive disclosure requirements for individual material
properties.
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\73\ See, e.g., letters from Amec and Eggleston.
\74\ See, e.g., letters from CBRR and SRK 1.
\75\ See letter from Eggleston.
\76\ See infra Section II.G.1; see also 17 CFR 229.1301(d) [Item
1301(d) of Regulation S-K].
---------------------------------------------------------------------------
Most commenters who addressed the issue supported requiring, as
part of the materiality determination, the inclusion for each property
of all related activities from exploration through extraction to the
first point of material external sale, including processing,
transportation, and warehousing.\77\ Such inclusion is consistent with
the ``end-to-end reporting'' required under the CRIRSCO-based
codes.\78\ In this regard, we are not adopting the suggestion of one
commenter to specify reclamation of the mine as the end point to be
considered in the materiality provision. Mine reclamation and closure
plans are important considerations that must be addressed by the
qualified person, under the CRIRSCO-based codes. However, those plans
are usually prepared as part of the assessment of technical and
economic factors relevant to the reasonable prospects of economic
extraction when determining mineral resources, or when applying all
applicable modifying factors to resources for the purpose of assessing
the economic viability of a project when determining mineral reserves.
Also, mine reclamation costs are included in capital and operating
costs during feasibility studies to estimate mineral reserves. The
final rules follow this approach \79\ and therefore do not specifically
include reclamation as the end point in the materiality determination.
However, we believe that mining properties that are at the reclamation
stage are still considered mining properties and should be included in
evaluations of the materiality of mining operations.
---------------------------------------------------------------------------
\77\ See supra notes 61-62 and accompanying text.
\78\ See, e.g., letter from Midas.
\79\ See 17 CFR 229.601(b)(96)(iii)(B)(17) [Item
601(b)(96)(iii)(B)(17) of Regulation S-K], which requires the
qualified person to describe the factors pertaining to environmental
compliance, permitting, and local individuals or groups, which are
related to the project, including ``[m]ine closure plans, including
remediation and reclamation plans, and the associated costs.'' 17
CFR 229.601(b)(96)(iii)(B)(17)(v).
---------------------------------------------------------------------------
Similar to a proposed instruction to the materiality provision, we
are adopting a provision stating that the term ``mining operations''
includes operations on all mining properties that a registrant:
Owns or in which it has, or it is probable that it will
have, a direct or indirect economic interest;
Operates, or it is probable that it will operate, under
a lease or other legal agreement that grants the registrant
ownership or similar rights that authorize it, as principal, to sell
or otherwise dispose of the mineral; or
Has, or it is probable that it will have, an associated
royalty or similar right.\80\
---------------------------------------------------------------------------
\80\ 17 CFR 229.1301(a) [Item 1301(a) of Regulation S-K].
Commenters did not object to including within the definition
operations on mining properties that a registrant owns or operates
pursuant to a lease or other similar agreement. Moreover, although
several commenters objected to the scope of the proposed disclosure
required of royalty or other similar right holders, only a few
commenters recommended their complete exclusion from the proposed
rules.\81\
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\81\ See infra Section II.B.4.
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2. Treatment of Vertically-Integrated Companies
i. Rule Proposal
As noted in the Proposing Release, some companies have material
mining operations that are secondary to or in support of their main
non-mining business.\82\ For example, a metal manufacturer may operate
iron ore or coal mines to supply raw material for its primary business.
Yet neither Guide 7 nor Item 102 addresses whether or when a
vertically-integrated manufacturer \83\ is required to provide mining
disclosure.
---------------------------------------------------------------------------
\82\ See Proposing Release, supra note 5, at Section II.B.1.i.
\83\ A vertically-integrated manufacturer is a company that owns
part of its supply chain. In this context, it refers to a registrant
that has mining operations to supply raw material to its
manufacturing business.
---------------------------------------------------------------------------
In order to clarify the treatment of vertically-integrated
manufacturers, the Commission explained that proposed new subpart 1300
of Regulation S-K would apply to all registrants with mining
operations, including vertically-integrated manufacturers.
Specifically, a mining operation owned by a registrant to support its
primary business could be material and require disclosure. The fact
that the registrant's primary business operation is something other
than minerals extraction would not be determinative of whether
disclosure would be required under the proposed subpart.\84\
---------------------------------------------------------------------------
\84\ See Proposing Release, supra note 5, at Section II.B.1.i.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Most commenters that addressed the issue supported the Commission's
proposal to require vertically-integrated companies, such as
manufacturers, to provide the disclosure under proposed subpart 1300 of
Regulation S-K.\85\ One commenter agreed that the proposed rules should
apply to a vertically-integrated company if its mine is material, but
disagreed that the mine's providing a competitive advantage should be a
criterion for disclosure.\86\
---------------------------------------------------------------------------
\85\ See letters from Amec, AngloGold, CBRR, Midas, Rio Tinto,
and SRK 1. AngloGold stated that ``[i]f the mining component of a
vertically-integrated company is material to its operations, such as
a secure source of supply, perceived cost advantage etc., then the
same disclosures as mining companies should be required in order to
provide a complete set of information to enable an investor to
determine an investment decision.''
\86\ See letter from Eggleston.
---------------------------------------------------------------------------
iii. Final Rules
As proposed, and consistent with comments received,\87\ new subpart
1300 of Regulation S-K will apply to all registrants with material
mining operations, including vertically-integrated manufacturers. Like
a company whose primary business is mining, such a vertically-
integrated company will be required to assess relevant quantitative and
qualitative factors to determine if its mining operations are material.
For example, the bauxite mining operations of an aluminum manufacturer,
whose primary business is manufacturing, not mining, could require
disclosure if its bauxite mining operations are material, even though
they are not the registrant's primary operations, or the primary source
of the registrant's revenues. Factors to be considered in such a
materiality determination could include if the manufacturer derives a
[[Page 66351]]
competitive advantage from, or substantially relies upon, its ability
to source that particular mineral from its mining operations.
---------------------------------------------------------------------------
\87\ See supra note 85 and accompanying text.
---------------------------------------------------------------------------
Requiring disclosure of mining operations by vertically-integrated
manufacturers is consistent with the disclosure currently provided in
Commission filings and should not significantly alter existing
disclosure practices. In addition, this treatment of vertically-
integrated companies is consistent with the CRIRSCO-based codes, which
require disclosure for material mining properties and do not provide
exemptions for vertically-integrated companies.
3. Treatment of Multiple Property Ownership
i. Rule Proposal
As noted in the Proposing Release, it is common for registrants to
own multiple mining properties.\88\ In some instances, a registrant
will have multiple properties that all involve exploration,
development, or extraction of the same mineral. In other situations,
the registrant's operations will primarily involve exploration,
development, or extraction of one mineral from several properties, but
the registrant also will own one or more ancillary properties where it
explores, develops, or extracts small amounts (relative to the
predominant mineral) of a different mineral.
---------------------------------------------------------------------------
\88\ See Proposing Release, supra note 5, at Section II.B.1.ii.
---------------------------------------------------------------------------
The primary focus of the current rules and guidance is on
individually significant or material properties. Neither Item 102 nor
Guide 7 provides guidance concerning when or what disclosure is
required when a registrant owns multiple or ancillary mining
properties. To clarify the disclosure that is required in these
circumstances, we proposed that a registrant with multiple properties
would be required to consider all of its mining properties in the
aggregate, as noted above,\89\ as well as individually, regardless of
size or commodity produced, when assessing whether it must provide the
mining disclosure required by new subpart 1300 of Regulation S-K.\90\
We also proposed that a registrant with multiple properties, none of
which is individually material, but which in the aggregate constitute
material mining operations, would have to provide summary disclosure
concerning its combined mining activities rather than provide
disclosure for individual properties.\91\ We further proposed that, to
the extent that an individual property is material to its operations, a
registrant would be required to provide detailed disclosure about that
property. As proposed, such individual property disclosure would be in
addition to the required summary disclosure if the registrant owns two
or more individual properties.\92\ Finally, we explained that, under
the proposed rules, a registrant could be required to provide
disclosure for a particular property, depending on the facts and
circumstances, even if ancillary to the registrant's predominant
commodity.\93\
---------------------------------------------------------------------------
\89\ See id. at Section II.B.1.i.
\90\ See id. at Section II.B.1.ii.
\91\ See id. at Section II.G.1.
\92\ See id. at Section II.G.2.
\93\ See id. at Section II.B.1.ii.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
As discussed above, commenters generally supported requiring a
registrant to consider all of its mining properties in the aggregate as
well as individually, regardless of size or commodity produced, when
assessing whether its mining properties are material, although some of
the commenters stated that there should be limits on such
aggregation.\94\ Commenters similarly generally supported the proposal
to require summary disclosure of their properties in the aggregate,\95\
although some commenters conditioned their support consistent with
their conditional support of the proposed disclosure threshold based on
materiality.\96\ The commenters that opposed the proposed summary
disclosure requirements did so largely because they viewed those
requirements as being ``out of line with current industry standards.''
\97\
---------------------------------------------------------------------------
\94\ See supra notes 56-58 and accompanying text.
\95\ See, e.g., letter from CBRR; see also letter from Vale
(stating that because under the CRIRSCO standards, a public report
should contain ``all the relevant information which investors and
their professional advisers would reasonably require, and reasonably
expect to find in a public report . . . it is appropriate to require
any registrant with economic interests in multiple mining
properties, none of which may be individually material, to provide
summary disclosure of its mining operations,'' but also stating that
qualified persons should be allowed ``to use their judgment to
determine the best presentation of summary disclosure, including
whether to aggregate interrelated mining operations or to group
mines and plants by geographic region or commodity'').
\96\ See, e.g., letters from Alliance and AngloGold
(conditioning support of the proposed approach regarding multiple
properties as long as that approach aligns with a materiality
determination based on financial segment disclosure); see also
letter from Rio Tinto (similarly conditioning support as long as
aggregation of properties do not cross national or regional
boundaries).
\97\ See, e.g., letter from SRK 1; see also letter from Midas
(stating that ``[o]nly material properties should require
disclosure, and then in a comprehensive technical report as in NI
43-101'').
---------------------------------------------------------------------------
iii. Final Rules
We are adopting the proposed treatment of multiple property
ownership.\98\ In the event that none of a registrant's mining
properties is individually material, it will need to provide only
summary disclosure. If the registrant has individually material mining
properties, it must provide more detailed disclosure concerning those
properties in addition to summary disclosure.\99\ If a registrant has
only one mining property, following a determination that its mining
operations are material, the registrant will be required to provide
only the individual property disclosure.\100\
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\98\ 17 CFR 229.1301(d), which references 17 CFR 229.1303 [Item
1303 of Regulation S-K]. The latter provision sets forth the
specific requirements for summary disclosure.
\99\ 17 CFR 229.1301(d), which references 17 CFR 229.1304 [Item
1304 of Regulation S-K]. The latter provision provides the specific
disclosure requirements for individually material properties.
\100\ 17 CFR 229.1303(a)(2) [Item 1303(a)(2) of Regulation S-K].
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We also are adopting the proposed treatment of ancillary
properties, which, depending on the facts and circumstances, could give
rise to disclosure obligations. For example, a property on which a
registrant explores, develops or extracts a relatively small amount of
a particular mineral, compared to its predominant mineral, could be
material based upon the amount of actual and projected expenditures on
the property as compared to its expenditures on other properties.\101\
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\101\ Commenters did not oppose the proposed treatment of
ancillary properties.
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In response to the concern expressed by some commenters that the
proposed summary disclosure requirements were too prescriptive,\102\
and as discussed in greater detail below,\103\ we have significantly
revised the proposed summary disclosure requirements to make them less
prescriptive. For example, instead of the proposed requirement to
provide specific items of information concerning a registrant's top 20
properties (by asset value) in tabular format, the final rules take a
more principles-based approach and require the registrant to provide an
overview of its mining properties and operations in either narrative or
tabular format.\104\ When presenting the overview, the registrant
should include the amount and type of disclosure concerning its mining
properties that is material to an investor's understanding
[[Page 66352]]
of the registrant's properties and mining operations in the
aggregate.\105\
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\102\ See, e.g., letter from Vale; see also letter from Amec.
\103\ See infra Section II.G.1.
\104\ 17 CFR 229.1303(b)(2) [Item 1303(b)(2) of Regulation S-K].
\105\ 17 CFR 1303(b)(2)(iii) [Item 1303(b)(2)(iii) of
Regulation S-K].
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As discussed in greater detail below,\106\ we also have made the
disclosure requirements for individually material properties less
prescriptive and aligned them more closely with the CRIRSCO standards.
For example, among several other revisions, we have:
---------------------------------------------------------------------------
\106\ See infra Section II.G.2.
reduced the number of required tables from five to two;
\107\
replaced the proposed requirement to present mineral
resource and reserve disclosure at three separate points of
reference with the requirement to present the disclosure at one
specific point of reference selected by the qualified person; \108\
and
replaced the requirement to present mineral reserve
disclosure as net of diluting materials and allowances for losses
that may occur when the mineral resource is mined or extracted with
the requirement to disclose reserves as including such diluting
materials and allowances for losses.\109\
\107\ 17 CFR 229.1304(d)(1) [Item 1304(d)(1) of Regulation S-
K], which requires a summary of all mineral resources or reserves as
of the end of the most recently completed fiscal year presented in
two separate tables (one for resources, the other for reserves).
\108\ See id.
\109\ See the definition of mineral reserve in 17 CFR 229.1300
[Item 1300 of Regulation S-K].
In light of these revisions, we believe the final rules concerning
summary and individual property disclosure will provide clear and
consistent standards for registrants to apply in determining the scope
of their disclosure obligations without unduly burdening registrants.
We also believe that the final rules will help ensure that investors
receive all material information about registrants' mining operations
and associated risks.
4. Treatment of Royalty Companies and Other Companies Holding Economic
Interests in Mining Properties
i. Rule Proposal
As noted in the Proposing Release,\110\ some registrants are
royalty companies, which are companies that do not own or operate a
property, but rather own the right to receive payments, called a
royalty right, from the owner or operator of a property.\111\ In
addition, some registrants hold other economic interests, similar to
royalty rights, also without owning or operating a property.\112\
Because neither Item 102 nor Guide 7 addresses whether royalty or
similar companies must provide disclosure about the mining operations
and properties underlying their economic interest, the staff has
provided comments in the filing review process to help guide
registrants in determining whether and how such companies should
provide mining disclosure.
---------------------------------------------------------------------------
\110\ See Proposing Release, supra note 5, at Section
II.B.1.iii.
\111\ A royalty, in this context, is typically a payment to the
royalty right holder from the property owner or operator in return
for: (i) Providing upfront capital; (ii) paying part of amount due
landowners or mineral right holders; or (iii) converting a
participating interest in a joint venture into a royalty right. Such
payment is most often based on a percentage of the minerals,
revenues, or profits generated from the property.
\112\ Examples include the right to purchase all or a portion of
minerals from a mine under a metal purchase agreement (a ``stream''
agreement) or a working interest in the underlying property.
---------------------------------------------------------------------------
Consistent with prior staff comments, we proposed to require a
royalty company or other registrant holding a similar economic interest
to provide all applicable mining disclosure if the underlying mining
operations that generate the royalty or other payment are material to
the royalty or similar company's operations as a whole. As proposed,
and similar to a producing mining company (that owns or operates
properties), a royalty or similar company would have to assess both
quantitative and qualitative factors to determine whether the
underlying mining operations are material.\113\ Upon an affirmative
materiality determination, the proposed rules would require a royalty
or similar company to provide disclosure only for those underlying
properties, or portions of underlying properties, that generate the
registrant's royalties or similar payments, and only for the reserves
and production that generated its payments in the reporting
period.\114\
---------------------------------------------------------------------------
\113\ See Proposing Release, supra note 5, at Section
II.B.1.iii.
\114\ See id.
---------------------------------------------------------------------------
The proposed rules would require a royalty or similar company to
describe the material properties that generate its royalties or similar
payments and file a technical report summary for each such property. As
proposed, such a registrant would not be required to submit a separate
technical report summary about a property covered by a current
technical report summary filed by the producing mining registrant. In
that situation, the royalty or similar company could incorporate by
reference \115\ the producing registrant's previously filed technical
report summary.\116\
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\115\ See 17 CFR 230.411, 17 CFR 240.12b-32, which permit any
document filed with the Commission under any act administered by the
Commission to be incorporated by reference as an exhibit to a
statement or report filed with the Commission by the same or any
other person, and require that the registrant clearly identify in
the reference the document from which the material is taken.
\116\ See Proposing Release, supra note 5, at Section
II.B.1.iii.
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We based this approach to royalty and other similar companies on
our belief that investors in royalty and other similar companies need
information about the material mining properties that generate the
payments to the registrant, including mineral reserves and production,
to be able to assess the amounts, soundness, and sustainability of
future payments. We also recognized, however, that because a royalty or
other similar company may not have access to information about portions
of the mining property that do not contribute to the registrant's
revenue stream, it should not be required to disclose information
concerning the non-contributing portions.\117\
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\117\ See id.
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ii. Comments on the Rule Proposal
Many commenters generally supported the Commission's proposal to
require a royalty company, or a company holding a similar economic
interest in another company's mining operations, to provide all
applicable mining disclosure if the underlying mining operations are
material to its operations as a whole.\118\ For example, one commenter
stated that, in principle, a royalty company should be required to
provide disclosures similar to those provided by the underlying mining
company, but noted that such a requirement could give rise to
difficulties when the royalty company is a registrant with the
Commission but the underlying mining company is not, and when the
property that is the subject of the royalty arrangement is not material
to the underlying mining company, but the royalty stream is material to
the royalty company.\119\ In those circumstances, the required
disclosure may not be readily available to the royalty company.\120\
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\118\ See letters from Amec, AngloGold, CBRR, Davis Polk, Dorsey
& Whitney, Eggleston, Midas, MMSA, Newmont, Rio Tinto, and SAMCODES
2.
\119\ See letter from AngloGold.
\120\ See id.
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Another commenter noted that the Commission's proposed disclosure
for royalty companies is consistent with current guidance as it would
only be required with respect to portions of the underlying mining
properties that contribute to the royalty company's revenue
stream.\121\ Like the previous commenter, this commenter stated that
the ability of royalty companies to comply with the proposed disclosure
obligations, even as circumscribed, may be limited by their inability
to access the requisite information and supporting documentation by the
underlying mining company's qualified
[[Page 66353]]
person. Moreover, even if the royalty company has access to appropriate
supporting documentation, this commenter stated that the operating
mining company's qualified person may be unwilling to consent to its
use by the royalty company for liability reasons. Accordingly, this
commenter recommended that the Commission clarify that the disclosure
obligations of a royalty company are limited to information that is
known or reasonably available to it.\122\
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\121\ See letter from Davis Polk.
\122\ Id. Two other commenters made a similar recommendation.
See letters from Dorsey & Whitney and Newmont. Another commenter
urged the Commission to adopt special rules for royalty companies
that would recognize their potential inability to provide detailed
disclosure regarding the underlying property. This commenter stated
that, at a minimum, a royalty company should be able to rely on
information provided by the operator while disclaiming liability for
that information. See letter from MMSA.
---------------------------------------------------------------------------
Regarding the proposed provision requiring a royalty company to
file a technical report summary if the owner or operator of the
underlying mining operations has not done so, one commenter supported
applying the proposed rules to royalty companies, but recommended that
the Commission provide a limited exemption similar to the exemption
under Canada's NI 43-101.\123\ Two other commenters stated that a
royalty company should be required to file summaries of current
technical reports by an operating company but only for material
properties.\124\ Those commenters also indicated that a royalty company
may not have access to all of the information required to complete a
technical report at the level of detail required by the owner of the
underlying mine. Therefore, one of the commenters recommended that the
Commission allow such a royalty company to prepare an abbreviated
report \125\ while the other commenter recommended that the royalty
company be permitted to reference the operating company's technical
reports.\126\
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\123\ See letter from Amec. Canada's NI 43-101 exempts a royalty
company from having to file a technical report if: The owner or
operator of the underlying mine is a reporting issuer in a Canadian
jurisdiction or is a producing issuer whose securities trade on a
specified exchange and that discloses mineral resources and reserves
under an acceptable foreign code; the owner or operator has
disclosed the scientific and technical information that is material
to the royalty company; and the royalty company identifies in its
disclosure document the source of the scientific and technical
information. See Canada's National Instrument (``NI'') 43-101
(``Standards of Disclosure for Mineral Projects''), NI 43-101 (2011)
34 OSCB 7043 pt. 9.2 (Can.), http://web.cim.org/standards/documents/Block484_Doc111.pdf. Canada's NI 43-101 also exempts a royalty
company from having to file a technical report or from complying
with disclosure items requiring data verification, inspection of
documents, or personal inspection of the property if the royalty
company has requested but has not received access to the necessary
data from the owner or operator and is not able to obtain the
necessary information from the public domain. See id. at pt. 9.2(2).
But see letter from SME 2 (stating that neither the Canadian
approach nor the Commission's incorporation by reference proposal is
workable because of ``the U.S securities law liability regime and
the litigation environment in the U.S.'').
\124\ See letters from Eggleston and Rio Tinto.
\125\ See letter from Eggleston.
\126\ See letter from Rio Tinto.
---------------------------------------------------------------------------
Numerous other commenters opposed the Commission's proposal to
require a royalty company to provide all applicable mining disclosure
if the underlying mining operations are material to the royalty
company.\127\ Most of these commenters stated that because royalty
holders generally have no executive or operational interest or other
participation in the mineral properties to which the royalties relate,
they typically have no access to the underlying mining operations or to
the extensive technical data and other information available to the
operator.\128\
According to one of those commenters, because, typically, the
information a royalty holder is entitled to receive is limited to mill
production, marketing, and sales data that is used to confirm the
calculation of royalty payments, a royalty company generally lacks
sufficient information to prepare a current technical report
summary.\129\ That commenter further objected to the proposed provision
that would allow a royalty company to incorporate by reference a
technical report summary previously filed by the owner or operator of
the underlying property because it would impose potential Securities
Act or Exchange Act liability on the royalty company for a third
party's technical or other information regarding which the royalty
company lacked responsibility or the ability to review or verify.
According to the commenter, in order for a royalty company to verify a
technical report summary or provide a technical report summary of its
own, the royalty company would need to acquire extensive information
and access rights from the owner or operator of a mineral property,
which the commenter believed the owner or operator would not be willing
to provide due to the proprietary nature of much of the information.
Moreover, even if the owner or operator were willing to provide the
information, the royalty company would be required to re-negotiate its
royalty agreement, which would disadvantage a U.S. royalty company
compared to its foreign competitors.
---------------------------------------------------------------------------
\127\ See letters from AIPG, Alliance, Crowell & Moring,
Laskowski, NRP, Royal Gold, SME 2, SRK 2, and Vinson & Elkins.
\128\ See, e.g., letters from Crowell & Moring, NRP, Royal Gold,
SME 2, and Vinson & Elkins.
\129\ See letter from SME 2; see also letter from NRP (``along
with royalty payments, the company receives only monthly production
reports and ``certain other limited economic and mining information
that enables NRP to evaluate its royalty business and make periodic
reports to its common unitholders'').
---------------------------------------------------------------------------
iii. Final Rules
We continue to believe that investors in royalty, streaming, and
other registrants holding a similar economic interest in mining
operations need information about the material mining properties that
generate the payments to the registrant, including mineral reserves and
production, to be able to assess the amounts, soundness, and
sustainability of future payments. For the royalty or similar company
and its investors, the mining property underlying the royalty or
similar payments is the primary or only source of revenues and cash
flow. As such, we believe that royalty companies and other companies
holding similar economic interests should provide similar disclosure as
provided by registrants conducting the underlying mining operations.
Accordingly, the final rules will require a royalty or other
similar company to provide applicable mining disclosure if the mining
operations that generate the royalty or other payment are material to
the royalty or similar company's operations as a whole, subject to that
information being known or reasonably available to the registrant.\130\
Thus, a royalty or similar company will have to assess both
quantitative and qualitative factors to determine whether the
underlying mining operations are material.\131\ Also as proposed, upon
an affirmative materiality determination, the final rules will require
a royalty or similar company to provide summary disclosure \132\ and
the disclosure required for individually material properties,\133\ but
only for those underlying properties, or portions of underlying
properties, that generate the registrant's royalties or similar
[[Page 66354]]
payments, and only for the reserves and production that generated its
payments in the reporting period.\134\
---------------------------------------------------------------------------
\130\ 17 CFR 229.1301(a)(3) [Item 1301(a)(3) of Regulation S-K].
\131\ 17 CFR 1301(c)(1) [Item 1301(c)(1) of Regulation S-K]. As
we noted in the Proposing Release, because a registrant with royalty
or other similar economic interests does not own or operate the
producing property, revenues are often a more relevant benchmark
than assets for determining materiality. See Proposing Release,
supra note 5, at Section II.B.1.iii.
\132\ 17 CFR 229.1303(a)(1)(iii) [Item 1303(a)(1)(iii) of
Regulation S-K].
\133\ 17 CFR 229.1304(a)(1)(iii) [Item 1304(a)(1)(iii) of
Regulation S-K].
\134\ 17 CFR 229.1303(b)(2)(iv) [Item 1303(b)(2)(iv) of
Regulation S-K] and 17 CFR 229.1304(d)(3) [Item 1304(d)(3) of
Regulation S-K].
---------------------------------------------------------------------------
In addition, as proposed, the final rules will also require the
royalty or similar company to file a technical report summary for each
material underlying property as an exhibit to the Commission
filing.\135\ However, as proposed, the final rules will not require a
royalty or similar company to submit a separate technical report
summary about a property that is covered by a current technical report
summary filed by the producing mining registrant. In that event, the
royalty or similar company should refer to the producing registrant's
previously filed technical report summary in its filing with the
Commission.\136\ The purpose of this provision is to inform an investor
or other interested party as to where to find detailed information
about the underlying property. In a change from the proposed rules,
such a reference will not be deemed to incorporate into the royalty
company's or other similar company's filing the technical report
summary previously filed by the mining registrant, absent an express
statement that the company intends to incorporate it by reference.\137\
We agree with commenters that it would not be appropriate to impose
potential liability under the Securities Act or Exchange Act on a
royalty company through the company's incorporation by reference of a
third party owner's technical report summary if the royalty company has
not been able to review and verify the information contained in the
summary because of its lack of access to such information under its
existing royalty agreement.\138\
---------------------------------------------------------------------------
\135\ 17 CFR 229.1302(b)(2) [Item 1302(b)(2) of Regulation S-K].
\136\ 17 CFR 229.1302(b)(3)(i) [Item 1302(b)(3)(i) of Regulation
S-K].
\137\ Id.
\138\ See, e.g., letter from SME 2.
---------------------------------------------------------------------------
As mentioned by many commenters,\139\ we are cognizant that a
royalty or similar company may lack, and may have difficulty obtaining,
access to the information and supporting documentation required to
comply with the Commission's disclosure requirements concerning the
underlying mining properties. We therefore emphasize that what is true
generally for our public company disclosure requirements applies to a
royalty company's disclosure obligations regarding the underlying
mining properties as well. Specifically, the required information
concerning the underlying mining properties need be given only insofar
as it is known or reasonably available to the registrant.\140\ In order
to underscore this basic tenet, in a change from the proposed rules,
the final rules provide that a registrant that has a royalty,
streaming, or other similar right, but which lacks access to any of the
information about the underlying properties specified in either the
summary disclosure provision (Item 1303 of Regulation S-K) or the
individual property provision (Item 1304 of Regulation S-K) may omit
such information, provided that the registrant:
\139\ See supra note 128 and accompanying text.
\140\ This is consistent with 17 CFR 230.409 [Securities Act
Rule 409] and 17 CFR 240.12b-21 [Exchange Act Rule 12b-21], the
general rules governing the situation when required information is
unknown or not reasonably available.
---------------------------------------------------------------------------
Specifies the information to which it lacks access;
Explains that it does not have access to the required
information because:
[cir] Obtaining the information would result in an unreasonable
effort or expense; or
[cir] It requested the information from a person possessing
knowledge of the information, who is not affiliated with the royalty
company or similar registrant, and who denied the request; and
Provides all required information that it does possess
or which it can acquire without unreasonable effort or expense.\141\
---------------------------------------------------------------------------
\141\ 17 CFR 229.1303(a)(3) [Item 1303(a)(3) of Regulation S-K]
and 17 CFR 229.1304(a)(2) [Item 1304(a)(2) of Regulation S-K].
The final rules further provide that a royalty company or similar
registrant is not required to file a technical report summary for an
underlying property if the registrant lacks access to the technical
report summary because of substantially similar reasons.\142\ For
example, if the underlying property holder is private, and denies
access to relevant information about the property, under the final
rules, the royalty company will not be obligated to prepare a technical
report summary. Overall, we believe that the adopted treatment of
royalty and other similar companies will provide investors with
information relevant to assessing investments in those companies
without unduly burdening registrants.
---------------------------------------------------------------------------
\142\ 17 CFR 229.1302(b)(3)(ii) [Item 1302(b)(3)(ii) of
Regulation S-K] (conditioning omission of the technical report
summary on a lack of access because obtaining the information would
result in an unreasonable burden or expense; or because the
registrant requested the technical report summary from the owner,
operator, or other person possessing the technical report summary,
who is not affiliated with the registrant, and who denied the
request).
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5. Definitions of Exploration, Development and Production Stage
i. Rule Proposal
As noted in the Proposing Release,\143\ Guide 7 defines the stages
used to describe mining operations as ``exploration stage,'' \144\
``development stage,'' \145\ and ``production stage,'' \146\ but
applies these definitions to the registrant as a whole and not on a
property-by-property basis. As such, Guide 7 does not provide guidance
as to when and how the definitions of exploration, development, and
production stage apply to registrants that own properties in different
stages. To address this ambiguity and to help ensure that investors
receive disclosure that accurately reflects a registrant's operational
status, we proposed to revise the Guide 7 definitions so that they
apply to individual properties, as follows:
---------------------------------------------------------------------------
\143\ See Proposing Release, supra note 5, at Section II.B.2.
\144\ As defined by Guide 7, exploration stage ``includes all
issuers engaged in the search for mineral deposits (reserves) which
are not in either the development or production stage.'' Guide 7,
supra note 7, ] (a)(4)(i).
\145\ As defined by Guide 7, development stage ``includes all
issuers engaged in the preparation of a determined commercially
minable deposit (reserves) for its extraction which are not in the
production stage.'' Guide 7, supra note 7, ] (a)(4)(ii).
\146\ As defined by Guide 7, production stage ``includes all
registrants engaged in the exploitation of a mineral deposit
(reserve).'' Guide 7, supra note 7, ] (a)(4)(iii).
An ``exploration stage property'' is a property that
has no mineral reserves disclosed;
A ``development stage property'' is a property that has
mineral reserves disclosed, but with no material extraction; and
A ``production stage property'' is a property with
material extraction of mineral reserves.\147\
---------------------------------------------------------------------------
\147\ See Proposing Release, supra note 5, at Section II.B.2.
We also proposed to revise the Guide 7 definitions as they apply to
issuers to recognize that issuers may have properties in differing
---------------------------------------------------------------------------
stages, as follows:
An ``exploration stage issuer'' is one that has no
material property with mineral reserves;
A ``development stage issuer'' is one that is engaged
in the preparation of mineral reserves for extraction on at least
one material property; and
A ``production stage issuer'' is one that is engaged in
material extraction of mineral reserves on at least one material
property.\148\
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\148\ See id.
We further proposed to specify that a registrant that does not have
reserves on any of its properties, even if it has mineral resources or
exploration results, or even if it is engaged in extraction
[[Page 66355]]
without first disclosing mineral reserves, cannot characterize itself
as a development or production stage company.\149\ Finally, we proposed
to require a company to identify an individual property with no mineral
reserves as an exploration stage property, even if it has other
properties in development or production.\150\
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\149\ As we noted in the Proposing Release, there are
registrants that start development or production without first
disclosing mineral reserves. Such practices increase the business'
risks due to the absence of the detailed technical and economic
analysis required to disclose reserves, thus increasing the degree
of uncertainty surrounding the quantities and quality of the mineral
to be extracted. See Proposing Release, supra note 5, at 29, n. 65.
\150\ See Proposing Release, supra note 5, at Section II.B.2.
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ii. Comments on the Rule Proposal
Commenters expressed varying degrees of support for the
Commission's proposed definitions of exploration, development and
production stage as applied, respectively, to properties and
issuers.\151\ One commenter stated that both sets of definitions would
be operable for the company and supported the proposed restriction on
the use of the terms ``development and production stage companies.''
\152\
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\151\ See, e.g., letters from Alliance, AngloGold, CBRR, Midas,
Rio Tinto, SME 1, and SRK 1.
\152\ See letter from AngloGold (supporting that a registrant
lacking mineral reserves on any of its properties, even if it has
mineral resources or exploration results, or even if it is engaged
in extraction without first disclosing mineral reserves, cannot
characterize itself as a development or production stage company).
---------------------------------------------------------------------------
Another commenter supported the proposed definitions of exploration
stage and development stage properties, but stated that the definition
of production stage property should be revised to include ``current''
or ``on-going'' as opposed to past production.\153\ This commenter
further recommended that the Commission define a development stage
issuer as one having at least one development stage property comprising
more than 10% of the issuer's assets, and a production stage issuer as
having at least one producing mine comprising more than 10% of the
issuer's assets.\154\
---------------------------------------------------------------------------
\153\ See letter from Midas.
\154\ See id.
---------------------------------------------------------------------------
While a third commenter generally found the two sets of definitions
to be adequate, it stated that at least one material property should be
enough to justify the production stage if it represents more than 50%
of the registrant's asset value.\155\ This commenter also believed that
if a registrant has disclosed mineral resources, it should be able to
characterize itself as a development stage company.\156\
---------------------------------------------------------------------------
\155\ Letter from CBRR.
\156\ See id.
---------------------------------------------------------------------------
One commenter supported the proposed definitions of exploration,
development, and production stage issuers because they are
substantially similar to the Guide 7 definitions.\157\ The commenter
suggested that the proposed definitions as applied to issuers should be
used for accounting purposes only (i.e., for the purposes of financial
statement characterization), but did not think the proposed definitions
would be useful as applied to properties.\158\ In contrast, a different
commenter supported having a set of definitions of exploration,
development, and production stage applied to properties, but opposed
having a corresponding set of definitions applied to issuers.\159\
---------------------------------------------------------------------------
\157\ See letter from SME 1.
\158\ Id.
\159\ See letter from SRK 1 (stating that ``[t]echnical
disclosure should be dictated by property stage and materiality''
and ``[a] company's production status should not impact disclosure
as there are many mining companies with immaterial small scale
production or reserves that would classify them as production stage
or development stage, but most of their value is in an exploration
stage project'').
---------------------------------------------------------------------------
Two other commenters opposed the proposed definitions.\160\ One
believed that both sets of definitions were too prescriptive for the
mining industry and stated that because many mining operations have
portions that are in the exploration, development, and production
stages, it will be extremely difficult to attach a single label to a
property.\161\ In addition, that commenter did not believe it would be
useful to define an issuer based on the characteristics of all of its
mining properties, and further noted that a registrant is not required
to characterize itself as being a particular type of issuer under the
Canadian rules.\162\ The other commenter asserted that the proposed
sets of definitions were unnecessary, would add complexity and
confusion, and be of limited value to issuers and investors.\163\ A
third commenter strongly opposed the definition of production stage
because it depends on whether the company has mineral reserves and not
on whether it is in production.\164\
---------------------------------------------------------------------------
\160\ See letters from Amec and Eggleston.
\161\ See letter from Amec.
\162\ See id.
\163\ See letter from Eggleston.
\164\ See letter from Energy Fuels. This commenter did not
address the proposed definitions of exploration stage and
development stage. The commenter described itself as the second
largest uranium producer in the United States, but said that it does
not currently own, and never has owned, any mineral reserves as
defined by Guide 7. Most of its production at its largest facility
has come from inferred mineral resources. The commenter stated that
not being able to refer to itself as a production stage company is
potentially misleading to investors.
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iii. Final Rules
We are adopting the definitions of ``exploration stage property,''
``development stage property,'' ``production stage property,''
``exploration stage issuer,'' ``development stage issuer,'' and
``production stage issuer,'' as proposed.\165\ Similar to a proposed
instruction, we are also adopting a provision stating that a registrant
must identify an individual property with no mineral reserves as an
exploration stage property, even if it has other properties in
development or production. The provision further states that a
registrant that does not have reserves on any of its properties, even
if it has mineral resources or exploration results, or even if it is
engaged in extraction without first disclosing mineral reserves, cannot
characterize itself as a development or production stage company.\166\
---------------------------------------------------------------------------
\165\ Definitions of specified terms used in subpart 1300 are
located in 17 CFR 229.1300.
\166\ 17 CFR 229.1304(c)(1) [Item 1304(c)(1) of Regulation S-K].
---------------------------------------------------------------------------
We believe that these adopted definitions and related provision
will resolve the ambiguities in the Guide 7 definitions. Under the
definitions, a registrant will be able to characterize its properties
separately, but will be limited in when and how it can characterize its
operational stage. Specifically, a registrant will not be able to
characterize itself as a development stage issuer unless it is engaged
in the preparation of mineral reserves for extraction on at least one
material property. We believe this will benefit investors by providing
them with clearer, more accurate and consistent disclosure about the
type of company and level of risk involved. In particular, prohibiting
a registrant without any mineral reserves from characterizing itself as
a production or development stage issuer will help eliminate the
possibility that such a registrant, by definition a company in a higher
risk operational stage, will incorrectly characterize itself as being
in a lower risk stage, thereby potentially misleading or confusing
investors.
We do not believe it would be appropriate to adopt definitions of
development stage issuer and production stage issuer that are based on
a specific quantitative measure (i.e., the development stage or
production stage property must comprise more than 10% of the issuer's
assets).\167\ We
[[Page 66356]]
believe the less prescriptive approach of the final rules, which bases
those definitions on the principle of materiality, is more consistent
with the adopted disclosure threshold of materiality, which requires
the consideration of both quantitative and qualitative factors, and is
therefore preferable to a bright-line test. For the same reasons, we do
not believe it would be appropriate to adopt a definition of a
production stage issuer specifying that one material property will
suffice provided that it represents more than 50% of the
registrant[acute]s asset value.\168\
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\167\ See letter from Midas.
\168\ See letter from CBRR.
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We also do not believe it would be appropriate to define a
production stage issuer as an issuer that is in production even if it
has no mineral reserves,\169\ or to define a development stage issuer
as a company that has disclosed mineral resources, but not
reserves.\170\ We are concerned that such an approach would diminish
the real difference in risk between a mining project for which only
resources have been disclosed, and a more advanced project involving
the affirmative determination of reserves, which could lead to investor
confusion. Moreover, as a commenter noted, when applied to properties,
such an approach would run counter to the definitions of ``development
stage'' and ``production stage'' that are widely accepted in the
industry.\171\
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\169\ See letter from Energy Fuels.
\170\ See letter from CBRR.
\171\ See letter from SRK 1.
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C. Qualified Person and Responsibility for Disclosure
1. The ``Qualified Person'' Requirement
i. Rule Proposal
We proposed that every disclosure of mineral resources, mineral
reserves, and material exploration results reported in a registrant's
filed registration statements and reports must be based on, and
accurately reflect information and supporting documentation prepared
by, a ``qualified person,'' \172\ as defined by the proposed
rules.\173\ We proposed the qualified person \174\ requirement to align
the Commission's mining property disclosure rules with the CRIRSCO
standards and to remedy a perceived gap in the current reporting
regime.
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\172\ See Proposing Release, supra note 5, at Section II.C.1.
The proposed provision specified that the qualified person
requirement would apply to the disclosure required by the proposed
summary disclosure provision (Item 1303) and the proposed individual
property disclosure provision (Item 1304).
\173\ See infra Section II.C.2. for a discussion of the proposed
definition of qualified person.
\174\ While we referred to the qualified person in the singular
throughout the Proposing Release, we noted that it is common for a
registrant to have more than one qualified person prepare a
technical report for a mining property or project. We also noted
that, as proposed, the registrant's responsibilities regarding the
qualified person would apply to each qualified person so engaged.
See Proposing Release, supra note 5, at 33, n. 74.
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All of the CRIRSCO-based codes require any public report \175\
about a company's exploration results, mineral resources, and mineral
reserves to be based on and fairly reflect information and supporting
documentation prepared by a ``competent'' or ``qualified person.''
\176\ The purpose of this requirement is to ensure that a registrant's
public declaration of exploration results, mineral resources, and
mineral reserves is supported by the findings of a mineral industry
professional having the relevant level of expertise.\177\ In contrast,
neither Guide 7 nor Item 102 requires a registrant's disclosure of
mineral reserves to be based on the findings of an appropriately
experienced professional.\178\ While an author of a study or technical
report that forms the basis of mineral reserves disclosure in a
Securities Act registration statement must consent to the use of its
name as an expert,\179\ there is no requirement to use an expert for
reserves disclosure and, if one is used, there are no substantive
requirements for that expertise.
---------------------------------------------------------------------------
\175\ As used in the CRIRSCO-based codes, ``public report''
includes all communication by a company to investors on exploration
results, mineral resources, and mineral reserves. For example,
Australia's JORC Code defines public s report as: ``. . . reports
prepared for the purpose of informing investors or potential
investors and their advisers on Exploration Results, Mineral
Resources or Ore Reserves. They include, but are not limited to,
annual and quarterly company reports, press releases, information
memoranda, technical papers, website postings and public
presentations.'' Joint Ore Reserves Committee, the JORC Code, pt. 6
(2012), http://www.jorc.org/docs/JORC_code_2012.pdf.
\176\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, cl. 8; Canada's NI 43-101, supra note 123, at pt. 2.1; JORC
Code, supra note 175, at pt. 9.
\177\ The competent or qualified person requirement supports the
``competence'' principle, one of the three governing principles that
underlie the CRIRSCO standards. See supra note 39. All of the
CRIRSCO-based codes define competence to mean that technical work
should be done by a professional with requisite expertise. See,
e.g., CRIRSCO International Reporting Template, supra note 20, at
cl. 3; JORC Code, supra note 175, at pt. 9; see also Society for
Mining, Metallurgy & Exploration, SME Guide for Reporting
Exploration Results, Mineral Resources and Mineral Reserves, pt. 3
(July 2017) (``SME Guide''), https://www.smenet.org/SME/media/Publications-Resources/SMEGuideReporting_082017.pdf.>
\178\ Guide 7 only calls for disclosure of the name of the
person estimating the reserves and the nature of his or her
relationship to the registrant. See Guide 7, supra note 7, at ]
(b)(5)(ii). In addition, if a registrant supplementally provides a
copy of a technical report to staff, Guide 7 specifies that the copy
include the name of its author and the date of its preparation, if
known to the registrant. See Guide 7, supra note 7, at ] (c)(2).
\179\ See 17 CFR 230.436 [Securities Act Rule 436]; see also 17
CFR 229.601(b)(23)(i) [Item 601(b)(23)(i) of Regulation S-K].
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In connection with the qualified person requirement, we proposed
that the registrant must:
Be responsible for determining that the person meets
the qualifications specified under the proposed subpart's definition
of ``qualified person'' and that the disclosure in the filing
accurately reflects the information provided by the qualified
person;
Obtain a dated and signed technical report summary from
the qualified person, which identifies and summarizes for each
material property the information reviewed and conclusions reached
by the qualified person about the registrant's exploration results,
mineral resources or mineral reserves;
File the technical report summary with respect to every
material mining property as an exhibit to the relevant registration
statement or other Commission filing when the registrant is
disclosing for the first time mineral reserves, mineral resources,
or material exploration results or when there is a material change
in the mineral reserves, mineral resources, or exploration results
from the last technical report filed for the property;
Prior to filing the technical report summary as part of
a registration statement or report, obtain the written consent of
the qualified person to the use of the qualified person's name or
any quotation from, or summarization of the technical report
summary;
Identify the qualified person who prepared the
technical report summary in the filed registration statement or
report; and
State whether the qualified person is an employee of
the registrant, and if the qualified person is not an employee of
the registrant:
[cir] Name the qualified person's employer;
[cir] Disclose whether the qualified person or the qualified
person's employer is an affiliate of the registrant or another
entity that has an ownership, royalty or other interest in the
property that is the subject of the technical report summary; and
[cir] If the qualified person or the qualified person's employer
is an affiliate, disclose the nature of the affiliation.\180\
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\180\ See Proposing Release, supra note 5, at Section II.C.1.
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In the Proposing Release, we explained that if the filing that
requires the technical report summary is a Securities Act registration
statement, the qualified person would be deemed an ``expert'' who must
provide his or her written consent as an exhibit to the filing pursuant
to Securities Act Rule 436.\181\ In such situations, the qualified
[[Page 66357]]
person would be subject to liability as an expert for any untrue
statement or omission of a material fact contained in the technical
report summary under Section 11 of the Securities Act.\182\
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\181\ See id. A registrant would also have to file the written
consent as an exhibit to an Exchange Act registration statement or
report when the Exchange Act filing is automatically incorporated
into a previously filed Securities Act registration statement.
\182\ 15 U.S.C. 77k(a)(4).
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ii. Comments on the Rule Proposal
Numerous commenters supported the Commission's proposal that every
disclosure of mineral resources, mineral reserves and material
exploration results reported in a registrant's filed registration
statements and reports must be based on, and accurately reflect
information and supporting documentation prepared by, a ``qualified
person.'' \183\ One commenter stated that investors would benefit from
the qualified person requirement because it would provide the
appropriate level of assurance and disclosure about both a registrant's
operations and developing opportunities.\184\ Other commenters
maintained that the qualified person requirement would mitigate the
risks associated with including disclosure about a registrant's mineral
resource and exploration results in Commission filings.\185\ Some
commenters explained that the qualified person requirement would result
in more accurate and reliable reports, foster proper risk level
identification, and ensure that all aspects of industry standards are
being assessed and implemented, which would assist investors in
understanding each stage of a project.\186\ Other commenters emphasized
that adoption of the qualified person requirement would be a
significant step in aligning the Commission's rules with the CRIRSCO
standards and global industry practice.\187\
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\183\ See letters from AIPG, Amec, AngloGold, BHP, CBRR,
Columbia Water, Earthworks, Eggleston, FCX, Gold Resource, Golder,
Midas, Mousset-Jones, Newmont, NSPE, Northern Dynasty, Rio Tinto,
SAMCODES 1, SME 1, SRK 1, Ur-Energy, Vale, and Willis.
\184\ See letter from Rio Tinto.
\185\ See, e.g., letters from AngloGold, BP, and Gold Resource.
\186\ See, e.g., letters from CBRR, Eggleston, Midas, SRK 1, and
Willis.
\187\ See, e.g., letters from AIPG and SME 1.
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Many commenters also supported the Commission's proposal to make
the registrant responsible for determining that the qualified person
meets the qualifications specified under the new subpart's definition
of ``qualified person.'' \188\ One commenter stated that the
registrant, through its board of directors, is ultimately responsible
for the information disclosed by it and attributed to the qualified
person.\189\ A second commenter indicated that, in the case of a
qualified person employed by a registrant, the registrant is in the
best position to evaluate the qualified person's credentials and
determine if he or she meets the requisite qualifications.\190\ Other
commenters stated that the responsibility for determining who is a
qualified person should be a joint decision by the registrant and the
named qualified person since the qualified person is responsible for
preparing the technical report and knows what type of information he or
she is qualified to provide an opinion on.\191\ One commenter opposed
imposing the responsibility for verifying the qualifications of the
qualified person on the registrant because such verification would be
based on personal information not readily available to the public.\192\
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\188\ See letters from AngloGold, CBRR, Eggleston, Gold
Resource, Golder, MMSA, Rio Tinto, SME 1, and Vale.
\189\ See letter from AngloGold.
\190\ See letter from Vale.
\191\ See letters from Amec, Eggleston, and Rio Tinto.
\192\ See letter from SRK 1.
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Many commenters supported the Commission's proposal to require a
registrant to obtain a technical report summary for each material
property from the qualified person, which identifies and summarizes the
information reviewed and conclusions reached by the qualified person
about the registrant's exploration results, mineral resources, or
mineral reserves, before the registrant can disclose those results,
resources, or reserves in Commission filings.\193\ Two commenters noted
that the technical report summary proposal is a requirement under all
CRIRSCO codes,\194\ with one maintaining that the requirement would not
be a significant burden for issuers because many mining companies,
including U.S. registrants that are cross-listed, are already required
in CRIRSCO-based jurisdictions to prepare technical reports either for
public filing or for internal use.\195\ Another commenter stated that
the technical report summary requirement ensures that facts, forward-
looking statements and cautionary language considered to be material by
the qualified persons involved are fully disclosed and in full
context.\196\ A fourth commenter indicated that technical reports have
proven to be a useful method of providing transparency to the mining
industry and have enhanced the confidence of investors.\197\
---------------------------------------------------------------------------
\193\ See letters from AngloGold, CBRR, CSP\2\, Coeur,
Eggleston, Gold Resource, Golder, Northern Dynasty, Rio Tinto, SME
1, Vale, and Willis.
\194\ See letters from Rio Tinto and SRK 1.
\195\ See letter from SRK 1.
\196\ See letter from Golder.
\197\ See letter from Eggleston.
---------------------------------------------------------------------------
Some commenters recommended that our disclosure framework follow
the format of Canada's NI 43-101F1 so that technical report summaries
under the Commission's rules would be interchangeable with those filed
under the Canadian reporting regime.\198\ For similar reasons, some
commenters stated that the technical report summary should follow the
CRIRSCO Table 1 format of the registrant's home listing
jurisdiction.\199\
---------------------------------------------------------------------------
\198\ See letters from Coeur, Gold Resource, SME 1, and Willis.
\199\ See, e.g., letters from AngloGold and Rio Tinto.
---------------------------------------------------------------------------
Several commenters expressly supported the filing of a summarized
technical report rather than an unabridged report.\200\ One commenter,
however, recommended requiring the filing of both the summarized
technical report and the full technical report \201\ while another
commenter stated that an unabridged technical report should be required
when a project advances to the development stage.\202\
---------------------------------------------------------------------------
\200\ See letters from CSP\2\, Eggleston, Gold Resource, Golder,
and SRK 1. On a related point, four commenters stated that the name
``technical report summary'' was confusing as it suggested that
there existed an unabridged technical report. See letters from
Coeur, Eggleston, Northern Dynasty, and SME 1.
\201\ See letter from Columbia Water.
\202\ Letter from CSP\2\.
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Many commenters supported the Commission's proposal to require the
filing of a technical report summary for a material property when the
registrant first discloses mineral resources, mineral reserves, or
material exploration results, or when there is a material change in the
previously disclosed resources, reserves and exploration results.\203\
Commenters stated that a requirement imposing more frequent filing
would be unduly burdensome and costly.\204\
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\203\ See letters from AngloGold, CBRR, CSP\2\, Eggleston,
Golder, Midas, Northern Dynasty, Rio Tinto, SRK 1, and Vale.
\204\ See, e.g., letters from AngloGold, Golder, Midas, and SRK
1.
---------------------------------------------------------------------------
Some commenters stated that the proposed requirement to file a
technical report summary for material properties would be a significant
burden for smaller companies.\205\ A few of these commenters suggested
that the Commission could alleviate this burden by: Conforming the
technical report summary to Table 1 of the CRIRSCO
[[Page 66358]]
International Reporting Template; \206\ not requiring the filing of the
technical report summary more frequently than under the CRIRSCO-based
codes; \207\ not requiring the disclosure of exploration results; or
minimizing the required use of an independent qualified person.\208\
One commenter also stated that the Commission could reduce the
compliance burden by allowing all Canadian registrants, and not just
those that file under the MJDS, to report under Canada's NI 43-101, and
by considering a similar accommodation for foreign issuers that report
under the other CRIRSCO-based codes.\209\
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\205\ See, e.g., letters from AngloGold, Eggleston, and Gold
Resource.
\206\ See letter from AngloGold.
\207\ See letters from AngloGold and Midas.
\208\ See letter from Gold Resource.
\209\ See letter from Northern Dynasty.
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Some commenters opposed a requirement to file a technical report
summary as an exhibit to a Commission filing because they believed it
would be burdensome for registrants that are not subject to similar
requirements in other jurisdictions.\210\ Other commenters opposed the
technical report summary filing requirement because it would compel the
disclosure of information that is proprietary and competitively
sensitive.\211\
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\210\ See letters from Alliance, Chamber, Davis Polk, and FCX.
Davis Polk and the Chamber believed that, because only Canada and
Australia impose a similar requirement, the proposed technical
report summary requirement would ``result in an incremental
reporting burden in the United States relative to most other
jurisdictions.''
\211\ See letters from Alliance and FCX.
---------------------------------------------------------------------------
Several commenters supported the Commission's proposal to have each
qualified person date and sign the technical report summary prepared by
him or her.\212\ According to the commenters, this requirement would
help establish the document's legitimacy \213\ as well as a reference
date for the report.\214\ One commenter noted that the proposed
requirement to have a qualified person date and sign the technical
report summary is a requirement under all of the CRIRSCO-based
codes.\215\
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\212\ See, e.g., letters from AngloGold, CSP\2\, Eggleston,
Golder, and SRK 1.
\213\ See letter from SRK 1.
\214\ See letters from Golder and SRK 1. Golder indicated that
the dating requirement would protect the qualified person by
establishing the effective or cutoff dates of data and observations
used and alleviate other timing-related issues.
\215\ See letter from Rio Tinto.
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In addition, many commenters supported the Commission's proposal to
require a registrant to obtain the written consent of each qualified
person who prepared a technical report summary to the use of the
qualified person's name or any quotation from, or summarization of the
technical report summary in the registration statement or report.\216\
One commenter indicated that the written consent requirement ``is very
important to ensure that a QP's descriptions, summaries, results,
conclusions and recommendations are construed accurately and
appropriately by a registrant'' and ``also provides the QP with an
additional opportunity to access the quality control and quality
assurance of a registrant's disclosure as they pertain to the QP.''
\217\
---------------------------------------------------------------------------
\216\ See letters from AngloGold, Eggleston, Midas, Newmont,
Northern Dynasty, Rio Tinto, SRK 1, Vale, and Willis.
\217\ Letter from SRK 1.
---------------------------------------------------------------------------
In connection with the proposed written consent requirement, some
commenters noted that registrants frequently hire multiple qualified
persons for a particular mining project.\218\ Those commenters
recommended that the final rules clarify that multiple qualified
persons may prepare a technical report summary and, in such a
situation, a registrant must have each qualified person identify the
particular parts of the technical report summary for which he or she is
responsible, date and sign each part, and provide his or her written
consent for the use of his or her name and reference to those parts of
the technical report summary prepared by each qualified person.\219\
---------------------------------------------------------------------------
\218\ See letters from Coeur, Eggleston, Energy Fuels, Golder,
MMSA, SME 1, Ur-Energy, Vale, and Willis; see also letter from
Newmont (recommending the use by the qualified person of a ``sub-
certifications control process accompanied by disclosure of the
areas and personnel relied upon'').
\219\ See, e.g., letters from Coeur, MMSA, and SME 1.
---------------------------------------------------------------------------
Some commenters opposed the proposed requirement to have the
qualified person sign the technical report summary on an individual
basis.\220\ These commenters objected on the grounds that liability
concerns are more pronounced in the United States and such a
requirement would place a qualified person in a position similar to an
executive or financial officer of the registrant.
---------------------------------------------------------------------------
\220\ See letters from Andrews Kurth, Gold Resource, and NMA 1.
---------------------------------------------------------------------------
Numerous other commenters maintained that the Commission should not
subject qualified persons to expert liability under Section 11 of the
Securities Act.\221\ Those commenters opposed such expert liability on
the grounds that: Ultimate responsibility for a public report
concerning a registrant's exploration results, mineral resources, or
mineral reserves rests with the registrant, acting through its board of
directors; \222\ the proposed requirements for qualified persons, such
as membership in a professional organization that requires compliance
with standards of competence and ethics, and the written consent
provisions, would provide adequate safeguards to ensure the reliability
of supporting documentation by a qualified person; \223\ the Section 11
liability regime is unique and would impose significant costs on
individuals that are not yet subject to it; \224\ imposing Section 11
liability on qualified persons would likely have a chilling effect on
the willingness of individuals to serve in that role and thereby
increase the cost of hiring a qualified person, and could deter
registrants from hiring qualified persons; \225\ and the naming of
individual professionals in Commission filings is not required with
respect to accounting, auditing, and legal matters or in the
determination of oil and gas reserves and, in any event, is not
important to the protection of investors.\226\
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\221\ See letters from AusIMM, Chamber, Cleary & Gottlieb, Cloud
Peak, Davis Polk, FCX, JORC, MMSA, NSSGA, SAMCODES 1, Shearman &
Sterling, Sullivan & Cromwell, and Ur-Energy.
\222\ See, e.g., letters from AusIMM, FCX, JORC, SAMCODES 1, and
Shearman & Sterling.
\223\ See letters from Davis Polk, Shearman & Sterling, and
Sullivan & Cromwell.
\224\ See id.; see also letter from Andrews Kurth.
\225\ See letters from Andrews Kurth, Chamber, Davis Polk, FCX,
MMSA, NSSGA, Shearman & Sterling, and Ur-Energy.
\226\ See letter from FCX.
---------------------------------------------------------------------------
Some commenters that expressed concerns about Section 11 liability
requested that the Commission explore alternatives to the individual
signing requirement, such as permitting the firm employing the
qualified person to sign the technical report summary, which would be
consistent with the Commission's treatment of auditors and its
treatment of engineering firms under the Commission's oil and gas
rules.\227\ Those commenters further noted that not requiring an
individual qualified person to sign the technical report summary would
be consistent with the Commission's treatment of audit engagement
partners whereby the naming or signature of the individual audit
engagement partner is not required in Commission filings.\228\
---------------------------------------------------------------------------
\227\ See letters from Gold Resource and NMA 1. See also letter
from SME 1 (suggesting a sub-certification procedure to deal with
the liability concerns regarding qualified persons).
\228\ See letters from Gold Resource and NMA 1. An audit
engagement partner is, however, required to be named on PCAOB Form
AP. See Public Company Accounting Oversight Board; Order Granting
Approval of Proposed Rules To Require Disclosure of Certain Audit
Participants on a New PCAOB Form and Related Amendments to Auditing
Standards, Exchange Act Release No. 34-77787 (May 9, 2016) [81 FR
29925].
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[[Page 66359]]
On a related issue, many commenters recommended that the Commission
adopt the approach under Canada's NI 43-101 or another CRIRSCO-based
code and permit a qualified person to disclaim liability if relying on
a report, opinion or statement of another expert who is not a qualified
person, or on information provided by the issuer, concerning legal,
political, environmental, or tax matters relevant to the technical
report.\229\ According to these commenters, a limited disclaimer is
necessary because the consideration of all applicable modifying factors
in the determination of reserves, or all relevant technical and
economic factors in the determination of resources, is typically beyond
the scope and knowledge of a single individual. Commenters maintained
that without a limited disclaimer provision, and particularly in light
of concerns about Section 11 liability, the Commission would be
imposing liability on qualified persons for opinions and conclusions
outside of their fields of expertise, which would discourage
individuals from acting as qualified persons under the Commission's
rules, and potentially discourage registrants from hiring qualified
persons.\230\
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\229\ See letters from AIPG, Amec, BHP, CIM, Cleary Gottlieb,
Cloud Peak, Coeur, CRIRSCO, Davis Polk, Eggleston, Energy Fuels,
FCX, Gold Resource, Graves, Midas, MMSA, Newmont, NMA, Northern
Dynasty, PDAC, Randgold, Rio Tinto, Shearman & Sterling, SME 1, SRK
1, Ur-Energy, Vale, and Willis.
\230\ See, e.g., letters from CIM, Davis Polk, Eggleston, FCX,
Shearman & Sterling, SME 1, and Ur-Energy.
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Other commenters, however, supported the Commission's proposal to
preclude a qualified person from disclaiming responsibility if relying
on a report, opinion, or statement of another expert who is not a
qualified person.\231\ One commenter stated that such a provision ``is
key to obtaining reliable and accurate information'' on a project.\232\
---------------------------------------------------------------------------
\231\ See letters from Columbia, CSP\2\, and Montana Trout.
\232\ See letter from CSP\2\.
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Many commenters supported the Commission's proposal to require a
registrant to identify the qualified person who prepared the technical
report summary, disclose whether the qualified person is an employee of
the registrant, identify the qualified person's employer if other than
the registrant, and disclose whether the qualified person or the
qualified person's employer is an affiliate of the registrant or
another issuer that has an ownership or similar interest in the subject
mining property.\233\ Commenters stated that such disclosure would be
consistent with the CRIRSCO standards' transparency obligations.\234\
One commenter, however, opposed a requirement to name a qualified
person's employer, as this may have changed since it prepared the
technical report summary.\235\ Instead, that commenter suggested that a
registrant state whether the qualified person is independent of the
registrant and, if not, provide an explanation for the lack of
independence.
---------------------------------------------------------------------------
\233\ See letters from AngloGold, CBRR, CIM, Coeur, Eggleston,
Gold Resource, Golder, Midas, MMSA, Northern Dynasty, Rio Tinto,
SAMCODES 2, SME 1, SRK 1, Vale, and Willis.
\234\ See, e.g., letters from Eggleston and Vale. As previously
noted, transparency is one of the three governing principles
underlying the CRIRSCO standards. See supra note 39.
\235\ See letter from Amec.
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In response to whether, as an alternative to the rule proposal, we
should require a registrant to state whether its qualified person is
independent, numerous commenters answered in the affirmative, but also
recommended that, consistent with Canada's NI 43-101, the final rules
require an independent qualified person only under certain
circumstances (e.g., for the first-time disclosure of mineral resources
and mineral reserves and for 100% or greater changes to previously
disclosed resources and reserves) with an exception for producing
issuers.\236\ Those commenters also recommended adopting Canada's NI
43-101's definition of independence and related guidance. Most of those
commenters opposed requiring a registrant to obtain an independent
review of a technical report prepared by a qualified person that is an
employee or affiliate of the registrant.\237\
---------------------------------------------------------------------------
\236\ See letters from Amec, CIM, Coeur, Eggleston, Gold
Resource, Midas, MMSA, Newmont, Northern Dynasty, SAMCODES 2, SME 1,
SRK 1, Vale, and Willis. Another commenter supported requiring a
registrant to state whether its qualified person is independent, but
did not mention the circumstances under Canada's NI 43-101 that
would limit when an independent qualified person is required. See
letter from Golder.
\237\ See letters from AngloGold, Eggleston, Gold Resource,
Golder, Midas, Northern Dynasty and SRK 1.
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Other commenters opposed any provision that would require a
registrant to hire an independent qualified person or to conduct an
independent review.\238\ One commenter also opposed any provision that
would require the registrant to state whether the qualified person is
independent.\239\ According to that commenter, there is very little
difference between an employee and a consultant who is paid by the
company and both could be unduly influenced. To guard against such
undue influence, this commenter recommended requiring a qualified
person to be a member of a professional organization that can sanction
``those that transgress.'' \240\
---------------------------------------------------------------------------
\238\ See letters from AngloGold, BHP, CRIRSCO, FCX, JORC, and
Rio Tinto.
\239\ See letter from AngloGold.
\240\ Id.
---------------------------------------------------------------------------
One commenter did not believe that naming a qualified person would
add value to the registrant's Commission filings. This commenter noted
that many outside specialists assist it with various estimations and
evaluations used in its Form 10-K annual report, and ``assistance
regarding reserve estimations is not exceptionally greater than any
other area of consultation or professional guidance.'' \241\ This
commenter did state, however, that if the Commission requires the
naming of a qualified person, it would be appropriate for a registrant
to disclose whether the qualified person is independent using the
definition of independence under Canada's NI 43-101.
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\241\ Letter from Alliance.
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iii. Final Rules
We are adopting the requirement, as proposed, that a registrant's
disclosure of exploration results, mineral resources, or mineral
reserves in Commission filings must be based on and accurately reflect
information \242\ and supporting documentation prepared by a qualified
person,\243\ as defined in subpart 1300 of Regulation S-K.\244\
Adopting this requirement will more closely align the Commission's
mining property disclosure regime with the CRIRSCO standards.\245\
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\242\ As used in subpart 1300 of Regulation S-K, the term
``information'' prepared by a qualified person includes the findings
and conclusions of a qualified person relating to material
exploration results or estimates of mineral resources or mineral
reserves. See 17 CFR 229.1302(a)(1) [Item 1302(a)(1) of Regulation
S-K].
\243\ id. Like the proposed provision, the final rule refers to
Item 1303, the summary disclosure provision, and Item 1304, the
individual property disclosure provision, to specify the disclosure
to which the qualified person requirement applies.
\244\ We define ``qualified person'' in Item 1300 of Regulation
S-K. See infra Section II.C.2.
\245\ This requirement is consistent with the ``competence''
principle underlying the CRIRSCO standards, which requires that each
person who has prepared the technical report summary meets the
definition of qualified person and is, therefore, competent to make
the findings and conclusions contained in the technical report
summary.
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The Securities Act and the Exchange Act both provide that the
registration statements and periodic reports required under those
statutes shall contain such information and documents as the Commission
may require, as necessary or appropriate in the public interest and
[[Page 66360]]
for the protection of investors.\246\ We believe that the requirement
that a registrant's disclosure of mineral resources, mineral reserves,
and material exploration results in Commission filings be based on and
fairly reflect information and supporting documentation prepared by a
``qualified person'' will further the protection of investors by
helping to make the determination and reporting of estimates of mineral
resources and reserves or exploration results more reliable. This is
particularly important since we are adopting rules that, for the first
time, will allow a registrant with material mining operations to
disclose mineral resources in its Commission filings. As commenters
noted, the qualified person requirement will help to mitigate any risks
associated with the disclosure of mineral resources or exploration
results, which reflect a lower level of certainty about the economic
value of mining properties than is reflected in the disclosure of
mineral reserves.\247\ Requiring that the disclosure of exploration
results, mineral resources, and mineral reserves in Commission filings
be based on the work of a person having the requisite professional
credentials and experience should help to foster proper risk assessment
and disclosure, which is key to an investor's understanding of each
stage of a mining project.\248\ Moreover, by adopting the qualified
person requirement, the Commission will be strengthening its mining
property disclosure requirements in a manner consistent with most
foreign jurisdictions' mining disclosure requirements, thus promoting
uniformity and comparability, which should benefit both registrants and
investors.
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\246\ See Securities Act Section 7(a) [15 U.S.C. 77g(a)];
Exchange Act Sections 12(b)(1),)12(g)(1), 13(a) [15 U.S.C.
78l(b)(1), 78l(g)(1), 78m(a)].
\247\ See supra note 185 and accompanying text.
\248\ See supra note 186 and accompanying text.
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We also are adopting the requirement that the registrant is
responsible for determining that the qualified person meets the
specified qualifications, and that the disclosure in the registrant's
filing accurately reflects information provided by the qualified
person.\249\ Although we acknowledge that the qualified person has a
role to play in establishing that he or she possesses the requisite
credentials and experience,\250\ placing the ultimate responsibility on
the registrant is consistent with the registrant's duty under federal
securities laws to ensure that the information in a Commission filing
is accurate and free of material misstatements or omissions.
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\249\ 17 CFR 229.1302(a)(2) [Item 1302(a)(2) of Regulation S-K].
This requirement is consistent with the CRIRSCO standards. See,
e.g., CRIRSCO International Reporting Template, supra note 20, at
cl. 8; JORC Code, supra note 175, at pt. 9.
\250\ See supra note 191 and accompanying text.
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We are adopting the requirement that a registrant must obtain a
dated and signed technical report summary from the qualified person,
which identifies and summarizes the information reviewed and
conclusions reached by the qualified person about the registrant's
mineral resources or mineral reserves determined to be on each material
property.\251\ We also are adopting the requirement that a registrant
must file the technical report summary as an exhibit to the relevant
Commission filing when disclosing mineral reserves or mineral resources
for the first time or when there is a material change in the mineral
reserves or mineral resources from the last technical report summary
filed for the property.\252\
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\251\ 17 CFR 229.1302(b)(1) [Item 1302(b)(1) of Regulation S-K].
\252\ 17 CFR 229.1302(b)(2)(i) [Item 1302(b)(2)(i) of Regulation
S-K].
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We believe that the technical report summary filing requirement
will not only help ensure that the registrant's disclosure in the
Commission filing is accurate and reliable, it will also enhance
investor understanding of a registrant's material mining properties.
Specifically, the technical report summary will provide investors with
a summary of the scientific and technical information that is the basis
for the registrant's disclosure of mineral resources, mineral reserves,
and exploration results, which should enable investors to better assess
the value of the registrant's material mining properties. Moreover, to
the extent that the data in the technical report summary constitutes
part of the information used by the board of directors and management
for corporate planning purposes (e.g., deciding which mining projects
to pursue) and, once the mining project is underway, to help assess the
operational performance of the mine, requiring this information to be
filed will enable investors to better understand the corporate
decision-making of the mining registrant.
As commenters noted, mining companies, including U.S. registrants
that are cross-listed, are already required in jurisdictions with
CRIRSCO-based codes to obtain technical reports either for public
filing or for internal use.\253\ We agree with commenters that stated
that such reports enhance transparency in the industry to the benefit
of investors.\254\ Moreover, as noted by some commenters, the
requirement to have the technical report summary dated and signed will
help to establish the authenticity and relevance of the document.\255\
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\253\ See, e.g., letters from Rio Tinto and SRK 1.
\254\ See, e.g., letter from Eggleston.
\255\ See, e.g., letters from Golder and SRK 1.
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As proposed, the final rules require the registrant to file the
technical report summary as an exhibit, rather than in the body of the
annual report or registration statement, in order to separate the
underlying scientific and technical information in the technical report
summary from the narrative disclosure concerning the registrant's
operations.\256\ We believe this will result in clearer and more
accessible disclosure for investors, enabling them to understand the
disclosure more effectively from both an operational and technical
viewpoint.
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\256\ The staff currently has the ability to request a copy of a
technical report as supplemental material, where it is deemed
appropriate, during the course of its review of a registration
statement or report. See 17 CFR 230.418 [Securities Act Rule 418];
17 CFR 240.12b-4 [Exchange Act Rule 12b-4]. Securities Act Rule
418(a)(6) specifically authorizes the staff, ``where reserve
estimates are referred to in a document,'' to request ``a copy of
the full report of the engineer or other expert who estimated the
reserves.'' 17 CFR 230.418(a)(6).
---------------------------------------------------------------------------
A few commenters objected to the required filing of the technical
report summary based on their belief that, because only Canada and
Australia have a similar technical report filing requirement, the
Commission's filing requirement will be burdensome for mining
registrants that are not listed in those countries.\257\ While we
acknowledge that the final rules will impose a new compliance burden
for some registrants, as explained above, we believe the filing of a
technical report summary will provide important benefits to investors.
In response to commenters' concerns, we are adopting measures that we
believe will limit this compliance burden by requiring technical report
summaries only for material properties, and by requiring the filing of
those documents only when a registrant first discloses mineral
resources or mineral reserves, or when there is a material change in
the mineral reserves or mineral resources from the last technical
report summary filed for the property.
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\257\ See letters from Chamber, Davis Polk, and FCX.
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In addition, in a change from the proposed rules, as further
discussed below,\258\ while exploration results, if disclosed, must be
based on the findings and conclusions of a qualified person, we are not
mandating that a registrant
[[Page 66361]]
obtain a dated and signed technical report summary from a qualified
person to support the disclosure of exploration results. Under the
final rules, a registrant may elect to obtain a technical report
summary in connection with the disclosure of exploration results on a
material property and file it as an exhibit to the relevant Commission
filing, but it is not required to do so.\259\ We believe that this
elective treatment will help to mitigate the concern of some commenters
that opposed the technical report summary filing requirement because it
would compel the disclosure of proprietary and competitively sensitive
information.\260\
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\258\ See infra Section II.D.
\259\ See Item 1302(b)(1) of Regulation S-K.
\260\ See supra note 211 and accompanying text; see also infra
Section II.D.
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Some commenters indicated that the proposed disclosure of certain
specified information in the technical report summary, such as pricing
assumptions or cash flow analysis, could reveal proprietary and
commercially sensitive information.\261\ As discussed below,\262\ the
final rules do not exclude pricing assumptions and cash flow analysis
from the technical report summary because we believe that such
exclusion would omit material information about a registrant's mineral
resource or reserve estimates that is necessary for an investor to
assess the registrant's current and prospective mining operations.
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\261\ See, e.g., letters from BHP and SME 1.
\262\ See infra Sections II.E.4., II.F.1., and II.G.3.
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Consistent with the suggestion of some commenters,\263\ the final
rules clarify that a registrant may use multiple qualified persons to
prepare a technical report summary. First, the final rules provide that
if a registrant has relied on more than one qualified person to prepare
the information and documentation supporting its disclosure of
exploration results, mineral resources or mineral reserves, the
registrant's responsibilities as specified in 17 CFR 229.1302 (Item
1302 of Regulation S-K) pertain to each qualified person.\264\ Second,
the final rules state that if more than one qualified person has
prepared the technical report summary, each qualified person must date
and sign the technical report summary, and the technical report summary
must clearly delineate the section or sections of the summary prepared
by each qualified person.\265\
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\263\ See, e.g., letters from Coeur, MMSA, and SME 1.
\264\ 17 CFR 229.1302(a)(3) [Item 1302(a)(3) of Regulation S-K].
\265\ 17 CFR 229.1302(b)(1)(i) [Item 1302(b)(1)(i) of Regulation
S-K].
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We also are adopting the proposed requirement that a registrant
obtain the written consent of each qualified person who prepared a
technical report summary to the use of the qualified person's name or
any quotation from, or summarization of, the technical report summary
in the relevant registration statement or report, and to the filing of
the technical report summary as an exhibit to the registration
statement or report.\266\ The written consent would only pertain to the
particular section or sections of the technical report summary prepared
by each qualified person.
---------------------------------------------------------------------------
\266\ 17 CFR 229.1302(b)(4)(i) [Item 1302(b)(4)(i) of Regulation
S-K].
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Adoption of the written consent requirement will align the
Commission's mining disclosure rules with the CRIRSCO-based codes,
which impose a similar written consent requirement.\267\ It also will
help ensure that the qualified person's findings and conclusions are
not included in a Commission filing without that person's actual
knowledge.
---------------------------------------------------------------------------
\267\ See, e.g., Canada's NI 43-101, supra note 123, at pt. 8.3;
JORC Code, supra note 175, at pt. 9; SAMREC Committee, The South
African Code for the Reporting of Exploration Results, Mineral
Resources and Mineral Reserves: SAMREC Code, pt. 8 (2016) (``SAMREC
Code''), https://www.samcode.co.za/samcode-ssc/about-samcodes; SME
Guide, supra note 177, at pt. 8.
---------------------------------------------------------------------------
In addition, requiring the registrant to obtain the qualified
person's written consent is consistent with the Commission's approach
to the use of an expert's report in Securities Act filings.\268\ In
this regard, as proposed, the final rules provide that, for Securities
Act filings, the registrant must file the written consent as an exhibit
to the registration statement.\269\ Because a mining registrant is
currently required to file the written consent of the mining engineer,
geologist, or other expert upon whom it has relied when filing a
Securities Act registration statement, the adopted written consent
requirement should not impose an additional burden.\270\ For Exchange
Act reports, the registrant is not required to file the written consent
obtained from the qualified person, but should retain the written
consent for as long as it is relying on the qualified person's
information and supporting documentation for its current estimates
regarding mineral resources, mineral reserves, or exploration
results.\271\
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\268\ See, e.g., Securities Act Rule 436.
\269\ 17 CFR 229.1302(b)(4)(iv) [Item 1302(b)(4)(iv) of
Regulation S-K].
\270\ As discussed below, current practice has permitted a
third-party firm employing the individual mining expert to provide
the written consent.
\271\ See Item 1302(b)(4)(iv). A registrant may be required to
furnish supplementally a written consent obtained in connection with
an Exchange Act report at the request of Commission staff during a
review of the Exchange Act filing. In addition, consistent with
current practice, a registrant must file the qualified person's
written consent as an exhibit to an Exchange Act report that is
being incorporated by reference into a Securities Act registration
statement.
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In a clarification of the proposed rules, the final rules provide
that a third-party firm comprising mining experts, such as professional
geologists or mining engineers, may sign the technical report summary
instead of, and without naming, its employee, member, or other
affiliated person who prepared the summary.\272\ If a third-party firm
signs the technical report summary, the final rules further provide
that the third-party firm must provide the written consent.\273\ This
is consistent with current practice, pursuant to which the third-party
firm that employs or controls the expert upon whom the registrant has
relied typically files the written consent instead of the individual
expert. It is also consistent with the treatment of other written
consents provided by auditors and engineering experts, whether in oil,
natural gas, or mining.
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\272\ 17 CFR 229.1302(b)(1)(ii) [Item 1302(b)(1)(ii) of
Regulation S-K].
\273\ 17 CFR 229.1302(b)(4)(iii) [Item 1302(b)(4)(iii) of
Regulation S-K].
---------------------------------------------------------------------------
We are adopting these third-party firm signature and written
consent provisions to assuage some of the concerns raised by commenters
in connection with the potential Section 11 liability of qualified
persons. Because the third-party firm that signs the technical report
summary and provides the written consent will be treated as the expert
upon whom the registrant has relied when making its mining property
disclosures,\274\ and because the third-party firm is not required to
name the individual employee, member or other affiliated person who
prepared the various sections of the technical report summary, the
third-party firm will incur potential liability under Section 11 rather
than the unnamed individual. Thus, qualified persons who are employed
or otherwise affiliated with third-party firms will not automatically
be exposed to potential Section 11 liability as a result of their
participation in the preparation of supporting
[[Page 66362]]
documentation for registrants that are subject to our final rules. The
final rules should therefore mitigate concerns expressed by some
commenters that potential Section 11 liability may reduce the
willingness of some individuals to serve as qualified persons.\275\
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\274\ A registrant that receives a technical report summary
signed by a third-party firm is nevertheless subject to its
responsibilities regarding the qualified person under subpart 1300
of Regulation S-K. See Item 1302(a) of Regulation S-K. Therefore, if
a registrant receives a technical report summary signed by a third-
party firm, it should consult with the firm and confirm that each
individual employee, member, or other person affiliated with the
third-party firm who prepared the technical report summary meets the
specified qualifications under the definition of qualified person.
See 17 CFR 229.1300.
\275\ See supra note 225 and accompanying text.
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If the qualified person is an employee of the registrant, however,
he or she must provide the written consent on an individual basis.\276\
This is consistent with current practice concerning other experts who
are employees of the registrant. For example, when a legal opinion is
provided by a registrant's in-house counsel, the individual counsel
typically provides the written consent.
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\276\ See Item 1302(b)(4)(iii) of Regulation S-K.
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The final rules do not provide a complete exemption for qualified
persons from expert liability under Section 11 of the Securities Act.
While we acknowledge the concerns raised by commenters in this
regard,\277\ not imposing Section 11 liability would be a departure
from the current requirement that imposes such liability on the named
person that prepares the reserve estimates.\278\ It also would be at
odds with the express design of the statute, which specifically posits
engineers or ``any person whose profession gives authority to a
statement made by him'' as potentially subject to Section 11 liability,
and would greatly diminish the protection afforded investors under the
Securities Act.\279\
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\277\ See supra note 221.
\278\ See Guide 7, supra note 7, at ] (b)(5)(ii) (calling for
the name of the person making the estimates and the nature of his
relationship to the registrant).
\279\ See 15 U.S.C. 77k(a)(4) (referring to ``every accountant,
engineer, or appraiser, or any person whose profession gives
authority to a statement made by him, who has with his consent been
named as having prepared or certified any part of the registration
statement, or as having prepared or certified any report or
valuation which is used in connection with the registration
statement, with respect to the statement in such registration
statement, report, or valuation, which purports to have been
prepared or certified by him'').
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However, we recognize that in preparing complex reports of this
nature, the qualified person will, when necessary, rely on information
and input from others, including the registrant. For example, while the
qualified person typically estimates capital and operating costs for
the mining project,\280\ he or she typically relies on the registrant
to provide other economic information regarding macroeconomic trends,
data, and assumptions, and interest rates, all of which are material to
the economic analysis required to support the qualified person's
reserve estimate.\281\
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\280\ See 17 CFR 229.601(b)(96)(iii)(B)(18) [Item
601(b)(96)(iii)(B)(18) of Regulation S-K].
\281\ See 17 CFR 229.601(b)(96)(iii)(B)(19) [Item
601(b)(96)(iii)(B)(19) of Regulation S-K].
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There are other required matters in the technical report summary
that may fall outside the expertise of the qualified person, and
regarding which the registrant may provide assistance. For example, the
qualified person may require assistance from the registrant when
considering the following aspects of some of the modifying factors:
Marketing information and plans within the control of
the registrant; \282\
---------------------------------------------------------------------------
\282\ See 17 CFR 229.601(b)(96)(iii)(B)(16) [Item
601(b)(96)(iii)(B)(16) of Regulation S-K].
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legal matters outside the expertise of the qualified
person, such as statutory and regulatory interpretations affecting
the mine plan; \283\
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\283\ See, e.g., 17 CFR 229.601(b)(96)(iii)(B)(3) and (17)
[Items 601(b)(96)(iii)(B)(3) and 601(b)(96)(iii)(B)(17) of
Regulation S-K].
---------------------------------------------------------------------------
environmental matters outside the expertise of the
qualified person; \284\
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\284\ See Item 601(b)(96)(iii)(B)(17) of Regulation S-K.
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accommodations the registrant commits or plans to
provide to local individuals or groups in connection with its mine
plans; \285\ and
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\285\ See id.
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governmental factors outside the expertise of the
qualified person.\286\
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\286\ See, e.g., Items 601(b)(96)(iii)(B)(3) and (17) of
Regulation S-K.
Because the qualified person may require assistance from the registrant
on these matters, the final rules provide that the qualified person may
indicate in the technical report summary that the qualified person has
relied on information provided by the registrant in preparing its
findings and conclusions regarding those modifying factors.\287\ The
final rules also provide that, in a separately captioned section of the
technical report entitled ``Reliance on Information Provided by the
Registrant,'' the qualified person must: Identify the categories of
information provided by the registrant; identify the particular
portions of the technical report summary that were prepared in reliance
on information provided by the registrant pursuant to paragraph (f)(1)
of this section, and the extent of that reliance; and disclose why the
qualified person considers it reasonable to rely upon the registrant
for any of the information specified according to this rule.\288\ We
believe that this disclosure will help investors and other interested
persons understand the source and reliability of the information
pertaining to those factors. We also note that this disclosure is
consistent with the disclosure recommended when a qualified or
competent person relies on information provided by the registrant under
the CRIRSCO standards.\289\
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\287\ 17 CFR 229.1302(f)(1) [Item 1302(f)(1) of Regulation S-K].
\288\ 17 CFR 229.1302(f)(2) [Item 1302(f)(2) of Regulation S-K].
\289\ See, e.g., SME Guide For Reporting Exploration
Information, Mineral Resources, And Mineral Reserves (2017) (2017
SME Guide), Appendix C.
---------------------------------------------------------------------------
Where the registrant has provided the information relied upon by
the qualified person when addressing these modifying factors, we
believe that it would be appropriate for the registrant, rather than
the qualified person, to be subject to potential Section 11 liability
pertaining to a discussion of these matters in the technical report
summary or other part of the registration statement.\290\ In these
situations, requiring the qualified person to certify this information
may not be necessary for investor protection given that the registrant
remains liable for the contents of the registration statement and
consequently will be incentivized to exercise due care in the
preparation of this information. Accordingly, the final rules provide
that any description in the technical report summary or other part of
the registration statement of the procedures, findings, and conclusions
reached about matters identified by the qualified person as having been
based on information provided by the registrant pursuant to this
section, shall not be considered a part of the registration statement
prepared or certified by the qualified person within the meaning of
Sections 7 and 11 of the Securities Act.\291\ We have limited this
accommodation to the above described aspects of certain modifying
factors because we believe that these aspects are most likely to fall
outside of the qualified person's expertise and for which he or she is
most likely to require assistance from the registrant.
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\290\ Some commenters indicated that liability for mining
property disclosure in a Commission filing should fall primarily on
the registrant. See letter from BHP (stating that because a public
report is the responsibility of the company acting through its board
of directors, which should act as an assurance element for
investors, any potential liability imposed on a qualified person
should not be broader than that of the company's principal executive
and financial officers); see also letter from Cloud Peak.
\291\ 17 CFR 229.1302(f)(3) [Item 1302(f)(3) of Regulation S-K];
see also 17 CFR 230.436(h) [Securities Act Rule 436(h)]. For the
reasons discussed herein, we find that these provisions are
necessary and appropriate in the public interest and consistent with
the protection of investors. See 15 U.S.C. 77z-3.
---------------------------------------------------------------------------
We also recognize that the qualified person may hire on his or her
own third-party specialists who are not qualified persons. For this
reason, the final rules provide that a qualified person may include in
the technical
[[Page 66363]]
report summary information and documentation provided by a third-party
specialist who is not a qualified person, such as an attorney,
appraiser, and economic or environmental consultant, upon which the
qualified person has relied in preparing the technical report
summary.\292\ However, unlike the case with certain information
provided by the registrant, the final rules provide that the qualified
person may not disclaim responsibility for any information and
documentation prepared by a third-party specialist upon which the
qualified person has relied, or any part of the technical report
summary based upon or related to that information and
documentation.\293\ Although many commenters suggested that we permit
such disclaimers,\294\ doing so could undermine the quality of the
technical report summary, as neither the qualified person nor the
third-party specialist would be accountable for material misstatements
or omissions in such information and documentation. This is in contrast
to the situation in which the registrant retains Section 11 liability
for the information that it provides to the qualified person and which
may be disclaimed by the qualified person. We understand the concern of
commenters that, by prohibiting disclaimers of responsibility, a
qualified person could become liable for material misstatements or
omissions of fact in the technical report summary that are attributed
to the third-party specialist upon whom the qualified person has
relied.\295\ However, under the final rules, the qualified person will
be able to determine whether and under what terms it engages the third-
party specialist, which should help the qualified person mitigate any
attendant risks.
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\292\ 17 CFR 229.1302(b)(6)(i) [Item 1302(b)(6)(i) of Regulation
S-K].
\293\ 17 CFR 229.1302(b)(6)(ii)] [Item 1302(b)(6)(ii) of
Regulation S-K].
\294\ See supra note 229 and accompanying text.
\295\ See supra note 230 and accompanying text.
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Although we are not providing a complete exemption from Section 11
liability for qualified persons or otherwise permitting them to
disclaim information provided by a third-party specialist, there are
limitations on the extent of liability the qualified person will incur,
particularly when other qualified persons are involved in preparation
of the technical report summary, as the final rules now expressly
permit. Under Section 11, a qualified person, as an expert, would have
an affirmative defense against liability for such misstatements or
omissions made on the authority of another expert if the qualified
person ``had no reasonable ground to believe and did not believe, at
the time such part of the registration statement became effective, that
the statements therein were untrue or that there was an omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that such part of the
registration statement did not fairly represent the statement of the
expert or was not a fair copy of or extract from the report or
valuation of the expert.'' \296\ In addition, the written consent
requirement, which requires a qualified person to provide a consent
only regarding the section or sections of the technical report summary
prepared by that person, would further serve to limit the qualified
person's liability under Section 11 for material misstatements or
omissions made by other contributing qualified persons.
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\296\ See Section 11(b)(3) of the Securities Act [15 U.S.C.
77k(b)(3)]. One commenter stated that the Commission ``does not
specify how a Qualified Person might establish a due diligence
defense'' under Section 11 of the Securities Act. See letter from
Chamber. We typically do not indicate how persons may establish
defenses under the Securities Act, and we refrain from doing so
here.
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The final rules provide that a registrant is not required to file a
written consent of any third-party specialist upon which a qualified
person has relied.\297\ This is consistent with other Commission rules,
which do not require a registrant to provide the written consent of a
secondary specialist upon which a consenting expert has relied.\298\
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\297\ 17 CFR 229.1302(b)(6)(iii) [Item 1302(b)(6)(iii) of
Regulation S-K].
\298\ See 17 CFR 230.436(f) [Securities Act Rule 436(f)]
(``Where the opinion of one counsel relies upon the opinion of
another counsel, the consent of the counsel whose prepared opinion
is relied upon need not be furnished'').
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As proposed, the final rules require the registrant to state
whether each qualified person who prepared the technical report summary
is an employee of the registrant.\299\ If the qualified person is not
an employee of the registrant, the final rules require the registrant
to name the qualified person's employer, disclose whether the qualified
person or the qualified person's employer is an affiliate of the
registrant or another entity that has an ownership, royalty or other
interest in the property that is the subject of the technical report
summary, and if an affiliate, describe the nature of the
affiliation.\300\ The terms ``affiliate'' and ``affiliated'' have the
same meaning as in Securities Act Rule 405 or Exchange Act Rule 12b-
2.\301\
---------------------------------------------------------------------------
\299\ 17 CFR 229.1302(b)(5) [Item 1302(b)(5) of Regulation S-K].
\300\ See id.
\301\ See id.
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This provision will provide investors with relevant information to
assess the reliability of the disclosure and align the Commission's
mining rules with most of the CRIRSCO-based codes, which impose a
similar identification requirement.\302\ Although several commenters
also recommended that we require a registrant to state whether its
qualified person satisfies the independence requirement of Canada's NI
43-101,\303\ we do not believe an independence requirement is
appropriate for the reasons stated in the Proposing Release.\304\
First, we believe that our approach will help to limit the compliance
burdens on registrants. Second, we believe that other aspects of the
final rules, such as disclosure of the qualified person's credentials
and his or her affiliated status with the registrant or another entity
having an ownership or similar interest in the subject property, along
with the application of potential expert liability in Securities Act
filings, should provide adequate safeguards for investors. Finally, our
approach is consistent with most of the CRIRSCO-based codes, which
permit a qualified person to be an employee or other affiliate of the
registrant as long as the registrant discloses its relationship with
the qualified person.\305\
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\302\ See, e.g., JORC Code, supra note 175, at pt. 9; see also
the Pan-European Reserves and Resources Reporting Committee, PERC
Reporting Standard pt. 3.5 (2017) (``PERC Reporting Standard''),
http://www.vmine.net/PERC/documents/PERC%20REPORTING%20STANDARD%202017.pdf. A limited exception to this
is Canada, which requires a registrant to file a technical report
summary prepared by an independent qualified person in certain
circumstances: When becoming a first-time registrant; when
supporting the first time reporting of mineral resources, mineral
reserves, or a preliminary economic assessment of a material
property; or when reporting a 100% or greater change in the total
mineral resources or reserves on a material property, when compared
to the last disclosure. See Canada's NI 43-101, supra note 123, at
pt. 5.3 (Can.).
\303\ See supra note 236 and accompanying text.
\304\ See Proposing Release, supra note 5, at Section II.C.1.
For similar reasons, we also do not believe it would be appropriate
to require an independent review of a technical report prepared by a
qualified person that is an employee or affiliate of the registrant.
\305\ See id.
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2. The Definition of ``Qualified Person''
i. Rule Proposal
We proposed to define a ``qualified person'' as a person who is a
mineral industry professional with at least five years of relevant
experience in the type of mineralization and type of deposit under
consideration and in the specific type of activity that person is
[[Page 66364]]
undertaking on behalf of the registrant. In addition, the proposed
definition requires a qualified person to be an eligible member or
licensee in good standing of a recognized professional organization at
the time the technical report is prepared.\306\
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\306\ See Proposing Release, supra note 5, at Section II.C.2.
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Under the proposed rules, a ``recognized professional
organization,'' would have to be either recognized within the mining
industry as a reputable professional association,\307\ or be a board
authorized by U.S. federal, state or foreign statute to regulate
professionals in the mining, geoscience, or related field. Furthermore,
the organization must:
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\307\ The ``reputable professional association'' standard is
also used in Canada's NI 43-101. See the definition of
``professional association'' in Canada's NI 43-101, supra note 123,
at pt. 1.1.
Admit eligible members primarily on the basis of their
academic qualifications and experience;
Establish and require compliance with professional
standards of competence and ethics;
Require or encourage continuing professional
development;
Have and apply disciplinary powers, including the power
to suspend or expel a member regardless of where the member
practices or resides; and
Provide a public list of members in good standing.\308\
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\308\ See Proposing Release, supra note 5, at Section II.C.2.
As we explained in the Proposing Release, this proposed definition
is similar to the definition of competent or qualified person under the
CRIRSCO-based codes.\309\ It differs, however, from those codes in at
least one respect. Although CRIRSCO provides some guidance about what
constitutes a ``recognized professional organization,'' \310\ most of
the CRIRSCO-based codes require that a competent or qualified person be
a member of one or more ``approved'' organizations identified in an
appendix to the code.\311\ This list is updated periodically by the
various code regulators. We did not propose a similar ``approved list''
approach because of our belief that a more principles-based approach
provides flexibility.\312\
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\309\ The CRIRSCO standards require that a competent or
qualified person have at least five years of relevant experience
``in the style of mineralization and type of deposit under
consideration and in the activity which that person is undertaking''
and be a member or licensee in good standing of a recognized
professional organization. See CRIRSCO International Reporting
Template, supra note 20, at pt. 11; JORC Code, supra note 175, at
pt. 11; see also SAMREC Code, pt. 10 (2016); PERC Reporting
Standard, supra note 302, at pt. 3.1. The recognized professional
organizations under CRIRSCO standards have and apply disciplinary
powers to members and most require professional development to
maintain such membership.
\310\ See CRIRSCO International Reporting Template, supra note
20, at cl. 11 (stating that the organization of which a competent
person is a member must have ``enforceable disciplinary processes
including the powers to suspend or expel a member'').
\311\ See, e.g., JORC Code, supra note 175, at pt. 11; SAMREC
Code, supra note 267, at pt. 9; SME Guide, supra note 177, at pt. 9;
and PERC Reporting Standard, supra note 302, at pt. 3.1.
\312\ See Proposing Release, supra note 5, at Section II.C.1.
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We also proposed detailed instructions to the definition of
``qualified person'' to assist registrants in applying the definition.
The proposed instructions describe the specific types and amount of
experience necessary for various types of mining activities and mineral
deposits.\313\
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\313\ See id.
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ii. Comments on the Rule Proposal
Numerous commenters supported the Commission's proposal to require
the qualified person to be an individual person.\314\ Commenters noted
that this requirement is consistent with the CRIRSCO standards and
indicated that it helps ensure that the qualified person assumes the
appropriate personal responsibility for his or her findings and
conclusions.\315\ One commenter, however, maintained that professional
associations have no ability to sanction a company and most have no
mechanism for corporate membership.\316\ Another stated that if a firm
can meet all the qualifications required under the qualified person
definition and has quality controls recognized by professional boards
or state regulatory agencies in place, the firm should be allowed to
meet the qualified person definition.\317\
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\314\ See letters from Amec, AngloGold, CIM, CSP\2\, Earthworks,
Eggleston, Golder, Midas, MMSA, Rio Tinto, SAMCODES 2, SME 1, SRK 1,
Ur-Energy, and Vale.
\315\ See, e.g., letters from AngloGold, Golder, Midas, and SME
1.
\316\ See letter from Rio Tinto.
\317\ See letter from Alliance.
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Many commenters also generally supported the Commission's proposed
definition of ``qualified person'' as an individual person who is a
mineral industry professional with at least five years of relevant
experience in the type of mineralization and type of deposit under
consideration and in the specific type of activity that person is
undertaking on behalf of the registrant.\318\ Those commenters noted
that the proposed five year minimum experience requirement is
consistent with the minimum experience requirement under the CRIRSCO-
based codes.\319\ Other commenters recommended that the qualified
person have at least seven years of postgraduate experience in the
mineral industry with at least three years in positions of
responsibility (defined as requiring independent judgment).\320\ Two
commenters, however, stated that the provision requiring at least five
years of relevant experience in the particular type of mineralization
and deposit under consideration is too restrictive.\321\
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\318\ See letters from AIPG, AngloGold, AusIMM, BHP, CBRR, CIM,
Coeur, Eggleston, FCX, Golder, JORC, Midas, MMSA, Rio Tinto,
SAMCODES 1, SME 1, SRK 1, Vale, and Willis.
\319\ See letters from CBRR, Eggleston, Midas, SAMCODES 1, and
SRK 1.
\320\ See letters from AIPG, Coeur, and SME 1. See also letter
from MMSA (recommending requiring a minimum of 10 years of practical
experience in geosciences including at least five years in positions
of responsibility).
\321\ See letters from Alliance and Amec. Amec preferred the
definition of qualified person under NI 43-101, which requires a
qualified person to have ``at least five years of experience in
mineral exploration, mine development or operation or mineral
project assessment, or any combination of these, that is relevant to
his or her professional degree or area of practice'' as well as
``experience relevant to the subject matter of the mineral project
and the technical report.''
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Several commenters recommended adding an educational requirement to
the definition (e.g., the attainment of a bachelor's or equivalent
degree in an area of geoscience, metallurgy, or mining
engineering).\322\ Two of those commenters stated that, alternatively,
a university degree in civil or chemical engineering would qualify if
the person also had the requisite post-graduate experience in the
minerals industry.\323\ In contrast, three commenters opposed an
educational requirement because the recognized professional
organizations include such a requirement in their membership
criteria.\324\
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\322\ See letters from AIPG, Alliance, Amec, CIM, Coeur,
CRIRSCO, Graves, MMSA, Rio Tinto, SME 1, and Willis.
\323\ See letters from Coeur and Willis. Another commenter
stated that a qualified person should simply hold a university
degree or equivalent accreditation relevant to his or her area of
practice. Such a flexible definition would allow a non-geoscientist,
such as a biochemist or botanist, to be accepted as a qualified
person to undertake the specialized baseline studies supporting
permit applications, particularly environmental permits. See letter
from Amec.
\324\ See letters from AusIMM, JORC, and SAMCODES 1. Another
commenter, SRK 1, agreed that most professional organizations impose
a minimum education requirement but suggested that the Commission
could also provide for such a requirement in the definition of
qualified person.
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A majority of commenters addressing the issue generally supported
the Commission's proposal to require a qualified person to be an
eligible member or licensee in good standing of a recognized
professional organization at the time the technical report is
[[Page 66365]]
prepared.\325\ Several commenters generally agreed with the
Commission's proposed criteria defining a ``recognized professional
organization.'' \326\ One commenter suggested adding a requirement that
the organization have ``one or more membership categories requiring
attainment of a position of responsibility that requires the exercise
of independent judgment and a favorable confidential peer evaluation of
the individual's character, professional judgment, experience, and
ethical fitness.'' \327\
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\325\ See letters from AIPG, Amec, AngloGold, AusIMM, BHP, CBRR,
CIM, Coeur, CRIRSCO, Eggleston, Golder, JORC, Midas, MMSA, Mousset-
Jones, NSPE, Rio Tinto, SAMCODES 1, SME 1, SRK 1, Vale, and Willis.
\326\ See, e.g., letters from AIPG, AngloGold, CBRR, CIM, Rio
Tinto, and SRK 1.
\327\ Letter from SME 1.
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Some commenters stated that the Commission should define a
recognized professional organization as encouraging but not requiring
continuing professional development.\328\ According to these
commenters, a strict continuing professional development requirement is
not necessary, particularly if the member is a full-time
practitioner.\329\ Other commenters stressed the importance of
requiring the recognized professional organization to have the
jurisdiction to discipline the qualified person, no matter where the
person resides or practices or where the deposit is located.\330\
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\328\ See letters from Amec, CBRR, Midas, Rio Tinto, SRK 1, and
Vale.
\329\ See, e.g., letters from Midas and SRK 1. MMSA, however,
indicated that continuing professional development should be
compulsory.
\330\ See letters from Amec, Coeur, MMSA, and Willis.
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Most commenters that addressed the ``qualified person'' definition
stated that the Commission should adopt and publish an approved list of
``recognized professional organizations'' similar to the approach under
the CRIRSCO-based codes.\331\ Commenters recommended that the
Commission reference the list of approved organizations set forth in an
Appendix to Canada's NI 43-101 CP (Companion Policy),\332\ the list of
approved organizations maintained by the SME,\333\ or the approved
organization list published by the Australian Securities Exchange
(``ASX'').\334\ According to commenters, referencing such lists would
not only help achieve a level of consistency with the CRIRSCO-based
codes regarding which groups constitute recognized professional
organizations, it also would lessen the Commission's administrative
burden of having to verify and update the list of approved
organizations.\335\
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\331\ See letters from AIPG, Amec, AusIMM, BHP, CBRR, CIM,
CRIRSCO, Eggleston, Graves, JORC, Midas, SAMCODES 1, SME 1, SRK 1,
and Vale.
\332\ See letters from AIPG, CIM, Graves, SME 1, SRK 1, and
Vale.
\333\ See letters from AusIMM, CBRR, Graves, JORC, and SME 1.
\334\ See letter from BHP.
\335\ See, e.g., letters from AIPG, Graves, and SME 1.
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Two commenters, however, supported the Commission's proposed
approach requiring an organization to meet specified factors before it
could qualify as a recognized professional organization rather than
using a list of approved organizations,\336\ preferring it as more
flexible \337\ and as ``a better and more practical alternative.''
\338\
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\336\ See, e.g., letters from Alliance and Golder.
\337\ See letter from Alliance.
\338\ See letter from Golder.
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iii. Final Rules
We are adopting the definition of qualified person, as
proposed.\339\ We are also adopting, as proposed, the specific criteria
that qualify an organization to be a recognized professional
organization.\340\
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\339\ See 17 CFR 229.1300.
\340\ See id. For an organization to be a recognized
professional organization, it must: Be either an organization
recognized within the mining industry as a reputable professional
association, or a board authorized by U.S. federal, state or foreign
statute to regulate professionals in the mining, geoscience or
related field; admit eligible members primarily on the basis of
their academic qualifications and experience; establish and require
compliance with professional standards of competence and ethics;
require or encourage continuing professional development; have and
apply disciplinary powers, including the power to suspend or expel a
member regardless of where the member practices or resides; and
provide a public list of members in good standing. With respect to
the first requirement, one commenter opposed allowing a state board
to authorize a recognized professional organization. See letter from
Mousset-Jones. We continue to believe that this criterion is
appropriate because, as one commenter noted, in the United States,
it is typically a board authorized by state statute that regulates
professionals in the mining, geoscience, engineering, geology or
related field. See letter from NSPE.
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Adoption of the qualified person definition will align the
Commission's rules with the CRIRSCO standards and, as commenters noted,
help ensure that the qualified person assumes the appropriate personal
responsibility for his or her findings and conclusions.\341\ Although
some commenters recommended adding to the requirement,\342\ adoption of
the ``at least five years of relevant experience'' requirement will
provide further consistency with the CRIRSCO-based codes.\343\
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\341\ See supra note 315 and accompanying text.
\342\ See letters from AIPG, Coeur, MMSA, and SME 1.
\343\ See, e.g., letters from CBRR, Eggleston, Midas, SAMCODES
1, and SRK 1.
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Similar to proposed instructions, we are adopting a definition of
the term ``relevant experience'' for purposes of determining whether a
party is a qualified person. This definition is substantially similar
to guidance provided under the CRIRSCO-based codes. For that reason,
most commenters that addressed the issue found the proposed
instructions to be adequate.\344\ As one commenter explained, the
proposed instructions ``are well aligned to established CRIRSCO
template guidance.'' \345\
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\344\ See letters from AngloGold, CBRR, Eggleston, Midas, Rio
Tinto, and SRK 1.
\345\ Letter from Rio Tinto.
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This definition first provides that the term ``relevant
experience'' means, for purposes of determining whether a party is a
qualified person, that the party has experience in the specific type of
activity that the person is undertaking on behalf of the registrant.
For example, if the qualified person is preparing or supervising the
preparation of a technical report concerning exploration results, the
relevant experience must be in exploration. If the qualified person is
estimating, or supervising the estimation of mineral resources, the
relevant experience must be in the estimation, assessment, and
evaluation of mineral resources and associated technical and economic
factors likely to influence the prospect of economic extraction.
Similarly, if the qualified person is estimating, or supervising the
estimation of, mineral reserves, the relevant experience must be in
engineering and other disciplines required for the estimation,
assessment, evaluation and economic extraction of mineral
reserves.\346\
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\346\ See the definition of ``relevant experience'' in 17 CFR
229.1300.
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This definition next provides that a qualified person must also
have relevant experience in evaluating the specific type of mineral
deposit under consideration (e.g., coal, metal, base metal, industrial
mineral, or mineral brine). What constitutes relevant experience in
this regard is a facts and circumstances determination. For example,
experience in a high-nugget, vein-type mineralization such as tin or
tungsten would likely be relevant experience for estimating mineral
resources for vein-gold mineralization whereas experience in a low
grade disseminated gold deposit likely would not be relevant.\347\
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\347\ See paragraph (1) of the definition of ``relevant
experience'' in 17 CFR 229.1300.
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This definition also explains that it is not always necessary for a
person to have five years' experience in each and every type of deposit
in order to be an
[[Page 66366]]
eligible qualified person if that person has relevant experience in
similar deposit types. For example, a person with 20 years' experience
in estimating mineral resources for a variety of metalliferous hard-
rock deposit types may not require as much as five years of specific
experience in porphyry-copper deposits to act as a qualified person.
Relevant experience in the other deposit types could count towards the
experience in relation to porphyry-copper deposits.\348\
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\348\ See Note 1 to paragraph (1) of the definition of
``relevant experience'' in 17 CFR 229.1300.
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This definition further provides that, in addition to experience in
the specific type of mineralization, if the qualified person is engaged
in evaluating exploration results or preparing mineral resource
estimates, the qualified person must have sufficient experience with
the sampling and analytical techniques, as well as extraction and
processing techniques, relevant to the mineral deposit under
consideration. ``Sufficient experience'' in this context means that
level of experience necessary to be able to identify, with substantial
confidence, problems that could affect the reliability of data and
issues associated with processing.\349\
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\349\ See paragraph (2) of the definition of ``relevant
experience'' in 17 CFR 229.1300.
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Finally, this definition provides that, for a qualified person
applying the modifying factors to convert mineral resources to mineral
reserves, he or she must have both sufficient knowledge and experience
in the application of these factors to the mineral deposit under
consideration, as well as experience with the geology, geostatistics,
mining, extraction, and processing that is applicable to the type of
mineral and mining under consideration.\350\
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\350\ See paragraph (3) of the definition of ``relevant
experience'' in 17 CFR 229.1300.
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These detailed provisions regarding the meaning of ``relevant
experience'' will help assure that the qualified person has the
appropriate level of experience for both the type of activity and type
of mineral deposit involved to make accurate assessments about the
registrant's exploration results, mineral resources, and mineral
reserves. At the same time, we believe that the adopted definition of
``qualified person,'' taken together with these related provisions,
will provide sufficient flexibility in terms of the required level of
experience and professional standing. Moreover, because the CRIRSCO-
based codes provide similar guidance for the type of experience
required for a competent or qualified person, the adopted definition of
qualified person and related provisions should not significantly alter
existing disclosure practices for registrants subject to those
codes.\351\
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\351\ See, e.g., CIM Standing Committee on Reserve Definitions,
CIM Definition Standards--For Mineral Resources and Mineral Reserves
2 (2014) (``CIM Definition Standards''), https://mrmr.cim.org/media/1016/cim_definition_standards_20142.pdf; JORC Code, supra note 175,
at pt. 11; SAMREC Code, supra note 267, at pt. 10; and SME Guide,
supra note 177, at pt. 9.
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The final rules do not require a qualified person to have attained
a specific minimum education level because, as several commenters
noted, the recognized professional organizations typically address such
a requirement in their membership criteria.\352\ Although one commenter
suggested adding other criteria to the definition of ``recognized
professional organization,'' \353\ we believe our less prescriptive
approach, which establishes the minimum criteria that an organization
must meet to be considered a recognized professional association, is
the better approach. Consistent with the proposed rules, the final
rules include requiring or encouraging continuing professional
development as one of the defining criteria of a recognized
professional organization. Like most commenters that addressed the
issue,\354\ we agree that it is better to leave the treatment of
continuing professional development to the professional organizations
who are more knowledgeable about whether industry developments require
additional training of their members.\355\
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\352\ See supra note 324 and accompanying text.
\353\ See letter from SME 1.
\354\ See letters from Amec, CBRR, Midas, Rio Tinto, SRK 1, and
Vale.
\355\ See, e.g., letter from Rio Tinto.
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We are not publishing an approved list of ``recognized professional
organizations.'' We continue to believe that our principles-based
approach, which some commenters preferred because of its
flexibility,\356\ provides assurance that the qualified person has the
appropriate level of professional expertise to support the disclosure
of exploration results, mineral resources, or mineral reserves without
unduly restricting the pool of eligible qualified persons. Although we
acknowledge that the ``approved organization'' approach may be
initially easier to apply, it could also become outdated as
circumstances change, which could adversely affect the quality of
disclosure.\357\
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\356\ See letters from Alliance and Golder.
\357\ We also do not believe it would be appropriate to
reference a specific approved list of recognized professional
organizations adopted under one of the CRIRSCO-based codes, as
suggested by some commenters. See supra notes 332-334. This would
effectively bind the Commission's rules to a current and future
standard adopted by a third-party entity over which the Commission
would have little to no control or influence.
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D. Treatment of Exploration Results
1. Rule Proposal
Neither Guide 7 nor Item 102 addresses the disclosure of
exploration results in Commission filings.\358\ In contrast, the
CRIRSCO-based codes permit the disclosure of exploration results, which
are defined as data and information generated by mineral exploration
programs that might be of use to investors but which do not form part
of a disclosure of mineral resources or mineral reserves.\359\
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\358\ Accordingly, the staff does not currently request
disclosure of exploration results. If a registrant voluntarily
provides exploration results, the staff will review, and if
appropriate, issue comments on, such disclosure.
\359\ See, e.g., JORC Code, supra note 175, at pts. 18-19;
SAMREC Code, supra note 267, at pt. 20; PERC Reporting Standard,
supra note 302, at pt. 6; and SME Guide, supra note 177, at pts. 33-
34.
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We proposed to require that a registrant disclose its exploration
activity and its material exploration results for each of its material
properties for its most recently completed fiscal year.\360\ Similar to
the CRIRSCO-based codes, we proposed to define exploration results as
data and information generated by mineral exploration programs (i.e.,
programs consisting of sampling, drilling, trenching, analytical
testing, assaying, and other similar activities undertaken to locate,
investigate, define or delineate a mineral prospect or mineral deposit)
that are not part of a disclosure of mineral resources or reserves. We
further proposed an instruction explaining that when determining
whether exploration results are material, a registrant should consider
their importance in assessing the value of a material property or in
deciding whether to develop the property.\361\
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\360\ See Proposing Release, supra note 5, at Section II.D.
\361\ See id.
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In addition, we proposed to prohibit the use of exploration
results, by themselves, to derive estimates of tonnage, grade, and
production rates, or in an assessment of economic viability because of
the level of risk associated with exploration results.\362\ As we
explained, exploration results, by themselves, are inherently
speculative in that they do not include an assessment of geologic and
grade or quality continuity and overall geologic uncertainty.
Therefore, we indicated that exploration results are insufficient to
support disclosure of estimates of tonnage, grade, or other
quantitative
[[Page 66367]]
estimates.\363\ As proposed, tonnage and grade estimates would only be
part of mineral resource and reserve estimates, which must include an
assessment of geologic and grade or quality continuity and overall
geologic uncertainty.\364\
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\362\ See id.
\363\ See id.
\364\ See id. Similar restrictions on the use of exploration
results exist under the CRIRSCO standards. See, e.g., CRIRSCO
International Reporting Template, supra note 20, at cl. 18, which
states that ``[i]t should be made clear in public reports that
contain Mineral Exploration Results that it is inappropriate to use
such information to derive estimates of tonnage and grade.''
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2. Comments on the Rule Proposal
Several commenters generally supported requiring the disclosure of
material exploration results on material properties.\365\ One commenter
stated that exploration results on material properties are the basis
for valuing the property and, hence, should be disclosed in a technical
report specific to the property in question.\366\ Another commenter
stated that exploration results are ``important information for
investors, particularly in respect of exploration or development
companies, where exploration results might be all or a significant
portion of the information on the company's properties.'' \367\ A third
commenter stated that disclosure of material exploration results for
material properties should be required for exploration stage
registrants, but not for large production stage registrants, because
the same level of exploration results might not be deemed
material.\368\ A fourth commenter supported the required disclosure of
material exploration results for material properties as long as the
exploration information required to be disclosed is consistent with the
CRIRSCO definitions.\369\
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\365\ See letters from BHP, Eggleston, Midas, Rio Tinto, and
SAMCODES 2.
\366\ See letter from Eggleston.
\367\ Letter from Midas.
\368\ See letter from Rio Tinto; see also letter from BHP
(agreeing with the proposed material exploration results disclosure
requirement because it is a common practice promoted in other
jurisdictions for small to medium-sized listed companies to disclose
material exploration results).
\369\ See letter from SAMCODES 2.
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Many other commenters opposed requiring the disclosure of material
exploration results on a registrant's material properties.\370\ Most of
those commenters expressed concern that requiring the disclosure of
material exploration results could compel the disclosure of
commercially sensitive information and the potential violation of
confidentiality agreements with joint venture partners and other mining
operators (e.g., on adjacent properties).\371\ Several of those
commenters asserted that compulsory disclosure of exploration results
would be inconsistent with the CRIRSCO-based codes, which permit or
encourage but do not require such disclosure.\372\ One of the
commenters stated that, under the CRIRSCO standards, disclosure of
exploration results is voluntary until such information becomes
material to investors.\373\ Because the rule proposal would require the
disclosure of material exploration results on a material property on a
yearly basis, this commenter expressed concern that a registrant might
be compelled to disclose its exploration results in most instances even
before those exploration results would be considered material to
investors.\374\ Other commenters expressed concern that investors would
misconstrue the significance of exploration results.\375\ For example,
one commenter stated that the disclosure of material exploration
results ``is very likely to mislead investors into thinking that a
property is more economically viable than it may actually be given the
low level of certainty of exploration results.'' \376\
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\370\ See letters from Alliance, AngloGold, Cloud Peak, CIM,
Cleary & Gottlieb, Coeur, Davis Polk, FCX, Gold Resource, Newmont,
NMA 1, Royal Gold, SME 1, SRK 1, Vale, and Willis.
\371\ See letters from Alliance, Cleary & Gottlieb, Cloud Peak,
CIM, Davis Polk, FCX, Gold Resource, Newmont, NMA 1, Royal Gold, SME
1, and Vale.
\372\ See, e.g., letters from CIM, Cleary & Gottlieb, Gold
Resource, SME 1, and Vale.
\373\ See letter from SME 1.
\374\ See id.
\375\ See letters from Alliance, AngloGold, and SRK 1.
\376\ Letter from Alliance.
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Because of the above concerns, most of the commenters that
addressed the issue recommended that the Commission permit, but not
require, the disclosure of material exploration results on material
properties.\377\ In this regard, some commenters distinguished between
exploration or development stage issuers, on the one hand, and
production stage issuers, on the other.\378\ These commenters stated
that because exploration results may be the only available information
for certain exploration or development stage issuers, the disclosure of
exploration results would be material for investors in these types of
issuers. For production stage issuers, however, the disclosure of
exploration results would generally result in immaterial information
that would be costly and burdensome to prepare.
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\377\ See letters from AngloGold, Cleary & Gottlieb, Cloud Peak,
CIM, Coeur, Davis Polk, FCX, Gold Resource, Newmont, Royal Gold, SME
1, SRK 1, Vale, and Willis.
\378\ See letters from Amec, Cleary & Gottlieb, and Vale.
Another commenter agreed that exploration results ``may be all or a
significant portion of the available information regarding the
properties of an exploration or development-stage mining company,''
but nevertheless recommended the voluntary disclosure of exploration
activity and exploration results, including by exploration or
development stage companies. Letter from FCX.
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A number of commenters also opposed the Commission's proposed
prohibition of the use of exploration results to derive estimates of
tonnage and grade because, under the CRIRSCO standards, qualified
persons and registrants are allowed to disclose exploration targets,
which are quantitative estimates of the ranges of tonnage and grade of
a mineral deposit, which is the target of exploration.\379\ These
commenters recommended that the Commission permit the disclosure of
exploration targets, as defined under the CRIRSCO standards,\380\ which
would allow a registrant to provide a range of estimates of tonnage and
grade, while also requiring the registrant to provide ``cautionary
language of equal prominence that the potential quantity and grade is
conceptual in nature, that there has been insufficient exploration to
define the mineralization as a mineral resource and that it is
uncertain if further exploration will result in the target delineated
as a mineral resource.'' \381\
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\379\ Letter from CIM. See also letters from Amec, AngloGold,
BHP, CBRR, Coeur, CRIRSCO, JORC, SAMCODES 1, SME 1, SRK 1, Vale, and
Willis.
\380\ Under the CRIRSCO standards, an exploration target is a
statement or estimate of the exploration potential of a mineral
deposit in a defined geological setting where the statement or
estimate, quoted as a range of tons and a range of grade or quality,
relates to mineralization for which there has been insufficient
exploration to estimate mineral resources. CRIRSCO International
Reporting Template, supra note 20, at cl. 17.
\381\ Id.; see also letter from CIM.
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Commenters that addressed the proposed definition of exploration
results had varied opinions. One commenter supported without
elaboration the Commission's proposed definition of exploration
results.\382\ Another commenter generally agreed with the proposed
definition of exploration results, indicating that they ``are correctly
defined as not forming part of a mineral resource or mineral reserve,''
but suggested adding to the definition information generated by
``geophysical and geochemical surveys, remote sensing information, bulk
sampling, test mining (not for commercial purposes).'' \383\
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\382\ See letter from AngloGold.
\383\ Letter from Midas.
---------------------------------------------------------------------------
A third commenter, however, opposed the proposed definition because
it does not include all techniques typically employed by exploration
geologists and therefore
[[Page 66368]]
recommended adding to the definition ``[a]ll industry standard
activities of geologic exploration.'' \384\ A fourth commenter objected
to the part of the proposed definition that excludes exploration
results from forming part of a declaration of mineral resources or
mineral reserves because exploration results are the basis of the
mineral resource and mineral reserve estimates.\385\
---------------------------------------------------------------------------
\384\ Letter from SRK 1.
\385\ See letter from Amec. Because ``exploration results do not
become something other than exploration results once a [m]ineral
[r]esource or [m]ineral [r]eserve is declared,'' the commenter
preferred the definition of ``exploration information'' under
Canada's NI 43-101. That definition provides that exploration
information ``means geological, geophysical, geochemical, sampling,
drilling, trenching, analytical testing, assaying, mineralogical,
metallurgical, and other similar information concerning a particular
property that is derived from activities undertaken to locate,
investigate, define, or delineate a mineral prospect or mineral
deposit.'' Canada's NI 43-101, supra note 123, at pt. 1.1.
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3. Final Rules
We continue to believe that the disclosure of exploration results,
to the extent that they are material, will provide investors with a
more comprehensive picture of a registrant's mining operations and help
them make more informed investment decisions. However, we also
recognize the concern of commenters that, because we proposed to
require annual disclosure of material exploration results on a material
property, a registrant might misinterpret the requirement as compelling
it to disclose its exploration results in most instances, even before
those exploration results would be considered material to
investors.\386\ Such a result would conflict with the approach under
the CRIRSCO standards, pursuant to which ``the release of exploration
results [is] optional, and an issuer is only required to provide full
disclosure of exploration results when considered appropriate and
material to the investor.'' \387\
---------------------------------------------------------------------------
\386\ See, e.g., letter from SME 1.
\387\ Id.
---------------------------------------------------------------------------
The approach we are adopting regarding the disclosure of
exploration results is substantially similar to the CRIRSCO approach.
To make this clear, the final rules provide that if the registrant is
disclosing exploration activity or exploration results for its most
recently completed fiscal year, it must then provide the specified
disclosure, as discussed below.\388\ This approach recognizes that the
disclosure of exploration activity and exploration results is voluntary
and largely within the discretion of the registrant until such activity
and the concomitant results become material for investors. Once the
exploration activity and related results become material, under the
final rules they must be disclosed.\389\ When determining whether
exploration results and related exploration activity are material, the
registrant should consider all relevant facts and circumstances, such
as the importance of the exploration results in assessing the value of
a material property or in deciding whether to develop the property, and
the particular stage of the property.\390\
---------------------------------------------------------------------------
\388\ 17 CFR 229.1304(g)(1) and (2) [Item 1304(g)(1) and (2) of
Regulation S-K].
\389\ 17 CFR 229.1304(g)(4) [Item 1304(g)(4) of Regulation S-K],
which states that a registrant must disclose exploration results and
related exploration activity for a material property under this
section if they are material to investors.
\390\ See id.
---------------------------------------------------------------------------
A company engaged in mining activities frequently uses exploration
results, prior to a determination of mineral resources, to assess the
economic potential of its property as part of its decision to develop a
property. In addition, a company uses exploration results to determine
whether mineral resources exist and to estimate the mineral resources.
To the extent that mineral resources (and mineral reserves estimated
from them) on a particular property are material, depending on the
facts and circumstances, the exploration results that led to the
estimation of those mineral resources could also be material.
The registrant will be required to make a good faith determination
regarding the materiality of its exploration activity and exploration
results at the end of each completed fiscal year. In this regard, we
are providing some guidance for a registrant's materiality
determination regarding exploration results and related exploration
activity.\391\ Because materiality is a facts-and-circumstances
determination, what is material for one registrant may not be material
for another. For example, as commenters have noted,\392\ investors may
be more likely to find material the exploration activity and
exploration results of an exploration-stage issuer since such
information may comprise most, if not all, of the information regarding
mining assets available for that registrant. In contrast, investors may
be less likely to find material the exploration activity and
exploration results of a production-stage issuer where the primary
activity and investor interest are regarding the reserves being
extracted and their economic value.
---------------------------------------------------------------------------
\391\ See id.
\392\ See supra note 378 and accompanying text.
---------------------------------------------------------------------------
As previously noted, one factor to be considered when determining
the materiality of a registrant's exploration activity and concomitant
exploration results is the importance of that information in assessing
the value of a material property or in deciding whether to develop the
property.\393\ For example, exploration results that have significantly
affected the registrant's analysis or estimates of the life of a
material mining project would likely be considered material, thus
triggering a disclosure obligation. In contrast, exploration results in
the early stages of exploration activity may not rise to the level of
material information if they do not affect the registrant's decision to
develop the property. Similarly, an exploration result may not be
material if the registrant has determined that other features of the
property make the development of the property unlikely.
---------------------------------------------------------------------------
\393\ See Proposing Release, supra note 5, at Section II.D.
---------------------------------------------------------------------------
Requiring the disclosure of exploration results only when they have
become material to investors will more closely align our disclosure
rules with the CRIRSCO standards,\394\ which should help limit the
final rules' compliance costs. Furthermore, although some commenters
expressed concern that investors would misconstrue the significance of
exploration results, we believe this risk will be mitigated by
precluding the use of exploration results alone, without due
consideration of geologic uncertainty and economic prospects, to serve
as a basis for disclosure of tonnage, grade, and production rates, or
in an assessment of economic viability.
---------------------------------------------------------------------------
\394\ See letter from SME 1.
---------------------------------------------------------------------------
In a change from the proposed rules, if a registrant discloses
exploration results, the final rules do not require the registrant to
file a technical report summary to support such disclosure, even though
the disclosure itself must still be based on information and supporting
documentation by a qualified person.\395\ This elective treatment of
technical report summaries for exploration results should also help
limit compliance costs for the registrant and could reduce the
potential for investor confusion regarding the significance of the
disclosed results, about which some commenters expressed concern.\396\
Furthermore, making the technical report summary optional for
exploration results should also mitigate the concern of some
[[Page 66369]]
commenters \397\ who believed that requiring the disclosure of
exploration results would result in the disclosure of proprietary and
commercially sensitive information. This is because such information is
more likely to be found in the technical report summary's detailed
disclosure requirements for exploration activity and exploration
results (compared to the disclosure required in the narrative part of
the Commission filing).
---------------------------------------------------------------------------
\395\ See Item 1302(b)(1) of Regulation S-K.
\396\ See supra note 375 and accompanying text.
\397\ See letters of Alliance and FCX.
---------------------------------------------------------------------------
We are adopting the definition of exploration results, as
proposed.\398\ Although some commenters objected to the definition
because it does not include all activities related to exploration
programs,\399\ the specific activities mentioned are intended to be
illustrative of exploration activities and are not meant to exclude
other activities. In this regard, we note that the definition includes
``other similar activities undertaken to locate, investigate, define or
delineate a mineral prospect or mineral deposit.'' \400\ Moreover, the
specific activities mentioned in the definition are substantially
similar to the activities mentioned in the definition of ``exploration
information'' under Canada's NI 43-101.\401\
---------------------------------------------------------------------------
\398\ See the definition of ``exploration results'' in 17 CFR
229.1300.
\399\ See letters from Amec and SRK 1.
\400\ See 17 CFR 229.1300.
\401\ See supra note 385 and accompanying text.
---------------------------------------------------------------------------
While some commenters objected to the definition of exploration
results as referencing data and information ``that are not part of a
disclosure of mineral resources or reserves,'' \402\ this part of the
definition is consistent with the definition of exploration results
under the CRIRSCO-based codes.\403\ This language is not meant to deny
the connection between, and continuum of, exploration results, mineral
resources and mineral reserves, which a successful mining project will
reveal. Rather, it is meant to underscore the geologic and economic
uncertainties underlying exploration results, compared to the levels of
certainty required to arrive at estimates of mineral resources and
reserves, which only additional work by the qualified person can
resolve.
---------------------------------------------------------------------------
\402\ See letters from Amec and Eggleston.
\403\ See, e.g., JORC Code, supra note 175, at pt. 18; SAMREC
Code, supra note 267, at pt. 20; PERC Reporting Standard, supra note
302, at pt. 6; and SME Guide, supra note 177, at pt. 33.
---------------------------------------------------------------------------
Because of the low level of certainty underlying exploration
results, we are adopting the proposed restriction that a registrant
must not use exploration results alone to derive estimates of tonnage,
grade, and production rates, or in an assessment of economic viability.
This restriction is generally consistent with the CRIRSCO standards
\404\ although, as some commenters stated,\405\ those standards permit
the disclosure of exploration targets, which are expressed as a range
of tonnages and grades. Noting that the Proposing Release did not
discuss exploration targets, these commenters requested that we
specifically include exploration targets as a permitted item of
disclosure under the Commission's rules.\406\
---------------------------------------------------------------------------
\404\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 18; and PERC Reporting Standard, supra note 302, at
pt. 6.
\405\ See supra note 379 and accompanying text.
\406\ See, e.g., letters from CBRR, CIM, CRIRSCO, and SME 1.
---------------------------------------------------------------------------
We recognize that, as commenters indicated, it is common practice
for mining companies to discuss their exploration activities in terms
of an exploration target.\407\ As one commenter noted, placing
exploration results within the context of an exploration target helps
determine the materiality of those results.\408\ Moreover, as several
commenters indicated, exploration targets are typically discussed in a
technical report summary, particularly where the targets are in
proximity to mineral resources and reserves and, thus, may be material
to investors.\409\
---------------------------------------------------------------------------
\407\ See, e.g., letter from SME 1.
\408\ See letter from AngloGold.
\409\ See, e.g., letters from CIM, Coeur, SME 1, Vale, and
Willis.
---------------------------------------------------------------------------
Therefore, in response to commenters, the final rules provide that
a registrant may disclose an exploration target for one or more of its
properties that is based upon and accurately reflects information and
supporting documentation of a qualified person.\410\ This change will
also more closely align our rules with industry practice and global
standards. The final rules also provide that a qualified person may
include a discussion of an exploration target in a technical report
summary.\411\ Further, similar to the definition under the CRIRSCO
standards,\412\ the final rules define an exploration target to mean a
statement or estimate of the exploration potential of a mineral deposit
in a defined geological setting where the statement or estimate, quoted
as a range of tonnage and a range of grade (or quality), relates to
mineralization for which there has been insufficient exploration to
estimate a mineral resource.\413\
---------------------------------------------------------------------------
\410\ 17 CFR 229.1302(c)(1) [Item 1302(c)(1) of Regulation S-K].
See also 17 CFR 229.1304(g)(5) [Item 1304(g)(5) of Regulation S-K]
(providing that a registrant may disclose an exploration target when
discussing exploration results or exploration activity related to a
material property as long as the disclosure is in compliance with
the requirements of Sec. 229.1302(c)).
\411\ See 17 CFR 229.1302(c)(1).
\412\ See CRIRSCO International Reporting Template, supra note
20, at cl. 17; see also JORC Code, supra note 175, at pt. 17; and
SAMREC Code, supra note 270, at pt. 21.
\413\ See the definition of ``exploration target'' in 17 CFR
229.1300.
---------------------------------------------------------------------------
However, we also recognize that the disclosure of exploration
targets poses the potential for investor confusion in that an investor
might misconstrue an exploration target as an estimate of a mineral
resource or mineral reserve. Therefore, the final rules provide that
any substantive disclosure of an exploration target must be provided in
a separate section of the Commission filing or technical report summary
that is clearly captioned as a discussion of an exploration target.
That section must include a clear and prominent statement that:
The ranges of potential tonnage and grade (or quality)
of the exploration target are conceptual in nature;
There has been insufficient exploration of the relevant
property or properties to estimate a mineral resource;
It is uncertain if further exploration will result in
the estimation of a mineral resource; and
The exploration target therefore does not represent,
and should not be construed to be, an estimate of a mineral resource
or mineral reserve.\414\
---------------------------------------------------------------------------
\414\ 17 CFR 229.1302(c)(2) [Item 1302(c)(2) of Regulation S-K].
This requirement is similar to the cautionary language required for
the disclosure of an exploration target under the CRIRSCO-based
codes.\415\ Several commenters recommended that we require such
disclosure of cautionary statements in conjunction with the disclosure
of exploration targets.\416\
---------------------------------------------------------------------------
\415\ See, e.g., JORC Code, supra note 175, at pt. 17; and
SAMREC Code, supra note 270, at pt. 22.
\416\ See, e.g., letters from CBRR, CIM, and SME 1.
---------------------------------------------------------------------------
The final rules further require that any such disclosure of an
exploration target must also include:
A detailed explanation of the basis for the exploration
target, such as the conceptual geological model used to develop the
target;
An explanation of the process used to determine the
ranges of tonnage and grade, which must be expressed as
approximations;
A statement clarifying whether the exploration target
is based on actual exploration results or on one or more proposed
exploration programs, which should include a description of the
level of exploration activity already completed, the proposed
exploration activities designed to test the validity of the
exploration target, and the timeframe in which those activities are
expected to be completed; and
A statement that the ranges of tonnage and grade (or
quality) of the exploration
[[Page 66370]]
target could change as the proposed exploration activities are
completed.\417\
---------------------------------------------------------------------------
\417\ 17 CFR 229.1302(c)(3) [Item 1302(c)(3) of Regulation S-K].
These disclosure requirements will help investors understand the
conceptual basis and limitations of an exploration target, which should
help mitigate the potential for investor confusion about the target.
These disclosure requirements are also similar to the requirements for
exploration target disclosure under the CRIRSCO-based codes.\418\
Several commenters recommended that we require similar disclosure of
explanatory statements in conjunction with the disclosure of
exploration targets.\419\
---------------------------------------------------------------------------
\418\ See, e.g., JORC Code, supra note 175, at pt. 17; and
SAMREC Code, supra note 267, at pt. 22.
\419\ See supra note 416 and accompanying text.
---------------------------------------------------------------------------
We did not propose, and we are not requiring, the disclosure of
exploration results by a registrant that has material mining operations
in the aggregate but no individual properties that are material.\420\
If a company has determined that it lacks material mining properties,
we believe it is unlikely that such a company would have exploration
results that are material. While a company with no material properties
could voluntarily elect to disclose exploration results for its
properties, we do not believe investors would benefit from a
requirement to disclose exploration results under those circumstances.
---------------------------------------------------------------------------
\420\ An example of such a registrant would be an industrial
minerals company that has more than 50 properties none of which is
individually material. Under the final rules, such a company would
be required to provide summary disclosure concerning its mineral
resources and mineral reserves. See infra Section II.G.1 and 17 CFR
229.1303.
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E. Treatment of Mineral Resources
1. The Mineral Resource Disclosure Requirement
i. Rule Proposal
The determination of mineral resources is the second step, after
mineral exploration, that geoscientists and engineers use to assess the
value of a mining property.\421\ Most foreign mining codes require the
disclosure of material mineral resources.\422\ In contrast, Item 102
and Guide 7 preclude the disclosure of mineral resources in Commission
filings except in certain instances.\423\ According to industry
representatives, this restriction has limited the completeness and
relevance of the disclosures in SEC filings, and has caused confusion
among mining companies and their investors.\424\
---------------------------------------------------------------------------
\421\ First, mining professionals use exploration results to
determine if a mineral deposit is present. Next, they estimate
mineral resources, which are the portions of the mineral deposit
that have prospects of economic extraction. The last step is the
determination of mineral reserves, which are the economically
mineable portions of the mineral resources.
\422\ See, e.g., JORC Code, supra note 175, at pts. 14 and 20;
SAMREC Code, supra note 267, at pts. 3 and 24; SME Guide, supra note
177, at pts. 17 and 35; and PERC Reporting Standard, supra note 302,
at pts. 2.8 and 7.
\423\ Both Guide 7 and Item 102 permit the disclosure of non-
reserve deposits, such as mineral resources, if such information is
required to be disclosed by foreign or state law or if such
estimates previously have been provided to a person (or any of its
affiliates) that is offering to acquire, merge, or consolidate with
the registrant, or otherwise to acquire the registrant's securities.
See Instruction 3 to paragraph (b)(5) of Guide 7 and Instruction 5
to Item 102 of Regulation S-K. Only Canada has adopted a mining
disclosure code as a matter of law. Other foreign mining codes have
been adopted as listing standards for foreign securities exchanges
or as guidelines by foreign securities commissions. See Proposing
Release, supra note 5, Section 5, note 14 and accompanying text.
\424\ See SME Petition for Rulemaking, supra note 6, at 1-2.
---------------------------------------------------------------------------
We proposed to require a registrant with material mining operations
to disclose specified information in its Securities Act and Exchange
Act filings concerning any mineral resources, as defined in the
proposed rules, that have been determined based on information and
supporting documentation from a qualified person.\425\ As proposed, a
registrant with material mining operations that has multiple properties
would have to provide both summary disclosure about its mineral
resources for all properties and more detailed disclosure concerning
its mineral resources for each material property.\426\
---------------------------------------------------------------------------
\425\ See Proposing Release, supra note 5, at Section II.E.
\426\ See Proposing Release, supra note 5, at Sections II.G.1-2.
---------------------------------------------------------------------------
Under the proposed rules, while a registrant could not disclose
that it has determined that a mineral deposit constitutes a mineral
resource or mineral reserve unless that determination is based upon
information and supporting documentation \427\ prepared by a qualified
person, there would be no requirement that a registrant make such an
affirmative determination. For example, a registrant could choose not
to engage a qualified person to conduct the analyses and prepare the
documentation necessary to support a determination that a mineral
deposit is a mineral resource or reserve. In that case, under the
proposed rules, in the absence of such information and supporting
documentation, the registrant would be deemed not to have any mineral
resources, and as such, would not be required to disclose mineral
resources in a filing. If, however, the registrant did make the
determination that it had mineral resources based upon information and
supporting documentation prepared by a qualified person (e.g., as part
of its efforts to attract investors or secure project financing), then
under the proposed rules the registrant would be required to disclose
such mineral resources. This approach is consistent with the CRIRSCO-
based codes.\428\
---------------------------------------------------------------------------
\427\ For both the proposing and final rules, ``information and
supporting documentation'' means an initial assessment for mineral
resource determination and a preliminary or final feasibility study
for mineral reserve determination, each as prepared by a qualified
person or persons. See Proposing Release, supra note 5 and infra at
Sections II.E.3. II.E.4., and II.F.2.
\428\ Similarly, other significant mining jurisdictions do not
require a registrant to make the determination that it has mineral
resources or reserves, as defined by those codes. The regulatory
frameworks do, however, require disclosure of mineral resources and
mineral reserves once the registrant has made the determination that
it has them and they are material. See, e.g., Australian Security
Exchange Listing Rules (July 2014), r 5.7, 5.8, 5.9 (``ASX Listing
Rules''), https://www.asx.com.au/documents/rules/Chapter05.pdf
(providing guidance for disclosure of exploration results, mineral
resources and mineral reserves for ``material mining projects'').
---------------------------------------------------------------------------
As previously noted, Item 102 and Guide 7 preclude the disclosure
of estimates other than reserves in SEC filings unless such information
is required to be disclosed by foreign or state law or if obtained and
reported in the context of an acquisition, merger, or business
combination. Since we proposed to require the disclosure of estimates
for mineral resources in addition to mineral reserves by a registrant
with material mining operations, the foreign or state law or business
transaction exception would no longer be necessary. Therefore, we also
proposed to eliminate this exception.\429\
---------------------------------------------------------------------------
\429\ See Proposing Release, supra note 5, at Sections II.E.,
VIII.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Numerous commenters supported the Commission's proposal to require
a registrant with material mining operations to disclose determined
mineral resources in addition to mineral reserves.\430\ For example,
one commenter stated that the requirement would align the Commission's
disclosure rules with the CRIRSCO standards, provide a level playing
field for U.S. mining registrants, and provide investors with important
information about the mining registrant and its assets.\431\
---------------------------------------------------------------------------
\430\ See letters from Amec, AngloGold, BHP, CBRR, CIM,
Eggleston, FCX, Gold Resource, Midas, Newmont, Northern Dynasty, Rio
Tinto, SAMCODES 2, SRK 1, and Vale.
\431\ See letter from Midas.
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Another commenter stated that shareholders and potential investors
[[Page 66371]]
should be made aware of a company's mineral resources because such
resources are recognized internationally as assets of a mineral
property and can materially change the valuation of the company.\432\
This commenter also stated that U.S. companies have been put at a
disadvantage by not being able to disclose the potential value of their
properties through the disclosure of mineral resources.\433\ A third
commenter indicated that the ``resource component is useful to
investors in understanding the potential asset life and forward
development options still under development.'' \434\ Because of the
widespread disclosure of mineral resources under the CRIRSCO-based
codes, several commenters saw little to no risk to investors from the
Commission's proposal to require a registrant with material mining
operations to disclose mineral resources.\435\
---------------------------------------------------------------------------
\432\ See letter from Northern Dynasty; see also letter from SRK
1 (stating that disclosed mineral resources ``are an industry
standard evaluation of a potential or actual mining property'' that
``are commonly used by registrants and investors alike to evaluate
and compare specific properties as to their potential economic
value'').
\433\ See letter from Northern Dynasty.
\434\ Letter from Rio Tinto.
\435\ See letters from AngloGold, Eggleston, Rio Tinto, and SRK
1. Another commenter stated that it did not anticipate any risks
from the required disclosure of mineral resources as long as the
Commission adopted the CRIRSCO template and accompanying
definitions. See letter from CBRR.
---------------------------------------------------------------------------
One commenter acknowledged that there is a minor risk that
investors could interpret mineral resources as mineral reserves (i.e.,
that they imply economic viability).\436\ This commenter, however,
further stated that because of the widespread reporting of resources in
CRIRSCO jurisdictions, most investors understand the difference between
resources and reserves. Moreover, this commenter believed that the
Commission could mitigate any risk from resource disclosure by
requiring disclaimers as under Canada's NI 43-101, such as ``mineral
resources are not mineral reserves and do not have demonstrated
economic viability.'' \437\
---------------------------------------------------------------------------
\436\ See letter from Midas.
\437\ Id.
---------------------------------------------------------------------------
A number of commenters in the industrial minerals or aggregates
industry were critical of the proposed mineral resource disclosure
requirement. One such commenter opposed a requirement to disclose
mineral resource information on the grounds that because resources are
marginally economic and of lower certainty, reporting resources ``could
mislead investors with limited knowledge of the mining industry into
believing that a mining operation has a larger number of future
saleable tons than would likely be the case.'' \438\ Another commenter
disagreed with the Commission's statement that mining companies and
their investors consider mineral resource estimates to be material and
fundamental information about a company and its projects. That
commenter described the statement as an overgeneralization that does
not apply to the aggregates business.\439\
---------------------------------------------------------------------------
\438\ Letter from Alliance.
\439\ See letter from NSSGA.
---------------------------------------------------------------------------
Several commenters expressly supported the Commission's proposal to
require any disclosure of mineral resources in Commission filings to be
based on information and supporting documentation of a qualified
person.\440\ Some of these commenters stated that they did not know of
any circumstance that would justify the public disclosure of mineral
resources without the determination and approval of a qualified
person.\441\ One commenter, however, opposed the required disclosure of
mineral resources even if supported by a qualified person's information
and documentation.\442\ According to this commenter, the costs of
preparing such disclosure may be significant whereas the benefits of
such disclosure may be limited because of the inherent uncertainties in
resource estimation. For this reason, this commenter recommended that
the Commission make the disclosure of mineral resources optional even
if supported by a qualified person.\443\
---------------------------------------------------------------------------
\440\ See, e.g., letters from Amec, AngloGold, Eggleston, Gold
Resource, Midas, Northern Dynasty, and SRK 1.
\441\ See, e.g., letters from Eggleston, Midas, and SRK 1.
\442\ See letter from Davis Polk.
\443\ See id.
---------------------------------------------------------------------------
iii. Final Rules
As proposed, the final rules provide that a registrant with
material mining operations must disclose specified information in its
Securities Act and Exchange Act filings concerning mineral resources
that have been determined to exist based on information and supporting
documentation from a qualified person.\444\ We continue to believe that
requiring a mining registrant with material mining operations to
disclose mineral resources in addition to mineral reserves will provide
investors with important information concerning the registrant's
operations and prospects. The importance of this information is
demonstrated by the fact that most foreign mining codes require the
disclosure of mineral resources; mining companies, including U.S.
registrants, routinely disclose mineral resource information on their
websites; and many mining company analysts consider mineral resource
information as an important factor in their valuations and
recommendations.\445\ Requiring the disclosure of mineral resources
will also help place U.S. registrants on a level playing field with
Canadian mining registrants and non-U.S. mining companies that are
subject to one or more of the other CRIRSCO-based mining codes. For
these reasons, numerous commenters supported the required disclosure of
determined mineral resources in Commission filings.\446\
---------------------------------------------------------------------------
\444\ 17 CFR 229.1303(b)(3) [Item 1303(b)(3) of Regulation S-K]
and 229.1304(d)(1) [Item 1304(d)(1) of Regulation S-K].
\445\ See, e.g., SME Petition for Rulemaking, supra note6;
letters from Northern Dynasty and SRK 1; CRIRSCO International
Reporting Template, supra note 20, at cl. 21; and JORC Code, supra
note 175, at pt. 20.
\446\ See supra note 430.
---------------------------------------------------------------------------
Requiring disclosure of mineral resources in Commission filings
could increase the reporting costs for those mining companies that do
not currently disclose mineral resource information. We believe,
however, that any such increase would be modest as most mining
companies already assess mineral resources in order to determine
reserves.\447\
---------------------------------------------------------------------------
\447\ Best practice in mining engineering is to first determine
the quantity and quality of the material of economic interest (i.e.,
mineral resource estimation), prior to engineering and economic
evaluation, to determine if any or all of that material can be
extracted economically (i.e., mineral reserve estimation). See,
e.g., Alan C. Noble, Mineral Resource Estimation, in 1 SME Mining
Engineering Handbook 203 (P. Darling, ed., 2011), which states
``[t]he ore reserve estimate follows the resource estimate.''
---------------------------------------------------------------------------
As some commenters noted, requiring the disclosure of mineral
resources could also increase the possibility that investors may
misunderstand the economic value of a mining company, given that
mineral resources are less certain than mineral reserves.\448\ As
discussed below, however, we believe that this risk is limited by the
definition of the term mineral resource, by requiring disclosure of the
particular class of mineral resource, and by requiring an initial
assessment for mineral resource disclosure.
---------------------------------------------------------------------------
\448\ See letters from Alliance and Midas.
---------------------------------------------------------------------------
We also believe that there are important potential benefits to
investors from the disclosure of mineral resources, including more
comprehensive and potentially more accurate disclosure of mineral
reserves. Given that mineral reserve estimates are based on estimates
of mineral resources,
[[Page 66372]]
we believe that the required rigor surrounding the disclosure of
mineral resources as well as the attendant scrutiny from the qualified
person, particularly regarding mineral resource classification, is
likely to lead to more reliable mineral reserves disclosure.\449\
---------------------------------------------------------------------------
\449\ See, e.g., letter from Northern Dynasty (stating that
because mineral resources, if rigorously estimated, can materially
change the valuation of a company, shareholders and potential
investors should be made aware of those assets).
---------------------------------------------------------------------------
We recognize that some industry participants, such as those in the
industrial minerals and aggregates business, view mineral resources as
less important to their business than other mining registrants and
therefore have opposed a requirement to disclose mineral
resources.\450\ As previously explained, however, like the proposed
rules, the final rules do not impose an affirmative obligation to
determine mineral resources.\451\ If an aggregates or other mining
company does not want to incur the expense of hiring a qualified person
to determine the existence of mineral resources, it need not do so. In
that case, however, the company would not be able to declare that it
has mineral resources in a Commission filing.
---------------------------------------------------------------------------
\450\ See supra notes 438-439 and accompanying text.
\451\ See supra Section II.E.1.i.
---------------------------------------------------------------------------
Once a registrant with material mining operations does determine
that it has mineral resources, based on information and supporting
documentation of a qualified person, then, because of their importance
to the potential valuation of the company and to investors,\452\ we do
not believe that the registrant should have the option, as one
commenter suggested,\453\ of not disclosing the mineral resources in a
Commission filing, or of otherwise being excepted from disclosing them.
In this regard we note that the approach we are taking is consistent
with the regulatory frameworks of the CRIRSCO-based codes, which,
without exception, require disclosure of mineral resources (and mineral
reserves) once the registrant has made the determination that it has
them and they are material.\454\
---------------------------------------------------------------------------
\452\ See, e.g., letter from Northern Dynasty.
\453\ See letter from Davis Polk.
\454\ See supra note 428 and accompanying text.
---------------------------------------------------------------------------
2. Definition of Mineral Resource
i. Rule Proposal
We proposed to define ``mineral resource'' as a concentration or
occurrence of material of economic interest in or on the earth's crust
in such form, grade or quality, and quantity that there are reasonable
prospects for its economic extraction.\455\ We further proposed to
define the term ``material of economic interest,'' as used in the
definition of mineral resource, to include mineralization, including
dumps and tailings,\456\ geothermal fields, mineral brines, and other
resources extracted on or within the earth's crust. As proposed, the
term ``material of economic interest'' would not include oil and gas
resources resulting from oil and gas producing activities, as defined
in Regulation S-X,\457\ gases (e.g., helium and carbon dioxide), or
water.\458\
---------------------------------------------------------------------------
\455\ See Proposing Release, supra note 5, at Section II.E.1.
\456\ The term ``dumps'' refers to stockpiles of mined material.
The term ``tailings'' refers to a mixture of fine mineral matter and
process effluents generated by mineral processing plants.
\457\ See 17 CFR 210.4-10(a)(16)(i) [Rule 4-10(a)(16)(i) of
Regulation S-X].
\458\ See Proposing Release, supra note 5, at Section II.E.1.
---------------------------------------------------------------------------
The proposed rules further specified that, when determining the
existence of a mineral resource, a qualified person must be able to
estimate or interpret the location, quantity, grade or quality
continuity, and other geological characteristics of the mineral
resource from specific geological evidence and knowledge, including
sampling.\459\ In addition, when determining the existence of a mineral
resource, as proposed, the qualified person must conclude that there
are reasonable prospects for economic extraction of the mineral
resource based on an initial assessment that he or she conducts by
qualitatively applying the modifying factors likely to influence the
prospect of economic extraction.\460\
---------------------------------------------------------------------------
\459\ See id.
\460\ See id.
---------------------------------------------------------------------------
Similar to the CRIRSCO-based codes, we proposed to state in
connection with the definition of mineral resource that it is not to be
merely an inventory of all mineralization \461\ drilled or
sampled.\462\ A mineral resource is instead a reasonable estimate of
mineralization, taking into account relevant factors such as cut-off
grade,\463\ likely mining dimensions, location or continuity, which,
with the assumed and justifiable technical and economic conditions, is
likely to, in whole or in part, become economically extractable.\464\
---------------------------------------------------------------------------
\461\ The term ``inventory of mineralization'' means an estimate
of the total quantity of mineralization based on the available
evidence.
\462\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 21; JORC Code, supra note 175, at pt. 20; and SAMREC
Code, supra note 267, at pt. 24.
\463\ The term cut-off grade refers to the grade (the
concentration of metal or mineral in rock) at which the destination
of the material changes during mining. For establishing prospects of
economic extraction, it is the grade that distinguishes between the
material that is uneconomic and the material that is economic and
therefore going to be mined and processed. Terms with similar
meanings include net smelter return, pay limit and break-even
stripping ratio. See the definition of cut-off grade in 17 CFR
229.1300.
\464\ See Proposing Release, supra note 5, at Section II.E.1.
---------------------------------------------------------------------------
We further proposed to include within the definition of mineral
resource non-solid matter, such as geothermal fields and mineral
brines, in addition to mineralization, even though the CRIRSCO-based
codes restrict mineral resources to solid matter.
ii. Comments on the Rule Proposal
Several commenters generally supported the Commission's proposal to
define ``mineral resource'' as a concentration or occurrence of
material of economic interest in or on the earth's crust in such form,
grade or quality, and quantity that there are reasonable prospects for
its economic extraction.\465\ Some commenters supported the proposed
definition because it is aligned or consistent with the CRIRSCO
standards.\466\ Another commenter indicated the proposed definition was
reasonable because it included the requirement that there are
``reasonable prospects for economic extraction'' as under the CRIRSCO
jurisdictions.\467\ In contrast, although agreeing that mineral
resources must have reasonable prospects for their economic extraction,
one commenter opposed the proposed definition on the grounds that a
qualified person will not be able to assure that all modifying factors
can be accommodated for eventual economic extraction.\468\
---------------------------------------------------------------------------
\465\ See, e.g., letters from AngloGold, Eggleston, Midas,
Northern Dynasty, and Rio Tinto.
\466\ See letters from AngloGold, CBRR, and Rio Tinto.
\467\ See letter from Midas.
\468\ See letter from SRK 1.
---------------------------------------------------------------------------
Several commenters recommended that the Commission revise the
definition of mineral resource by requiring that there be reasonable
prospects for eventual economic extraction, as under the CRIRSCO
standards.\469\ As one commenter explained, under the proposed
definition, ``there is an implication that a mineral resource has
reasonable prospects for economic extraction today'' whereas ``[i]n
many cases, mineral resources are identified that may not have
reasonable prospects today, but with improved prices, technology, may
be economic tomorrow.'' \470\ Some commenters
[[Page 66373]]
further recommended that the Commission provide interpretive guidance
on the meaning of the term ``eventual.'' \471\
---------------------------------------------------------------------------
\469\ See letters from Amec, AngloGold, BHP, Eggleston, Energy
Fuels, Rio Tinto, and Vale.
\470\ Letter from Eggleston; see also letter from Energy Fuels;
letter from Vale (explaining that ``[t]he word ``eventual''
indicates timing for economic extraction, and timing may vary
depending on the commodity or mineral'').
\471\ See letters from SME 1 and Vale.
---------------------------------------------------------------------------
Several commenters supported the proposed definition's inclusion of
dumps and tailings.\472\ One commenter explained that mine dumps and
tailings are a significant source of metals and, in some cases, are the
only identified mineral resource on a property.\473\ Another commenter
stated that, in addition to dumps and tailings, the definition of
mineral resource should specifically include ``slag heaps (dumps),
stockpiles, heap or dump leach pads, and backfill materials.'' \474\
---------------------------------------------------------------------------
\472\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
\473\ See letter from Eggleston.
\474\ Letter from Amec.
---------------------------------------------------------------------------
Some commenters generally supported the proposed definition's
inclusion of mineral brines.\475\ Two of those commenters conditioned
their support on the Commission's adoption of significant additional
guidance regarding mineral brines.\476\ Two commenters also supported
the proposed inclusion of geothermal energy.\477\ One of the commenters
conditioned support on the Commission's adoption of separate rules for
geothermal energy with additional guidance.\478\
---------------------------------------------------------------------------
\475\ See letters from Eggleston, Northern Dynasty, and Rio
Tinto.
\476\ See letters from Eggleston and Rio Tinto.
\477\ See letters from Eggleston and Northern Dynasty.
\478\ See letter from Eggleston.
---------------------------------------------------------------------------
In contrast, several commenters expressly opposed the inclusion of
mineral brines and geothermal energy in the definition of mineral
resource.\479\ One commenter explained that extraction of mineral
brines and geothermal energy ``requires the pumping of fluids rather
than digging of solid materials'' and, like water and gases, which the
proposed definition would exclude, involves scientific and engineering
principles that are substantially different from those used to estimate
solid mineral resources.\480\ Regarding geothermal energy, this
commenter stated that there is no internationally accepted standard
protocol to estimate and report the potential for geothermal
energy.\481\
---------------------------------------------------------------------------
\479\ See letters from Amec, CBRR, CRIRSCO, Davis Polk, SAMCODES
2, SME 1, and SRK 1.
\480\ See letter from SME 1; see also letter from Amec (stating
that the definition of mineral resource should exclude mineral
brines because ``[m]ineral brine reservoirs are dynamic systems, and
the methodology for estimation of brine resources and brine reserves
is significantly different to that used in Mineral Resource and
Mineral Reserve estimates, since brine resource and brine reserve
estimates also require temporal measurements of fluid flow and brine
chemistry'').
\481\ See letter from SME 1.
---------------------------------------------------------------------------
Some commenters believed that disclosure of mineral brines should
be regulated under the oil and natural gas rules.\482\ A few commenters
recommended regulating disclosure of geothermal energy under its own
set of rules.\483\
---------------------------------------------------------------------------
\482\ See, e.g., letters from Rio Tinto and SRK 1; see also
letter from SAMCODES 2 (stating that disclosure of both mineral
brines and geothermal energy should be regulated under oil and
natural gas rules).
\483\ See letters from Amec and SRK 1; see also letter from MMSA
(recommending the adoption of separate rules for both geothermal
energy and mineral brines because ``these commodities do not closely
correspond with solid minerals'').
---------------------------------------------------------------------------
Several commenters supported the proposed exclusion of oil and gas
resources resulting from oil and gas producing activities, as defined
in Regulation S-X, gases (e.g., helium and carbon dioxide), and water
from the definition of mineral resource.\484\ As one commenter
explained, the above substances are not traditional or industry
standard commodities considered as ``mining operations.'' \485\
---------------------------------------------------------------------------
\484\ See letters from Amec, AngloGold, CBRR, Eggleston, Rio
Tinto, and SRK 1.
\485\ See letter from SRK 1.
---------------------------------------------------------------------------
Many commenters supported requiring in the definition of mineral
resource that a qualified person estimate or interpret the location,
quantity, grade or quality continuity, and other geological
characteristics of the mineral resource from specific geological
evidence and knowledge, including sampling.\486\ Commenters noted that
the proposed requirement is in alignment with CRIRSCO standards \487\
and is the current industry standard.\488\ One commenter stated that a
qualified person should also consider non-geologic factors, such as
processing, mining method costs, and economic evaluation, when
determining the reasonable prospects for a mineral resource's economic
extraction.\489\
---------------------------------------------------------------------------
\486\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
\487\ See letters from AngloGold, Eggleston, and Rio Tinto.
\488\ See letter from SRK 1.
\489\ See letter from CBRR.
---------------------------------------------------------------------------
iii. Final Rules
We are adopting the definition of mineral resource, as proposed, to
mean a concentration or occurrence of material of economic interest in
or on the Earth's crust in such form, grade or quality, and quantity
that there are reasonable prospects for economic extraction.\490\ As
commenters noted, this definition is consistent with the requirement
under the CRIRSCO-based codes that, in order for a deposit, in whole or
part, to be determined to be a mineral resource, there must be
reasonable prospects for its economic extraction.\491\
---------------------------------------------------------------------------
\490\ See the definition of ``mineral resource'' in 17 CFR
229.1300.
\491\ See, e.g., letters from CBRR and Midas. See infra note 493
and accompanying text for why we are not adopting the modifier
``eventual'' as used in the CRIRSCO definition of mineral resource.
---------------------------------------------------------------------------
In order to classify a deposit as a resource, a qualified person
must establish that there are reasonable prospects of economic
extraction by estimating or interpreting key geological characteristics
from specific geological evidence. We believe that requiring an
analysis based on specific geological evidence to establish prospects
of economic extraction provides an appropriate standard, and
importantly, one that is more exacting than what we are requiring for
the disclosure of exploration results. A qualified person should have a
higher level of confidence to determine that a deposit is properly
classified as a mineral resource (which is an estimate of tonnage and
grade that has reasonable prospects of economic extraction) than to
report exploration results (which may not indicate the existence of any
tonnage with reasonable prospects of economic extraction) because of
the relatively greater weight that investors are likely to place on
estimates of mineral resources. This in turn should help mitigate the
uncertainty inherent in the determination of mineral resources.
Moreover, because the CRIRSCO-based codes impose a substantially
similar requirement, we do not believe this aspect of the definition of
mineral resources would significantly alter existing disclosure
practices of registrants subject to these codes.\492\
---------------------------------------------------------------------------
\492\ As discussed below, in a change from the proposed rules,
the final rules require a qualified person to consider relevant
technical and economic factors likely to influence the prospect of
economic extraction, rather than applicable modifying factors, at
the resource determination stage in order to more closely align the
final rules with the CRIRSCO standards. See infra Section II.E.4.
---------------------------------------------------------------------------
We are not modifying the proposed definition of mineral resource to
mean that there must be reasonable prospects for its eventual economic
extraction.\493\ Because a qualified person must consider relevant
technical and economic factors likely to influence the prospect of
economic extraction, including pricing for the resource that could be
based on forward-looking price
[[Page 66374]]
forecasts,\494\ when determining whether mineral resources exist on a
property, we believe it is clear from the definition of mineral
resource that the reasonable prospects for economic extraction will
occur over a timeline.
---------------------------------------------------------------------------
\493\ See, e.g., letters from Eggleston and Vail.
\494\ See infra Section II.E.4.
---------------------------------------------------------------------------
To be clear, by requiring that there be reasonable prospects for a
mineral resource's economic extraction, we do not mean that the
extraction must occur immediately. Rather, we expect that it will occur
over a temporal period, which will vary depending on the mineral or
commodity being mined. As noted by the CRISCRO-based codes, for coal,
iron ore, bauxite or other bulk minerals and commodities, it may be
reasonable to consider economic extraction as occurring over a time
period of 50 or more years when determining whether the deposit is a
mineral resource. However, for smaller mineral deposits, it would
likely be reasonable to consider economic extraction as occurring over
a much shorter time period, for example, no more than 10-15 years.\495\
Under the final rules, the qualified person will choose the appropriate
temporal period when determining whether mineral resources exist and,
if the property is material, must explain its choice in the technical
report summary.\496\
---------------------------------------------------------------------------
\495\ See, e.g., JORC Code, supra note 175, at pt. 20; and SME
Guide, supra note177, at pt. 35.
\496\ See infra Section II.E.4.
---------------------------------------------------------------------------
The final rules provide that the term ``material of economic
interest,'' when used in the context of mineral resource determination,
includes mineralization, including dumps and tailings, mineral brines,
and other resources extracted on or within the earth's crust.\497\ Most
commenters \498\ that addressed the issue supported including dumps and
tailings within the definition because it reflects industry practice
and is consistent with the CRIRSCO-based codes.\499\ The inclusion of
dumps and tailings in the definition of mineral resource reflects the
fact that, under certain circumstances, these byproducts from older
mining operations possess value.
---------------------------------------------------------------------------
\497\ See the definition of ``material of economic interest'' in
17 CFR 229.1300.
\498\ See supra note 472.
\499\ See, e.g., JORC Code, supra note 175, at pt. 20; SAMREC
Code, supra note 267, at pt. 24; PERC Reporting Standard, supra note
302, at pt. 7.4; and SME Guide, supra note 177, at pt. 35.
---------------------------------------------------------------------------
The final rules do not exclude mineral brines from the definition
of mineral resource \500\ because we continue to believe that, by
definition, extracting minerals, such as lithium, from mineral brines
constitutes mining.\501\ While such extraction may involve the
consideration and application of additional factors, the scientific and
engineering principles used to characterize mineral brine and resources
and reserves are substantially similar to those used to characterize
solid mineral resources and reserves. We also note that, although the
CRIRSCO-based codes define a mineral resource as ``solid material,'' at
least one CRIRSCO-based jurisdiction has determined that disclosure
regarding the mining of mineral brines should be regulated under the
same set of rules governing mineral resources.\502\ Moreover, including
minerals extracted from mineral brines within the definition will
provide registrants with a workable, reasonable, and consistent
framework for disclosure related to these activities while providing
investors with useful and reliable information about the properties
containing the mineral brines.\503\
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\500\ See supra note 479 and accompanying text.
\501\ Mining can be defined as the ``[p]rocess of obtaining
useful minerals from the earth's crust.'' Lewis & Clark, Elements of
Mining 20 (1964).
\502\ See Ontario Securities Commission (OSC), Mineral Brine
Projects and National Instrument 43-101 Standards of Disclosure for
Mineral Projects, Notice 43-704 (July 22, 2011) (``In our view
mineral brine projects are mineral projects as defined in NI 43-
101'').
\503\ See, e.g., OSC Notice 43-704 (``We also think that it is
in the public interest for mineral brine projects to be subject to
the requirements of NI 43-101. NI 43-101 provides a proper and
rigorous disclosure framework for mineral projects hosted in a
brine'').
---------------------------------------------------------------------------
In a change from the proposed rules, the adopted definition of
mineral resource does not include geothermal energy.\504\ We have been
persuaded to exclude geothermal energy from the definition of mineral
resource due to the lack of consensus regarding how to regulate the
disclosure of geothermal energy resources.\505\
---------------------------------------------------------------------------
\504\ See the definition of ``material of economic interest''
referenced in the definition of mineral resource in 17 CFR 229.1300.
\505\ See, e.g., letter from SME 1. For example, the Australian
Geothermal Energy Association's Geothermal Code Committee concluded
that JORC was a better model for the Australian Geothermal Reporting
Code than the Society of Petroleum Engineers' Resources Management
System, which is favored by some U.S. industry groups. See, e.g.,
J.V. Lawless, M. Ward and G. Beardsmore, The Australian Code for
Geothermal Reserves and Resources Reporting: Practical Experience,
Proceedings of the World Geothermal Congress (2010).
---------------------------------------------------------------------------
The adopted definition of mineral resource also excludes oil and
gas resources resulting from oil and gas producing activities, as
defined in Rule 4-10(a)(16)(i) of Regulation S-X,\506\ gases (e.g.,
helium and carbon dioxide), and water.\507\ Most commenters that
addressed the issue supported the exclusion of oil and gas resources
because their exclusion is consistent with industry practice.\508\ Also
consistent with industry practice, we are excluding gases (such as
helium and carbon dioxide) and water because the scientific and
engineering principles used to estimate these resources are
substantially different from those used to estimate mineral resources.
---------------------------------------------------------------------------
\506\ 17 CFR 210.4-10(a)(16)(i).
\507\ See the definition of ``material of economic interest''
referenced in the definition of mineral resource in 17 CFR 229.1300.
\508\ See supra note 484.
---------------------------------------------------------------------------
As proposed, the final rules provide that a mineral resource is a
reasonable estimate of mineralization, taking into account relevant
factors such as cut-off grade, likely mining dimensions, location or
continuity that, with the assumed and justifiable technical and
economic conditions, is likely to, in whole or in part, become
economically extractable. It is not merely an inventory of all
mineralization drilled or sampled.\509\
---------------------------------------------------------------------------
\509\ See the definition of ``mineral resource'' in 17 CFR
229.1300; see also 17 CFR 229.1302(d)(1)(i)(A) [Item
1302(d)(1)(i)(A) of Regulation S-K].
---------------------------------------------------------------------------
Several commenters supported requiring in the definition of mineral
resource that a qualified person estimate or interpret the location,
quantity, grade or quality continuity, and other geological
characteristics of the mineral resource from specific geological
evidence and knowledge, including sampling.\510\ As commenters noted,
this requirement is in alignment with CRIRSCO standards \511\ and is
the current industry standard.\512\ Accordingly, its adoption should
help promote uniformity in the disclosure of mineral resources.
Although some commenters suggested that we expand the definition to
include other specific factors to consider at the resource
determination stage,\513\ we believe that such expansion would increase
the prescriptive nature of subpart 1300 and could thereby increase the
compliance burden of the final rules without providing significant
additional benefits for investors.
---------------------------------------------------------------------------
\510\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
\511\ See letters from AngloGold, Eggleston, and Rio Tinto.
\512\ See letter from SRK 1.
\513\ See, e.g., letter from Amec.
---------------------------------------------------------------------------
3. Classification of Mineral Resources
i. Rule Proposal
We proposed to adopt the CRIRSCO-based classification of mineral
resources \514\ by requiring a registrant
[[Page 66375]]
with material mining operations to classify its mineral resources into
inferred, indicated, and measured mineral resources, in order of
increasing confidence based on the level of underlying geological
evidence.\515\ We further proposed to define each of those
subcategories of mineral resources.
---------------------------------------------------------------------------
\514\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 21; JORC Code, supra note 175, at pt. 20; SAMREC
Code, supra note 267, at pt. 24; and PERC Reporting Standard, supra
note 302, at pt. 7.2.
\515\ See Proposing Release, supra note 5, at Section II.E.2.
---------------------------------------------------------------------------
a. Inferred Mineral Resources
Similar to the CRIRSCO-based codes,\516\ we proposed to define
``inferred mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
limited geological evidence and sampling.\517\ As the proposed rules
explained, ``limited geological evidence'' means evidence that is only
sufficient to establish that geological and grade or quality continuity
is more likely than not. The proposed rules further provided that the
level of geological uncertainty associated with an inferred mineral
resource is too high to apply modifying factors in a manner useful for
evaluation of economic viability.\518\ Because an inferred mineral
resource has the lowest level of geological confidence of all mineral
resources, under the proposed rules it may not be considered when
assessing the economic viability of a mining project and may not be
converted to a mineral reserve.\519\
---------------------------------------------------------------------------
\516\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 22; JORC Code, supra note 175, at pt. 21; SAMREC
Code, supra note 267, at pt. 25; and PERC Reporting Standard, supra
note 302, at pt. 7.5.
\517\ See Proposing Release, supra note 5, at Section II.E.2.
\518\ See id.
\519\ See id.
---------------------------------------------------------------------------
We further proposed to establish the level of certainty that a
qualified person must strive to achieve when determining the existence
of an inferred mineral resource. As proposed, the qualified person must
have a reasonable expectation that the majority of inferred mineral
resources could be upgraded to indicated or measured mineral resources
with continued exploration. In addition, the qualified person should be
able to defend the basis of this expectation before his or her
peers.\520\
---------------------------------------------------------------------------
\520\ See id.
---------------------------------------------------------------------------
b. Indicated and Measured Mineral Resources
We proposed to define ``indicated mineral resource'' as that part
of a mineral resource for which quantity and grade or quality are
estimated on the basis of adequate geological evidence and
sampling.\521\ As the proposed rules explained, ``adequate geological
evidence'' means evidence that is sufficient to establish geological
and grade or quality continuity with reasonable certainty. This means
that the level of geological certainty associated with an indicated
mineral resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit.\522\ We also
proposed to explain that an indicated mineral resource has a lower
level of confidence than that applicable to a measured mineral resource
and may only be converted to a probable mineral reserve.\523\
---------------------------------------------------------------------------
\521\ See id.
\522\ See id.
\523\ See id.
---------------------------------------------------------------------------
We proposed to define ``measured mineral resource'' as that part of
a mineral resource for which quantity and grade or quality are
estimated on the basis of conclusive geological evidence and
sampling.\524\ As the proposed rules explained, ``conclusive geological
evidence'' means evidence that is sufficient to test and confirm
geological and grade or quality continuity. This means that the level
of geological certainty associated with a measured mineral resource is
sufficient to allow a qualified person to apply modifying factors in
sufficient detail to support detailed mine planning and final
evaluation of the economic viability of the deposit.\525\ We also
proposed to provide that, because a measured mineral resource has a
higher level of confidence than that applying to either an indicated
mineral resource or an inferred mineral resource, it may be converted
to a proven mineral reserve or to a probable mineral reserve.\526\
---------------------------------------------------------------------------
\524\ See id.
\525\ See id.
\526\ See id.
---------------------------------------------------------------------------
c. Considerations of Geologic Uncertainty
We proposed to require that the qualified person quantify the
uncertainty associated with each class of mineral resources by
disclosing the uncertainty associated with the production estimates
derived from each class of mineral resources.\527\ While a qualified
person would be permitted to develop mineral resource estimates using
any generally accepted method, including geostatistics, simulation, or
inverse distance, under the proposed rules, he or she would also be
required to estimate the uncertainty associated with each class of
mineral resource, expressed in a prescribed format that depended upon
the specific classification of the resource.
---------------------------------------------------------------------------
\527\ We proposed to require this quantification of uncertainty
in the ``initial assessment'' prepared by the qualified person. We
proposed to define ``initial assessment'' as a preliminary technical
and economic study of the economic potential of all or parts of
mineralization to support the disclosure of mineral resources. See
Proposing Release, supra note 5, at Section II.E.2. An initial
assessment is different from a pre-feasibility study in that a pre-
feasibility study is used to determine whether all or part of a
mineral resource can be converted into a mineral reserve. We discuss
the initial assessment requirement in detail in Section II.E.4
below.
---------------------------------------------------------------------------
As we explained in the Proposing Release,\528\ for indicated and
measured mineral resources, the qualified person would be required to
provide the confidence limits of relative accuracy,\529\ at a specific
confidence level, of the preliminarily estimated production quantities
per period from the resource.\530\ This approach for reporting the
level of uncertainty is consistent with what many have suggested in the
mining engineering literature to be best practice.\531\ When proposing
this approach, we did not impose any restrictions on the acceptable
confidence limits of relative accuracy or confidence level required to
disclose indicated or measured mineral resources. In that regard, we
recognized that the natural variability of geologic characteristics is
different for different deposits.
---------------------------------------------------------------------------
\528\ See Proposing Release, supra note 5, at Section II.E.2.
\529\ The term ``confidence limits of relative accuracy'' refers
to the values on both sides of zero (the average relative accuracy
for unbiased mineral resource estimates) that show, for a specified
probability (the confidence level), the range in which the relative
accuracy lies. For example, if a report says the confidence limits
of relative accuracy for a mineral resource is 10% at
90% confidence for annual production quantities, it means there is a
nine out of ten chance that the actual annual production quantities
will be between 90% and 110% of the planned quantities.
\530\ Using this approach, the geologic uncertainty associated
with indicated and measured mineral resources is stated by keeping
any two of the three relevant variables (confidence limits of
relative accuracy, confidence level, and production periods)
constant while varying the third. For example, the risk could be
stated as 15% at 90% confidence for monthly, quarterly,
or annual production estimates, or 10% or 15% at 90% confidence for annual production estimates.
\531\ The mining engineering literature makes clear that
specifying the confidence limits of relative accuracy, at a specific
confidence level, of production quantities per period is the best
way to quantify uncertainty associated with resources. See, e.g.,
E.H. Isaaks, and R.M. Srivastava, An Introduction to Applied
Geostatistics 489-513 (1990); and M.E. Rossi, and C.V. Deutsch,
Mineral Resource Estimation 209-222 (2014). See generally P.R.
Stephenson, Mineral Resource Classification. How the Viability of
Your Project May Hang On a Qualified Person's Judgment (2011); and
P. Stoker and C. Moorhead, Confidence in Resource Estimates--Beyond
Classification (2009).
---------------------------------------------------------------------------
[[Page 66376]]
We further proposed that, when estimating the geologic uncertainty
associated with indicated and measured mineral resources, the qualified
person would be required to consider the limitations of the data,
assumptions, and models used to determine the resource estimates. This
is because the numerical estimates of uncertainty from geostatistics or
simulation do not account for risk factors associated with the input
such as, but not limited to, drilling or sampling methods, laboratory
assaying methods, outlier treatment, assumptions made during modeling
of domains and geologic controls, compositing (averaging grades over
similar sampling volumes or lengths), and establishing upper limits of
grades. Consequently, such numerical estimates may underestimate the
uncertainty associated with the mineral resources.
Regarding inferred mineral resources, we proposed to require
qualified persons to state the minimum percentage of inferred mineral
resources they believe will be converted to indicated and measured
mineral resources with further exploration.\532\ As we explained,
because inferred resources have such a low level of confidence, it
would be inappropriate for a qualified person to use them in production
estimates for a period equal to or shorter than a year. Differences
between actual and estimated production for such periods would have
such high standard deviations that they would not provide an
appropriate basis for investment decisions.\533\
---------------------------------------------------------------------------
\532\ We proposed to require uncertainty estimates for inferred
mineral resources to be stated in the form ``the qualified person
expects at least z% of inferred mineral resources to convert to
indicated or measured mineral resources with further exploration and
analysis.'' See Proposing Release, supra note 5, at note 180 and
accompanying text.
\533\ Possible sources of uncertainty that affect the reporting
of inferred resources may include sampling or drilling methods, data
processing and handling, geologic modeling and estimation.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Many commenters supported the Commission's proposal to require a
registrant to classify its mineral resources into inferred, indicated,
and measured mineral resources because such a requirement would be
consistent with the CRIRSCO standards.\534\ Other commenters supported
the classification requirement as long as the definitions of inferred,
indicated and measured mineral resources are identical to those under
the CRIRSCO-based codes.\535\
---------------------------------------------------------------------------
\534\ See letters from Amec, AngloGold, BHP, CBRR, Eggleston,
FCX, Midas, Rio Tinto, SAMCODES 2, SRK 1, and Vale.
\535\ See, e.g., letters from Amec, CIM, Coeur, Northern
Dynasty, and SAMCODES 2.
---------------------------------------------------------------------------
One commenter saw little value in the classification of mineral
resources. According to that commenter, ``[b]ecause resources are
considered economically marginal and of lower certainty to begin with,
dividing resources into low, middle, and high level of certainty offers
little value'' and ``tends to give additional credibility to the
resources as a whole that may not be warranted.'' \536\
---------------------------------------------------------------------------
\536\ Letter from Alliance.
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a. Inferred Mineral Resources
Some commenters supported requiring a registrant with material
mining operations to disclose inferred resources, despite limited
geologic evidence underlying those resources, on the grounds that such
a requirement is consistent with CRIRSCO \537\ or industry
standards.\538\ Other commenters, however, recommended permitting
rather than requiring the disclosure of inferred resources.\539\
According to one of those commenters, an optional approach is warranted
because of the high level of geologic uncertainty associated with that
class of mineral resource.\540\
---------------------------------------------------------------------------
\537\ See, e.g., letters from AngloGold, Midas, and Rio Tinto.
\538\ See letter from SRK 1.
\539\ See letters from CBRR, Eggleston, and Gold Resource.
\540\ See letter from Gold Resource.
---------------------------------------------------------------------------
Several commenters supported defining ``inferred mineral resource''
as that part of a mineral resource for which quantity and grade or
quality are estimated on the basis of limited geological evidence and
sampling.\541\ Other commenters, however, objected to the proposed
definition of inferred resource because it is not identical to the
CRIRSCO definition.\542\ For example, one commenter objected to the
proposed definition of ``limited geological evidence'' as evidence that
is only sufficient to establish that geological and grade or quality
continuity is more likely than not. Instead, that commenter recommended
substituting the CRIRSCO definition of inferred mineral resource, which
includes the requirement that ``[g]eologic evidence is sufficient to
imply but not verify geological and grade or quality continuity.''
According to that commenter, by using the CRIRSCO definition, ``the
assumptions underlying the estimates of inferred mineral resources are
more clearly defined.'' \543\
---------------------------------------------------------------------------
\541\ See, e.g., letters from AngloGold, Eggleston, Gold
Resource, and Rio Tinto.
\542\ See supra note 535.
\543\ Letter from CIM.
---------------------------------------------------------------------------
One commenter supported the Commission's proposed prohibition
regarding the use of inferred resources in economic assessments of
mining properties.\544\ This commenter indicated that using inferred
resources in this way could mislead registrants and investors on the
economic potential of the property.\545\
---------------------------------------------------------------------------
\544\ See letter from Gold Resource.
\545\ See id.
---------------------------------------------------------------------------
Many other commenters opposed the Commission's proposal to prohibit
the use of inferred resources to make a determination about the
potential economic viability of extraction.\546\ Commenters stated that
this prohibition would be inconsistent with the CRIRSCO-based codes,
which permit the inclusion of inferred resources in a scoping study or
a preliminary economic assessment (as permitted under Canada's NI 43-
101) as long as cautionary disclaimers regarding the geologically
speculative nature of inferred resources and the corresponding high
level of risk associated with them are provided.\547\ According to
several of these commenters, adoption of this prohibition would place
U.S. registrants at a significant disadvantage and deprive investors of
information they have found relevant to their investment
decisions.\548\
---------------------------------------------------------------------------
\546\ See letters from Amec, AngloGold, BHP, CBRR, Coeur,
CRIRSCO, Eggleston, Energy Fuels, JORC, Midas, MMSA, NMA, Northern
Dynasty, Randgold, SAMCODES 2, SME 1, SRK 1, Ur-Energy, Vale, and
Willis.
\547\ See letters from Amec, Coeur, CRIRSCO, Eggleston, Energy
Fuels, JORC, Midas, MMSA, NMA, Northern Dynasty, SME 1, SRK 1, Ur-
Energy, Vale and Willis.
\548\ See letters from Coeur, NMA, Northern Dynasty, SME 1, Ur-
Energy, and Vale.
---------------------------------------------------------------------------
Commenters generally agreed with the Commission's proposal to
preclude the conversion of inferred resources into a mineral reserve
because of the high level of geologic uncertainty associated with
inferred resources.\549\ In response to our request for comment about
whether we should require a registrant to use a legend or cautionary
language when disclosing inferred resources, while commenters supported
such use in a preliminary economic assessment or scoping study to warn
of a high level of geologic uncertainty,\550\ a few commenters opposed
the use of cautionary language in the reporting of inferred resources
because such language is already captured in the
[[Page 66377]]
definition.\551\ Another commenter supported providing an appropriate
cautionary statement to accompany the reporting of inferred resources,
but asserted that a cautionary statement should be required for all
mineral resource and mineral reserve statements because they are
estimates based on various assumptions that may or may not be met at a
particular time.\552\
---------------------------------------------------------------------------
\549\ See letters from Amec, AngloGold, CBRR, Eggleston, Gold
Resource, Rio Tinto, SAMCODES 1, SRK 1, and Vale.
\550\ See, e.g., letters from CBRR, Coeur, Northern Dynasty, SRK
1, and Vale.
\551\ See letters from AngloGold and Rio Tinto. Another
commenter opposed the use of cautionary statements regarding
inferred resources because ``[r]equiring prescriptive statements is
not beneficial to the industry.'' Letter from Amec.
\552\ See letter from Eggleston.
---------------------------------------------------------------------------
b. Indicated and Measured Mineral Resources
Several commenters supported the Commission's proposal to define
``indicated mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
adequate geological evidence and sampling.\553\ Those commenters stated
that the proposed definition aligned with the CRIRSCO definition of
indicated mineral resource.\554\ The commenters also supported the
proposed definition of ``adequate geological evidence'' as evidence
that is sufficient to establish geological and grade or quality
continuity with reasonable certainty. Two of those commenters further
agreed that the definition of ``adequate geologic evidence'' should be
based on a qualified person's ability to apply modifying factors in
sufficient detail to support mine planning and evaluation of the
economic viability of the deposit.\555\
---------------------------------------------------------------------------
\553\ See letters from AngloGold, CBRR, Midas, Northern Dynasty,
and Rio Tinto.
\554\ See, e.g., letters from CBRR, Midas, and Rio Tinto.
\555\ See letters from AngloGold and Northern Dynasty.
---------------------------------------------------------------------------
Other commenters urged the Commission to adopt verbatim the CRIRSCO
definition of indicated mineral resource, which includes the provision
that ``[g]eologic evidence is derived from adequately detailed and
reliable exploration, sampling and testing and is sufficient to assume
geological and grade or quality continuity between points of
observation.'' \556\ Commenters stated that the CRIRSCO definition ``is
more specific'' \557\ than the Commission's proposed definition and is
the industry standard.\558\ In opposing the proposed definition of
indicated mineral resource, one of those commenters further explained
that a qualified person will not be able to assure that all modifying
factors can be accommodated for eventual economic extractions.\559\
---------------------------------------------------------------------------
\556\ See letters from Amec, CIM, Coeur, SRK 1, and Willis.
\557\ See letter from Willis.
\558\ See letters from SRK 1 and Willis.
\559\ See letter from SRK 1.
---------------------------------------------------------------------------
Some commenters supported the Commission's proposal to define
``measured mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
conclusive geological evidence and sampling.\560\ Those commenters
further supported the proposed definition of ``conclusive geological
evidence'' as evidence that is sufficient to test and confirm
geological and grade or quality continuity, which means that the level
of geological certainty associated with a measured mineral resource is
sufficient to allow a qualified person to apply modifying factors in
sufficient detail to support detailed mine planning and final
evaluation of the economic viability of the deposit.\561\ Those
commenters stated that the proposed definition of measured mineral
resource is consistent with the CRIRSCO standards.\562\
---------------------------------------------------------------------------
\560\ See letters from AngloGold and CBRR.
\561\ See id.
\562\ See id.
---------------------------------------------------------------------------
Other commenters recommended that the Commission adopt the CRIRSCO
definition of measured mineral resource instead of the proposed
definition.\563\ Commenters stated that the CRIRSCO definition is the
industry standard,\564\ did not favor use of the term ``conclusive
geological evidence'' because, in their view, it sets an unrealistic
standard,\565\ and maintained that a qualified person would not be able
to assure that all modifying factors could be accommodated for eventual
economic extraction.\566\ One of the commenters recommended replacing
the term ``conclusive'' with ``a high level of confidence.'' \567\
---------------------------------------------------------------------------
\563\ See letters from Amec, Coeur, Northern Dynasty, Rio Tinto,
and SRK 1.
\564\ See letters from Coeur and SRK 1.
\565\ See letters from Amec, Midas, Rio Tinto, and SRK 1.
\566\ See id.
\567\ See letter from SRK 1.
---------------------------------------------------------------------------
c. Considerations of Geologic Uncertainty
Many commenters opposed the Commission's proposal to quantify the
level of risk associated with indicated and measured mineral resources
based on the confidence limits of relative accuracy at a particular
confidence level for production estimates for periods of one year or
less.\568\ While acknowledging that the use of confidence limits of
relative accuracy is considered best practice in the industry, one
commenter opposed mandating such a requirement because, depending on
the deposit, a quantitative assessment of risk may not be necessary
and, in any event, may not be available to the company.\569\ Instead,
this commenter recommended relying on the application of the CRIRSCO
definitions of inferred, indicated, and measured mineral resource, each
of which requires a certain level of geological evidence, and requiring
the qualified person to disclose the basis for the classification.\570\
---------------------------------------------------------------------------
\568\ See letters from AIPG, Amec, AngloGold, BHP, CBRR, Cloud
Peak, Eggleston, FCX, Gold Resource, JORC, Midas, MMSA, Northern
Dynasty, NSSGA, Rio Tinto, SAMCODES 1 and 2, SRK 1, Ur-Energy, and
Vale.
\569\ See letter from SAMCODES 1.
\570\ See id.
---------------------------------------------------------------------------
A second commenter stated that qualitative risk assessments (e.g.,
low, medium, high) are more likely to provide investors with a sense of
the risks inherent in mineral resource and reserve estimates than
numerical risk assessments that inherently fail to account for the
underlying geological uncertainties, estimates and
interpretations.\571\ A third commenter stated that quantitative
estimation of uncertainties is burdensome and, in most cases, the costs
outweigh the benefits. That commenter recommended that the Commission
follow CRIRSCO's approach, which encourages but does not require the
quantitative estimation of uncertainties.\572\
---------------------------------------------------------------------------
\571\ See letter from AIPG. Several other commenters recommended
that the Commission permit a qualified person to provide a
qualitative discussion of the uncertainties involved in resource
determination in lieu of a quantitative assessment based on the
confidence limits of relative accuracy. See letters from Cloud Peak,
Gold Resource, Midas, Northern Dynasty, Rio Tinto, and SRK 1.
\572\ See letter from Vale; see also letters from Eggleston and
MMSA.
---------------------------------------------------------------------------
Many commenters opposed the Commission's proposal to require a
qualified person to describe the level of risk associated with an
inferred mineral resource based on the minimum percentage that he or
she estimates would convert to indicated or measured mineral resources
with further exploration.\573\ Commenters stated that there is no
realistic way to quantify such an estimate with any degree of
accuracy,\574\ such a requirement would be impractical and burdensome
for small mining companies,\575\ and such a
[[Page 66378]]
requirement is not imposed by other jurisdictions.\576\
---------------------------------------------------------------------------
\573\ See letters from Amec, CBRR, Eggleston, Gold Resource,
JORC, Midas, MMSA, Northern Dynasty, Rio Tinto, Royal Gold, SRK 1,
Ur-Energy, and Vale.
\574\ See, e.g., letters from Amec, Eggleston, Gold Resource,
Northern Dynasty, SRK 1, and Vale.
\575\ See letter from MMSA.
\576\ See letter from Vale.
---------------------------------------------------------------------------
Some commenters noted that, consistent with the CRIRSCO-based
codes, the proposed definition of inferred mineral resource included
the requirement that the qualified person have a reasonable expectation
that the majority of inferred mineral resources could be upgraded to
indicated or measured mineral resources with continued exploration.
Those commenters suggested that this proposed requirement would act as
a substitute for the proposed quantification in that, if the qualified
person cannot meet this expectation with regard to part of a deposit,
that part could not be classified as inferred resources.\577\
---------------------------------------------------------------------------
\577\ See letters from Amec, Eggleston, Northern Dynasty, Rio
Tinto, and Ur-Energy.
---------------------------------------------------------------------------
iii. Final Rules
We are adopting the proposed requirement that a registrant with
material mining operations classify its mineral resources into
inferred, indicated, and measured mineral resources, in order of
increasing confidence based on the level of underlying geological
evidence.\578\ We believe this classification requirement will improve
the accuracy of a registrant's mining disclosure in Commission filings,
and thereby benefit investors, because it is based upon an assessment
of ``geologic uncertainty,'' which is the risk related to the quality,
quantity and location of the mineral in the ground. Geologic
uncertainty directly affects two very significant estimates, production
quantities per period and related cash flows, which are crucial to a
registrant's determination, and an investor's understanding, of mineral
resource disclosure. We, therefore, believe that the final rules should
require, and not merely allow, the classification of mineral
resources.\579\
---------------------------------------------------------------------------
\578\ See, e.g., 17 CFR 229.1302(d)(1)(iii)(A) [Item
1302(d)(1)(iii)(A) of Regulation S-K]; 17 CFR 229.1303(b)(3); and 17
CFR 229.1304(d)(1).
\579\ Depending on the particular classes of resources that are
determined (e.g., if most or all of the determined resources are
inferred resources), a registrant should consider whether
appropriate risk factor disclosure is needed to explain to investors
the limitations and risks of the resource determination.
---------------------------------------------------------------------------
As several commenters noted, requiring the classification of
mineral resources into inferred, indicated, and measured mineral
resources is consistent with the CRIRSCO standards and prevailing
industry practice.\580\ Thus, adoption of this classification
requirement will more closely align the Commission's mining property
disclosure rules with global industry practice and promote uniformity
in mining property disclosure.
---------------------------------------------------------------------------
\580\ See letters from AngloGold, BHP, Eggleston, Midas, Rio
Tinto, and SAMCODES 2.
---------------------------------------------------------------------------
a. Inferred Mineral Resources \581\
---------------------------------------------------------------------------
\581\ See also Section II.E.4.c. below for our discussion
concerning the inclusion of inferred mineral resources in a
quantitative assessment of the potential economic viability of a
deposit.
---------------------------------------------------------------------------
We are adopting the definition of ``inferred mineral resource,''
largely as proposed.\582\ In a slight change from the proposed rules,
the adopted definition of inferred mineral resource provides that the
level of geological uncertainty associated with an inferred mineral
resource is too high to apply relevant technical and economic factors
likely to influence prospects of economic extraction in a manner useful
for evaluation of economic viability.\583\ In response to commenters,
the final rules use the term ``relevant technical and economic
factors'' instead of ``modifying factors,'' as proposed, in order to
more closely align the definition of inferred resources with that under
the CRIRSCO-based codes.
---------------------------------------------------------------------------
\582\ See the definition of ``inferred mineral resource'' in 17
CFR 229.1300 to mean that part of a mineral resource for which
quantity and grade or quality are estimated on the basis of limited
geological evidence and sampling.
\583\ See id. As proposed, the final rules also explain that,
because an inferred mineral resource has the lowest level of
geological confidence of all mineral resources, which prevents the
application of the modifying factors in a manner useful for
evaluation of economic viability, an inferred mineral resource may
not be considered when assessing the economic viability of a mining
project, and may not be converted to a mineral reserve. See id.
---------------------------------------------------------------------------
As some commenters noted, the adopted definition of inferred
mineral resource is generally consistent with the definition under the
CRIRSCO-based codes.\584\ The central tenet under both definitions is
that inferred mineral resources are estimates of quantity and grade or
quality based on limited geological evidence and sampling.\585\
Although our definition of ``limited geological evidence'' differs
slightly from the definition of geologic evidence in the CRIRSCO
definition of inferred mineral resource,\586\ its meaning is
substantially similar to the CRIRSCO definition.
---------------------------------------------------------------------------
\584\ See supra note 541 and accompanying text.
\585\ See, e.g., the CRIRSCO International Reporting Template,
supra note 20, at cl. 22; JORC Code, supra note 175, at pt. 21; and
SAMREC Code, supra note 267, at pt. 25.
\586\ When used in the context of mineral resource
determination, ``limited geological evidence'' means evidence that
is only sufficient to establish that geological and grade or quality
continuity is more likely than not. See the definition of ``limited
geological evidence'' in 17 CFR 229.1300. Under CRIRSCO's definition
of inferred mineral resource, the requisite evidence is defined to
mean geologic evidence that is sufficient to imply but not verify
geological and grade or quality continuity. See CRIRSCO
International Reporting Template, supra note 20, at cl. 22. We
believe our articulation of the requisite evidence is more
appropriate because it provides a clearer description of the low
level of evidence that may support a determination of inferred
mineral resources.
---------------------------------------------------------------------------
As commenters noted, it is consistent with the CRIRSCO standards to
require the disclosure of inferred resources, which have been
determined by a qualified person, in the Commission filings of a
registrant with material mining operations.\587\ Although some
commenters recommended that we permit rather than require the
disclosure of inferred resources in Commission filings because they
have the lowest level of geologic confidence,\588\ we believe that
inferred mineral resources are nonetheless important to an investor's
understanding of a registrant's mining operations because they may be
converted into indicated or measured mineral resources with further
exploration.
---------------------------------------------------------------------------
\587\ See supra note 537 and accompanying text.
\588\ See, e.g., letter from Gold Resource.
---------------------------------------------------------------------------
Additionally, the definition of inferred mineral resource will
reduce any potential investor misunderstanding of the nature of a
registrant's mining operations by providing appropriate context for and
limitations on the disclosure of inferred resources. First, the
definition clearly highlights for investors that inferred mineral
resources have the highest degree of uncertainty, allowing investors to
take this factor into account when assessing a registrant's disclosure.
Second, the definition prohibits a registrant from using inferred
mineral resources as a basis to determine mineral reserves. Rather,
inferred resources will first have to meet the definitional
requirements of, and be converted into, measured or indicated mineral
resources, before they will be eligible to be considered as potential
mineral reserves under the final rules. This will help limit the
incentive for a registrant to be aggressive in disclosing inferred
mineral resources because such disclosure would not increase the
likelihood that such resources would ultimately be deemed to be mineral
reserves.
b. Indicated and Measured Mineral Resources
We are adopting the proposed definition of indicated mineral
resource.\589\ This definition provides
[[Page 66379]]
that the level of geological certainty associated with an indicated
mineral resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit.\590\ The
definition further explains that an indicated mineral resource has a
lower level of confidence than that applying to a measured mineral
resource and may only be converted to a probable mineral reserve.\591\
As those commenters that supported the proposed definition noted,\592\
this definition of indicated mineral resource is consistent with the
comparable definition and guidance under the CRIRSCO-based codes.\593\
---------------------------------------------------------------------------
\589\ See 17 CFR 229.1300, which defines an indicated mineral
resource as that part of a mineral resource for which quantity and
grade or quality are estimated on the basis of adequate geological
evidence and sampling. When used in the context of mineral resource
determination, the term ``adequate geological evidence'' means
evidence that is sufficient to establish geological and grade or
quality continuity with reasonable certainty. See id.
\590\ See id.
\591\ See id.
\592\ See supra note 553 and accompanying text.
\593\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 23; JORC Code, supra note 175, at pt. 22; and SAMREC
Code, supra note 267, at pt. 27.
---------------------------------------------------------------------------
We are also adopting the proposed definition of measured mineral
resource.\594\ This definition provides that the level of geological
certainty associated with a measured mineral resource is sufficient to
allow a qualified person to apply modifying factors in sufficient
detail to support detailed mine planning and final evaluation of the
economic viability of the deposit.\595\ The adopted definition also
explains that a measured mineral resource has a higher level of
confidence than that applying to either an indicated mineral resource
or an inferred mineral resource, and may be converted to a proven
mineral reserve or to a probable mineral reserve.\596\
---------------------------------------------------------------------------
\594\ See 17 CFR 229.1300, which defines a measured mineral
resource to mean that part of a mineral resource for which quantity
and grade or quality are estimated on the basis of conclusive
geological evidence and sampling. When used in the context of
mineral resource determination, the term ``conclusive geological
evidence'' means evidence that is sufficient to test and confirm
geological and grade or quality continuity. See the definition of
``conclusive geological evidence'' in 17 CFR 229.1300.
\595\ See the definition of ``measured mineral resource'' in 17
CFR 229.1300.
\596\ See id.
---------------------------------------------------------------------------
Although some commenters opposed the use of the term ``conclusive
evidence'' because they believed that it set an unrealistic
standard,\597\ we believe the term is appropriate because, as other
commenters noted,\598\ it is consistent with the CRIRSCO standards and
conveys that the level of evidence is sufficiently high enough to
enable a qualified person to conclude that he or she may proceed with
detailed mine planning and final evaluation of the economic viability
of the deposit using measured mineral resources. The term is not meant
to convey that there is no uncertainty in the estimate. But rather, as
is the case with the CRIRSCO-based codes, the term means there is no
reasonable doubt, in the opinion of the qualified person estimating
mineral resources, that the tonnage and grade of the deposit can be
estimated to such accuracy that any variation from the estimate would
have an insignificant effect on the potential economic viability.\599\
---------------------------------------------------------------------------
\597\ See supra note 565 and accompanying text.
\598\ See supra note 560 and accompanying text.
\599\ See, e.g., JORC Code, supra note 175, at pt. 23 (stating
that ``[m]ineralisation may be classified as a Measured Mineral
Resource when the nature, quality, amount and distribution of data
are such as to leave no reasonable doubt, in the opinion of the
Competent Person determining the Mineral Resource, that the tonnage
and grade of the mineralisation can be estimated to within close
limits, and that any variation from the estimate would be unlikely
to significantly affect potential economic viability'').
---------------------------------------------------------------------------
Because the definitions of ``indicated mineral resource'' and
``measured mineral resource'' are substantially similar to the
corresponding CRIRSCO-based definitions, their adoption will more
closely align the Commission's mining property disclosure requirements
with the foreign mining code provisions, which would benefit both
registrants and investors by promoting uniformity in mining disclosure
standards. For those mining registrants that are dual-listed and
already subject to the CRIRSCO-based requirements, such alignment
should help to limit any potential additional costs imposed by the new
requirement under the final rules to disclose indicated and measured
mineral resources. In addition, some registrants, even if not currently
subject to the CRIRSCO-based requirements, nonetheless apply
substantially similar definitions of indicated and measured mineral
resources as part of the process of determining mineral reserves,\600\
and should therefore benefit from their familiarity with the adopted
definitions.
---------------------------------------------------------------------------
\600\ As previously explained, the best practice in mining
engineering is to determine mineral resources, prior to engineering
and economic evaluation, to determine if any or all of those
resources can be classified as mineral reserves. See supra note 447
and accompanying text. The predominant approach in the mining
engineering literature is that mineral resource classification
should be based on the estimator's judgment of the uncertainty in
estimates due to the geologic uncertainty. See, e.g., JORC Code,
supra note 175, at pt. 24; and SAMREC Code, supra note 267, at pt.
29. This is consistent with the adopted definitions of mineral
resource classifications.
---------------------------------------------------------------------------
c. Considerations of Geologic Uncertainty
In a change from the proposed rules, the final rules do not require
that the qualified person quantify and disclose the uncertainty
associated with indicated and measured mineral resources in terms of
the uncertainty associated with the production estimates derived from
them by providing the confidence limits of relative accuracy, at a
specific confidence level, of the preliminarily estimated production
quantities per period from the resource.\601\ Although this approach
for reporting the level of uncertainty is consistent with best practice
in the industry,\602\ we acknowledge that, for the reasons several
commenters stated, requiring this approach in all instances could be
impractical or inappropriate, unduly burdensome, and costly for many
registrants.\603\
---------------------------------------------------------------------------
\601\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(v) [Item
601(b)(96)(iii)(B)(11)(v) of Regulation S-K].
\602\ See supra note 531 and accompanying text.
\603\ See, e.g., letters from CBRR, MMSA, Rio Tinto, and Vale.
---------------------------------------------------------------------------
In lieu of a provision mandating a quantitative assessment of risk
regarding indicated and measured mineral resources, we are requiring
the qualified person to disclose the criteria used to classify a
resource as indicated or measured and to justify the
classification.\604\ This disclosure must include a discussion of the
uncertainty in the indicated or measured mineral resource estimates,
the sources of the uncertainty, and how those sources were considered
in the estimates.\605\ This approach is consistent with commenters'
suggestion that we permit a qualitative discussion of the uncertainties
involved in resource determinations in lieu of a quantitative
assessment.\606\ While the final rules do not require a qualified
person to use estimates of confidence limits derived from geostatistics
or other numerical methods to support the disclosure of uncertainty
surrounding mineral resource classification, if the qualified person
chooses to use such confidence limit estimates, the final rules
instruct that he or she should consider the limitations of these
methods and adjust the estimates appropriately to reflect
[[Page 66380]]
sources of uncertainty that are not accounted for by these
methods.\607\
---------------------------------------------------------------------------
\604\ 17 CFR 229.601(b)(96)(iii)(B)(11)(iv) [Item
601(b)(96)(iii)(B)(11)(iv) of Regulation S-K].
\605\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K.
\606\ See supra notes 570-572 and accompanying text.
\607\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K. For
example, if a qualified person uses geostatistics or simulation to
estimate the uncertainty associated with a particular mineral
resource as ``15% relative accuracy at 90% confidence
level for annual production quantities,'' then he or she, after
determining that the risks associated with external risk factors are
negligible, may report the numerically derived estimate without
adjusting for any external risks. On the other hand, if the
qualified person first determines that the risk factors external to
the calculation are not negligible, then he or she should adjust the
confidence limits to be wider than 15% or use a
confidence level less than 90% to account for the risk factors
external to the calculation. In such case, the specific confidence
limits (e.g., 25%) or confidence level (e.g. 80%) that
would be appropriate will depend on the nature and significance of
the risk factors external to the calculation of confidence limits
obtained using numerical methods (e.g., kriging or conditional
simulation).
---------------------------------------------------------------------------
The adopted approach is similar to the approach under the CRIRSCO-
based codes, which encourages but does not require a quantitative
assessment of risk regarding indicated or measured mineral resource
estimates, and leaves the decision whether to use estimates of
confidence limits to the discretion of the qualified person.\608\ The
qualified person may use estimates of confidence limits when assessing
the level of uncertainty regarding his or her mineral resource
estimates if he or she believes that such use would be practical and
helpful. If, however, the qualified person determines that the use of
estimates of confidence limits would be inappropriate or impractical,
he or she may refrain from undertaking such a quantitative assessment
of risk regarding his or her indicated or measured mineral resource
estimates.
---------------------------------------------------------------------------
\608\ See, e.g., JORC Code, supra note 175, at pt. 25
(``Competent Persons are encouraged, where appropriate, to discuss
the relative accuracy and confidence level of the Mineral Resource
estimates with consideration of at least sampling, analytical and
estimation errors. The statement should specify whether it relates
to global or local estimates, and, if local, state the relevant
tonnage. Where a statement of the relative accuracy and confidence
level is not possible, a qualitative discussion of the uncertainties
should be provided in its place'').
---------------------------------------------------------------------------
For similar reasons, the final rules do not require a qualified
person to state the minimum percentage of inferred mineral resources he
or she believes will be converted to indicated and measured mineral
resources with further exploration. Many commenters objected to the
proposed requirement because they believed that it would be impractical
and burdensome.\609\ We have been persuaded that such a requirement may
not be necessary because the final rules require the qualified person
to have a reasonable expectation that the majority of inferred mineral
resources could be upgraded to indicated or measured mineral resources
with continued exploration.\610\ As some commenters suggested, this
required expectation will act as a substitute for the proposed
quantification in that, if the qualified person cannot meet this
expectation with regard to part of a deposit, that part cannot be
classified as inferred resources.\611\ Further, the provision requiring
the qualified person to be able to defend the basis for his or her
reasonable expectation before his or her peers \612\ will also help to
dissuade the determination and disclosure of unreasonable inferred
mineral resource estimates.
---------------------------------------------------------------------------
\609\ See supra note 573 and accompanying text.
\610\ 17 CFR 229.1302(d)(1)(iii)(B)(1) [Item
1302(d)(1)(iii)(B)(1) of Regulation S-K].
\611\ See supra note 577 and accompanying text.
\612\ See Item 1302(d)(1)(iii)(B)(2) of Regulation S-K [Item
1302(d)(1)(iii)(B)(2) of Regulation S-K].
---------------------------------------------------------------------------
Similar to the approach adopted regarding indicated and measured
resources, in lieu of a provision requiring a quantitative assessment
of risk regarding inferred resources, we are requiring the qualified
person to disclose the criteria used to classify a resource as inferred
and to justify the classification.\613\ This disclosure must include a
discussion of the uncertainty in the inferred resource estimates, the
sources of the uncertainty, and how those sources were considered in
the estimates. This approach is again consistent with commenters'
suggestion that we permit a qualitative discussion of the uncertainties
involved in resource determination. We believe that such a required
qualitative discussion of the criteria used to classify and justify a
deposit, in whole or part, as inferred resources would serve to inform
investors about the reliability of the disclosure without unduly
burdening registrants.
---------------------------------------------------------------------------
\613\ See Item 601(b)(96)(iii)(B)(11)(iv) of Regulation S-K.
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Regardless of whether the qualified person provides a qualitative
or quantitative assessment of risk, under the final rules the qualified
person must adequately explain his or her reasons for classifying a
mineral resource as inferred, indicated, or measured and that his or
her classification is consistent with the definitions of inferred,
indicated, and measured mineral resources. In this regard, the final
rules require the qualified person to list all of the factors
considered regarding the level of uncertainty and explain how those
factors contributed to the final conclusion about the level of
uncertainty underlying the resource estimates.\614\
---------------------------------------------------------------------------
\614\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K. In
deciding between inferred and indicated mineral resources, the
qualified person should note that our definitions provide that the
level of geological uncertainty associated with inferred mineral
resources is too high to apply relevant technical and economic
factors likely to influence the prospect of economic extraction in a
manner useful for evaluation of economic viability whereas the level
of geological uncertainty associated with indicated mineral
resources is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit. Similarly, in
deciding between indicated and measured mineral resources, the
qualified person should note that our definitions provide that the
level of geological certainty associated with an indicated mineral
resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning
whereas the level of geological uncertainty associated with measured
mineral resources allows it to be used for ``detailed'' mine
planning. This guidance is consistent with the CRIRSCO standards.
See CRIRSCO International Reporting Template, supra note 20, at cl.
25.
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4. The Initial Assessment Requirement
i. Rule Proposal
We proposed that a registrant's disclosure of mineral resources
must be based upon a qualified person's ``initial assessment''
supporting the determination of mineral resources.\615\ We proposed to
define an ``initial assessment'' as a preliminary \616\ technical and
economic study of the economic potential of all or parts of
mineralization to support the disclosure of mineral resources. As
proposed, the initial assessment must be prepared by a qualified person
and must include appropriate assessments of reasonably assumed
modifying factors together with any other relevant operational factors
that are necessary to demonstrate, at the time of reporting, that there
are reasonable prospects for economic extraction.\617\ Also as
proposed, an initial assessment is required for disclosure of mineral
resources but cannot be used as the basis for disclosure of mineral
reserves.\618\
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\615\ See Proposing Release, supra note 5, at Section II.E.3.
\616\ As used in this context, the term ``preliminary'' refers
to a less rigorous study than what is required for feasibility
studies, as defined and discussed in Section II.G.2., below.
\617\ See Proposing Release, supra note 5, at Section II.E.3.
\618\ See id.
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As we explained in the Proposing Release, an initial assessment is
not a scoping \619\ or conceptual study as
[[Page 66381]]
defined in some of the CRIRSCO-based codes \620\ or a preliminary
economic assessment as defined in Canada's NI 43-101.\621\ The purpose
of an initial assessment is narrower than those studies as it would be
done solely to support disclosure of mineral resources and not to
determine whether to proceed with further work leading to preparing a
pre-feasibility study for reserve determination.
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\619\ A scoping study is ``an order of magnitude technical and
economic study of the potential viability of Mineral Resources. It
includes appropriate assessments of realistically assumed Modifying
Factors together with any other relevant operational factors that
are necessary to demonstrate at the time of reporting that progress
to a Pre-Feasibility Study can be reasonably justified.'' JORC Code,
supra note 175, at pt. 38 and SME Guide, supra, note 177, at pt. 50.
\620\ See, e.g., JORC Code, supra note 175, at pt. 38 and SME
Guide, supra note 177, Table 2, at 68-69 (providing requirements for
scoping, pre-feasibility, and feasibility studies).
\621\ See Canada's NI 43-101 supra note 123, at pt. 1.1
(defining a preliminary economic assessment to mean ``a study, other
than a pre-feasibility or feasibility study, that includes an
economic analysis of the potential viability of mineral
resources'').
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As proposed, at a minimum, the qualified person's initial
assessment must include a qualitative evaluation of modifying factors
to establish the economic potential of the mining property or project
(i.e., that there are reasonable prospects for economic extraction of
the mineral resource.) As we explained in the Proposing Release,
requiring a well-defined and specific technical study to support
disclosure of mineral resources would provide greater assurance to
investors that mineral resource disclosure is reliable.\622\
---------------------------------------------------------------------------
\622\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------
a. Cut-Off Grade and Price Estimation
We proposed instructions to the initial assessment requirement
designed to elicit material information concerning the basis for the
qualified person's conclusion that there are reasonable prospects for
economic extraction. The first proposed instruction was that an initial
assessment must include cut-off grade estimation, based on assumed unit
costs for surface or underground operations and estimated mineral
prices.\623\ As we explained, cut-off grade refers to the grade at
which the destination of the material changes during mining. For
purposes of the initial assessment, cut-off grade distinguishes between
material that is going to the waste dump and material that is going to
the processing plant (in surface mining) or between material that is
not mined and material mined to be processed (in underground mining).
---------------------------------------------------------------------------
\623\ See id.
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As part of the proposed initial assessment, the qualified person
would need to assume the cost to mine a typical unit of the specific
material involved. We did not propose to require the qualified person
to estimate all specific operating and capital costs in detail in order
to estimate unit cost as part of the initial assessment.\624\ Rather,
for the initial assessment, the proposed rule requires the qualified
person to make assumptions about the two key determinants of cut-off
grade estimation--operating costs and commodity prices. As we
explained, any cut-off grade estimation that is not based upon, or does
not disclose, these two assumptions may not fully meet the standard
required to demonstrate reasonable prospects of economic
extraction.\625\
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\624\ If the qualified person decides to include economic
analysis in the initial assessment, then the proposed rules would
require the inclusion of detailed cost estimates. See Proposing
Release, supra note 5, at note 190 and accompanying text.
\625\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------
As proposed, a qualified person must base the unit cost estimate
used in cut-off grade estimation in an initial assessment on assumed
unit costs derived, for example, from historic data or factoring, for
either underground or surface mining. In addition, the qualified person
must make and disclose an assumption about whether the deposit will be
mined with underground or surface mining methods.\626\
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\626\ See id.
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When estimating mineral prices for the cut-off grade estimation, we
proposed to require the qualified person to use a commodity price that
is no higher than the average spot price during the 24-month period
prior to the end of the last fiscal year, determined as an unweighted
arithmetic average of the daily closing price for each trading day
within such period, unless prices are defined by contractual
arrangements.\627\ For purposes of consistency, we proposed that
qualified persons use this same ceiling for all other commodity price
estimates in the proposed mining disclosure for both mineral resources
and reserves.\628\
---------------------------------------------------------------------------
\627\ See id.
\628\ See id.
---------------------------------------------------------------------------
When explaining our reasons for proposing the 24-month trailing
average price requirement, we stated our belief that the qualified
person must use commodity price estimates that are reasonable and
justifiable and represent long term \629\ market trends in mineral
resource and reserve estimation. However, we also noted that most
foreign jurisdictions allow the qualified person to use any reasonable
and justifiable price, which is based on the qualified person's or
management's view of long term market trends.\630\
---------------------------------------------------------------------------
\629\ ``Long term'' in this context refers to the life of the
mine. See, e.g., David Humphreys, Pricing and Trading in Metals and
Minerals, 1 SME Mining Engineering Handbook, at 49 (stating that the
assumed commodity price should be ``the expected annual average
price to be achieved for the mined product during each year of the
project's life'').
\630\ For example, the JORC Code and Canada's NI 43-101 and CIM
Standards call for the qualified person to report the assumptions
underlying price estimates and do not prescribe a specific price
model. See, e.g., JORC Code, supra note 175, Table 1, at 32
(requiring the qualified person to report ``[t]he derivation of
assumptions made of metal or commodity price(s), for the principal
metals, minerals and co-products'' under revenue factors). See also
ASX Listing Rules-Guidance Note 31 pt. 2.4 (``ASX also notes that to
the extent that an estimate of mineral resources or ore reserves
involves a representation about future matters, it must be based on
reasonable grounds--meaning that the price, capital expenditure and
operational expenditure assumptions used to calculate the estimates
must also be objectively reasonable . . .''). Canada's NI 43-101
requires that a registrant disclosing mineral resources or reserves
must disclose ``the key assumptions, parameters, and methods used to
estimate the mineral resources and mineral reserves.'' Canada's NI
43-101, supra note 123, at pt. 3.4(c). The CIM Best Practice
Guidelines lists [commodity] prices as one such key assumption but
provides no guidance on how prices should be determined except that
``if commodity prices used differ from current prices . . ., an
explanation should be given, including the effect on the economics
of the project if current prices were used.'' CIM Estimation of
Mineral Resources and Mineral Reserves Best Practice Guidelines 30
(2003).
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b. Qualitative Assessment of Factors and Permitted Assumptions
A second proposed instruction requires the qualified person to
provide a qualitative assessment of all other relevant modifying
factors to establish economic potential and justify why he or she
believes that all issues can be resolved with further exploration and
analysis.\631\ We proposed to provide the minimum requirements for
various factors that the qualified person must evaluate when preparing
an initial assessment, pre-feasibility study, or feasibility study in a
single table to facilitate a comparison of the modifying factors
evaluation requirement across the three key technical studies proposed
to be used for mineral resource and reserve disclosure. According to
the proposed presentation, the modifying factors evaluative process
becomes more exacting as mining property assessment progresses from
mineral resource estimation to mineral reserve estimation.\632\
---------------------------------------------------------------------------
\631\ See Proposing Release, supra note 5, at Section II.E.3
(discussing Table 1).
\632\ The modifying factors and requirements in proposed Table 1
were modeled on accepted industry practice and supported by the
relevant mining engineering literature. See, e.g., Richard L.
Bullock, Mineral Property Feasibility Studies, 1 SME Mining
Engineering Handbook, at 227-261.
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As proposed, at the initial assessment stage, a qualified person
would be
[[Page 66382]]
---------------------------------------------------------------------------
required to evaluate, at a minimum, the following factors:
Site infrastructure (e.g., whether access to power and
site is possible);
Mine design and planning (e.g., what is the broadly
defined mining method);
Processing plant (e.g., whether all products used in
the preliminary economic assessment can be processed with methods
consistent with each other);
Environmental compliance and permitting (e.g., what are
the required permits and corresponding agencies and whether
significant obstacles exist to obtaining those permits); and
Any other reasonably assumed modifying factors,
including socio-economic factors, necessary to demonstrate
reasonable prospects for economic extraction.
Another proposed instruction to the initial assessment requirement
refers the qualified person to proposed Table 1 for the assumptions
permitted to be made when preparing the initial assessment. These
include assumptions concerning infrastructure location and the required
plant area, type of power supply, site access roads and camp or town
site, production rates, processing method and plant throughput, post-
mining land uses, and plans for tailings disposal, reclamation, and
mitigation.\633\
---------------------------------------------------------------------------
\633\ See Proposing Release, supra note 5, at Section II.E.3
(discussing Table 1).
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c. Optional Economic (Cash Flow) Analysis
We explained in the Proposing Release that an initial assessment,
the singular goal of which is to demonstrate reasonable prospects of
economic extraction, not economic viability, need not contain the
quantitative analysis required to demonstrate the economic feasibility
of mining projects. To demonstrate such economic feasibility, estimates
of future cash flows are necessary because capital expenditures,
operating costs, and revenues vary over the life of a mine due to
variations in mining conditions. We stated, however, that if the
qualified person chose to demonstrate the economic potential of the
mining property beyond the minimum requirements of an initial
assessment by including a cash flow analysis, we believed such analysis
could benefit investors, subject to appropriate restrictions.
One proposed instruction to the initial assessment requirement
addresses the option of providing cash flow analysis as part of the
initial assessment. This instruction states that, while a qualified
person may include cash flow analysis in an initial assessment to
demonstrate economic potential, the qualified person may not use
inferred mineral resources in such cash flow analysis.\634\ Moreover,
if the qualified person includes cash flow analysis in the initial
assessment, then operating and capital cost estimates must have an
accuracy level of at least approximately 50% \635\ and a
contingency level of no greater than 25% of the direct estimate.\636\
The proposed instruction also provided that the qualified person must
state the accuracy and contingency levels in the initial
assessment.\637\
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\634\ See Proposing Release, supra note 5, at Section II.E.3.
\635\ The phrase ``accuracy level of at least approximately
50%'' means that the qualified person must have a
reasonable basis to believe that assumptions underlying the estimate
will result in actual costs with a substantial likelihood of being
within 50% and 150% of the estimate.
\636\ The term ``contingency'' is used to address the level of
confidence in the cost estimates. It generally means the amount
``set aside for any additional, unforeseen costs associated with
unanticipated geologic circumstances or engineering conditions.''
Scott A. Stebbins, Cost Estimating for Underground Mines,1 SME
Mining Engineering Handbook, at 270. Thus, a contingency level of
<=25% means the contingency cannot be more than 25% of the direct
cost estimate.
\637\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------
We also proposed, to the extent a qualified person wants to include
an economic analysis in an initial assessment, he or she would only be
permitted to use a cash flow analysis. All other quantitative analyses
would be prohibited. We based this prohibition on our belief that other
quantitative measures of economic potential that omit cash flows could
be potentially misleading.\638\
---------------------------------------------------------------------------
\638\ See id.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Several commenters supported the Commission's proposal to require
that a registrant's disclosure of mineral resources be based upon a
qualified person's initial assessment, which supports the determination
of mineral resources, including that the qualified person consider
applicable modifying factors and relevant operational factors at the
resource evaluation stage.\639\ Many other commenters either offered
only conditional support for or opposed the Commission's proposed
initial assessment requirement because they believed it went beyond
what is required under the CRIRSCO standards at the resource
determination stage. For example, some commenters stated that, while
there should be some form of documentation required by a qualified
person to support the disclosure of mineral resources in Commission
filings, it should be consistent with what is allowed under the
CRIRSCO-based codes, and should not be termed ``an initial assessment''
in order to avoid investor confusion.\640\ One commenter recommended
that the required initial assessment take the form of a ``conceptual
study,'' as defined under the CRIRSCO standards, which would include
the consideration of applicable modifying factors.\641\ Another
commenter stated that the assessment of modifying factors as set forth
in proposed Table 1 was overly prescriptive, but also agreed that the
qualified person should ``apply the CRIRSCO principles for the
qualitative assessment of modifying factors'' when determining mineral
resources.\642\ In lieu of the proposed initial assessment requirement,
that commenter, as well as others, recommended allowing a report that
conforms to JORC Table 1 on an ``if not why not basis.'' \643\
---------------------------------------------------------------------------
\639\ See letters from CBRR (recommending that the initial
assessment include material risk analysis, but that more
comprehensive risk analysis should not be required because the more
detailed analysis would be expected in a separate report); Columbia,
CSP\2\, Gold Resource (recommending that the initial assessment
include a discussion of the material risks associated with the
mineral resource determination); and Montana Trout.
\640\ See, e.g., letters from AngloGold, BHP, JORC, and Rio
Tinto.
\641\ See letter from AngloGold.
\642\ See letter from BHP. In contrast, five other commenters
indicated that proposed Table 1 would be useful. See letters from
AngloGold, Midas, MMSA, NSSGA, and Northern Dynasty.
\643\ See letters from BHP, JORC, and Rio Tinto. Such a report
requires an estimate of mineral resources to be supported by a
discussion of factors enumerated in that table, and if certain
factors have been omitted, there must be a reasonable explanation of
why they have been excluded. As one commenter explained, such a
report would entail a qualitative assessment of modifying factors as
well as a discussion of the assumptions underlying cut-off
estimates. See letter from Rio Tinto.
---------------------------------------------------------------------------
In explaining its opposition to the proposed initial assessment
requirement, one commenter maintained that, under CRIRSCO, at the
resource determination stage, all that is required is that the
qualified person demonstrate that there are reasonable prospects for
eventual economic extraction. That commenter stated that it is best
left to the discretion of the qualified person to determine the most
appropriate methodology for identifying, estimating, and disclosing
mineral resources.\644\
---------------------------------------------------------------------------
\644\ See letter from Eggleston.
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a. Cut-Off Grade and Price Estimation
Most commenters that addressed the issue supported the proposed
requirement that a qualified person's documentation in support of
resource determination and disclosure include cut-off grade estimation
based on assumed unit costs for surface or
[[Page 66383]]
underground operations.\645\ One commenter recommended requiring that,
consistent with current industry practice, the determination of the
cut-off grade include estimates of processing costs, metallurgical
recovery, and general and administrative costs.\646\ Another commenter
recommended using the term ``cut-off'' instead of ``cut-off grade''
because the criteria used may be grade, but could also be net smelter
return or include quality or metallurgical characteristics.\647\
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\645\ See letters from AngloGold, CBRR, Eggleston, Golder,
Midas, Northern Dynasty, and SRK 1. One commenter, however, opposed
requiring an initial assessment using assumed unit costs for
operations that would include pricing and other cash flow
information on the grounds that this information is proprietary,
commercially sensitive, and confidential. See letter from Alliance.
\646\ See letter from SRK 1.
\647\ See letter from Amec. The commenter also stated that a
qualified person should be allowed to make the determination of
assumed unit costs based on benchmarking to similar deposit types
and types of operations in the particular jurisdiction.
---------------------------------------------------------------------------
Many commenters opposed the proposed requirement that, when
estimating mineral prices for the purpose of cut-off grade estimation
or cash flow analysis for both mineral resource and reserve
determination, the qualified person must use a commodity price that is
no higher than the average spot price during the 24-month period prior
to the end of the last fiscal year, determined as an unweighted
arithmetic average of the daily closing price for each trading day
within such period, unless prices are defined by contractual
arrangements. While commenters generally agreed that cut-off estimation
should be based on estimated prices, most commenters that addressed the
issue opposed the proposed 24-month trailing average pricing model on
the grounds that it is unrealistic and inconsistent with pricing
requirements, guidance, and practice under the CRIRSCO-based codes,
which permit prices to be based on forward-looking pricing forecasts.
Consequently, according to those commenters, compliance with the
historical-based pricing requirement would be costly and unduly
burdensome for companies dual-listed in the United States and one or
more of the CRIRSCO jurisdictions.\648\
---------------------------------------------------------------------------
\648\ See letters from AIPG, Alliance, Amec, AngloGold, BHP,
CBRR, Chamber, CIM, Cleary & Gottlieb, Cloud Peak, Coeur, CRIRSCO,
Davis Polk, Dorsey & Whitney, Eggleston, Energy Fuels, FCX, Golder,
Graves, JORC, MMSA, Newmont, NMA 1, Northern Dynasty, PDAC,
Randgold, Rio Tinto, Royal Gold, SAMCODES 1 and 2, Shearman &
Sterling, SME 1, Ur-Energy, Vale, and Willis.
---------------------------------------------------------------------------
According to those commenters, the prevailing industry practice in
the CRIRSCO-based jurisdictions is to use forward-looking pricing
forecasts when estimating mineral resources and reserves. The
forecasted prices ``are typically based on consensus projections that
are derived from an average of the short-term and an average of the
long-term prices provided by numerous financial institutions that are
independent of the companies that report mineral resources and
reserves.'' \649\ Because most mining companies base their mineral
resource and reserve estimates on these consensus prices, investors can
then compare similar mineral projects in different parts of the world.
The proposed required use of a two-year trailing average price would
not allow for this comparability. The commenters claimed this would
force unrealistically optimistic price assumptions in a declining
market and unrealistically pessimistic prices in a rising market.\650\
---------------------------------------------------------------------------
\649\ Letter from CIM.
\650\ See id; see also letter from SME 1.
---------------------------------------------------------------------------
One commenter estimated that the proposed 24-month pricing model,
if adopted, would result in a 40 percent reduction in mineral resources
reported to the Commission compared to other jurisdictions.\651\
Another commenter stated that the proposed historical pricing model
would create timing concerns because registrants would not be able to
conduct a rigorous reserve analysis between the end of the fiscal year
and the filing deadline for Form 10-K annual reports. Accordingly,
``registrants would be forced, as a practical matter, months before the
end of the reporting period, to make a very conservative estimate of
what the actual mandated ceiling price will be, which may lead to
overly conservative reserve and resource estimates.'' \652\ One other
commenter stated that the 24-month period is too short because pricing
for coal can vary and fluctuate widely in a relatively short period of
time and over multiple markets.\653\
---------------------------------------------------------------------------
\651\ See letter from BHP.
\652\ Letter from FCX.
\653\ See letter from Alliance.
---------------------------------------------------------------------------
Many commenters recommended that, in lieu of the 24-month trailing
average price requirement, and consistent with the CRIRSCO-based codes,
the Commission require that, when estimating prices for the purpose of
both mineral resource and reserve disclosure, the qualified person use
any reasonable and justifiable price, which is typically based on the
qualified person's or management's view of long-term market trends, as
long as the qualified person provides justification for, and discloses
all material assumptions concerning the price used.\654\ Some
commenters further noted that such a requirement would be consistent
with certain financial reporting requirements for the mining industry
under U.S. GAAP.\655\
---------------------------------------------------------------------------
\654\ See, e.g., letters from AIPG, Amec, CBRR, Chamber , Cleary
& Gottlieb, Cloud Peak, Davis Polk, Eggleston, Energy Fuels, FCX,
JORC, Newmont, SAMCODES 1, Shearman & Sterling, SME 1, and Vale.
\655\ See letter from AIPG (``U.S. GAAP requires that estimated
future cash flows from mineral properties be used in determining the
value of mining assets in a purchase price allocation and in testing
mining assets for impairment. The estimated future cash flows are
based on management's projections using projected sales prices
reflecting the current and future forecasted prices. The forecasted
prices should be consistent with the length of the mine life''). See
also FCX, Newmont, SME 1, and Vale.
---------------------------------------------------------------------------
In contrast, one commenter recommended using a 36-month average
because the commenter believed it is less volatile and, therefore more
appropriate than the proposed 24-month period.\656\ Another commenter
also preferred the use of a 36-month period but only as a ``fallback
position'' in the event that an issuer is not permitted to engage in
forward-looking analysis of the price.\657\ One commenter recommended
that the Commission adopt a 12-month trailing average price model for
mineral resource and reserve determination and disclosure because it
would reflect mineral resource and reserve estimates based on current
market conditions.\658\
---------------------------------------------------------------------------
\656\ See letter from Gold Resource.
\657\ See letter from Eggleston.
\658\ See letter from Andrews & Kurth.
---------------------------------------------------------------------------
Most of the commenters that addressed the pricing issue opposed the
Commission's proposal to require the use of the same pricing standard
for both mineral resource and mineral reserve determination.\659\ Those
commenters maintained that commodity prices used to estimate mineral
resources are typically higher than the prices used to estimate mineral
reserves because of the longer period it takes to effect commodity
production from resources compared to reserves. According to
commenters, using the same price standard for resources and reserves
would result in an underestimation of a registrant's resources, which
would put a U.S. registrant at a significant disadvantage relative to
registrants not subject to the proposed rules.\660\ A few commenters
recommended using a price estimate for resources determination that is
a set
[[Page 66384]]
percentage (ranging from 5% to 20%) higher than the price used for
reserve estimation.\661\
---------------------------------------------------------------------------
\659\ See letters from Amec, AngloGold, BHP, CBRR, CIM, Coeur,
Eggleston, Energy Fuels, FCX, Golder, JORC, Midas, MMSA, Newmont,
NMA 1, Northern Dynasty, Randgold, Rio Tinto, Royal Gold, SAMCODES
1, SME 1, SRK 1, Vale, and Willis.
\660\ See, e.g., letter from Vale; see also letter from SME 1.
\661\ See, e.g., letters from SRK 1, Eggleston and Newmont.
---------------------------------------------------------------------------
An additional commenter believed that the research it conducts to
estimate future commodity prices is sensitive intellectual property
that is not required to be disclosed under the CRIRSCO template or
JORC.\662\ This commenter suggested that the Commission permit a
registrant to discuss the methodology used to estimate its pricing
model without requiring disclosure of the price itself. Alternatively,
this commenter requested that a registrant be allowed to compare its
forward-looking pricing to that produced by an industry recognized
expert and comment on whether there is a material difference between
the forward-looking pricing models.\663\
---------------------------------------------------------------------------
\662\ See letter from BHP.
\663\ See id.
---------------------------------------------------------------------------
One commenter requested that the Commission allow a registrant to
keep its future price assumptions confidential when reporting resources
and reserves if those assumptions are commercially sensitive.\664\ As
conditions to keeping its price assumptions confidential, a registrant
would have to disclose the methodology for estimating mineral resources
and reserves, and state whether those resources and reserves would be
extractable if commodity prices were not greater than a certain
historical price. This commenter suggested using a 36-month average
trailing price for this purpose rather than a 24-month average trailing
price because it is less volatile.\665\
---------------------------------------------------------------------------
\664\ See letter from Vale; see also letter from MMSA
(requesting generally that the Commission allow for exemptions from
the required disclosure ``to protect trade secrets, confidential
information, product pricing, and marketing information that is
vital for a company to maintain its competitive advantage or that
could represent violations in anti-trust or other legislation in the
country of operation'').
\665\ See letter from Vale.
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b. Qualitative Assessment of Factors and Permitted Assumptions
One commenter opposed requiring the determination of mineral
resources to include appropriate assessments of reasonably assumed
modifying factors because it believed that the term ``modifying
factors'' should be used exclusively when converting mineral resources
to mineral reserves.\666\ That commenter recommended substituting the
phrase ``technical and economic factors'' for ``modifying factors'' in
order to be consistent with the CRIRSCO standards. That commenter also
believed that the proposed initial assessment requirement may create an
expectation of a much more detailed and formal evaluation of the
technical and economic factors than what is currently industry-accepted
practice.\667\ A second commenter similarly indicated that because
consideration of all applicable modifying factors is only appropriate
at the reserve determination stage, requiring an assessment of the
modifying factors at the resource evaluation stage could confuse
investors into mistakenly believing that resources are reserves.\668\
---------------------------------------------------------------------------
\666\ See letter from Amec.
\667\ See id.
\668\ See letter from Eggleston; see also letter from Energy
Fuels (opposing the proposed initial assessment requirement because
it attempts to treat a mineral resource as a ``mineral reserve
currently in the making,'' which would send the wrong message to
investors); and SAMCODES 2 (stating that ``[i]t is good practice to
undertake a high-level ``initial assessment'' to support the claim
of reasonable prospects for economic extraction, but it is not
necessary to have to disclose the process and modifying/operational
factors that were applied.).
---------------------------------------------------------------------------
Some commenters stressed the importance of considering
environmental factors at the initial assessment stage.\669\ According
to two of those commenters, such consideration should include whether
the company's operations will generate acid-mine drainage, which often
requires post-project collection and treatment of pollution in
perpetuity and results in considerable environmental and financial
liability.\670\ Another commenter recommended that the initial
assessment discuss a mining project's water requirements and address
how water availability for the region is predicted to change in the
future, whether from increased incidents of drought, competing demands
from nearby agricultural users, or groundwater drawdowns.\671\
---------------------------------------------------------------------------
\669\ See letters from Columbia, CSP\2\, and Montana Trout.
\670\ See letters from CSP\2\ and Montana Trout.
\671\ See letter from Columbia.
---------------------------------------------------------------------------
c. Optional Economic (Cash Flow) Analysis
Some commenters maintained that the Commission should align itself
with Canada's NI 43-101 and permit the disclosure of an economic
assessment of resources, with cash flow analysis, including permitting
the use of inferred resources as long as appropriate disclaimers are
given, in addition to requiring disclosure of material assumptions and
qualitative assessment of relevant technical and economic factors
likely to affect prospects of economic extraction, if a registrant
discloses mineral resource estimates.\672\ Those commenters recommended
that the Commission not use the term ``initial assessment'' and instead
name the documentation to support a mineral resource estimate a
``resource study'' and name the report describing economic potential of
mineral resources either a scoping study or preliminary economic
assessment.\673\ Commenters stated that, because inferred mineral
resources are permitted to be included in economic analyses in
preliminary economic assessments under Canada's NI 43-101 and in
scoping studies under other CRIRSCO-based codes, U.S. registrants would
be placed at a competitive disadvantage were the Commission to adopt
the proposed prohibition of inferred mineral resources in economic
assessments.\674\
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\672\ See, e.g., letters from Coeur, Midas, SME 1, and Willis.
\673\ See letters from Coeur, SME 1, and Willis.
\674\ See, e.g., letters from Coeur and SME 1.
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iii. Final Rules
We are adopting the proposed requirement that a registrant's
disclosure of mineral resources be based upon a qualified person's
``initial assessment'' supporting the determination of mineral
resources.\675\ The final rules define an initial assessment, as
proposed, to mean a preliminary technical and economic study of the
economic potential of all or parts of mineralization to support the
disclosure of mineral resources.\676\ However, in a change from the
proposed rules, as a result of comments received, the final rules do
not require the qualified person's initial assessment to include a
qualitative evaluation of the modifying factors to establish the
economic potential of the mining property or project. Rather,
consistent with the suggestion of some commenters,\677\ the final rules
provide that, at a minimum, the initial assessment must include the
qualified person's qualitative evaluation of relevant technical and
economic factors likely to influence the prospect of economic
extraction to establish the economic potential of the mining property
or project.\678\ To reflect this change, we have revised the proposed
definition of initial assessment to provide that the initial assessment
must include appropriate assessments of reasonably assumed technical
and economic factors, together with any other relevant operational
factors, that are necessary to demonstrate at the time
[[Page 66385]]
of reporting that there are reasonable prospects for economic
extraction.\679\
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\675\ 17 CFR 229.1302(d)(1) [Item 1302(d)(1) of Regulation S-K].
\676\ See the definition of ``initial assessment'' in 17 CFR
229.1300.
\677\ See, e.g., letter from Amec.
\678\ See 17 CFR 229.1302(d)(1)(i)(B) [Item 1302(d)(1)(i)(B) of
Regulation S-K].
\679\ See 17 CFR 229.1300.
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This change is intended to address the concern of some commenters
\680\ that the proposed initial assessment requirement would exceed
what is required under the CRIRSCO standards because full consideration
of the modifying factors is only required at the mineral reserve
determination stage. The adopted initial assessment requirement will
more closely align the Commission's mining property disclosure
requirements with the CRIRSCO standards.\681\
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\680\ See, e.g., letters from Amec, Eggleston, and Northern
Dynasty.
\681\ See, e.g., letter from Amec; see also CRIRSCO
International Reporting Template, supra note 175, at cl. 21 (``The
term `reasonable prospects for eventual economic extraction' implies
a judgement (albeit preliminary) by the Competent Person in respect
of the technical and economic factors likely to influence the
prospect of economic extraction, including the approximate mining
parameters.'').
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At the same time, the adopted requirement will underscore that, at
the resource determination stage, the qualified person must assess both
the geologic characteristics of the deposit as well as the relevant
technical and economic factors likely to influence the prospect of
economic extraction in order to conclude that the parts of the mineral
deposit he or she is determining to be mineral resources have
reasonable prospects of economic extraction. While the relevant
technical and economic factors to be considered at the resource
determination stage are likely to be similar to the modifying factors
applied at the reserve determination stage, because the final rules
only require a qualitative assessment of the technical and economic
factors at the resource determination stage, that assessment will be
less thorough and less certain than the assessment of modifying factors
required at the reserve determination stage. Accordingly, the final
rules provide, as proposed, that an initial assessment cannot be used
as the basis for disclosure of mineral reserves.\682\
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\682\ See the definition of ``initial assessment'' in 17 CFR
229.1300.
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Although a commenter recommended that the format of the initial
assessment conform to JORC Table 1's Checklist of Assessment and
Reporting Criteria on an ``if not why not basis,'' \683\ we are
adopting, substantially as proposed, a format for the initial
assessment that more closely resembles the technical report format of
Canada's NI 43-101F1. While there is substantial overlap in the items
required to be considered and discussed under JORC Table 1 and Canada's
NI 43-101F1, we believe that the presentation of disclosure
requirements in the Canadian technical report format is clearer and
more comprehensive and, as such, will help elicit better
disclosure.\684\
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\683\ See letters from BHP, JORC, and Rio Tinto.
\684\ See infra Section II.G.3. for a detailed discussion of the
disclosure requirements for the technical report summary regarding
mineral resources (in addition to those regarding mineral reserves
and exploration results).
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a. Cut-Off Grade and Price Estimation
Similar to the proposed rules, the final rules require that a
qualified person include in the initial assessment a cut-off grade
\685\ estimation based on assumed unit costs for surface or underground
operations and estimated mineral prices.\686\ We continue to believe
that a discussion of cut-off grade is an appropriate requirement for a
technical study that supports mineral resource estimation because, by
definition, a mineral resource estimate is not just an inventory of all
mineralization. It is an estimate of that part of the deposit that has
reasonable prospects of economic extraction.\687\ We believe the cut-
off grade is the best indicator, at this stage, of such prospects
because it requires the qualified person to estimate and exclude that
portion of the deposit that has no reasonable prospects of economic
extraction at the time of the analysis.
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\685\ The final rules define cut-off grade, as proposed, to mean
the grade (i.e., the concentration of metal or mineral in rock)
which determines the destination of the material during mining. For
purposes of establishing ``prospects of economic extraction,'' the
cut-off grade is the grade that distinguishes material deemed to
have no economic value (it will not be mined in underground mining
or if mined in surface mining, its destination will be the waste
dump) from material deemed to have economic value (its ultimate
destination during mining will be a processing facility). Other
terms used in similar fashion as cut-off grade include net smelter
return, pay limit, and break-even stripping ratio. 17 CFR 229.1300.
\686\ See 17 CFR 229.1302(d)(2) [Item 1302(d)(2) of Regulation
S-K].
\687\ See, e.g., CIM Definition Standards at 4 (``A Mineral
Resource is an inventory of mineralization that under realistically
assumed and justifiable technical and economic conditions might
become economically extractable.''). See also JORC Code, supra note
175, at pt. 20 (``Portions of a deposit that do not have reasonable
prospects for eventual economic extraction must not be included in a
Mineral Resource''); and SME Guide, supra note 177, at pt. 35 (``. .
.a Mineral Resource is not an inventory of all mineralization
drilled or sampled, regardless of cut-off grade, likely mining
dimensions, location, or continuity; rather it is a realistic
estimate of mineralization which, under assumed and justifiable
technical and economic conditions, might become economically
extractable.'').
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In connection with the cut-off grade estimation requirement, the
qualified person must make and disclose an assumption about whether the
deposit will be mined with underground or surface mining methods.\688\
Given the wide disparity between surface and underground mining costs,
we are concerned that any unit costs estimate that is not specific to
one of these two broad categories of mining methods may not adequately
establish the reasonable prospects of economic extraction.
---------------------------------------------------------------------------
\688\ See Item 1302(d)(2) of Regulation S-K.
---------------------------------------------------------------------------
In a change from the proposed rules, in response to comments
received, we are not requiring that the qualified person use a
commodity price that is no higher than the average spot price during
the 24-month period prior to the end of the last fiscal year, unless
prices are defined by contractual arrangements. Consistent with the
suggestion of numerous commenters, the final rules instead provide
that, when estimating mineral prices, the qualified person must use a
price for each commodity that provides a reasonable basis for
establishing the prospects of economic extraction for mineral
resources.\689\ In addition, the qualified person must disclose the
price used and explain, with particularity, his or her reasons for
using the selected price, including the material assumptions underlying
the selection. This explanation must include disclosure of the time
frame used to estimate the commodity price and unit costs for cut-off
grade estimation and the reasons justifying the selection of that time
frame.\690\ The selected price and all material assumptions underlying
it must be current as of the end of the registrant's most recently
completed fiscal year.\691\ Similar to the proposed rule, the qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used.\692\
---------------------------------------------------------------------------
\689\ See id.
\690\ See id.
\691\ See id.
\692\ See id.
---------------------------------------------------------------------------
We believe that the adopted estimated pricing requirement will more
closely align the Commission's disclosure rules to the ``any reasonable
and justifiable price'' standard under the CRIRSCO-based codes and
thereby address several concerns raised by commenters.\693\ First,
under the final rules, a qualified person is able to use a price that
is either a historical price or one based on forward-looking pricing
forecasts. Because, according to commenters, most mining companies
currently rely on consensus prices based on forward-looking pricing
forecasts,\694\ the adopted estimated
[[Page 66386]]
pricing requirement will allow registrants to use the same prices for
disclosing mineral resources in Commission filings as they do for their
own internal management purposes and when reporting in CRIRSCO-based
jurisdictions. This should help limit the compliance costs of the final
rules.
---------------------------------------------------------------------------
\693\ We are also adopting this estimated pricing standard for
the determination and disclosure of mineral reserves. See infra
Section II.F.2.
\694\ See, e.g., letter from CIM.
---------------------------------------------------------------------------
Second, the revised estimated pricing requirement permits a
registrant to use a different price for mineral resource determination
than it uses for reserve determination, and to vary the estimated price
for different commodities, as long as those prices are reasonable and
justifiable. Consequently, the determination and disclosure of a
registrant's mineral resources should more accurately reflect the
information guiding a registrant's business decisions because the
qualified person has more flexibility in selecting the different prices
for mineral resource and reserve estimation (as opposed to being
limited to prices less than the 24-month trailing average).\695\
---------------------------------------------------------------------------
\695\ See supra note 659 and accompanying text.
---------------------------------------------------------------------------
Third, because the adopted estimated pricing requirement conforms
to the CRIRSCO standards and global industry practice, it will help to
promote uniformity and comparability regarding the disclosure of
mineral resource and reserve estimates among mining registrants, which
should benefit investors by enhancing their analysis and understanding
of registrants' mining operations.\696\
---------------------------------------------------------------------------
\696\ See, e.g., letter from CIM.
---------------------------------------------------------------------------
We are not adopting a provision, as suggested by a few
commenters,\697\ that would exempt the disclosure of the price, and
related material assumptions, underlying mineral resource (or mineral
reserve) estimates. Because of the important role that pricing
considerations play in determining estimates of mineral resources (and
mineral reserves), we believe that such an exemption could lead to the
omission of information that is material to an investor's understanding
of those estimates.
---------------------------------------------------------------------------
\697\ See supra notes 662-664 and accompanying text.
---------------------------------------------------------------------------
b. Qualitative Assessment of Factors and Permitted Assumptions
We are adopting a provision that specifies the relevant technical
and economic factors likely to influence the reasonable prospect of
economic extraction that, at a minimum, the qualified person must
qualitatively assess.\698\ While the factors are identical to those in
the proposed instruction, we have conformed that instruction to reflect
the change in the definition of, and required disclosure concerning,
the initial assessment. We believe a qualitative evaluation of these
listed factors, at a minimum, is necessary to determine the economic
potential of a mining property. An assessment of the geological
characteristics of the mined material would not be complete if it did
not include an evaluation and discussion of infrastructure, mine
design, processing, and environmental issues that could pose obstacles
to the material's extraction.
---------------------------------------------------------------------------
\698\ See 17 CFR 229.1302(d)(3) [Item 1302(d)(3) of Regulation
S-K]. These factors include: site infrastructure; mine design and
planning; processing plant; environmental compliance and permitting;
and any other reasonably assumed technical and economic factors,
including factors related to local individuals and groups, which are
necessary to demonstrate reasonable prospects for economic
extraction. See also Table 1 to paragraph (d) of Item 1302 of
Regulation S-K.
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We are adopting another provision that refers the qualified person
to Table 1 to paragraph (d) of Item 1302 for the assumptions permitted
to be made when preparing the initial assessment as well as other
technical studies.\699\ This table sets forth the minimum requirements
for various factors that the qualified person must evaluate when
preparing an initial assessment, pre-feasibility study, or feasibility
study. It is substantially similar to the proposed Table 1 but has been
conformed to reflect the change in the definition of, and required
disclosure concerning, the initial assessment. We are presenting the
minimum factors to be considered for each study in one table to
facilitate a comparison of the evaluative factor requirement across the
three key technical studies proposed to be used for mineral resource
and reserve disclosure. As this presentation demonstrates, the
evaluative process becomes more exacting as mining property assessment
progresses from mineral resource estimation to mineral reserve
estimation.
---------------------------------------------------------------------------
\699\ See 17 CFR 229.1302(d)(1)(iv) [Item 1302(d)(1)(iv) of
Regulation S-K].
---------------------------------------------------------------------------
The assumptions permitted to be made in the initial assessment
include those pertaining to infrastructure location and the required
plant area, type of power supply, site access roads and camp or town
site, production rates, processing method and plant throughput, post-
mining land uses, and plans for tailings disposal, reclamation, and
mitigation. Allowing assumptions for a variety of factors at the
resource determination stage is generally consistent with guidelines
under the CRIRSCO-based codes.\700\ Moreover, the assumption phase is
temporary as the qualified person must substitute most assumptions with
empirical evidence and facts as part of the pre-feasibility or
feasibility study that is required for determining mineral reserves.
---------------------------------------------------------------------------
\700\ See, e.g., SME Guide, supra note177, Table 1, at 44-67.
---------------------------------------------------------------------------
We are not expanding the disclosure of environmental factors in
connection with the initial assessment, as suggested by some
commenters.\701\ As explained in greater detail below, we believe that
the specified environmental factors required to be included in the
technical report summary will likely cover the concerns raised by those
commenters to the extent that they are material to investors.\702\
---------------------------------------------------------------------------
\701\ See supra notes 669-671 and accompanying text.
\702\ See infra Section II.G.3.
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c. Optional Economic (Cash Flow) Analysis
Similar to a proposed instruction, we are adopting a provision
stating that a qualified person may include cash flow analysis in an
initial assessment to demonstrate economic potential. If the qualified
person includes cash flow analysis in the initial assessment, then the
adopted provision imposes the same accuracy and contingency levels
required for operating and capital cost estimates as under the proposed
instruction.\703\ The qualified person must state the accuracy and
contingency levels in the initial assessment. We believe that these
accuracy and contingency requirements \704\ for operating and capital
costs are appropriate because they are generally consistent with those
accepted for scoping studies.\705\
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\703\ 17 CFR 229.1302(d)(4)(i) [Item 1302(d)(4)(i) of Regulation
S-K], which requires operating and capital cost estimates to have an
accuracy level of at least approximately 50 percent and
a contingency level of no greater than 25 percent.
\704\ We have included both accuracy and contingency
requirements for operating and capital cost estimates in Table 1 to
paragraph (d) of Item 1302 of Regulation S-K.
\705\ See, e.g., SME Guide, supra note177, Table 2, at 68-69
(providing accuracy and contingency ranges for capital and operating
cost estimates in scoping, pre-feasibility, and feasibility
studies).
---------------------------------------------------------------------------
In a change from the proposed rules, the final rules will permit a
qualified person to include inferred mineral resources in a cash flow
analysis prepared as part of the initial assessment as long as the
qualified person:
States with equal prominence to the disclosure of
mineral resource estimates that the assessment is preliminary in
nature, it includes inferred mineral resources that are considered
too speculative geologically to have modifying factors applied to
them that would enable them to be categorized as mineral reserves,
and there is no certainty
[[Page 66387]]
that this economic assessment will be realized;
Discloses the percentage of the mineral resources used
in the cash flow analysis that are classified as inferred resources;
and
Discloses, with equal prominence, the results of the
economic analysis excluding inferred resources in addition to the
results that include inferred resources.\706\
---------------------------------------------------------------------------
\706\ 17 CFR 229.1302(d)(4)(ii) [Item 1302(d)(4)(ii) of
Regulation S-K].
These conditions are generally in line with the approach of
Canada's NI 43-101, which permits the use of inferred resources in a
preliminary economic assessment as long as cautionary language about
such use is provided. We are adopting this change to address
commenters' concern that, because inferred resources may be included in
economic analyses in preliminary economic assessments under Canada's NI
43-101 and in scoping studies under other CRIRSCO-based codes, U.S.
registrants would be at a competitive disadvantage were we to adopt
subpart 1300, as proposed.\707\ We believe that the above conditions
will appropriately caution investors concerning the level of risk
underlying such mineral resource estimates and provide them with
additional information to help evaluate whether to invest on the basis
of estimates that include inferred resources.
---------------------------------------------------------------------------
\707\ See supra note 674 and accompanying text.
---------------------------------------------------------------------------
As previously noted, an initial assessment is not required to have
an economic analysis, and when it does not include such an analysis,
its scope is narrower than that of a preliminary economic assessment
under Canada's NI 43-101 or a scoping study under other CRIRSCO-based
codes.\708\ But if a qualified person opts to provide an economic
analysis, which includes inferred resources, in an initial assessment
under the final rules, a U.S. registrant may use such an initial
assessment for substantially similar purposes as a Canadian registrant
uses a preliminary economic assessment or another non-U.S. registrant
uses a scoping study in Australia, South Africa, or other foreign
jurisdiction that has adopted a CRIRSCO-based code.
---------------------------------------------------------------------------
\708\ See supra notes 619-621 and accompanying text.
---------------------------------------------------------------------------
As previously discussed, we do not believe that other quantitative
measures of economic potential that omit cash flows are appropriate,
and we are concerned that they potentially could be misleading.\709\
Capital expenditures, operating costs, and revenues vary over the life
of a mine due to variations in mining conditions. Hence, economic
analyses that do not account for these variations may not tell a
complete story. For example, a gross profit evaluation that does not
account for the timing of capital outlays and revenues could indicate
that a project is viable, yet in actuality timely loan repayments may
not be possible. Consequently, to the extent a qualified person wants
to include an economic analysis in an initial assessment, he or she
must use a cash flow analysis.
---------------------------------------------------------------------------
\709\ See Proposing Release, supra note 5, at Section II.E.3.
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5. USGS Circular 831 and 891
i. Proposed Interpretation
In the Proposing Release, we explained why we do not believe that
it would be appropriate to permit the continued classification of
mineral resources based on United States Geological Survey (``USGS'')
Circulars 831 and 891 following adoption of subpart 1300 of Regulation
S-K.\710\ Consistent with the mission of the USGS, these circulars were
mostly suitable for national and regional level reporting of mineral
resources and reserves for government planning purposes,\711\ and were
not intended to be the basis for public company disclosure to
investors. While Circular 831 initially established a classification
system for all mineral commodities, its classification scheme has been
largely phased out for metal mining. It is still used in coal and some
industrial minerals mining, while Circular 891 was specifically
designed, and is still used, for resource or reserve classification of
coal.\712\
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\710\ See Proposing Release, supra note 5, at Section II.E.4,
which refers to USGS Circular 891 (stating that ``[i]n 1980, the
[USGS and Bureau of Mines] published Circular 831, `Principles of
the Mineral Resource Classification System of the U.S. Bureau of
Mines and U.S. Geological Survey' (U.S. Geological Survey, 1980).
The circular, which outlines a classification system for all mineral
commodities, filled the classification needs of the Bureau of Mines,
which was no longer responsible for coal resource classification,
and was the basis for this revision of the coal resource
classification system by the Geological Survey. The revision,
embodied in this report, has two main objectives: (1) to provide
detailed information lacking in Bulletin 1450-B; and (2) to provide
standard definitions, criteria, guidelines, and methods required for
uniform application of the principles outlined in Circular 831'').
Gordon H. Wood, Jr et al., U.S. Geological Survey, U.S. Dep't of the
Interior, Coal Resource Reclassification System of the U.S.
Geological Survey, USGS Circular 891 (1983), http://pubs.usgs.gov/circ/1983/0891/report.pdf.
\711\ See Proposing Release, Section II.E.4, which refers to
USGS Circular 831 (stating that ``[t]he system can be used to report
the status of mineral and energy-fuel resources for the Nation or
for specific areas''). U.S. Geological Survey & U.S. Bureau of
Mines, U.S. Dep't of the Interior, Principles of a Resource/Reserve
Classification for Minerals: A Revision of the Classification System
Published as USGS Survey Bulletin 1450-A, USGS Circular 831 (1980),
http://pubs.usgs.gov/circ/1980/0831/report.pdf.
\712\ See id.
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In the past, the staff has not objected to mineral reserve
disclosure that used these circulars to classify mineral resources as
inferred, indicated, or measured resources.\713\ However, we indicated
in the Proposing Release that we do not believe the use of USGS
Circulars 831 and 891 for resource classification in Commission filings
would be consistent with the proposed rules. As we explained, the
primary criterion for the required mineral resource classification
under the CRIRSCO standards, upon which the Commission's proposed rules
are based, is the geologic confidence in the estimates based on the
geologic evidence (limited, adequate, or conclusive).\714\ In addition,
under the CRIRSCO standards and the Commission's proposed rules, all
disclosed mineral resources must have reasonable prospects of economic
extraction, which requires the qualified person to consider a variety
of technical and economic factors, in addition to geologic evidence,
when evaluating the economic potential of a deposit.\715\
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\713\ Guide 7 prohibits mineral resource disclosure and as such
does not provide any guidance, or place any restrictions, on how to
classify mineral resources.
\714\ See supra Section II.E.3.
\715\ See supra Sections II.E.2 and II.E.4.
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In contrast, the primary criterion in the Circulars' classification
system is the extent to which tonnages fall within particular distances
from a drill hole or outcrop.\716\ Although drill hole spacing may be a
factor that informs the qualified person's assessment of geologic
confidence, for the purposes of public company disclosure to investors,
we indicated that we do not believe it should be the sole factor.\717\
We therefore solicited comment on the appropriateness of using
Circulars 831 and 891 to classify mineral resources.\718\
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\716\ The Circulars prescribe strict guidelines to classify
mineral resources based on the distance from a drill hole (``drill
hole spacing'') that do not vary depending on the complexity and
specific facts of the deposit. For example, these Circulars define
measured (0- to \1/4\-mile), indicated (\1/4\ to \3/4\-mile) and
inferred (\3/4\- to 3-miles) mineral resources based on drill hole
(or outcrop) radii.
\717\ See, e.g., Ricardo A. Olea and James A. Luppens, Modeling
Uncertainty in Coal Resource Assessments, With an Application to a
Central Area of the Gillette Coal Field, USGS Scientific
Investigations Report 2014-5196 1 (2014) (concluding that an
approach that involved establishing confidence limits ``should be
considered realistic improvement[ ] over distance methods used for
quantitative classification of uncertainty in coal resource, such as
U.S. Geological Survey Circular 891'').
\718\ See Proposing Release, supra note 5, at Section II.E.4.
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[[Page 66388]]
ii. Comments on the Proposed Interpretation
Numerous parties supported the Commission's position that use of
USGS Circulars 831 and 891 to classify mineral resources would not be
appropriate under the proposed rules.\719\ Some commenters stated that
the Circulars are inconsistent with the CRIRSCO standards and were
designed for a different purpose (i.e., government identification of
mineral occurrences that may be of economic interest 25-50 years in the
future.) \720\ For that reason, according to those commenters, allowing
continued use of the Circulars to classify resources would lead to
investor confusion and should never be permitted,\721\ even for
coal.\722\
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\719\ See, e.g., letters from AIPG, Amec, AngloGold, BHP, CBRR,
Eggleston, Gold Resource, Midas, Northern Dynasty, Rio Tinto, SME 1,
and SRK 1.
\720\ See, e.g., letters from AIPG and SME 1.
\721\ See, e.g. letters from AIPG, Eggleston, and SME 1.
\722\ See letters from AIPG and SME 1.
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One commenter opposed the use of Circulars 831 and 891 to classify
mineral resources because they are not based on modern geostatistical
methods that are now routinely applied and, thus, are outdated.\723\
Another commenter agreed that Circulars 831 and 891 are ``completely
out of date and do not address many modern aspects of exploration,
sampling, chain of custody, quality assessment/quality controls (`QA/
QC'), resource estimation methods, validation and reconciliation.''
\724\ One other commenter stated that the use of Circulars 831 and 891
to classify mineral resources would not be appropriate because of the
poor alignment with CRIRSCO, the lack of economic criteria, and the
potential to cause inconsistent disclosure.\725\
---------------------------------------------------------------------------
\723\ See letter from BHP.
\724\ Letter from SRK 1.
\725\ See letter from Rio Tinto.
---------------------------------------------------------------------------
In contrast, a few commenters stated that the Commission should
allow the use of the Circulars for coal deposits because they are still
a valid tool in classifying coal deposits.\726\ As one of those
commenters explained, because coal is a tabular deposit that is often
relatively consistent over large areas, it lends itself to the type of
evaluation provided by the Circulars.\727\
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\726\ See letters from Alliance, Cloud Peak, and NMA 1.
\727\ See letter from Alliance.
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iii. Final Interpretation
Having considered the comments received, we are affirming our
position that the use of USGS Circulars 831 and 891 for resource
classification in Commission filings should not be permitted under the
final rules. As we explained in the Proposing Release, those Circulars
provide a method of classification that primarily relies on a single
criterion--the extent to which tonnages fall within particular
distances from a drill hole or outcrop.\728\ In contrast, the final
rules, which provide a mineral resource classification scheme that is
substantially similar to the CRIRSCO classification system, require a
qualified person to assess the geologic confidence in the resource
estimates based on the geologic evidence and, in addition, to consider
a variety of relevant technical and economic factors likely to
influence the prospect of economic extraction.\729\
---------------------------------------------------------------------------
\728\ See Proposing Release, supra note 5, at Section II.E.4.
\729\ See supra Sections II.E.2 through II.E.4.
---------------------------------------------------------------------------
Consequently, we agree with commenters that the method used to
classify mineral resources in Circulars 831 and 891 is inconsistent
with the CRIRSCO standards and should not be permitted under new
subpart 1300, even when classifying coal resources.\730\ Because, as
commenters indicated, the USGS Circulars do not address many modern
aspects of exploration, sampling, resource estimation methods,
validation, and reconciliation,\731\ which are included under the
CRIRSCO standards, we do not believe that the Circulars are the most
appropriate method for purposes of public company disclosure to
investors. Rather, we believe that the continued reliance on those
Circulars to classify mineral resources would lead to inconsistencies
with mineral resource estimates determined under the CRIRSCO standards
and investor confusion. Accordingly, neither a registrant nor its
qualified person may use Circulars 831 and 891 to classify mineral
resources when providing the disclosure required under subpart 1300.
---------------------------------------------------------------------------
\730\ See, e.g., letters from AIPG and SME 1.
\731\ See, e.g., letters from BHP and SRK 1.
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F. Treatment of Mineral Reserves
1. The Framework for Determining Mineral Reserves
i. Rule Proposal
Guide 7 defines a mineral reserve as ``that part of a mineral
deposit which could be economically and legally extracted or produced
at the time of the reserve determination.'' \732\ Guide 7 does not,
however, delineate the factors that must be considered when making a
reserve determination. In contrast, other jurisdictions have adopted
the CRIRSCO framework whereby the determination of mineral reserves
occurs by applying and evaluating specifically defined ``modifying
factors'' to indicated and measured mineral resources.\733\
---------------------------------------------------------------------------
\732\ Paragraph (a)(1) of Guide 7.
\733\ See, e.g., CIM Definition Standards, supra note 351, at 5-
6; JORC Code, supra note 175, at pt. 29; SME Guide, supra note 177,
at pt. 41; SAMREC Code, supra note 267, at pt. 35; and PERC
Reporting Standard, supra note 302, at pt. 8.1.
---------------------------------------------------------------------------
We proposed to revise the definition of mineral reserves to align
it generally with the definition under the CRIRSCO-based codes by
adopting the framework of applying modifying factors to indicated or
measured mineral resources in order to convert them to mineral
reserves.\734\ As part of this framework, we proposed definitions of
``mineral reserves,'' ``probable mineral reserves,'' ``proven mineral
reserves,'' and ``modifying factors.''
---------------------------------------------------------------------------
\734\ See Proposing Release, supra note 5, at Section II.F.1.
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We proposed to define ``mineral reserve'' as an estimate of tonnage
and grade or quality of indicated or measured mineral resources that,
in the opinion of the qualified person, can be the basis of an
economically viable project. More specifically, as proposed, a mineral
reserve is the economically mineable part of a measured or indicated
mineral resource, net of allowances for diluting materials and for
losses that may occur when the material is mined or extracted.\735\
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\735\ See id.
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Under the proposed rules, the determination that part of a measured
or indicated mineral resource is economically mineable would have to be
based on a preliminary feasibility (pre-feasibility) or feasibility
study conducted by a qualified person applying the modifying factors to
indicated or measured mineral resources. Such study would have to
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions. Moreover, the study would have to establish a life of mine
plan that is technically achievable and economically viable, which
would be the basis of determining the mineral reserve.\736\
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\736\ See id.
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As used in the proposed definition of mineral reserve,
``economically viable'' means that the qualified person has determined,
using a discounted cash flow analysis, or has otherwise analytically
determined, that extraction of the mineral reserve is economically
viable under reasonable investment and market assumptions.\737\ As used
in this proposed definition, ``investment and market assumptions''
includes all
[[Page 66389]]
assumptions made about the prices, exchange rates, sales volumes and
costs that are necessary and are used to determine the economic
viability of the reserves.\738\
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\737\ See id.
\738\ See id.
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As proposed, the price used to determine the economic viability of
the mineral reserves could not be higher than the average spot price
during the 24-month period prior to the end of the fiscal year covered
by the study, determined as an unweighted arithmetic average of the
daily closing price for each trading day within such period, except in
cases where sales prices are determined by contractual agreements. In
such a case, the qualified person would be able to use the price set by
the contractual arrangement, provided that such price is reasonable and
the qualified person discloses that he or she is using a contractual
price and discloses the contractual price used.\739\
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\739\ See id.
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The proposed rules used the CRIRSCO classification scheme and
framework for mineral reserve determination, which subdivides mineral
reserves, in order of increasing confidence in the results obtained
from the application of the modifying factors to the indicated and
measured mineral resources, into probable mineral reserves and proven
mineral reserves.\740\ Similar to the CRIRSCO classification
scheme,\741\ we proposed to define ``probable mineral reserves'' as the
economically mineable part of an indicated and, in some cases, a
measured mineral resource.\742\
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\740\ See id.
\741\ See, e.g., JORC Code, supra note 175, at pt. 30; CIM
Definition Standards, supra note 351, at 6; SAMREC Code, supra note
267, at pt. 36; and PERC Reporting Standard, supra note 302, at pt.
8.11.
\742\ See Proposing Release, supra note 5, at Section II.F.1.
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As we explained in the Proposing Release, for a probable mineral
reserve, the qualified person's confidence in the results obtained from
the application of the modifying factors and in the estimates of
tonnage and grade or quality is lower than what is sufficient for a
classification as a proven mineral reserve, but is still sufficient to
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions.\743\ This lower level of confidence can be due either to
higher geologic uncertainty when the qualified person converts an
indicated mineral resource to a probable mineral reserve or higher risk
in the results of the application of modifying factors at the time when
the qualified person converts a measured mineral resource to a probable
mineral reserve. As further required by the proposed rules, a qualified
person must classify a measured mineral resource as a probable mineral
reserve when his or her confidence in the results obtained from the
application of the modifying factors to the measured mineral resource
is lower than what is sufficient for a proven mineral reserve.\744\
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\743\ See id.
\744\ See id.
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Similar to the CRIRSCO classification scheme,\745\ we proposed to
define ``proven mineral reserves'' as the economically mineable part of
a measured mineral resource.\746\ As the proposed rules explained, for
a proven mineral reserve, the qualified person must have a high degree
of confidence in the results obtained from the application of the
modifying factors and in the estimates of tonnage and grade or
quality.\747\ In addition, as proposed, a proven mineral reserve can
only result from conversion of a measured mineral resource.\748\
---------------------------------------------------------------------------
\745\ See, e.g., JORC Code, supra note 175, at pt. 31; CIM
Definition Standards, supra note 351, at 6; SAMREC Code, supra note
267, at pt. 37; and PERC Reporting Standard, supra note 302, at pt.
8.13.
\746\ See Proposing Release, Section II.F.1.
\747\ See id.
\748\ See id.
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We proposed to define ``modifying factors'' as the factors that a
qualified person must apply to mineralization or geothermal energy and
then evaluate in order to establish the economic prospects of mineral
resources, or the economic viability of mineral reserves.\749\ Similar
to the CRIRSCO framework, a qualified person would have to apply and
evaluate modifying factors to convert measured and indicated mineral
resources to proven and probable mineral reserves.\750\ As proposed,
these factors included, but were not restricted to, mining, energy
recovery and conversion, processing, metallurgical, economic,
marketing, legal, environmental, infrastructure, social, and
governmental factors. We also proposed that the number, type, and
specific characteristics of the applied modifying factors are a
function of and depend upon the mineral, mine, property, or
project.\751\
---------------------------------------------------------------------------
\749\ See id.
\750\ See, e.g., JORC Code, supra note 175, at pt. 12; CRIRSCO
International Reporting Template, supra note 20, at cl. 12; SAMREC
Code, supra note 267, at pt. 12; and PERC Reporting Standard, supra
note 302, at pt. 4.3.
\751\ See Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------
We proposed several instructions about the conversion of mineral
resources into mineral reserves. For example, one instruction explained
that, similar to the CRIRSCO framework,\752\ if the uncertainties in
the results obtained from the application of the modifying factors,
which prevented a measured mineral resource from being converted to a
proven mineral reserve, no longer exist, then the qualified person may
convert the measured mineral resource to a proven mineral reserve.\753\
---------------------------------------------------------------------------
\752\ See, e.g., JORC Code, supra note 175, at pt. 32; CRIRSCO
International Reporting Template, supra note 20, at cl. 33; SAMREC
Code, supra note 267, at pt. 38, and PERC Reporting Standard, supra
note 302, at pt. 8.15.
\753\ See Proposing Release, supra note 5, at Section II.F.1.
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Another instruction stated that a qualified person cannot convert
an indicated mineral resource to a proven mineral reserve unless there
is new evidence that justifies conversion of the indicated mineral
resource to a measured mineral resource.\754\ A third instruction
explained that a qualified person cannot convert an inferred mineral
resource to a mineral reserve without first obtaining new evidence that
justifies converting it to an indicated or measured mineral
resource.\755\ These proposed instructions are consistent with the
CRIRSCO framework for conversion of mineral resources into mineral
reserves.\756\
---------------------------------------------------------------------------
\754\ See id.
\755\ See id.
\756\ See, e.g., JORC Code, supra note 175, at pt. 32; CRIRSCO
International Reporting Template, supra note 20, at cl. 33; SAMREC
Code, supra note 267, at pt. 38; and PERC Reporting Standard, supra
note 302, at pt. 8.15.
---------------------------------------------------------------------------
We proposed a definition of mineral reserve as an estimate of
tonnage and grade or quality that is net of allowances for diluting
materials and mining losses. This is in contrast to the definition of
mineral reserve under the CRIRSCO standards, which includes diluting
materials in reserve estimates.\757\ We proposed a net estimate for
reserves because the proposed rules would require disclosure of mineral
reserves at three points of reference: In-situ,\758\ plant or mill
feed, and saleable product.\759\ As we explained, estimates that are
exclusive of diluting materials and mining losses would provide a
[[Page 66390]]
clearer picture of the efficiency of the processing method.\760\
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\757\ In this regard, we stated our belief that, because
excluding diluting materials is a minor computational step in
reserve estimation, the proposed net estimate for reserves measure
would not impose a significant additional compliance burden for
registrants. See Proposing Release, supra note 5, at Sections
II.F.1.
\758\ In-situ means ``in its original place.'' It is used in
this context to refer to mineral reserves estimated as in-place
tons.
\759\ See Proposing Release, supra note 5, at Sections II.F.1-2.
\760\ The efficiency of the processing method demonstrates how
well the registrant converts the resource into saleable product. See
Proposing Release, supra note 5, at Section II.F.1.
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Under the proposal, when discussing the analysis in the technical
report summary, the qualified person would be required to disclose the
assumptions made about prices, exchange rates, discount rate, sales
volumes and costs necessary to determine the economic viability of the
reserves.\761\
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\761\ See id.
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ii. Comments on the Rule Proposal
Many commenters generally supported the Commission's proposal to
adopt the CRIRSCO framework of applying modifying factors to indicated
or measured mineral resources in order to convert them to mineral
reserves.\762\ One commenter supported the Commission's proposed
definition of ``mineral reserve'' as the economically mineable part of
a measured or indicated mineral resource, net of allowances for
diluting materials and for losses that may occur when the material is
mined or extracted.\763\ Another commenter stated that the proposed
definition of mineral reserve was acceptable, but the definition in the
CIM Definition Standards, which does not use a net reserve concept, is
substantially better and consistent with international usage.\764\ One
other commenter preferred the CRIRSCO definition of mineral reserve,
which includes dilution and allowances for losses, but stated that,
alternatively, the Commission should permit a registrant to disclose
its reserves both as inclusive of dilution and losses and as a net
estimate.\765\
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\762\ See, e.g., letters from AngloGold, BHP, CBRR, Eggleston,
Gold Resource, JORC, Midas, Northern Dynasty, Rio Tinto, SAMCODES 1
and 2, and Vale.
\763\ See letter from Midas.
\764\ See letter from Eggleston.
\765\ See letter from Energy Fuels.
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Many other commenters, however, strongly opposed the net reserve
concept and urged the Commission to adopt the CRIRSCO definition of
mineral reserve.\766\ Those commenters disagreed with the Commission's
statement that the calculation of a net estimate would be ``relatively
minor.'' \767\ Moreover, some commenters stated that, in addition to
conflicting with the comparable definition under the CRIRSCO standards,
the proposed definition of mineral reserve also is inconsistent with
that part of the proposed definition that requires the application of
the modifying factors to mineral resources in order to determine
mineral reserves, and is therefore unrealistic.\768\ Because
application of the modifying factors, which include operational and
processing factors, necessarily involves dilution and allowances for
losses, it is not possible to exclude them and satisfy the modifying
factors prong of the mineral reserve definition.\769\
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\766\ See letters from Amec, AngloGold, BHP, CBRR, Coeur, FCX,
Gold Resource, Golder, MMSA, NMA 1, Northern Dynasty, Randgold, Rio
Tinto, Royal Gold, SAMCODES 1, SME 1, SRK 1, Vale, and Willis.
\767\ See, e.g., letters from BHP, FCX, Golder, and MMSA.
\768\ See, e.g., letters from BHP, CBRR, Randgold, and Rio
Tinto.
\769\ Some of the commenters made similar arguments when
objecting to the proposed requirement to disclose mineral reserves
as in-situ in addition to plant/mill feed and saleable product. See,
e.g., letters from Amec, Rio Tinto, SME 1, and Vale. See infra
Section II.G. for further discussion.
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Several commenters were generally supportive of the proposed
definitions of probable and proven mineral reserve because they are
consistent with the CRIRSCO definitions.\770\ Several commenters also
generally supported the proposed definition of modifying factors.\771\
One commenter stated that the proposed definition is consistent with
the CRIRSCO standards.\772\ Other commenters recommended adding other
specified factors to the definition, such as decommissioning costs,
reclamation costs, and assumptions for mining losses, among other
things.\773\
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\770\ See letters from AngloGold, CBRR, Eggleston, Midas,
Northern Dynasty, and SRK 1.
\771\ See, e.g., letters from AngloGold, CBRR, Golder, Midas,
and SRK 1.
\772\ See letter from CBRR.
\773\ See letters from SRK 1 and Golder. As previously
discussed, some commenters objected to the application of the
modifying factors at the mineral resource determination stage. See,
e.g., letters from Amec and Eggleston. Those commenters requested
that we remove from the definition of modifying factors their use to
establish the economic prospects of mineral resources.
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Several commenters supported the Commission's proposal to include a
life of mine plan disclosure requirement in the technical studies
required to support a determination of mineral reserves.\774\ One
commenter described the life of mine requirement as ``fundamental'' to
determining whether a mine will be economically viable at the time of
reporting.\775\ A second commenter stated that the proposed life of
mine plan requirement is consistent with requirements in global
jurisdictions.\776\
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\774\ See letters from Amec, CBRR, Eggleston, Gold Resource,
Golder, Midas, Northern Dynasty, Rio Tinto, SAMCODES 2, and SRK 1.
\775\ See letter from Eggleston.
\776\ See letter from CBRR.
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One commenter, however, opposed a life of mine plan disclosure
requirement because such a requirement would reveal commercially
sensitive information and would be onerous on registrants with a large
number of reserves.\777\ Another commenter objected to the proposed
life of mine plan disclosure requirement on the grounds that, because
coal mine plans often include areas not yet controlled by a company,
disclosing mine life plans would allow competitors to interfere with
the company's operations by acquiring strategic mineral rights already
targeted by the company.\778\ That commenter also stated that, because
life of mine plans are always subject to change, their disclosure could
lead potential investors to assume incorrectly that mining is possible
under all conditions.\779\
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\777\ See letter from BHP.
\778\ See letter from Alliance.
\779\ See id.
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Several commenters generally supported the proposed requirement
that a qualified person conduct a discounted cash flow analysis to
demonstrate economic viability.\780\ One commenter stated that
discounted cash flows are the most widespread and industry accepted
approach of evaluation and should be required.\781\ Another commenter
stated that we should require a non-discounted cash flow analysis in
addition to the industry standard discounted cash flow analysis.\782\
---------------------------------------------------------------------------
\780\ See, e.g., letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
\781\ See letter from Midas; see also letter from Eggleston.
\782\ See letter from SRK 1.
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In contrast, one commenter opposed the proposed discounted cash
flow requirement because it ``is overly prescriptive compared to the
CRIRSCO requirement to base reserves on studies that have determined a
mine plan that is technically and economically achievable.'' \783\
Another commenter stated that annual cash flow forecasts should be
omitted for operating mines ``as publication may affect a competitive
advantage in labor or customer negotiations.'' \784\
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\783\ Letter from BHP.
\784\ Letter from SME 1.
---------------------------------------------------------------------------
Similar to comments received on the proposed pricing requirement
for mineral resource estimates, many commenters objected to the
proposed requirement that a qualified person use a 24-month trailing
average price for the discounted cash flow analysis required for the
determination of mineral reserves. Commenters maintained that the
proposed historical pricing requirement would conflict with the
industry practice of relying on forward-looking pricing forecasts and
the
[[Page 66391]]
CRIRSCO guidance allowing the use of any reasonable and justifiable
price.\785\
---------------------------------------------------------------------------
\785\ See, e.g., letters from Amec, AngloGold, CBRR, CIM,
Eggleston, JORC, NMA 1, Northern Dynasty, Randgold, Rio Tinto, SME
1, and Vale.
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iii. Final Rules
We are revising the definition of mineral reserves (currently in
Guide 7) by adopting the CRIRSCO framework of applying modifying
factors to indicated or measured mineral resources in order to convert
them to mineral reserves, as proposed. The adopted framework requires a
registrant's disclosure of mineral reserves to be based on a qualified
person's detailed evaluation of the modifying factors as applied to
indicated or measured mineral resources, which would demonstrate the
economic viability of the mining property or project.\786\ The adopted
framework includes a series of definitions that describe the
relationship between the different classes of mineral resources and
reserves and underscores the incremental nature of mineral resource and
reserve determination.
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\786\ See Item 1302(e) of Regulation S-K [17 CFR 229.1302(e)].
---------------------------------------------------------------------------
We are adopting the definition of mineral reserve largely as
proposed.\787\ In a change from the proposed rules, the adopted
definition of mineral reserve provides that a mineral reserve includes
diluting materials and allowances for losses that may occur when the
material is mined or extracted.\788\ We have been persuaded to remove
the proposed net reserve concept from the definition of mineral reserve
by commenters that maintained that such removal was necessary to make
the definition consistent with the comparable CRIRSCO definition \789\
and to avoid internal inconsistencies.\790\ As commenters noted, the
CRIRSCO standards and the final rules \791\ require the determination
of mineral reserves to be based upon a qualified person's application
of the modifying factors to indicated or measured mineral resources.
The modifying factors include mining method, which is the source of
dilution and mining losses, and mineral processing methods, which
determine recovery factors. Because dilution and losses are realistic
consequences of applying the modifying factors, we believe it is
reasonable to include both diluting materials and allowances for losses
in the definition of mineral reserve.\792\
---------------------------------------------------------------------------
\787\ See 17 CFR 229.1300, which defines a mineral reserve as an
estimate of tonnage and grade or quality of indicated and measured
mineral resources that, in the opinion of the qualified person, can
be the basis of an economically viable project. The adopted
definition further provides that a mineral reserve is the
economically mineable part of a measured or indicated mineral
resource.
\788\ See id.
\789\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 30; JORC Code, supra note 175, at pt. 29; SAMREC
Code, supra note 267, at pt. 35; and PERC Reporting Standard, supra
note 302, at pt. 8.1.
\790\ See supra note 768 and accompanying text.
\791\ 17 CFR 229.1302(e)(2) [Item 1302(e)(2) of Regulation S-K]
(providing in relevant part that the ``determination of probable or
proven mineral reserves must be based on a qualified person's
application of the modifying factors to indicated or measured
mineral resources, which results in the qualified person's
determination that part of the indicated or measured mineral
resource is economically mineable'').
\792\ In addition, removal of the net reserve concept from the
definition of mineral reserve is consistent with our elimination of
the requirement to disclose mineral reserves in-situ. See infra
Section II.G.
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The final rules no longer define modifying factors to include
factors used to establish the economic prospects of mineral resources.
Instead, the adopted definition provides that modifying factors are the
factors that a qualified person must apply to indicated and measured
resources and then evaluate in order to establish the economic
viability of mineral reserves.\793\ This change from the proposal is
consistent with the change made to the initial assessment requirement,
which no longer requires application of the modifying factors at the
resource determination stage.\794\ Referencing the modifying factors
solely in the context of mineral reserve determination will align the
final rules with the CRIRSCO standards and avoid confusing registrants
and investors about the level of analysis required at the resource
determination stage.
---------------------------------------------------------------------------
\793\ See the definition of ``modifying factors'' in 17 CFR
229.1300.
\794\ See supra Section II.E.4.
---------------------------------------------------------------------------
Consistent with the proposed rules, the adopted definition of
modifying factors provides that a qualified person must apply and
evaluate modifying factors to convert measured and indicated mineral
resources to proven and probable mineral reserves. Also largely as
proposed, the adopted definition provides examples of the modifying
factors, which include, but are not restricted to: Mining; processing;
metallurgical; infrastructure; economic; marketing; legal;
environmental compliance; plans, negotiations, or agreements with local
individuals or groups; and governmental factors.\795\ Although some
commenters suggested adding other specific factors to the list,\796\ we
decline to do so because the adopted definition makes clear that the
list of factors is not exclusive, and is consistent with the factors
specified in the CRIRSCO definition of modifying factors.\797\
---------------------------------------------------------------------------
\795\ See 17 CFR 229.1300. These factors are similar to the
modifying factors under the CRIRSCO standards, which include
``mining, processing, metallurgical, infrastructure, economic,
marketing, legal, environmental, social, and governmental factors.''
CRIRSCO International Reporting Template, supra note 20, at cl. 12.
Rather than refer to ``social'' or ``social-economic'' factors, as
in the Proposing Release, the final rules refer more specifically to
factors pertaining to local individuals or groups. Examples of such
matters include consideration of: Limitations on a mining project
that abuts a tribal burial ground; the potential need to relocate
local individuals because of the scope of the mining project; and
commitments to build a community center or local clinic. We believe
this change will clarify the type of factors the qualified person
may wish to consider in this area.
\796\ See letters from Golder and SRK 1.
\797\ See CRIRSCO International Reporting Template, supra note
20, at cl. 12.
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The adopted definition of modifying factors further states, as
proposed, that the number, type and specific characteristics of the
modifying factors applied will necessarily be a function of and depend
upon the mineral, mine, property, or project.\798\ For example,
applying and evaluating processing factors means the qualified person
must examine the characteristics of the mineral resource and determine
that the material can be processed economically into saleable product
using existing technology. Similarly, applying and evaluating legal
factors means the qualified person must examine the regulatory regime
of the host jurisdiction to establish that the registrant can comply
(fully and economically) with all laws and regulations (e.g., mining,
safety, environmental, reclamation, and permitting regulations) that
are relevant to operating a mineral project using existing technology.
---------------------------------------------------------------------------
\798\ See 17 CFR 229.1300.
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As proposed, the final rules provide that a qualified person must
subdivide mineral reserves, in order of increasing confidence in the
results obtained from the application of the modifying factors to the
indicated and measured mineral resources, into probable mineral
reserves and proven mineral reserves.\799\ The final rules define
``probable mineral reserve'' to mean the economically mineable part of
an indicated and, in some cases, a measured mineral resource.\800\ As
the final rules explain, for a probable mineral reserve, the qualified
person's confidence in the results obtained from the application of the
modifying factors and in the estimates of tonnage and grade or quality
is lower than what is sufficient for a classification as a proven
mineral reserve, but is still sufficient to
[[Page 66392]]
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions. The lower level of confidence is due to higher geologic
uncertainty when the qualified person converts an indicated mineral
resource to a probable mineral reserve or higher risk in the results of
the application of modifying factors at the time when the qualified
person converts a measured mineral resource to a probable mineral
reserve.\801\ The final rules further provide that a qualified person
must classify a measured mineral resource as a probable mineral reserve
when his or her confidence in the results obtained from the application
of the modifying factors to the measured mineral resource is lower than
what is sufficient for a proven mineral reserve.\802\
---------------------------------------------------------------------------
\799\ See 17 CFR 229.1302(e)(2).
\800\ See the definition of ``probable mineral reserve'' in 17
CFR 229.1300.
\801\ 17 CFR 229.1302(e)(2)(i) [Item 1302(e)(2)(i) of Regulation
S-K].
\802\ Id.
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The final rules define ``proven mineral reserve,'' as proposed, to
mean the economically mineable part of a measured mineral
resource.\803\ For a proven mineral reserve, the qualified person must
have a high degree of confidence in the results obtained from the
application of the modifying factors and in the estimates of tonnage
and grade or quality.\804\ Moreover, a proven mineral reserve can only
result from conversion of a measured mineral resource.\805\ The adopted
definitions of probable and proven mineral reserves are generally
consistent with the comparable definitions under the CRIRSCO-based
codes and, as such, were supported by several commenters.\806\
---------------------------------------------------------------------------
\803\ See the definition of ``proven mineral reserve'' in 17 CFR
229.1300.
\804\ 17 CFR 229.1302(e)(2)(ii) [Item 1302(e)(2)(ii) of
Regulation S-K].
\805\ See the definition of ``proven mineral reserve'' in 17 CFR
229.1300.
\806\ See supra note 770 and accompanying text.
---------------------------------------------------------------------------
As discussed below,\807\ the determination that part of a measured
or indicated mineral resource is economically mineable must be based on
a preliminary feasibility (pre-feasibility) or feasibility study that
discusses the qualified person's application of the modifying factors
to indicated or measured mineral resources, and demonstrates that, at
the time of reporting, extraction of the mineral reserve is
economically viable under reasonable investment and market
assumptions.\808\ As proposed, the final rules provide that the study
must establish a life of mine plan that is technically achievable and
economically viable, and which will be the basis of determining the
mineral reserve.\809\ As commenters noted, establishing a life of mine
plan is fundamental to determining the economic viability of a deposit
and is consistent with global industry practice.\810\ Although some
commenters expressed concern that requiring the disclosure of a life of
mine plan could result in the disclosure of proprietary, commercially
sensitive information,\811\ given the importance of the life of mine
plan to determining the economic viability of a mining project, we
believe that requiring disclosure of the life of mine plan is necessary
to help an investor understand the basis of a registrant's mineral
reserves estimate.
---------------------------------------------------------------------------
\807\ See infra Section II.F.2.
\808\ 17 CFR 229.1302(e)(1) and (3) [Item 1302(e)(1) and (3) of
Regulation S-K].
\809\ See Item 1302(e)(3) of Regulation S-K.
\810\ See, e.g., letters from CBRR and Eggleston; see also supra
note 774. In this regard, we note that the SME Guide expressly
requires a life of mine plan in its technical study. See SME Guide,
supra note 177, Table 1, at 54 (``Mining method(s), mine plans and
production schedules defined for the life of the project'' are
required to support mineral reserve disclosure). Under the CRIRSCO-
based codes, the qualified person has to develop mine plans in order
to estimate cash flows, which are required by the codes for the
financial analysis necessary to support mineral reserve disclosure.
The cash flows must be based on costs and revenues associated with
planned production over the life of the project. See, e.g., JORC
Code, supra note 175, at pt. 29 (stating that ``[d]eriving an Ore
Reserve without a mine design or mine plan through a process of
factoring of the Mineral Resource is unacceptable . . . The studies
will have determined a mine plan and production schedule that is
technically achievable and economically viable and from which the
Ore Reserves can be derived'').
\811\ See supra notes 777-778 and accompanying text.
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Consistent with numerous comments received,\812\ the final rules
provide, as proposed, that when used in reference to a mineral reserve,
the term ``economically viable'' means that the qualified person has
determined, using a discounted cash flow analysis, or has otherwise
analytically determined, that extraction of the mineral reserve is
economically viable under reasonable investment and market
assumptions.\813\ Although one commenter disagreed,\814\ we believe the
requirement to conduct a discounted cash flow or other similar analysis
is consistent with industry practice \815\ and the requirement under
the CRIRSCO-based codes that mineral reserve determination must be
based on a financial analysis under reasonable assumptions
demonstrating that extraction of the reserve is economically
viable.\816\
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\812\ See supra note 780 and accompanying text.
\813\ See the definition of ``economically viable'' in 17 CFR
229.1300. Whether the investment and market assumptions are
``reasonable'' will necessarily be a facts and circumstances
determination based upon the relevant economic and market factors.
\814\ See letter from BHP.
\815\ See letters from Eggleston and Midas.
\816\ See, e.g., SME Guide, supra note 177, at pt. 41 (``The
term `economically viable' implies that extraction of the Mineral
Reserve has been determined or analytically demonstrated (e.g., such
as by a cash flow in the report) to be viable and justifiable under
reasonable investment and market assumptions''). See also JORC Code,
supra note 175, at pt. 29 (``The term `economically mineable'
implies that extraction of the Ore Reserves has been demonstrated to
be viable under reasonable financial assumptions'').
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The final rules further provide, as proposed, that the term
``investment and market assumptions'' includes all assumptions made
about the prices, exchange rates, interest and discount rates, sales
volumes, and costs that are necessary and are used to determine the
economic viability of the reserves.\817\ In a change from the proposed
rules, however, and in response to comments received, the final rules
do not require the qualified person to use a price that is no higher
than the 24-month trailing average price. Instead, the qualified person
must use a price for each commodity that provides a reasonable basis
for establishing that the project is economically viable.\818\ The
qualified person will be required to explain, with particularity, his
or her reasons for selecting the price and the underlying material
assumptions regarding the selection.\819\ We are adopting this change
for the same reasons that we changed the pricing requirement for the
cut-off estimation required for the determination of mineral
resources.\820\
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\817\ See the definition of ``investment and market
assumptions'' in 17 CFR 229.1300.
\818\ 17 CFR 229.1302(e)(4) [Item 1302(e)(4) of Regulation S-K].
\819\ See id.
\820\ See supra Section II.E.4.iii.a.
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We believe that the adopted framework for mineral reserve
determination and disclosure is preferable to Guide 7's approach.
Although Guide 7 similarly defines a mineral reserve as that part of a
mineral deposit that can be economically and legally extracted or
produced, it does not specify the level of geologic evidence that must
exist or the factors that must be considered to convert the deposit to
a mineral reserve. In contrast, under the adopted framework, the only
estimates of grade or quality and tonnages that a registrant can
disclose as mineral reserves are those parts of the indicated and
measured mineral resources that, after all relevant modifying factors
have been evaluated, can be shown to be part of a viable mineral
project.\821\ The adopted
[[Page 66393]]
framework requires the qualified person to disclose the specific
mining, processing, metallurgical, environmental, economic, legal, and
other applicable factors that he or she has evaluated in detail, and
which has led the qualified person to conclude that extraction of the
deposit is economically viable. We therefore believe that the adopted
framework will promote clearer, more detailed, and more accurate
disclosure about the economic viability of a registrant's mineral
deposits, which should enhance an investor's understanding of the
registrant's mining operations.
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\821\ In this regard, a qualified person will not be able to use
inferred mineral resources to support a determination of mineral
reserves unless new evidence (e.g., data and analysis) has first
caused an increased confidence in the geologic evidence sufficient
to reclassify those resources as indicated or measured mineral
resources. Similarly, a qualified person will not be able to convert
an indicated mineral resource to a proven mineral reserve without
first determining that conclusive, rather than just adequate,
geological evidence exists to support reclassification to a measured
mineral resource.
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When considered as a whole, and in light of the significant changes
made to the proposed rules discussed above, we believe that the adopted
mineral reserve disclosure framework is substantially similar to the
CRIRSCO framework. As such, its adoption should enhance consistency in
mining disclosure across jurisdictions and thereby facilitate
comparability of information for investors. It also should limit
reporting costs for the numerous mining registrants that are dual-
listed and currently subject to different Commission and CRIRSCO-based
disclosure requirements.
2. The Type of Study Required To Support a Reserve Determination
i. Rule Proposal
Historically, the staff has requested a final feasibility study to
support the disclosure of mineral reserves in a Commission filing. In
contrast, the CRIRSCO-based codes have permitted either a pre-
feasibility study or a feasibility study in support of a determination
of mineral reserves. To help align the Commission's mining property
disclosure rules with the CRIRSCO standards, we proposed to permit
either a preliminary feasibility study or a feasibility study to
support the determination and disclosure of mineral reserves.\822\ We
proposed to define a ``preliminary feasibility study'' (or ``pre-
feasibility study'') as a comprehensive study of a range of options for
the technical and economic viability of a mineral project that has
advanced to a stage where a qualified person has determined (in the
case of underground mining) a preferred mining method, or (in the case
of surface mining) a pit configuration, and in all cases has determined
an effective method of mineral processing and an effective plan to sell
the product.\823\
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\822\ See Proposing Release, supra note 5, at Section II.F.2.
\823\ See id.
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As proposed, a pre-feasibility study must include a financial
analysis based on reasonable assumptions, based on appropriate testing,
about the modifying factors and the evaluation of any other relevant
factors that are sufficient for a qualified person to determine if all
or part of the indicated and measured mineral resources may be
converted to mineral reserves at the time of reporting.\824\ The
study's financial analysis must have the level of detail necessary to
demonstrate, at the time of reporting, that extraction is economically
viable. In addition, as noted in the proposed definition of a pre-
feasibility study, while a pre-feasibility study is less comprehensive
and results in a lower confidence level than a feasibility study, a
pre-feasibility study is more comprehensive and results in a higher
confidence level than an initial assessment.\825\
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\824\ See id.
\825\ See id.
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We proposed to define a ``feasibility study'' \826\ as a
comprehensive technical and economic study of the selected development
option for a mineral project, which includes detailed assessments of
all applicable modifying factors together with any other relevant
operational factors, and detailed financial analysis that are necessary
to demonstrate, at the time of reporting, that extraction is
economically viable.\827\ According to the proposed definition, the
results of the study may serve as the basis for a final decision by a
proponent or financial institution to proceed with, or finance, the
development of the project. Thus, a feasibility study is more
comprehensive, with a higher degree of accuracy, and yielding results
with a higher level of confidence, than a pre-feasibility study. Under
the proposed rules, it must contain mining, infrastructure, and process
designs completed with sufficient rigor to serve as the basis for an
investment decision or to support project financing.\828\
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\826\ As proposed, terms such as ``full, final, comprehensive,
bankable, or definitive'' feasibility study are equivalent to a
feasibility study. See id.
\827\ See id.
\828\ See id.
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Although the use of a pre-feasibility study could increase the
uncertainty regarding a registrant's disclosure about mineral reserves,
compared to a feasibility study, we proposed to allow either study to
support the determination and disclosure of mineral reserves based on
our belief that any such uncertainty would be reduced by the
requirements included in the proposed definitions and corresponding
proposed instructions. One such proposed requirement was that all
reserve disclosures based on a pre-feasibility study must include the
qualified person's justification for using a pre-feasibility study
instead of a final feasibility study.\829\
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\829\ See id.
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Another proposed requirement was that the pre-feasibility study
must include a financial analysis at a level of detail sufficient to
demonstrate the economic viability of extraction. A proposed
instruction stated that the pre-feasibility study must include an
economic analysis that supports the property's economic viability as
assessed by a detailed discounted cash flow analysis.\830\ This
economic analysis must describe in detail applicable taxes and provide
an estimate of revenues, which in certain situations (e.g., where the
products are not traded on an exchange or no established market or
sales contract exists) must be based on at least a preliminary market
study.\831\ We also proposed to prohibit a qualified person from using
inferred mineral resources in the pre-feasibility study's financial
analysis.\832\
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\830\ See id.
\831\ We proposed to define a ``preliminary market study'' to
mean a study that is sufficiently rigorous and comprehensive to
determine and support the existence of a readily accessible market
for the mineral. It must, at a minimum, include product
specifications based on preliminary geologic and metallurgical
testing, supply and demand forecasts, historical prices for the
preceding five or more years, estimated long term prices, evaluation
of competitors (including products and estimates of production
volumes, sales, and prices), customer evaluation of product
specifications, and market entry strategies. The study must provide
justification for all assumptions. It can, however, be less rigorous
and comprehensive than a final market study, which is required for a
full feasibility study. See Proposing Release, supra note 5, at note
264 and accompanying text.
\832\ See Proposing Release, supra note 5, at Section II.F.2.
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In another instruction, we proposed to require the use of a final
feasibility study in high risk situations.\833\ For example, as
proposed, a final feasibility study would be required in situations
where the project is the first in a particular mining district with
substantially different conditions than existing company projects, such
as environmental and permitting restrictions, labor availability and
skills,
[[Page 66394]]
remoteness, and unique mineralization and recovery methods.\834\
---------------------------------------------------------------------------
\833\ See id.
\834\ See id.
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We proposed other instructions to help ensure that the pre-
feasibility study is sufficiently rigorous to support a conclusion that
extraction of the reserve is economically viable. For example, one
proposed instruction explained that the factors to be considered in a
pre-feasibility study are typically the same as those required for an
initial assessment, but considered at a greater level of detail or at a
later stage of development.\835\ According to another proposed
instruction, the operating and capital cost estimates in a pre-
feasibility study must have an accuracy level and a contingency range
that are significantly narrower than those permitted to support a
determination of mineral resources.\836\
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\835\ See id.
\836\ See id. According to this proposed instruction, operating
and capital cost estimates in a pre-feasibility study must, at a
minimum, have an accuracy level of approximately 25% and
a contingency range not exceeding 15%.
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An additional proposed instruction addressed whether and when a
registrant would be required to take additional steps to support its
determination of mineral reserves. As that instruction explained, a
determination of mineral reserves does not necessarily require that
extraction facilities are in place or operational, that the company has
obtained all necessary permits, or that the company has entered into
sales contracts for the sale of mined products. However, such
determination does require that the qualified person has, after
reasonable investigation, not identified any obstacles to obtaining
permits and entering into the necessary sales contracts, and reasonably
believes that the chances of obtaining such approvals and contracts in
a timely manner are highly likely.\837\ The qualified person must take
into account the potential adverse impacts, if any, from any unresolved
material matter on which extraction is contingent and which is
dependent on a third party.
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\837\ See id.
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Another proposed instruction addressed when the completion of a
preliminary or final market study, as part of a pre-feasibility or
feasibility study, may be required to support a determination of
mineral reserves. As proposed, a preliminary market study (for a pre-
feasibility study) or final market study (for a feasibility study)
would be required where the mine's product cannot be traded on an
exchange, there is no other established market for the product, and no
sales contract exists.
Finally, pursuant to another proposed instruction, a pre-
feasibility study must identify sources of uncertainty that require
further refinement in a final feasibility study.\838\ We proposed this
requirement to elicit appropriate disclosure about the areas of risk
present in the pre-feasibility study, which we believed would help
investors in assessing the reliability of the study.
---------------------------------------------------------------------------
\838\ See id.
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We proposed several instructions regarding the use of a feasibility
study to support the determination and disclosure of mineral reserves.
Pursuant to one instruction, a feasibility study must apply and
describe all relevant modifying factors in a more detailed form and
with more certainty than a pre-feasibility study.\839\
---------------------------------------------------------------------------
\839\ See id.
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According to another instruction, a feasibility study must include
an economic analysis that describes taxes, estimates revenues, and
assesses economic viability by a detailed discounted cash flow
analysis.\840\ In addition, in certain circumstances, the feasibility
study must include an estimate of revenues based on at least a final
market study \841\ or possible letters of intent to purchase.
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\840\ See id.
\841\ We proposed to define a ``final market study'' to mean a
comprehensive study to determine and support the existence of a
readily accessible market for the mineral. Under the proposed rules,
the study must, at a minimum, include product specifications based
on final geologic and metallurgical testing, supply and demand
forecasts, historical prices for the preceding five or more years,
estimated long term prices, evaluation of competitors (including
products and estimates of production volumes, sales, and prices),
customer evaluation of product specifications, and market entry
strategies or sales contracts. The study also must provide
justification for all assumptions, which must include all material
contracts required to develop and sell the reserves. See Proposing
Release, supra note 5, at note 286 and accompanying text.
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Pursuant to a third proposed instruction, operating and capital
cost estimates in a feasibility study, at a minimum, must have an
accuracy level of approximately 15% and a contingency range
not exceeding 10%.\842\ As proposed, the qualified person must state
the accuracy level and contingency range in the feasibility study.
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\842\ See id.
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ii. Comments on the Rule Proposal
Most commenters that addressed the issue supported the Commission's
proposal to permit either a pre-feasibility or feasibility study to
provide the basis for determining and reporting mineral reserves.\843\
While commenters generally agreed with the proposed definitions of
``pre-feasibility study'' and ``feasibility study,'' many commenters
opposed the Commission's proposal to require the use of a feasibility
study in high risk situations.\844\ Most of those commenters believed
that the decision regarding whether to use a pre-feasibility or
feasibility study should be left to the discretion and professional
judgment of the qualified person.\845\ One commenter explained that,
for a pre-feasibility study, under CRIRSCO guidance, the qualified
person is required to assess and disclose relevant risks, including
high risks. If the qualified person has therefore met all of the
requirements for a pre-feasibility study, he or she should not need to
justify the use of a pre-feasibility study to support mineral reserve
estimates.\846\ A second commenter stated that ``with a high risk
project, it is even more important to complete a pre-feasibility study
prior to a feasibility study to help identify and mitigate the risks
before proceeding to a feasibility study.'' \847\ After stating that
qualified persons should be allowed to use their discretion as to
whether the risk associated with a pre-feasibility study is too high to
support a reserve, a third commenter noted that if the first pre-
feasibility study is inconclusive, it is common practice to not
disclose mineral reserves until additional studies are completed and
the development case is clear.\848\
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\843\ See letters from Amec, AngloGold, BHP, CBRR, CIM,
Eggleston, Gold Resource, Golder, Midas, Northern Dynasty, Randgold,
Rio Tinto, SAMCODES 2, SME 1, SRK 1, and Vale.
\844\ See letters from Amec, AngloGold, Eggleston, Energy Fuels,
Golder, Midas, Northern Dynasty, Rio Tinto, and SRK 1.
\845\ See, e.g., letters from Amec, AngloGold, Eggleston, Energy
Fuels, Rio Tinto, and SRK 1.
\846\ See letter from Amec.
\847\ Letter from SRK 1.
\848\ See letter from Rio Tinto.
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In contrast, another commenter expressed its support for requiring
a feasibility study for high risk situations where a proposed mining
project has unique or particularly challenging conditions, such as when
it is in close proximity to environmentally protected resources.\849\
One other commenter stated that, for ``greenfield projects (including
new process routes for production expansion of existing operations)''
and other high risk situations, a feasibility study should
[[Page 66395]]
support the definition of mineral reserves.\850\
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\849\ See letter from Columbia. The commenter also recommended
requiring a feasibility study to address: Design criteria for
tailing dams, specifically the risk of failure; contingency and
emergency plans for tailings dam failures; drought management plans;
and remediation plans.
\850\ See letter from CBRR.
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One commenter opposed requiring either a pre-feasibility study or
feasibility study to support the determination and disclosure of
reserves. According to that commenter, ``[f]or coal companies operating
in well-defined coal fields, these types of formal studies are not
typically conducted, as on-going operations provide all the feasibility
information that is required.'' \851\ That commenter estimated that
requiring either type of study would cost it several million dollars
without providing a benefit. Moreover, according to that commenter, due
to the competitive bidding nature of the coal industry, public
disclosure of information contained in those studies would likely cause
it competitive harm.\852\
---------------------------------------------------------------------------
\851\ Letter from Alliance.
\852\ See id.
---------------------------------------------------------------------------
One commenter stated that the proposed accuracy and contingency
levels for a pre-feasibility study are too rigid and do not reflect the
diversity of mining project locations and mine project types.\853\ That
commenter also was concerned with the level of detail required for
certain items of the pre-feasibility study, such as environmental
compliance and permitting requirements.
---------------------------------------------------------------------------
\853\ See letter from Amec.
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Some commenters expressly supported the Commission's proposal to
include definitions of preliminary and final market studies as part of
the instructions for pre-feasibility and feasibility studies.\854\ One
commenter stated that market studies should be required for non-freely
traded commodities where there are barriers to market entry, but the
Commission should not require disclosure of certain portions of the
market studies if such disclosure would break confidentiality
agreements or divulge planned market entry strategies that are
proprietary to the company.\855\ Other commenters, however, opposed the
proposed definitions on the grounds that they are vague,\856\ are not
standard practice,\857\ or include strategic market decisions that can
affect the market competition.\858\
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\854\ See letters from Amec, AngloGold, Eggleston, Golder, Rio
Tinto, and SRK 1.
\855\ See letter from Amec.
\856\ See letter from Northern Dynasty.
\857\ See letter from SAMCODES 2.
\858\ See letter from CBRR.
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Some commenters objected to our inclusion of environmental
compliance and permitting requirements or interests of agencies, non-
governmental organizations, communities and other stakeholders as
required items to be covered under a pre-feasibility or feasibility
study.\859\ These commenters stated that such inclusion would introduce
an ``unworkable and inappropriate disclosure mandate'' and impose high
direct and indirect costs. Other commenters advocated expanding the
required disclosure of environmental and sustainability factors.\860\
---------------------------------------------------------------------------
\859\ See, e.g., letters from NMA 2 and SME 1.
\860\ See, e.g., letters from Columbia and SASB.
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iii. Final Rules
We are adopting the proposed requirement that a registrant's
disclosure of mineral reserves must be based upon a qualified person's
pre-feasibility study or feasibility study, which supports a
determination of mineral reserves.\861\ The pre-feasibility or
feasibility study must include the qualified person's detailed
evaluation of all applicable modifying factors to demonstrate the
economic viability of the mining property or project.\862\ Moreover,
the technical report summary submitted by the qualified person to
support a determination of mineral reserves must describe the
procedures, findings, and conclusions reached for the pre-feasibility
or feasibility study.\863\
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\861\ Item 1302(e)(1) of Regulation S-K.
\862\ See id.
\863\ See id., referencing 17 CFR 229.601(b)(96).
---------------------------------------------------------------------------
Most commenters addressing the issue supported requiring either a
pre-feasibility study or feasibility study to support a determination
of mineral reserves.\864\ Although one commenter opposed requiring
either type of study on the grounds that, because neither study is
commonly undertaken in the coal industry, the proposed requirement
would be costly and could result in competitive harm,\865\ we believe
that, as evidenced by the widespread support from other commenters, the
pre-feasibility or feasibility study requirement is consistent with
current industry practice under the CRIRSCO standards. We also note
that, as previously explained, the final rules do not require a mining
company, such as a coal company, to hire a qualified person before it
can develop and extract the mined commodity. However, once the company
engages in public capital-raising, and seeks to classify and report its
deposits as mineral reserves, then, consistent with the CRIRSCO
standards, for the protection of investors, there must be a pre-
feasibility or feasibility study to support its disclosure of reserves
in Commission filings.
---------------------------------------------------------------------------
\864\ See supra note 843 and accompanying text.
\865\ See letter from Alliance.
---------------------------------------------------------------------------
We also are adopting the proposed definitions of preliminary
feasibility study \866\ and feasibility study.\867\ Because these
definitions are substantially similar to the comparable definitions
under the CRIRSCO-based codes,\868\ many commenters supported their
adoption.\869\ These definitions establish that, while both a pre-
feasibility and feasibility study are comprehensive technical and
economic studies, which must include a financial analysis at a level of
detail necessary to demonstrate, at the time of reporting, that
extraction is economically viable, a pre-feasibility study is less
comprehensive and results in a lower confidence level than a
feasibility study. This is because of the key differences between a
pre-feasibility study and a (final) feasibility study, which include
that:
\866\ See the definition of ``preliminary feasibility study'' in
17 CFR 229.1300.
\867\ See the definition of ``feasibility study'' in 17 CFR
229.1300.
\868\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 38-39; JORC Code, supra note 175, at pts. 39-40;
SAMREC Code, supra note 267, at pts. 46-47; and PERC Reporting
Standard, supra note 302, at pts. 5.5-5.9.
\869\ See, e.g., letters from AngloGold, BHP, CBRR, Rio Tinto,
and SRK 1.
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A pre-feasibility study discusses a ``range of
options'' for the technical and economic viability of a mineral
project whereas a feasibility study focuses on a particular option
selected for the development of the project;
A pre-feasibility study generally has a less detailed
assessment of the modifying factors necessary to demonstrate that
extraction is economically viable than the corresponding assessment
in a feasibility study; and
A pre-feasibility study generally has a less detailed
financial analysis that is based on less firm budgetary
considerations (e.g., historical costs rather than actual, firm
quotations for major capital items) and more assumptions than the
financial analysis in a feasibility study.
Despite these differences, we believe that revising our rules to
allow a pre-feasibility study to support the determination and
disclosure of mineral reserves benefits both registrants and investors.
Permitting the use of a pre-feasibility study to determine mineral
reserves under our rules would align the Commission's disclosure regime
with those under the CRIRSCO-based codes and, as such, provide greater
uniformity in global mining disclosure requirements to the benefit of
both mining registrants and their investors. Permitting the use of a
pre-feasibility study also could significantly reduce a mining
registrant's costs in connection
[[Page 66396]]
with the determination of mineral reserves.
We also continue to believe that the adopted requirements in the
definition of, and provisions regarding, a pre-feasibility study will
limit any additional uncertainty caused by its use. For example, like a
feasibility study, a pre-feasibility study must include an economic
analysis that supports the property's economic viability as assessed by
a detailed discounted cash flow analysis or other similar financial
analysis.\870\ Consistent with other adopted provisions that contain a
pricing requirement, an adopted provision states that, for either type
of study, a qualified person must use a price for each commodity that
provides a reasonable basis for establishing that the project is
economically viable.\871\ The qualified person must disclose the price
used and explain, with particularity, his or her reasons for using the
selected price, including the material assumptions underlying the
selection. This explanation must include disclosure of the time frame
used to estimate the price and costs and the reasons justifying the
selection of that time frame.\872\ As with other adopted pricing
provisions, for the pre-feasibility or feasibility study, the qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used.\873\
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\870\ 17 CFR 229.1302(e)(5) [Item 1302(e)(5) of Regulation S-K].
\871\ 17 CFR 229.1302(e)(4) [Item 1302(e)(4) of Regulation S-K].
\872\ See id.
\873\ See id. Like the other adopted pricing provisions, this
provision further states that the selected price and all material
assumptions underlying it must be current as of the end of the
registrant's most recently completed fiscal year. When discussing
the analysis in the technical report summary, the qualified person
will be required to disclose the assumptions made about prices,
exchange rates, discount rate, sales volumes and costs necessary to
determine the economic viability of the reserves.
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In addition, the economic analysis for a pre-feasibility study must
describe in detail applicable taxes and provide an estimate of
revenues.\874\ We believe that this level of detail for the economic
analysis in a pre-feasibility study is consistent with current practice
in the industry and comparable to the requirements for mineral reserve
disclosure based on a pre-feasibility study in the CRIRSCO-based
jurisdictions.\875\
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\874\ See Item 1302(e)(5) of Regulation S-K.
\875\ See, e.g., CIM Definition Standards, supra note 351, at 3
(stating that the standard ``requires the completion of a
Preliminary Feasibility Study as the minimum prerequisite for the
conversion of Mineral Resources to Mineral Reserves''); see also CIM
Estimation of Mineral Resources and Mineral Reserves Best Practice
Guidelines 45 (2003) (in discussing work to determine the economic
merits of a deposit, stating that ``[t]his work specifically
includes mining engineering evaluations and, most importantly, the
preparation of an appropriate cash flow analysis. These aspects are
normal components of both feasibility studies and preliminary
feasibility studies'').
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Similar to a proposed instruction, the final rules require a
qualified person to exclude inferred mineral resources from the pre-
feasibility study's demonstration of economic viability in support of a
disclosure of a mineral reserve.\876\ Under the adopted framework, a
qualified person cannot convert an inferred mineral resource to a
mineral reserve without first obtaining new evidence that justifies
converting it to an indicated or measured mineral resource.\877\ This
treatment of inferred resources is consistent with guidance under the
CRIRSCO standards, which explains that, because confidence in the
inferred resource estimate is usually not sufficient to allow the
results of the application of technical and economic parameters to be
used for detailed mine planning, there is no direct link from an
inferred resource to any category of mineral reserves.\878\
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\876\ 17 CFR 229.1302(e)(6) [Item 1302(e)(6) of Regulation S-K].
\877\ 17 CFR 229.1302(e)(15) [Item 1302(e)(15) of Regulation S-
K].
\878\ See CRIRSCO International Reporting Template, supra note
20, at cl. 22; see also JORC Code, supra note 175, at pt. 21
(``Confidence in the estimate of Inferred Mineral Resources is not
sufficient to allow the results of the application of technical and
economic parameters to be used for detailed planning in Pre-
Feasibility (Clause 39) or Feasibility (Clause 40) Studies'').
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Similar to proposed instructions, we are adopting other
requirements that relate to the conversion of indicated or measured
mineral resources into mineral reserves.\879\ These requirements are
consistent with the mineral resource classification scheme and mineral
reserve disclosure framework under the CRIRSCO standards.\880\
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\879\ One provision states that the qualified person cannot
convert an indicated mineral resource to a proven mineral reserve
unless new evidence first justifies conversion to a measured mineral
resource. See 17 CFR 229.1302(e)(14) [Item 1302(e)(14) of Regulation
S-K]. Another provision states that if the uncertainties in the
results obtained from the application of the modifying factors that
prevented a measured mineral resource from being converted to a
proven mineral reserve no longer exist, then the qualified person
may convert the measured mineral resource to a proven mineral
reserve. See 17 CFR 229.1302(e)(13) [Item 1302(e)(13) of Regulation
S-K].
\880\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 33; JORC Code, supra note 175, at pt. 32; SAMREC
Code, supra note 267, at pt. 38; and PERC Reporting Standard, supra
note 302, at pt. 8.15.
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Also similar to proposed instructions, we are adopting other
provisions pertaining to the use of a pre-feasibility study. One such
provision explains that factors to be considered in a pre-feasibility
study are typically the same as those required for a feasibility study,
but considered at a lower level of detail or at an earlier stage of
development.\881\ The list of factors is not exclusive. For example, a
pre-feasibility study must define, analyze, or otherwise address in
detail, to the extent material:
---------------------------------------------------------------------------
\881\ 17 CFR 229.1302(e)(7) [Item 1302(e)(7) of Regulation S-K].
The required access roads, infrastructure location and
plant area, and the source of all utilities (e.g., power and water)
required for development and production;
The preferred underground mining method or surface mine
pit configuration, with detailed mine layouts drawn for each
alternative;
The bench lab tests \882\ that have been conducted, the
process flow sheet, equipment sizes, and general arrangement that
have been completed, and the plant throughput;
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\882\ In the design of industrial process plants, engineers test
the design concepts at increasingly larger scales. An initial step
in this process is to conduct laboratory tests using a laboratory
simulation of the conceptual process plant (referred to as bench lab
tests). If successful, engineers then conduct tests using a small
scale field plant that can process bulk samples (referred to as
pilot or demonstration plant tests). It is only when these tests are
successful that designs for full scale industrial plants are
approved and the plants are constructed. Feasibility studies,
depending on the stage, involve bench lab scale or pilot scale
tests. See, e.g., Christopher G. Morris, Academic Press Dictionary
of Science and Technology 244 (1992) (defining bench-scale testing
as ``[t]he practice of examining materials, methods, or chemical
processes on a scale that can be performed on a work bench''). See
also American Geological Institute, Dictionary of Mining, Mineral,
and Related Terms 406 (2d ed. 1997) (defining a pilot plant as ``a
small-scale processing plant in which representative tonnages of ore
can be tested under conditions which foreshadow (or imitate) those
of the full-scale operation proposed for a given ore'').
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The environmental compliance and permitting requirements, the
baseline studies, and the plans for tailings disposal, reclamation
and mitigation, together with an analysis establishing that
permitting is possible; and
Any other reasonable assumptions, based on appropriate
testing, regarding the modifying factors sufficient to demonstrate
that extraction is economically viable.\883\
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\883\ See Item 1302(e)(7) of Regulation S-K; see also Table 1 to
paragraph (d) of Item 1302 of Regulation S-K.
Some commenters objected to the inclusion of environmental
compliance and permitting requirements or the interests of agencies,
non-governmental organizations, communities, and other stakeholders as
required items to be disclosed in a pre-feasibility (or feasibility)
study.\884\ We believe that the inclusion of compliance, regulatory,
and legal risks that are material to the
[[Page 66397]]
conclusions of the study is necessary because factors such as
environmental regulatory compliance, the ability to obtain necessary
permits, and other legal challenges can directly impact the economic
viability of a mining project. We are adopting requirements for pre-
feasibility studies largely as proposed, but with modifications in
order to simplify the description of the factors to be considered and
to clarify that the pre-feasibility (or feasibility) factors must only
be analyzed and discussed if they are material to the findings of the
study.
---------------------------------------------------------------------------
\884\ See supra note 859 and accompanying text.
---------------------------------------------------------------------------
Another provision requires that operating and capital cost
estimates in a pre-feasibility study, at a minimum, have an accuracy
level of approximately 25% and a contingency range not
exceeding 15%. The qualified person must state the accuracy level and
contingency range in the pre-feasibility study.\885\
---------------------------------------------------------------------------
\885\ 17 CFR 229.1302(e)(9) [Item 1302(e)(9) of Regulation S-K];
see also Table 1 to paragraph (d) of Item 1302 of Regulation S-K.
---------------------------------------------------------------------------
A further provision requires the pre-feasibility study to identify
sources of uncertainty that require further refinement in a final
feasibility study, as proposed.\886\ This provision is consistent with
the qualified person's duty to assess risk in a pre-feasibility study.
As noted by one commenter, assessment of risk is intrinsic to
completion of a pre-feasibility study, and material risks must be
appropriately evaluated by the qualified person and disclosed by the
registrant to protect investors.\887\
---------------------------------------------------------------------------
\886\ 17 CFR 229.1302(e)(8) [Item 1302(e)(8) of Regulation S-K].
\887\ See letter from Rio Tinto.
---------------------------------------------------------------------------
As noted by commenters,\888\ these latter provisions (addressing
the level at which the modifying factors are assessed, the appropriate
accuracy level and contingency range for operating and capital costs,
and sources of uncertainty) are generally consistent with current
industry practice and comparable to requirements for the use of a pre-
feasibility study in the CRIRSCO-based jurisdictions.\889\ As such, the
adopted provisions will cause a registrant's use of a pre-feasibility
study in Commission filings to meet the industry established minimum
level of detail and rigor sufficient to determine mineral reserves.
---------------------------------------------------------------------------
\888\ See, e.g., letters from AngloGold, Eggleston, SAMCODES 2,
and SRK 1.
\889\ See, e.g., SME Guide, supra note 177, Tables 1-2.
---------------------------------------------------------------------------
Similar to a proposed instruction, we are adopting a provision
explaining that the term ``mineral reserves'' does not necessarily
require that extraction facilities are in place or operational, that
the company has obtained all necessary permits or that the company has
entered into sales contracts for the sale of mined products. It does
require, however, that the qualified person has, after reasonable
investigation, not identified any obstacles to obtaining permits and
entering into the necessary sales contracts, and reasonably believes
that the chances of obtaining such approvals and contracts in a timely
manner are highly likely.\890\ This provision is similar to guidance
provided under the CRIRSCO standards.\891\
---------------------------------------------------------------------------
\890\ 17 CFR 229.1302(e)(3)(i) [Item 1302(e)(3)(i) of Regulation
S-K].
\891\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 30; SME Guide, supra note 267, at pt. 41; JORC Code,
supra note 175, at pt. 29; and PERC Reporting Standard, supra note
302, at pt. 8.3.
---------------------------------------------------------------------------
The provision further states that, in certain circumstances, the
determination of mineral reserves may require the completion of at
least a preliminary market study, in the context of a pre-feasibility
study, or a final market study, in the context of a feasibility study,
to support the qualified person's conclusions about the chances of
obtaining revenues from sales. For example, a preliminary or final
market study would be required where the mine's product cannot be
traded on an exchange, there is no other established market for the
product, and no sales contract exists.\892\ Although one commenter
opposed the proposed requirement to obtain a preliminary or final
market study on the grounds that it could compel the disclosure in the
technical report summary of commercially sensitive information,\893\
the final rules do not require the disclosure of all of the details of
a market study. As with exploration results, a registrant only has a
duty to disclose the details that are material to investors.
---------------------------------------------------------------------------
\892\ 17 CFR 229.1302(e)(3)(ii) [Item 1302(e)(3)(ii) of
Regulation S-K].
\893\ See letter from CBRR.
---------------------------------------------------------------------------
When assessing mineral reserves, the qualified person must take
into account the potential adverse impacts, if any, from any unresolved
material matter on which extraction is contingent and which is
dependent on a third party.\894\ Several commenters generally supported
this requirement.\895\ We believe that this provision will result in
more detailed disclosure, when required under the circumstances,
concerning the basis for the qualified person's conclusions as to
whether the deposit is a mineral reserve.
---------------------------------------------------------------------------
\894\ See Item 1302(e)(3)(ii) of Regulation S-K.
\895\ See letters from Amec, AngloGold, Eggleston, Golder, Rio
Tinto, and SRK 1.
---------------------------------------------------------------------------
In a change from the proposed rules, we are not requiring the
qualified person to justify the use of a pre-feasibility study in lieu
of a feasibility study. We also are not requiring the use of a
feasibility study in high risk situations. We are persuaded by
commenters' view that, consistent with the CRIRSCO standards, it should
be left to the discretion and professional judgment of the qualified
person to determine the appropriate level of study required to support
the determination of mineral reserves under the circumstances.\896\ We
believe that the adopted disclosure requirements for a pre-feasibility
study, taken as a whole, will help to mitigate any increased risk
resulting from permitting the use of a pre-feasibility study to support
the determination and disclosure of mineral reserves. If the qualified
person satisfies those requirements, including conducting an assessment
of material risks affecting the economic viability of the deposit, we
do not believe additional disclosure concerning why he or she chose to
conduct a pre-feasibility study is necessary. Moreover, in high risk
situations, the qualified person will have to perform additional
evaluative work to meet the level of certainty required for a pre-
feasibility study. If, in the judgment of the qualified person, that
level of certainty has been met, we believe the pre-feasibility study
should be permitted to support the determination of mineral reserves.
---------------------------------------------------------------------------
\896\ See supra note 845 and accompanying text.
---------------------------------------------------------------------------
Similar to a proposed instruction, we are adopting a provision
requiring a feasibility study to contain the application and
description of all relevant modifying factors in a more detailed form
and with more certainty than a pre-feasibility study.\897\ The list of
factors is not exclusive. Pursuant to that provision, a feasibility
study must define, analyze, or otherwise address in detail, to the
extent material:
---------------------------------------------------------------------------
\897\ 17 CFR 229.1302(e)(10) [Item 1302(e)(10) of Regulation S-
K]; see also Table 1 to paragraph (d) of Item 1302 of Regulation S-
K.
Final requirements for site infrastructure, including
well-defined access roads, finalized plans for infrastructure
location, plant area, and camp or town site, and the established
source of all required utilities (e.g., power and water) for
development and production;
A finalized mining method, including detailed mine
layouts and final development and production plan for the preferred
alternative with the required equipment fleet specified, together
with detailed mining schedules, construction and production ramp up,
and project execution plans;
[[Page 66398]]
Completed detailed bench lab tests and a pilot plant
test,\898\ if required, based on risk, in addition to final
requirements for process flow sheet, equipment sizes, general
arrangement, and the final plant throughput;
---------------------------------------------------------------------------
\898\ See supra note 882 and accompanying text.
---------------------------------------------------------------------------
The final identification and detailed analysis of
environmental compliance and permitting requirements, together with
the completion of baseline studies and finalized plans for tailings
disposal, reclamation, and mitigation; and
Detailed assessments of other modifying factors
necessary to demonstrate that extraction is economically
viable.\899\
---------------------------------------------------------------------------
\899\ See Item 1302(e)(10) of Regulation S-K; see also Table 1
to paragraph (d) of Item 1302(d) of Regulation S-K.
Similar to another proposed instruction, we are adopting a
provision requiring a feasibility study to include an economic analysis
that describes taxes in detail, estimates revenues, and assesses
economic viability by a detailed discounted cash flow analysis.\900\
The qualified person must use a price for each commodity in the
economic analysis that meets the requirements of the earlier described
pricing provision.\901\ Thus, as long as the price provides a
reasonable basis for establishing that the project is economically
viable, and the qualified person explains, with particularity, his or
her reasons for using the selected price, including the material
assumptions regarding the selection, the price used may be either a
historical price or one based on forward-looking pricing forecasts.
---------------------------------------------------------------------------
\900\ 17 CFR 229.1302(e)(11) [Item 1302(e)(11) of Regulation S-
K].
\901\ See Item 1302(e)(4) of Regulation S-K.
---------------------------------------------------------------------------
Finally, similar to a proposed instruction, we are adopting a
provision requiring that operating and capital cost estimates in a
feasibility study, at a minimum, have an accuracy level of
approximately 15 percent and a contingency range not
exceeding 10 percent. The qualified person must state the accuracy
level and contingency range in the feasibility study.\902\
---------------------------------------------------------------------------
\902\ 17 CFR 229.1302(e)(12) [Item 1302(e)(12) of Regulation S-
K].
---------------------------------------------------------------------------
These requirements for the use of a feasibility study to support
mineral reserve estimates are intended to promote accurate and uniform
disclosure of mineral reserves in Commission filings, which should
benefit investors as well as registrants. As commenters noted,\903\ the
requirements concerning the level of detail or stage of development for
the evaluation of modifying factors, and those regarding the accuracy
level and contingency range for operating and capital cost estimates,
are generally comparable to those required for the use of a feasibility
study to support mineral reserve estimates under the CRIRSCO-based
codes.\904\ We believe aligning the Commission's disclosure
requirements with international standards will benefit investors and
registrants by promoting uniformity in mining disclosure standards. In
addition, these requirements are generally consistent with current
practices regarding the use of a feasibility study to support a
determination and disclosure of mineral reserves.
---------------------------------------------------------------------------
\903\ See, e.g., letters from Eggleston, SAMCODES 2, and SRK 1.
\904\ See, e.g., SME Guide, supra note 177, Tables 1-2.
---------------------------------------------------------------------------
G. Specific Disclosure Requirements
1. Requirements for Summary Disclosure
i. Rule Proposal
We proposed that registrants with material mining operations that
own two or more mining properties must provide summary disclosure of
their mining operations.\905\ We proposed the summary disclosure
requirement based on our belief that investors would benefit from an
overview of a registrant's mining operations in addition to a property
by property description. We also believed that this proposed
requirement would help foster more efficient and more effective
disclosure, as a registrant would be able to provide summary disclosure
about all of its properties where some or all are not individually
material.\906\
---------------------------------------------------------------------------
\905\ See Proposing Release, supra note 5, at Section II.G.1.
The proposed provision specified that the registrant would be
required to provide summary disclosure for all properties that: The
registrant owns or in which it has, or it is probable that it will
have, a direct or indirect economic interest; it operates, or it is
probable that it will operate, under a lease or other legal
agreement that grants the registrant ownership or similar rights
that authorize it, as principal, to sell or otherwise dispose of the
mineral; and for which it has, or it is probable that it will have,
an associated royalty or similar right.
\906\ See id.
---------------------------------------------------------------------------
As part of its summary disclosure, we proposed to require a
registrant to include a map or maps showing the locations of all mining
properties.\907\ The proposed map requirement would provide investors a
point of reference to assess the geographic and socio-political risks
associated with the registrant's mining operations.\908\
---------------------------------------------------------------------------
\907\ See id.
\908\ See id.
---------------------------------------------------------------------------
We also proposed that the summary disclosure must include a
presentation, in tabular form (Table 2 of the proposed rules), of
certain specified information about the 20 properties with the largest
asset values (or fewer, if the registrant has an economic interest in
fewer than 20 mining properties).\909\ For the purpose of determining
the top 20 properties by asset value, we proposed to permit a
registrant with interrelated mining operations to treat those
operations as one mining property.\910\ As proposed, for each of the
properties required to be included in the summary disclosure, a
registrant would be required to identify the property, report the total
production from the property for the three most recently completed
fiscal years, and disclose the following information:
---------------------------------------------------------------------------
\909\ See id.
\910\ See id.
The location of the property;
The type and amount of ownership interest;
The identity of the operator;
Title, mineral rights, leases or options and acreage
involved;
The stage of the property (exploration, development or
production);
Key permit conditions;
Mine type and mineralization style; and
Processing plant and other available facilities.\911\
---------------------------------------------------------------------------
\911\ See id.
We proposed this requirement to provide investors with an
appropriately comprehensive and thorough understanding of a
registrant's mining operations.
We further proposed to require a registrant to provide a summary,
in tabular form (Table 3 of the proposed rules), of its mineral
resources and mineral reserves at the end of its most recently
completed fiscal year, by commodity and geographic area, and for each
property containing 10 percent or more of the registrant's mineral
reserves or 10 percent or more of the registrant's combined measured
and indicated mineral resources.\912\ The registrant would be required
to provide this summary for each class of mineral reserves (probable
and proven) and resources (inferred, indicated, and measured), together
with total mineral reserves and total measured and indicated mineral
resources.\913\ As proposed, all mineral reserves and resources
reported in the summary table must be based on, and accurately reflect,
information and supporting documentation prepared by a qualified
person.
---------------------------------------------------------------------------
\912\ See id.
\913\ See id.
---------------------------------------------------------------------------
The Commission also proposed several instructions to the proposed
summary disclosure requirement that:
Defined the term ``by geographic area'' to mean by
individual country, regions of a country, state, groups of states,
mining
[[Page 66399]]
district, or other political units, to the extent material to and
necessary for an investor's understanding of a registrant's mining
operations;
Explained that all disclosure of mineral resources must
be exclusive of mineral reserves;
Required that all disclosure of mineral resources and
reserves must be only for the portion of the resources or reserves
attributable to the registrant's interest in the property;
Required all mineral resource and reserve estimates to
be based on prices that are no higher than the average spot price
during the 24-month period prior to the end of the fiscal year
covered by the report, determined as an unweighted arithmetic
average of the daily closing price for each trading day within such
period, unless prices are defined by contractual arrangements; and
Required that the mineral resource and reserve
estimates called for in Table 3 of the proposed rules must be in
terms of saleable product.\914\
---------------------------------------------------------------------------
\914\ See id.
As proposed, for a registrant with mining operations that are, in
the aggregate, material but for which no individual property is
material, this summary disclosure would be the only mining disclosure
required in the registrant's filings. For a registrant with individual
properties that are material, we proposed additional, more detailed,
disclosure about such properties.\915\ We proposed to exclude a
registrant with only one mining property from the summary disclosure
requirement because we did not see any benefit to requiring summary
disclosure, in addition to individual disclosure, for a single material
property.\916\
---------------------------------------------------------------------------
\915\ See infra Section II.G.2.
\916\ See Proposing Release, supra note 5, at Section II.G.1.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Several commenters offered conditional support for the Commission's
summary disclosure proposal.\917\ One commenter supported the proposed
summary disclosure requirement but recommended that the requirement
apply to 80% of the registrant's mining properties based on asset value
rather than the top 20 properties out of concern that the proposed
requirement would be costly for registrants with numerous immaterial
properties and only a few material properties.\918\
---------------------------------------------------------------------------
\917\ See, e.g., letters from AngloGold, CBRR, Columbia, Davis
Polk, Midas, Rio Tinto, and SRK 1.
\918\ See id.
---------------------------------------------------------------------------
A number of commenters supported the proposed summary disclosure
requirements but stated that the requirement to disclose information
about the top 20 properties by asset value should include only material
properties.\919\ One of those commenters also suggested allowing
certain information, such as the description of mineral rights and key
permit conditions, to be disclosed in abbreviated form.\920\ That
commenter also supported a version of the summary disclosure of mineral
resources and reserves in tabular form because summary disclosure of
mineral resource and mineral reserves in table form is industry
practice and widely used.\921\ Another commenter recommended merging
the two tables for summary disclosure into one, excluding geographic
disclosure, and eliminating the map requirement for summary
disclosure.\922\
---------------------------------------------------------------------------
\919\ See letters from Alliance, CBRR, FCX, Midas, and SRK 1.
\920\ See letter from Midas.
\921\ See id.
\922\ See letter from SRK 1.
---------------------------------------------------------------------------
Many other commenters opposed the proposed summary disclosure
requirements on the grounds that they were overly prescriptive, were
inconsistent with CRIRSCO requirements, and/or would be burdensome in
particular for U.S. registrants that are dual-listed in one of the
CRIRSCO-based jurisdictions.\923\ Commenters that indicated the
proposed tables were too prescriptive stated that their ``one-size-
fits-all'' approach reflected a lack of appreciation for the diversity
of operations within the mining industry and the fact that many of the
details required to be disclosed would not be comparable.\924\ Some
commenters urged the Commission to delete all of the tables and allow
the registrant and its qualified persons to determine the most
appropriate format for presentation of the required disclosure items
(whether in text summaries or in tables designed by the registrant or
its qualified persons).\925\ Another commenter stated that summary
disclosure and accompanying tables should be left to the discretion of
the registrant as long as the disclosure follows an existing global
standard, such as JORC, NI 43-101, or CRIRSCO.\926\ Some commenters
further stated that the Commission should limit the tables to a list of
material properties and statements of mineral resources and mineral
reserves.\927\
---------------------------------------------------------------------------
\923\ See letters from AIPG, Amec, BHP, Chamber, CIM, Cleary &
Gottlieb, Cloud Peak, Coeur, Eggleston, Graves, Newmont, NMA 1,
NSSGA, Royal Gold, SAMCODES 1, SME 1, Vale, and Willis.
\924\ See letters from AIPG, Chamber, Cleary & Gottlieb, NMA 1,
NSSGA, SAMCODES 1, and SME 1.
\925\ See letters from AIPG, Graves, NMA 1, SME 1, and Vale.
Similarly, most commenters that responded to our request for comment
opposed requiring the summary disclosure to be formatted in XBRL on
the grounds that the data required to be disclosed in those tables
was largely specific to each registrant and would not benefit from
presentation in a structured format. See letters from AIPG,
Alliance, Amec, AngloGold, CBRR, Chamber, Eggleston, MMSA, Rio
Tinto, and SME 1.
\926\ See letter from Cloud Peak.
\927\ See, e.g., letters from Coeur, SME 1, and Willis.
---------------------------------------------------------------------------
One commenter indicated that disclosure of information on the top
20 properties, by asset value, would not be useful for investors.\928\
That commenter stated that a technical report summary would provide
more meaningful information in a context that would allow an investor
to understand better the value of a project.
---------------------------------------------------------------------------
\928\ See letter from Amec.
---------------------------------------------------------------------------
Another commenter opposed the proposed summary disclosure
requirement because it ``all but eliminates'' the discretion of the
registrant and qualified person to determine the most suitable
presentation of material information relating to each property. That
commenter noted that other alternative bases for grouping operations
other than by asset value, such as geographic region, commodity or
reporting segment, may be more informative for investors.\929\ Other
commenters stated that the disclosure required regarding the top 20
properties by asset value was too complex to be put in a table.\930\
---------------------------------------------------------------------------
\929\ See letter from Cleary & Gottlieb.
\930\ See letters from AIPG, FCX, Newmont, and SME 1.
---------------------------------------------------------------------------
Several commenters opposed the proposed tabular presentation of
summary disclosure of mineral resources and reserves because they
believed it conflicted with CRIRSCO requirements that resources and
reserves should not be reported in the same table, and inferred
resources should not be presented alongside indicated and measured
resources, in order to avoid misleading investors that resource
estimates are as economically feasible as reserve estimates.\931\ Some
of the commenters, however, maintained that mineral resources should
include reserves, as permitted under the CRIRSCO-based codes.\932\
---------------------------------------------------------------------------
\931\ See letters from AIPG, BHP, CIM, Cleary & Gottlieb, SME 1,
and Vale.
\932\ See, e.g., letters from BHP 1 and SAMCODES 1.
---------------------------------------------------------------------------
Many commenters opposed the proposed instruction requiring the
mineral resource and reserve estimates in proposed Table 3 to be in
terms of saleable product.\933\ Most of those commenters maintained
that it is customary under the CRIRSCO-based
[[Page 66400]]
codes to disclose mineral resources on an in situ basis and that the
proposed instruction would effectively define a mineral resource as a
mineral reserve.\934\ Commenters further recommended requiring the
disclosure of reserves on either a run of mine or plant/mill feed basis
\935\ (for metals and some coal and industrial mines) \936\ or in terms
of saleable product (if customary for some coal and industrial mines)
and not on an in situ basis.\937\
---------------------------------------------------------------------------
\933\ See letters from Amec, AngloGold, BHP, CIM, Eggleston,
FCX, Newmont, Rio Tinto, SAMCODES 1, SME 1, and Vale.
\934\ See letters from BHP, CIM, Eggleston, Newmont, Rio Tinto,
and SME 1.
\935\ ``Run of mine'' ore refers to ore in its unprocessed form
(i.e., in the form mined), while plant/mill feed refers to the
material that is fed to a processing plant. Both terms are used in
the mining industry, in this context, to refer to material that is
affected by mining dilution and losses but is yet to be processed.
\936\ See letters from AngloGold, CIM, Golder, Newmont, SME 1,
and Vale. See also letter from FCX (mineral reserves should either
be disclosed as ``run-of-mine (plant/mill feed) ore tons, contained
product before plant recovery and saleable product after plant
recovery'').
\937\ See letters from CRIRSCO, Golder, Rio Tinto, SME 1, and
Vale.
---------------------------------------------------------------------------
One commenter stated that, due to the nature of the aggregates
industry, where products are relatively low-priced, mines are shallow,
the costs of developing an aggregates quarry or underground mine are
far less, and the risks are low compared to other types of mines, many
of the proposed tabular disclosure items about reserves, resources and
related data points appeared to be either immaterial to investors or to
consist of proprietary information the disclosure of which would harm
an aggregates company's competitive position.\938\
---------------------------------------------------------------------------
\938\ See letter from NSSGA.
---------------------------------------------------------------------------
iii. Final Rules
With some modification, we are adopting the proposed requirement
that registrants with material mining operations, which own or
otherwise have economic interests in two or more mining properties,
provide summary disclosure of their mining operations.\939\ Many
commenters agreed with our proposal to require summary disclosure even
if they disagreed with one or more of the specific disclosure
items.\940\ We continue to believe that, for registrants with material
mining operations, requiring an overview of their mining operations,
regardless of whether they have material individual properties, will be
useful to investors and help foster more efficient and effective
disclosure.
---------------------------------------------------------------------------
\939\ 17 CFR 229.1303(a)(1) [Item 1303(a)(1) of Regulation S-K].
The registrant must provide the summary disclosure for all
properties that the registrant owns or in which it has, or it is
probable that it will have, a direct or indirect economic interest.
It also must provide summary disclosure for properties that it
operates, or it is probable that it will operate, under a lease or
other legal agreement that grants the registrant ownership or
similar rights that authorize it, as principal, to sell or otherwise
dispose of the mineral. Further, a registrant must provide summary
disclosure for properties for which it has, or it is probable that
it will have, an associated royalty or similar right, unless the
registrant lacks access to the information about the underlying
properties, as specified in Item 1303(b) of Regulation S-K, and the
registrant meets the conditions for omitting the summary disclosure
pursuant to Item 1303(a)(3) of Regulation S-K. See supra Section
II.B.4.
\940\ See, e.g., letters from AngloGold, CBRR, Columbia, Davis
Polk, Midas, Rio Tinto and SRK 1.
---------------------------------------------------------------------------
We recognize that many commenters opposed our proposal to require a
presentation of summary disclosure, in tabular form, of certain
specified information about the 20 properties with the largest asset
values because they believed it to be overly prescriptive, inconsistent
with CRIRSCO requirements, or burdensome in particular for U.S.
registrants that are dual-listed in one of the CRIRSCO-based
jurisdictions.\941\ To reduce the prescriptive nature of the summary
disclosure requirement, consistent with commenters' suggestions, the
final rules will permit a registrant to present an overview of its
mining properties and operations in either narrative or tabular
format.\942\
---------------------------------------------------------------------------
\941\ See supra note 923 and accompanying text.
\942\ See 17 CFR 229.1303(b)(2).
---------------------------------------------------------------------------
In addition, in a change from the proposed rules, which required
the disclosure of the total production from each of the registrant's
top 20 properties by asset value for the three most recently completed
fiscal years, the final rules require that the overview must include
annual production on an aggregated basis \943\ for the registrant's
mining properties during each of the three most recently completed
fiscal years.\944\ Moreover, rather than require the disclosure of
other specified information for each of a registrant's top 20
properties by asset value, the final rules provide that the overview
should include the following information for the registrant's mining
properties considered in the aggregate, and only as relevant:
---------------------------------------------------------------------------
\943\ In a change from the proposed rules, the final rules
eliminate the proposed instruction that would permit a registrant
with interrelated mining operations to treat those operations as one
mining property for the purpose of providing summary disclosure.
Since we are no longer requiring the disclosure of specified
information for each of a registrant's top 20 properties, and are
only requiring such disclosure in the aggregate, we no longer
believe that instruction to be necessary.
\944\ 17 CFR 229.1303(b)(2)(i) [Item 1303(b)(2)(i) of Regulation
S-K].
The location of the properties; \945\
---------------------------------------------------------------------------
\945\ As proposed, the summary disclosure must include a map or
maps showing the locations of all mining properties. See Item
1303(b)(1) of Regulation S-K [17 CFR 229.1303(b)(1)]. We continue to
believe the map requirement is an effective means of providing
investors with a point of reference to assess the geographic and
socio-political risks associated with the registrant's mining
operations. Item 102 requires registrants to provide ``appropriate
maps'' disclosing ``the location'' of significant properties, but
does not address whether or when registrants with multiple
properties, none of which are material, should provide a map (or
maps) showing the location of all its mining properties. We believe
that the adopted map requirement, which is consistent with current
practices, will help ensure that investors are provided with
beneficial information without significantly impacting current
disclosure practices.
---------------------------------------------------------------------------
The type and amount of ownership interests;
The identity of the operator or operators;
Titles, mineral rights, leases or options and acreage
involved;
The stages of the properties (exploration, development,
or production);
Key permit conditions;
Mine types and mineralization styles; and
Processing plants and other available facilities.\946\
---------------------------------------------------------------------------
\946\ 17 CFR 229.1303(b)(2)(ii) [Item 1303(b)(2)(ii) of
Regulation S-K].
The final rules also include a provision explaining that, when
presenting the overview, the registrant should include the amount and
type of disclosure concerning its mining properties that is material to
an investor's understanding of the registrant's properties and mining
operations in the aggregate.\947\ The provision further states that
this disclosure will depend upon a registrant's specific facts and
circumstances and may vary from registrant to registrant. Finally, this
provision asks registrants to refer to, rather than duplicate, any
disclosure concerning individually material properties provided in
response to the individual disclosure requirements,\948\ discussed
below.\949\
---------------------------------------------------------------------------
\947\ 17 CFR 229.1303(b)(2)(iii) [Item 1303(b)(2)(iii) of
Regulation S-K].
\948\ See id.
\949\ See infra Section II.G.2.
---------------------------------------------------------------------------
We believe this more principles-based approach to eliciting summary
disclosure on a registrant's mining operations addresses commenters'
concerns while still providing a meaningful overview of registrants'
mining operations, particularly for those registrants with no or only a
few individually material properties. As previously explained, Guide 7
currently calls for the disclosure of all of the above listed items of
information.\950\ We note, for instance, that most registrants engaged
in industrial minerals and aggregates mining have no or only a few
individually material properties and currently provide disclosure
similar to
[[Page 66401]]
summary disclosure called for by Guide 7.
---------------------------------------------------------------------------
\950\ See Proposing Release, supra note 5, Section II.G.1.
---------------------------------------------------------------------------
This more principles-based approach is also intended to address the
concern of some commenters that the proposed rules established a ``one
size fits all'' approach that did not account for the diversity of
operations within the mining industry.\951\ By requiring a registrant
to provide an overview of its mining operations that includes the
suggested items of information, as relevant, tailored to its particular
facts and circumstances,\952\ and presented in a manner of the
registrant's choosing, we believe the final rules will elicit material
information for investors without unduly burdening the registrant.
---------------------------------------------------------------------------
\951\ See, e.g., letter from NMA 2.
\952\ Another provision states that, as proposed, a registrant
with a royalty or similar economic interest should provide only the
portion of the production that led to royalty or other incomes for
each of the three most recently completed fiscal years. See Item
1303(b)(2)(iv) of Regulation S-K. We continue to believe that
registrants with a royalty or similar economic interest in mining
properties, if they have access to such information, should only
report the portion of production leading to their incomes to reduce
the risk of confusing investors.
---------------------------------------------------------------------------
As proposed, the final rules require a registrant to provide a
summary of its mineral resources and mineral reserves at the end of its
most recently completed fiscal year, by commodity and geographic
area,\953\ and for each property containing 10 percent or more of the
registrant's mineral reserves or 10 percent or more of the registrant's
combined measured and indicated mineral resources. The registrant will
be required to provide this summary, including the amount and grade or
quality, for each class of mineral reserves (probable and proven) and
resources (inferred, indicated, and measured), together with total
mineral reserves and total measured and indicated mineral
resources.\954\
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\953\ Similar to a proposed instruction, the final rules define
``by geographic area'' to mean by individual country, regions of a
country, state, groups of states, mining district, or other
political units, to the extent material to and necessary for an
investor's understanding of a registrant's mining operations. See 17
CFR 229.1303(b)(3)(i) [Item 1303(b)(3)(i) of Regulation S-K]. We
continue to believe this breakdown is necessary for investors to
understand the source and associated socio-political risks of the
registrant's mineral reserves and resources.
\954\ See 17 CFR 229.1303(b)(3). As previously discussed, all
mineral reserves and resources reported in the summary disclosure
must be based on, and accurately reflect, information and supporting
documentation prepared by a qualified person. See Item 1302(a) of
Regulation S-K; see also Section II.C.1. for a discussion of the
final rules' stipulations on the responsibilities of the qualified
person and the registrant.
---------------------------------------------------------------------------
We continue to believe that the summary disclosure of mineral
resources and reserves is necessary to understand a registrant's
material mining operations at fiscal year's end. For example, an
understanding of the registrant's total mineral resources and reserves
and where those mineral resources and reserves are located can enable
investors to understand and evaluate the registrant's projected future
earnings from its mining operations and its ability to replenish
depleting mineral reserves, a well-established measure of financial
performance in mining.\955\ The breakdown of the mineral resources and
reserves by category and source (geographic area and property) also
will provide investors with a measure of the associated risk.
---------------------------------------------------------------------------
\955\ See, e.g., R. L. Robinson and B. W. Mackenzie, Economic
Comparison of Mineral Exploration and Acquisition Strategies to
Obtain Ore Reserves 281-282 (1987). (``Mining company objectives are
. . . profit, growth, and survival . . . To survive, the company
must successfully invest . . . in replacing the depleted ore
reserves. An underlying thread among the profit, growth, and
survival objectives is ore reserve replacement and growth''). See
also H. R. Bullis, Gold Deposits, Exploration Realities, and the
Unsustainability of Very Large Gold Producers 313-320 (2003).
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Contrary to the concerns of some commenters,\956\ the final rules'
requirement that a registrant provide a summary of its mineral
resources and reserves does not impose an affirmative obligation to
estimate mineral resources and reserves, as defined in these rules, on
a mining property where the registrant has not estimated mineral
resources and reserves. Registrants will have an obligation to disclose
mineral resources and reserves in their summary disclosure only to the
extent that they have already engaged a qualified person or persons to
estimate such mineral resources and reserves.
---------------------------------------------------------------------------
\956\ See, e.g., letter from NSSGA.
---------------------------------------------------------------------------
In order to standardize the disclosure, facilitate a registrant's
compliance with the disclosure requirements, and enhance investor
understanding of this information, similar to our proposal, the final
rules require that a registrant provide the summary of all mineral
resources and reserves at the end of the most recently completed fiscal
year in tabular format. However, we agree with those commenters that
maintained that we should separate disclosure of mineral resources and
reserves in order to reduce the potential for investor confusion.\957\
Accordingly, the final rules require registrants to use separate tables
when reporting mineral resources and reserves, as required by Item
1303(b)(3) of Regulation S-K. The disclosure should follow the format
of the tables designated as Tables 1 and 2 to paragraph (b) of Item
1303.
---------------------------------------------------------------------------
\957\ See supra note 931 and accompanying text.
---------------------------------------------------------------------------
Similar to a proposed instruction, we are adopting a provision
requiring mineral resources, reported in the summary disclosure
provided in Table 1 to paragraph (b) of Item 1303, to be exclusive of
mineral reserves.\958\ We continue to believe that requiring the
disclosure of mineral resources exclusive of reserves in the main
disclosure document (as opposed to such disclosure in the technical
report summary, which is attached as an exhibit to the Commission
filing) will reduce the risk of investor confusion. In contrast, we
believe that, because the technical report summary is more likely to be
read by analysts or investors possessing a more sophisticated
understanding of the mining industry and its current practices than the
average retail investor, permitting mineral resources to include
mineral reserves when disclosed in the technical report summary is less
likely to cause confusion.\959\
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\958\ 17 CFR 229.1303(b)(3)(ii) [Item 1303(b)(3)(ii) of
Regulation S-K].
\959\ See infra Section II.G.3. for a discussion of the adopted
provision that permits a qualified person to disclose resources
inclusive of reserves in the technical report summary as long as he
or she also discloses resources as excluding reserves.
---------------------------------------------------------------------------
Similar to another proposed instruction, we are adopting a
provision requiring that all disclosure of mineral resources and
reserves be only for the portion of the resources or reserves
attributable to the registrant's interest in the property.\960\
Commenters did not oppose this proposed instruction.\961\ For the
reasons stated in the Proposing Release, we continue to believe that
this provision is reasonable and would help reduce investor
confusion.\962\
---------------------------------------------------------------------------
\960\ 17 CFR 229.1303(b)(3)(iii) [Item 1303(b)(3)(iii) of
Regulation S-K].
\961\ Only one commenter addressed this proposed instruction.
That commenter stated that, although it believed the decision to
report mineral resources or mineral reserves on a 100% or other
ownership basis should be at the discretion of the registrant, it
considered ``that the information on the registrant's interest in
the property is important information and should be included with
the reporting of Mineral Resource and Mineral Reserve estimates.''
Letter from Amec.
\962\ See Proposing Release, supra note 5, at Section II.G.1.
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As previously discussed, we are revising our approach to what is
permitted regarding selecting an appropriate price to determine
``prospects of economic extraction'' for mineral resources and
``economic viability'' for mineral reserves.\963\ Consequently, the
final rules provide that each mineral resource and reserve estimate
must be based on a reasonable and justifiable price, selected by a
qualified person, which provides a
[[Page 66402]]
reasonable basis for establishing the prospects of economic extraction
for mineral resources, and is the basis for determining the economic
viability of the deposit for mineral reserves.\964\ We believe this
approach will further align the Commission's rules with the CRIRSCO
requirements and help limit the compliance burden on registrants.
---------------------------------------------------------------------------
\963\ See supra Sections II.E.4., II.F.2.
\964\ 17 CFR 229.1303(b)(3)(iv) [Item 1303(b)(3)(iv) of
Regulation S-K].
---------------------------------------------------------------------------
Many commenters stated that requiring registrants to disclose
mineral resources and reserves at a specific point of reference (in
this case, as saleable product) is counter to the CRIRSCO-based codes
and current industry practice, which permit the estimation of resources
and reserves at a disclosed single point of reference selected by the
qualified person.\965\ To help limit the compliance burden for
registrants, especially those that are cross-listed in CRIRSCO-based
jurisdictions, the final rules will permit a registrant and its
qualified person(s) to disclose mineral resources and reserves at any
point of reference as long as they disclose the selected point of
reference. For summary disclosure, the final rules require that each
mineral resource and reserve estimate in Tables 1 and 2 to paragraph
(b) of Item 1303 be based on a specific point of reference selected by
a qualified person. The registrant also must disclose the selected
point of reference for each of these Tables 1 and 2.\966\
---------------------------------------------------------------------------
\965\ See supra note 933 and accompanying text.
\966\ 17 CFR 229.1303(b)(3)(v) [Item 1303(b)(3)(v) of Regulation
S-K].
---------------------------------------------------------------------------
Another provision stipulates, as proposed, that the registrant may
modify the tabular formats in Tables 1 and 2 to paragraph (b) of Item
1303 for ease of presentation or to add information.\967\ While we
continue to believe that the tabular presentation of summary resources
and reserves disclosure will standardize the disclosure and make it
easier for investors to understand and assess investments in
registrants engaged in material mining operations, we emphasize that
the tables can be modified to fit a registrant's particular situation.
Contrary to the views of several commenters,\968\ like the proposed
rules, the final rules expressly provide, in recognition of the
diversity in the mining sector, that registrants can modify the tables
to fit their own particular facts and circumstances.
---------------------------------------------------------------------------
\967\ 17 CFR 229.1303(b)(3)(vi) [Item 1303(b)(3)(vi) of
Regulation S-K]. However, a registrant may not modify the tabular
format to remove any of the required disclosure from the tables.
\968\ See letters from AIPG, Chamber, Cleary & Gottlieb, NMA,
NSSGA, SAMCODES 1, and SME 1.
---------------------------------------------------------------------------
A final provision states that all material assumptions and
information pertaining to the summary disclosure of a registrant's
mineral resources and mineral reserves required by this section,
including material assumptions related to price estimates, must be
current as of the end of the registrant's most recently completed
fiscal year.\969\ We believe this provision is a useful reminder that,
although the qualified person is responsible for determining the
mineral resource or reserve estimates included in the summary
disclosure, the registrant bears the ultimate responsibility for
ensuring that those estimates, and the material assumptions underlying
them, remain current as of the date for which the mineral resource or
reserve estimates have been disclosed.
---------------------------------------------------------------------------
\969\ 17 CFR 229.1303(b)(3)(vii) [Item 1303(b)(3)(vii) of
Regulation S-K].
---------------------------------------------------------------------------
2. Requirements for Individual Property Disclosure
i. Rule Proposal
We proposed that a registrant with material mining operations
provide, in addition to summary disclosure, more detailed information
for each of its individual properties that is material to its business
or financial condition.\970\ We made this proposal because of our
belief that summary property disclosure alone would not provide all
relevant information about the properties and assets that generate a
mining registrant's revenues. We therefore proposed that, for each
material individual property, a registrant would have to provide a
brief description of the property, including:
---------------------------------------------------------------------------
\970\ See Proposing Release, supra note 5, at Section II.G.2.
The property's location, accurate to within one mile,
using an easily recognizable coordinate system (e.g., latitude and
longitude), including appropriate maps, with proper engineering
detail (such as scale, orientation, and titles), which must be
legible on the page when printed;
Existing infrastructure, including roads, railroads,
airports, towns, ports, sources of water, electricity, and
personnel; and
A brief description, including the name or number and
size (acreage), of the titles, claims, concessions, mineral rights,
leases or options under which the registrant and its subsidiaries
have or will have the right to hold or operate the property, and how
such rights are obtained at this location, indicating any conditions
that the registrant must meet in order to obtain or retain the
property. If held by leases or options or if the mineral rights
otherwise have termination provisions, the registrant would have to
provide the expiration dates of such leases, options or mineral
rights and associated payments.\971\
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\971\ See id.
For each material property, the proposed rules also required a
registrant to disclose a history of previous operations, a description
of the condition and status of the property, and a description of any
significant encumbrances to the property, including current and future
permitting requirements and associated deadlines, permit conditions,
regulatory violations and associated fines.\972\
---------------------------------------------------------------------------
\972\ See id.
---------------------------------------------------------------------------
We also proposed to require several items of disclosure in tabular
form, including a summary of the exploration activity for the most
recently completed fiscal year (Table 4 of the proposed rules), a
summary of material exploration results for the most recently completed
fiscal year (Table 5 of the proposed rules), a summary of all mineral
resources and reserves (if mineral resources or reserves have been
determined) (Table 6 of the proposed rules), and a comparison of the
property's mineral resources and reserves as of the end of the last
fiscal year against the mineral resources and reserves as of the end of
the preceding fiscal year, with an explanation of any material change
between the two (Tables 7 and 8 of the proposed rules).\973\ A proposed
instruction provided that registrants would be permitted to modify the
tables for ease of presentation, to add information, or to combine two
or more required tables throughout their disclosure.\974\
---------------------------------------------------------------------------
\973\ See id.
\974\ See id.
---------------------------------------------------------------------------
We further proposed that, if the registrant has not previously
disclosed mineral reserve or resource estimates in a filing with the
Commission or is disclosing material changes to its previously
disclosed mineral reserve or resource estimates, it must provide a
brief discussion of the material assumptions and criteria underlying
the estimates and cite to the corresponding sections of the technical
report summary, which would be filed as an exhibit.\975\ We similarly
proposed that, if the registrant has not previously disclosed material
exploration results in a filing with the Commission, or is disclosing
material changes to its previously disclosed exploration results, it
must provide sufficient information to allow for an accurate
understanding of the significance of the exploration results and cite
to corresponding sections of the summary technical
[[Page 66403]]
report, which would be filed as an exhibit.\976\
---------------------------------------------------------------------------
\975\ See id.
\976\ See id.
---------------------------------------------------------------------------
We proposed additional individual property disclosure instructions
applicable to registrants that have not previously disclosed mineral
resource or reserve estimates or material exploration results or that
are disclosing a material change in previously disclosed mineral
resource or reserve estimates or material exploration results. Most of
those proposed instructions were designed to assist registrants in
determining whether there has been a material change in estimates of
mineral resources, mineral reserves, or material exploration results.
For example, according to one proposed instruction, whether a change in
exploration results, mineral resources, or mineral reserves, is
material must be based on all facts and circumstances, both
quantitative and qualitative. Pursuant to another proposed instruction,
a change in exploration results that significantly alters the potential
of the exploration target is considered material.
Other proposed instructions would establish quantitative thresholds
for presumed materiality of a change in estimates of mineral resources
or reserves. For example, according to one proposed instruction, an
annual change in total resources or reserves of 10 percent or more,
excluding production as reported in Tables 7 and 8 of the proposed
rules, is presumed to be material, and thus would need to be
disclosed.\977\ According to another proposed instruction, a cumulative
change in total resources or reserves of 30 percent or more in absolute
terms, excluding production as reported in Tables 7 and 8 of the
proposed rules, from the current filed technical report summary is
presumed to be material. A third proposed instruction would require
that, when applying these quantitative thresholds for presumed
materiality, the registrant should consider the change in total
resources or reserves on the basis of total tonnage or volume of
saleable product.\978\
---------------------------------------------------------------------------
\977\ See id.
\978\ See id.
---------------------------------------------------------------------------
We also proposed an instruction that would require a registrant to
consider whether the filed technical report summary is current with
respect to all material assumptions and information, including
assumptions relating to or underlying all modifying factors and
scientific and technical information (e.g., sampling data, estimation
assumptions, and methods). To the extent that the registrant is not
filing a technical report summary, but instead is basing the required
disclosure upon a previously filed report, that report would also have
to be current in these respects. If the previously filed report is not
current in these respects, the registrant would have to file a revised
or new summary technical report from a qualified person, which supports
the registrant's mining property disclosures.\979\
---------------------------------------------------------------------------
\979\ See id.
---------------------------------------------------------------------------
Finally, we proposed an instruction explaining that a report
containing estimates of the quantity, grade, or metal or mineral
content of a deposit or exploration results that a registrant has not
verified as a current mineral resource, mineral reserve, or exploration
results, and which was prepared before the registrant acquired, or
entered into an agreement to acquire, an interest in the property that
contains the deposit, would not be considered current and could not be
filed in support of disclosure.\980\
---------------------------------------------------------------------------
\980\ See id.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Many of the comments on the proposed individual property disclosure
requirements were substantially similar to the comments in response to
the proposed summary disclosure provisions. While commenters
acknowledged the importance of disclosure on individually material
properties,\981\ many believed the proposed disclosure requirements
were overly prescriptive and many were critical of one or more of the
proposed tables.\982\ One commenter opposed Tables 4-8 altogether
because of the level of detail required, which in the commenter's view
would likely result in any useful information being obscured, and which
would be overly burdensome for registrants to produce.\983\
---------------------------------------------------------------------------
\981\ See, e.g., letters from Eggleston, Midas, and Rio Tinto.
\982\ See letters from AIPG, Amec, AngloGold, BHP, CBRR, CIM,
Cleary & Gottlieb, Coeur, Davis Polk, Eggleston, FCX, Gold Resource,
Midas, MMSA, Newmont, NSSGA, Rio Tinto, SAMCODES 1, SME 1, SRK 1,
Vale, and Willis.
\983\ See letter from Amec.
---------------------------------------------------------------------------
Another commenter stated that certain proposed provisions, which
would require detailed information about leases, mining rights and
encumbrances, would likely result in over-disclosure of information
that is not material to investors.\984\ In addition, one commenter
stated that the Commission should revise the individual property
disclosure requirements in proposed Item 1304 to align it with the
checklist content and format in CRIRSCO Template Table 1.\985\
---------------------------------------------------------------------------
\984\ See letter from Newmont; see also letter from Amec
(objecting to some of the proposed requirements as requesting
unnecessary detail for an annual disclosure filing, including the
requirement to provide: A summary of the exploration activity and
material exploration results for the most recently completed year; a
description of any significant encumbrances to the property; a
description of the titles, claims, concessions, mineral rights,
leases or options regarding the property; and a history of previous
operations) and letter from Cleary & Gottlieb (objecting to the
proposed requirement to disclose the age and physical condition of
the property on the grounds that it would not be useful to investors
and would be very burdensome to a company with significant mining
operations).
\985\ See letter from BHP.
---------------------------------------------------------------------------
Several commenters opposed requiring the proposed tables for
exploration activity and exploration results (Tables 4 and 5 of the
proposed rules) on the grounds that they are inconsistent with CRIRSCO
standards, are onerous to produce, and would result in disclosure that
is potentially competitively harmful, or would not be meaningful to
most investors.\986\ Some of the commenters opposed Tables 4 and 5 of
the proposed rules because, in their view, the tables implied that
drilling is the only form of exploration and ignored various other
forms of data collection and analysis, such as geochemical and
geophysical surveys, which are routinely used in exploration.\987\
Maintaining that it would be too difficult to include thousands of
datum points regarding exploration into a single table, those
commenters recommended that Tables 4 and 5 of the proposed rules either
should be eliminated from the final rules \988\ or allowed either in
narrative form or in company-designed tables.\989\
---------------------------------------------------------------------------
\986\ See letters from Amec, AngloGold, Cleary & Gottlieb, FCX,
Midas, MMSA, SME 1, SRK 1, and Vale.
\987\ See, e.g., letters from NSSGA, SME 1, SRK 1, and Vale.
\988\ See, e.g., letters from SRK 1 (recommending removal of
proposed Table 5) and Vale (recommending removal of both proposed
Tables 4 and 5).
\989\ See, e.g., letter from and SME 1; see also letter from
Cleary (recommending a principles-based approach generally to the
information required to be disclosed in tabular format, which would
allow a registrant and its qualified persons to exercise greater
judgment in determining the most suitable format and content of
material mining disclosure).
---------------------------------------------------------------------------
While commenters generally supported the disclosure of mineral
resources and reserves in tabular format,\990\ most commenters that
addressed the issue were critical of Table 6 of the proposed rules in
various respects. Several commenters opposed proposed Table 6 on the
grounds that it would require the disclosure of mineral resources and
reserves in the same table, as well as inferred resources alongside
[[Page 66404]]
indicated and measured mineral resources, which would be inconsistent
with CRIRSCO standards.\991\ Commenters also opposed proposed Table 6
because it would require the disclosure of mineral reserves net of
allowances for dilution and losses, which would be contrary to industry
practice under the CRIRSCO-based codes.\992\ For similar reasons, some
commenters also opposed proposed Table 6 because it would require the
disclosure of mineral resources as exclusive of mineral reserves.\993\
One of those commenters stated that a registrant should be permitted to
disclose mineral resources as inclusive or exclusive of mineral
reserves as long as it clearly explains the basis of its disclosed
estimate.\994\
---------------------------------------------------------------------------
\990\ See, e.g., letters from AngloGold, Eggleston, and Rio
Tinto.
\991\ See letters from AIPG, BHP, CBRR, CIM, and SME 1.
\992\ See letters from BHP, CIM, Newmont, and SRK 1.
\993\ See letters from AngloGold, BHP, and JORC.
\994\ See letter from JORC.
---------------------------------------------------------------------------
Numerous commenters also opposed proposed Table 6 because it would
require the disclosure of mineral reserves on the basis of three points
of reference.\995\ Commenters maintained that, to be consistent with
the CRIRSCO-based codes, the Commission should only require the
disclosure of mineral resources on an in situ basis \996\ and reserves
on a run of mine \997\ or saleable product basis.\998\
---------------------------------------------------------------------------
\995\ See letters from Amec, BHP, CIM, Eggleston, JORC, MMSA,
Newmont, Randgold, Royal Gold, SME 1, and SRK 1.
\996\ See, e.g., letters from Amec, CIM, Newmont, Randgold, and
Rio Tinto.
\997\ See, e.g., letters from CIM, Randgold, and SME 1.
\998\ See, e.g., letters from MMSA, Randgold, and SME 1; see
also letters from CBRR and FCX (recommending the reporting of
reserves as run-of-mine (plant/mill feed) ore tons, contained
product before plant recovery and saleable product after plant
recovery).
---------------------------------------------------------------------------
One commenter stated that proposed Table 6 incorrectly suggests
that different types of mining projects are comparable, which is
inconsistent with the diversity found in the mining industry.\999\
Another commenter opposed the overly prescriptive nature of Table 6 and
recommended leaving its inclusion and format to the discretion of the
qualified person.\1000\
---------------------------------------------------------------------------
\999\ See letter from SME 1; see also letter from JORC
(generally opposing all of the tables as being inconsistent with the
diversity in the mining industry).
\1000\ See letter from Vale.
---------------------------------------------------------------------------
In addition, many commenters opposed Table 6 because it would
require the determination and disclosure of mineral resources and
reserves based on a 24-month trailing average price.\1001\ Some
commenters further objected to the inclusion of the total cost or book
value of a mining property and the commodity price in the case of
commodities traded under contract, the terms of which are
confidential.\1002\
---------------------------------------------------------------------------
\1001\ See letters from AIPG, Alliance, AngloGold, BHP, CBRR,
Chamber, CIM, Cleary & Gottlieb, Coeur, Davis Polk, Dorsey &
Whitney, Eggleston, Gold Resource, Newmont, NMA 1, Northern Dynasty,
Randgold, Rio Tinto, SAMCODES 1 and 2, Shearman & Sterling, SME 1,
Vale, and Willis.
\1002\ See, e.g., letter from BHP; see also letter from NSSGA
(opposing the disclosure of a weighted contract price in Table 3 on
similar grounds).
---------------------------------------------------------------------------
One commenter supported the proposed reconciliation requirement in
Tables 7 and 8 of the proposed rules because ``[r]econciliation between
numbers on consecutive fiscal years is important to validate
uncertainty assumptions and resource/reserve classification.'' \1003\
Other commenters either supported proposed Tables 7 and 8 with little
to no discussion \1004\ or supported having a reconciliation
requirement while disagreeing with various aspects of the proposed
tabular format.\1005\ Some commenters objected to the high granularity
of disclosure required in proposed Tables 7 and 8, which they stated
would impose a significant reporting burden for a registrant with a
large number of properties reported.\1006\ Noting that the mining
industry has only formalized reconciliation reporting in the past 10
years, and stating that obtaining accurate reconciliation has been
difficult for a variety of reasons, other commenters recommended that
the Commission make resource and reserve reconciliation
voluntary.\1007\
---------------------------------------------------------------------------
\1003\ Letter from CBRR.
\1004\ See letter from Gold Resource.
\1005\ See letter from AngloGold (supporting the proposed
requirement for reconciliation, but also recommending leaving the
``level of granularity in the reconciliation'' to the discretion of
the qualified person); letter from Eggleston (stating that requiring
a comparison of mineral resources and reserves would be useful, but
also maintaining that a meaningful comparison of mineral reserves
could not be obtained using the proposed table); and letter from SRK
1 (stating that the proposed tables may provide useful information
to a technically knowledgeable reader but may also create confusion
for investors).
\1006\ See letters from Amec, MMSA, and Rio Tinto.
\1007\ Letters from AIPG and SME 1; see also letter from Vale
(recommending that inclusion and format of Tables 7 and 8 be left to
the discretion of the qualified person).
---------------------------------------------------------------------------
Some commenters provided conditional support for the Commission's
proposed requirement to provide a discussion of the material
assumptions underlying a registrant's disclosure of mineral resources,
mineral reserves, or material exploration results when first disclosing
them or when disclosing material changes to the previously disclosed
estimates and results.\1008\ One commenter stated that it supported the
Commission's proposed requirement to provide a discussion of material
assumptions as long as the Commission deemed the summaries prepared for
CRIRSCO reporting (e.g., based on JORC Table 1) to be acceptable for
Commission reporting purposes.\1009\
---------------------------------------------------------------------------
\1008\ See, e.g., letters from AngloGold, CBRR, Eggleston,
Midas, Rio Tinto, and SRK 1.
\1009\ See letter from Rio Tinto.
---------------------------------------------------------------------------
Another commenter supported the proposed disclosure requirement for
material assumptions but opposed any prescriptive requirement, such as
the proposed percentage thresholds that would trigger when a material
change has occurred, relating to such disclosure.\1010\ A third
commenter stated that, consistent with international practice, a
detailed discussion of the material assumptions should be included in
the technical report while a summary of material assumptions should
occur in annual filings.\1011\ This commenter, however, stated that
while the proposed instruction, providing that an annual change in
total resources or reserves of 10% or more is presumed to be material,
was reasonable, a change of 25% might be better.\1012\ A fourth
commenter approved of the 30% cumulative change threshold while
recommending a 15% threshold for an annual change.\1013\ A fifth
commenter believed that the 10% threshold for defining a material
change for both mineral resources and reserves was too narrow. That
commenter recommended allowing the qualified person to determine when a
material change has occurred.\1014\
---------------------------------------------------------------------------
\1010\ See letter from AngloGold.
\1011\ See letter from Eggleston.
\1012\ See id.
\1013\ See letter from CBRR.
\1014\ See letter from Newmont. Another commenter suggested a
25% materiality threshold for contained metal in reserves and a 50%
threshold for contained metal in resources together with an
``additional overriding qualitative obligation that any change the
registrant deems a material change should be disclosed.'' Letter
from Midas.
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In response to our request for comment, most commenters that
addressed the issue opposed requiring presentation of Tables 4 through
8 of the proposed rules in XBRL format.\1015\ Commenters primarily
objected to such a requirement because it would be expensive \1016\
and, ``given the uniqueness of the information to the registrant,''
they did not feel there was any useful information that would benefit
from being presented in a
[[Page 66405]]
structured format.\1017\ One commenter, however, supported requiring
the presentation of proposed Tables 4 through 8 in XBRL because it
would ``likely benefit investors and potential investors as well as
align SEC reporting requirements with potential industry standards in
the near future.'' \1018\
---------------------------------------------------------------------------
\1015\ See, e.g., letters from AIPG, Alliance, Amec, AngloGold,
CBRR, Chamber, Eggleston, MMSA, Rio Tinto, and SME 1.
\1016\ See letter from SME 1.
\1017\ Letter from AngloGold; see also letters from AIPG and SME
1.
\1018\ Letter from SRK 1.
---------------------------------------------------------------------------
Some commenters recommended that, consistent with CRIRSCO
standards, such as NI 43-101 \1019\ and JORC, but contrary to the
Commission's proposal, the Commission allow a registrant and its
qualified person(s) to use historical estimates of the quantity, grade
or mineral content of a deposit that the registrant has not verified
and that was prepared before the registrant acquired or entered into an
agreement to acquire an interest in the property containing the
deposit.\1020\ As two of those commenters explained, the inability to
use historical estimates in a Commission filing could render a proposed
acquisition a practical impossibility because there could be
insufficient time to complete an independent estimate of the resources
or reserves for the target property.\1021\
---------------------------------------------------------------------------
\1019\ As one of the commenters explained, under Canada's NI 43-
101, the use of a historical estimate is contingent upon the
registrant disclosing: The date and source of the historical
estimate; the relevance and reliability of the historical estimate;
the key assumptions, parameters and methods used to prepare the
historical estimate if known; the work that needs to be done to
upgrade or verify the historical estimate; and that the qualified
person has not done sufficient work to classify the historical
estimate as a current estimate and, therefore, the registrant is not
treating the historical estimate as a current estimate of mineral
resources or reserves. See letter from Coeur.
\1020\ See letters from Amec, Coeur, Gold Resource, Newmont, and
NMA 1.
\1021\ See letters from Newmont and NMA 1.
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iii. Final Rules
With modifications, we are adopting the proposed requirement that a
registrant with material mining operations must disclose certain
information about each property that is material to its business or
financial condition.\1022\ When determining the materiality of a
property relative to its business or financial condition, a registrant
must apply the same standards and other considerations to each
individual property as required when determining whether its mining
operations as a whole are material.\1023\ We continue to believe that,
because summary property disclosure alone will not provide all relevant
information about the properties and assets that generate a mining
registrant's revenues, detailed disclosure regarding a registrant's
individually material properties is necessary to provide investors with
a comprehensive understanding of a registrant's mining operations.
---------------------------------------------------------------------------
\1022\ 17 CFR 229.1304(a)(1) [Item 1304(a)(1) of Regulation S-
K].
\1023\ See id. The registrant would have to apply those
standards and other considerations to each individual property that
it owns or in which it has, or it is probable that it will have, a
direct or indirect economic interest. It also would have to provide
individual disclosure for each material property that it operates,
or it is probable that it will operate, under a lease or other legal
agreement that grants the registrant ownership or similar rights
that authorize it, as principal, to sell or otherwise dispose of the
mineral. Further, a registrant would have to provide individual
disclosure for each material property for which it has, or it is
probable that it will have, an associated royalty or similar right,
unless the registrant lacks access to the information about the
underlying properties, as specified in Item 1304(b) of Regulation S-
K, and the registrant meets the conditions for omitting the
individual property disclosure pursuant to Item 1304(a)(2) of
Regulation S-K. See supra Section II.B.4.
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As proposed, the final rules require a registrant to provide a
brief description of each material property, including: the property's
location; \1024\ existing infrastructure, including roads, railroads,
airports, towns, ports, sources of water, electricity, and personnel;
\1025\ and a brief description, including the name or number and size
(acreage), of the titles, claims, concessions, mineral rights, leases
or options under which the registrant and its subsidiaries have or will
have the right to hold or operate the property.\1026\
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\1024\ See Item 1304(b)(1)(i) of Regulation S-K [17 CFR
229.1304(b)(1)(i)], which requires the description of the property's
location to be accurate to within one mile, using an easily
recognizable coordinate system, including appropriate maps, with
proper engineering detail (such as scale, orientation, and titles)
that must be legible on the page when printed. We continue to
believe that this level of detail is similar to the level of detail
required by the CRIRSCO-based codes. See, e.g., PERC Reporting
Standard, supra note 302, Table 1 (requirement on key plan, maps and
diagrams, which calls for ``a location or index map and more
detailed maps showing all important features described in the text,
including all relevant cadastral and other infrastructure features .
. . All maps, plans and sections noted in this checklist, should be
legible, and include a legend, coordinates, coordinate system, scale
bar and north arrow''). See also SAMREC Code, supra note 267, Table
1 (calling for a ``detailed topo-cadastral map'').
\1025\ 17 CFR 229.1304(b)(1)(ii) [Item 1304(b)(1)(ii) of
Regulation S-K].
\1026\ Item 1304(b)(1)(iii) of Regulation S-K [17 CFR
229.1304(b)(1)(iii)], which also requires a description of how such
property rights were obtained at this location, indicating any
conditions that the registrant must meet in order to obtain or
retain the property. If held by leases or options or if the mineral
rights otherwise have termination provisions, the registrant must
provide the expiration dates of such leases, options, or mineral
rights and associated payments.
---------------------------------------------------------------------------
Further, as proposed, the final rules will require registrants with
individually material mining properties to provide, as relevant to each
material property: A brief description of the present condition of the
property, the work completed by the registrant on the property, the
registrant's proposed program of exploration or development, the
current stage of the property as exploration, development or
production, the current state of exploration or development of the
property, and the current production activities; \1027\ the age,
details as to modernization and physical condition of the equipment,
facilities, infrastructure, and underground development; \1028\ the
total cost for or book value of the property and its associated plant
and equipment; \1029\ a brief history of previous operations, including
the names of previous operators, insofar as known; \1030\ and a brief
description of any significant encumbrances to the property, including
current and future permitting requirements and associated timelines,
permit conditions, and violations and fines.\1031\
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\1027\ Item 1304(b)(2)(i) of Regulation S-K [17 CFR
229.1304(b)(2)(i)], which also requires the registrant to identify
mines as either surface or underground, with a brief description of
the mining method and processing operations. If the property is
without known reserves and the proposed program is exploratory in
nature or the registrant has started extraction without determining
mineral reserves, the registrant must provide a statement to that
effect.
\1028\ 17 CFR 229.1304(b)(2)(ii) [Item 1304(b)(2)(ii) of
Regulation S-K].
\1029\ 17 CFR 229.1304(b)(2)(iii) [Item 1304(b)(2)(iii) of
Regulation S-K].
\1030\ 17 CFR 229.1304(b)(2)(iv) [Item 1304(b)(2)(iv) of
Regulation S-K].
\1031\ 17 CFR 229.1304(b)(2)(v) [Item 1304(b)(2)(v) of
Regulation S-K].
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Although several commenters opposed some of these individual
disclosure requirements on the basis that they are too prescriptive and
would be burdensome on registrants,\1032\ the above items of disclosure
are substantially similar to items called for by Item 102 of Regulation
S-K and Guide 7.\1033\ Also, these disclosures are
[[Page 66406]]
substantially similar to what is called for under CRIRSCO-based
rules.\1034\ We continue to believe that these items elicit material
information for investors.
---------------------------------------------------------------------------
\1032\ See letters from Alliance, Amec, BHP, CBRR, FCX, Newmont,
and SRK 1.
\1033\ For example, paragraph (b) of Guide 7 calls for
registrants to disclose the location and means of access to the
property, a description of the title, claim, lease or option under
which the registrant operates the property with appropriate maps to
portray the location, a history of previous operations, a
description of the present condition of the property, the work
completed by the registrant on the property, the registrant's
proposed program of exploration and development, the current state
of exploration or development of the property, and a description of
the rock formations and mineralization of existing or potential
economic significance on the property, including the identity of the
principal metallic or other constituents insofar as known.
\1034\ See, e.g., ASX Listing Rules 5.1 and 5.3, which call for
similar disclosures including, as relevant to mining exploration or
production entities, details of exploration activities, mining
production and development activities, exploration, mining and
development expenditures, and information on mining tenements.
---------------------------------------------------------------------------
Similar to a proposed instruction, the final rules include a
provision that establishes guidelines for classifying the current stage
of a property as exploration, development, or production.\1035\ Also as
proposed, a second provision advises registrants to include only
geological information that is brief and relevant to property
disclosure rather than an extensive description of regional
geology.\1036\ We believe that this latter provision is consistent with
the transparency principle under the CRIRSCO standards and will help
investors better understand a registrant's mining operations.
---------------------------------------------------------------------------
\1035\ See supra Section II.B.5.iii (discussing Item 1304(c)(1)
of Regulation S-K).
\1036\ 17 CFR 229.1304(c)(2) [Item 1304(c)(2) of Regulation S-
K].
---------------------------------------------------------------------------
As proposed, we are adopting final rules that would require a
registrant to disclose, if mineral resources or reserves have been
determined, a summary of all mineral resources or reserves as of the
end of the most recently completed fiscal year.\1037\ While we are
still requiring the same disclosure, in response to those commenters
who noted that reporting mineral resources and reserves together is
counter to the principles of the CRIRSCO-based codes and could cause
investor confusion, we are modifying the presentation of the
disclosure.\1038\ Consequently, instead of one table (proposed Table
6), the final rules require that, for each property, the registrant
disclose in tabular format, as provided in Table 1 to paragraph (d) of
Item 1304, for each class of mineral resources (measured, indicated,
and inferred), together with total measured and indicated mineral
resources, the estimated tonnages and grades (or quality, where
appropriate), and in Table 2 to paragraph (d) of Item 1304, for each
class of mineral reserves (proven and probable), together with total
mineral reserves, the estimated tonnages, grades (or quality, where
appropriate), cut-off grades and metallurgical recovery. Furthermore,
consistent with our approach to summary disclosure and in light of
commenters' concerns about requiring three points of reference, the
disclosures in these Tables 1 and 2 will be based on a specific point
of reference selected by a qualified person.\1039\ The registrant must
disclose the selected point of reference for each of Tables 1 and 2 to
paragraph (d) of Item 1304.\1040\
---------------------------------------------------------------------------
\1037\ 17 CFR 229.1304(d)(1).
\1038\ See supra note 991 and accompanying text.
\1039\ See 17 CFR 229.1304(d)(1).
\1040\ See id..
---------------------------------------------------------------------------
Similar to a proposed instruction, we are adopting an instruction
that would permit a registrant to modify the tabular formats in these
Tables 1 and 2 for ease of presentation, to add information, or to
combine two or more required tables.\1041\ This instruction is intended
to provide registrants with the flexibility to organize the required
data to fit their own particular circumstances. For example, depending
on the number of individually material properties owned or operated, a
registrant may decide to disclose mineral resources on separate
properties all in one table or in multiple tables, and mineral reserves
on separate properties all in one table or in multiple tables. The
adopted instruction makes clear, however, that when combining tables,
the registrant should not report mineral resources and reserves in the
same table.\1042\
---------------------------------------------------------------------------
\1041\ Instruction 1 to 17 CFR 229.1304(d)(1). As previously
noted, a registrant may not modify the required tables to remove any
of the required disclosure from the tables.
\1042\ See id.
---------------------------------------------------------------------------
Another provision states that all disclosure of mineral resources
by the registrant must be exclusive of mineral reserves.\1043\ We are
adopting this provision for the same reasons as our adoption of a
substantially similar provision for summary disclosure.\1044\
---------------------------------------------------------------------------
\1043\ 17 CFR 229.1304(d)(2) [Item 1304(d)(2) of Regulation S-
K].
\1044\ See supra note 959 and accompanying text. As previously
discussed, see supra Section II.B.4., a third instruction states
that a registrant with only a royalty interest should provide only
the portion of the resources or reserves that are subject to the
royalty or similar agreement. See 17 CFR 229.1304(d)(3).
---------------------------------------------------------------------------
We are adopting rules that, as proposed, will require a registrant
to compare each material property's mineral resources and reserves as
of the end of the last fiscal year with the mineral resources and
reserves as of the end of the preceding fiscal year, and explain any
material change between the two.\1045\ However, unlike our rule
proposal, and in response to comments received about various challenges
associated with providing this disclosure,\1046\ the final rules
provide that the comparison may be in either narrative or tabular
format. This will provide registrants greater flexibility in presenting
their disclosure and should help limit the compliance burden for
registrants, especially those with large numbers of reported
properties. Like the proposed rules, the final rules specify that the
comparison must disclose information concerning:
---------------------------------------------------------------------------
\1045\ 17 CFR 229.1304(e) [Item 1304(e) of Regulation S-K].
\1046\ See supra note 1005.
The mineral resources or reserves at the end of the
last two fiscal years;
The net difference between the mineral resources or
reserves at the end of the last completed fiscal year and the
preceding fiscal year, as a percentage of the resources or reserves
at the end of the fiscal year preceding the last completed one;
An explanation of the causes of any discrepancy in
mineral resources including depletion or production, changes in
commodity prices, additional resources discovered through
exploration, and changes due to the methods employed; and
An explanation of the causes of any discrepancy in
mineral reserves including depletion or production, changes in the
resource model, changes in commodity prices and operating costs,
changes due to the methods employed, and changes due to acquisition
or disposal of properties.\1047\
---------------------------------------------------------------------------
\1047\ 17 CFR 229.1304(e)(1)-(4) [Items 1304(e)(1)-(4) of
Regulation S-K].
This comparative disclosure requirement will help investors
understand the reasons for the year to year changes in a registrant's
mineral resources and reserves, which should help them analyze and
evaluate a registrant's future prospects. While Guide 7 calls for
annual disclosure of mineral reserves, it does not call for registrants
to compare their current mineral reserve disclosure with previously
provided disclosure. Registrants, however, provide much of the
disclosure required under the comparative disclosure provision pursuant
to current disclosure practices.\1048\
---------------------------------------------------------------------------
\1048\ See, e.g., letters from AngloGold, CBRR, and Eggleston.
---------------------------------------------------------------------------
If the registrant has not previously disclosed mineral reserve or
resource estimates in a Commission filing or is disclosing material
changes to its previously disclosed mineral reserve or resource
estimates, we are adopting rules, as proposed, requiring it to provide
a brief discussion of the material assumptions and criteria underlying
the estimates.\1049\ The material assumptions and criteria will depend
on the specific facts and circumstances surrounding the particular
property and the mineral resource and reserve estimates.\1050\ However,
the disclosure of these assumptions and criteria must include all of
the material information necessary
[[Page 66407]]
for investors reasonably to understand the disclosed mineral resources
or reserves. In addition, the registrant must cite to corresponding
sections of the technical report summary if one is filed as an exhibit
pursuant to Item 1302(b).\1051\
---------------------------------------------------------------------------
\1049\ 17 CFR 229.1304(f)(1) [Item 1304(f)(1) of Regulation S-
K].
\1050\ 17 CFR 229.1304(f)(3) [Item 1304(f)(3) of Regulation S-
K].
\1051\ See 17 CFR 229.1304(f)(1).
---------------------------------------------------------------------------
As previously discussed, we have revised the proposed rules to
state that, if a registrant is disclosing exploration activity and
exploration results for any material property for its most recently
completed fiscal year, it must provide summaries that include certain
specified information.\1052\ For exploration activity, the summary must
describe, for each material property as relevant, the sampling methods
used, and, for each sampling method used, the number of samples, the
total size or length of the samples, and the total number of
assays.\1053\ For exploration results, the summary must identify, for
each relevant material property, the hole, trench or other sample that
generated the exploration results, describe the length, lithology, and
key geologic properties of the exploration results, and include a brief
discussion of the exploration results' context and relevance.\1054\ If
the summary of exploration results only includes results from selected
samples and intersections, it should be accompanied with a discussion
of the context and justification for excluding other results.\1055\
---------------------------------------------------------------------------
\1052\ See supra Section II.D.3.
\1053\ 17 CFR 229.1304(g)(1) [Item 1304(g)(1) of Regulation S-
K].
\1054\ 17 CFR 229.1304(g)(2) [Item 1304(g)(2) of Regulation S-
K].
\1055\ See id.
---------------------------------------------------------------------------
In a change from the proposed rules, in response to comments
received, the final rules will permit registrants to provide the
summaries of exploration activity and exploration results in narrative
or tabular format.\1056\ We believe this change will address the
concerns of commenters that opposed Tables 4 and 5 of the proposed
rules because those tables suggested that drilling is the only form of
exploration and because it would be too difficult to include thousands
of datum points regarding exploration into a single table.\1057\ We
agree that, as some commenters suggested, permitting registrants to
provide disclosure on exploration activity and exploration results in
narrative or tabular format will help limit the final rules' compliance
burden while still providing important benefits to investors.\1058\
---------------------------------------------------------------------------
\1056\ 17 CFR 229.1304(g)(3) [Item 1304(g)(3) of Regulation S-
K].
\1057\ See, e.g., letters from Cleary & Gottlieb, NSSGA, SME 1,
SRK 1, and Vale.
\1058\ See letters from Cleary & Gottlieb and SME 1. Whether in
narrative or tabular format (and, if in tabular format, whether the
tables are similar to proposed Tables 4 and 5 or are tables designed
by the registrant), the disclosure of exploration activity and
material exploration results must be reasonably comprehensive and
not omit material facts that may make the disclosure misleading.
---------------------------------------------------------------------------
As previously noted, the final rules permit a registrant to
disclose an exploration target when discussing exploration results or
exploration activity related to a material property as long as the
disclosure is accompanied by the cautionary and explanatory statements
specified in Item 1302(c) of Regulation S-K.\1059\ Consistent with
similar requirements under the CRIRSCO-based codes, the disclosure
about an exploration target will help investors understand the
significance of a registrant's disclosed exploration results and
exploration activities, while the required accompanying statements will
help investors understand the conceptual basis and limitations of the
exploration target.\1060\
---------------------------------------------------------------------------
\1059\ See 17 CFR 229.1304(g)(5).
\1060\ See supra Section II.D.3.
---------------------------------------------------------------------------
Similar to the disclosure requirement for mineral resources or
mineral reserves, if the registrant has not previously disclosed
exploration results in a filing with the Commission, or is disclosing
material changes to its previously disclosed exploration results, the
final rules require it to provide sufficient information to allow for
an accurate understanding of the significance of the exploration
results.\1061\ This must include information such as exploration
context, type and method of sampling, sampling intervals and methods,
relevant sample locations, distribution, dimensions, and relative
location of all relevant assay and physical data, data aggregation
methods, land tenure status, and any additional material information
that may be necessary to make the disclosure concerning the
registrant's exploration results not misleading. The registrant must
cite to corresponding sections of the summary technical report if one
is filed.\1062\
---------------------------------------------------------------------------
\1061\ 17 CFR 229.1304(g)(6)(i) [Item 1304(g)(6)(i) of
Regulation S-K].
\1062\ See id.
---------------------------------------------------------------------------
Similar to proposed instructions, we also are adopting individual
property disclosure provisions applicable to registrants that have not
previously disclosed mineral resource or reserve estimates or
exploration results or that are disclosing a material change in
previously disclosed mineral resource or reserve estimates or
exploration results. Most of these provisions are designed to assist
registrants in determining whether there has been a material change in
estimates of mineral resources, mineral reserves, or exploration
results. For example, a pair of provisions explains that whether a
change in exploration results, mineral resources, or mineral reserves,
is material must be based on all facts and circumstances, both
quantitative and qualitative.\1063\ Another provision states that a
change in exploration results that significantly alters the potential
of the subject deposit is considered material.\1064\
---------------------------------------------------------------------------
\1063\ 17 CFR 229.1304(f)(3) [Item 1304(f)(3) of Regulation S-
K]; and 17 CFR 229.1304(g)(6)(ii) [Item 1304(g)(6)(ii) of Regulation
S-K].
\1064\ 17 CFR 229.1304(g)(6)(iii) [Item 1304(g)(6)(iii) of
Regulation S-K].
---------------------------------------------------------------------------
In a change from the proposed rules, we are not providing
quantitative guidance for what is presumed to be a material change in
estimates of mineral resources or reserves. We have been persuaded by
commenters that objected to the proposed quantitative guidance as being
overly prescriptive.\1065\
---------------------------------------------------------------------------
\1065\ See, e.g., letter from AngloGold.
---------------------------------------------------------------------------
If material assumptions in the filed technical report summary are
no longer valid, under current facts and circumstances, then using such
a technical report summary to support disclosure of mineral resources
or reserves can be misleading to investors. Consequently, we are
adopting a provision, similar to a proposed instruction, that requires
a filed technical report summary to be current with respect to all
material assumptions and information, including assumptions relating to
all modifying factors and scientific and technical information (e.g.,
sampling data, estimation assumptions and methods), as of the end of
the registrant's most recently completed fiscal year.\1066\ To the
extent that the registrant is not filing a technical report summary but
instead is basing the required disclosure upon a previously filed
report, that report must also be current in these material respects. If
the previously filed report is not current in these material respects,
the registrant must file a revised or new summary technical report from
a qualified person that supports the registrant's mining property
disclosures.\1067\
---------------------------------------------------------------------------
\1066\ 17 CFR 229.1304(f)(2) [Item 1304(f)(2) of Regulation S-
K].
\1067\ See id.
---------------------------------------------------------------------------
Finally, we are adopting a provision stating that a report
containing one or more estimates of the quantity, grade, or metal or
mineral content of a deposit or exploration results that a registrant
has not verified as a current mineral
[[Page 66408]]
resource, mineral reserve, or exploration results, and which was
prepared before the registrant acquired, or entered into an agreement
to acquire, an interest in the property that contains the deposit
(i.e., a ``historical estimate''), is not considered current and cannot
be filed in support of disclosure.\1068\
---------------------------------------------------------------------------
\1068\ 17 CFR 229.1304(h) [Item 1304(h) of Regulation S-K].
---------------------------------------------------------------------------
However, in a change from the proposed rules, and as a result of
comments received, we are adopting a targeted accommodation that
permits a registrant to include a historical estimate in a Commission
filing that pertains to a merger, acquisition, or business combination
if the registrant is unable to update the estimate prior to the
completion of the relevant transaction. In that event, when referring
to the estimate, the registrant must disclose the source and date of
the estimate, and state that a qualified person has not done sufficient
work to classify the estimate as a current estimate of mineral
resources, mineral reserves, or exploration results, and that the
registrant is not treating the estimate as a current estimate of
mineral resources, mineral reserves, or exploration results.\1069\
These conditions are generally consistent with those required for the
use of historical estimates under Canada's NI 43-101.\1070\ This change
should address the concern of commenters that the proposed prohibition
regarding the use of historical estimates could render some
acquisitions or other similar business transactions a practical
impossibility. At the same time, to mitigate any potential risk from
the use of older information, the adopted provision requires that
investors be provided with additional information to help them evaluate
an investment in a registrant that has engaged in a merger or similar
business transaction involving the use of a historical estimate.
---------------------------------------------------------------------------
\1069\ See id.
\1070\ See Canada's NI 43-101, supra note 123, at pt. 2.4.
---------------------------------------------------------------------------
We believe these provisions will help a registrant determine when
it must file a technical report summary as an exhibit to the filing and
provide the appropriate accompanying disclosure in the filing about the
resource or reserve estimates and exploration results. At the same
time, the adopted provisions will help to ensure that investors are
provided with current information about the registrant's mineral
resources and reserves and exploration results.
Like the proposed rules, the final rules do not require a
registrant to format any of its disclosure about its individually
material properties in XBRL. In light of the flexibility provided in
the final rules for these disclosures, which will permit registrants to
tailor the disclosures to their unique facts and circumstances, we
believe that presentation in a structured format, such as XBRL, would
impose additional burdens on registrants without providing substantial
additional benefits for users of the information.\1071\ For similar
reasons, we are not requiring registrants' summary disclosure to be
formatted in XBRL.
---------------------------------------------------------------------------
\1071\ See supra notes 1015-1017 and accompanying text.
---------------------------------------------------------------------------
3. Requirements for Technical Report Summaries
i. Rule Proposal
We proposed rules that would require a registrant to file, as an
exhibit, a technical report summary to support the disclosure of
mineral resources, mineral reserves, or material exploration results
for each material property.\1072\ The proposed rules would require a
qualified person to identify and summarize the scientific and technical
information and conclusions reached concerning material mineral
exploration results, initial assessments used to support disclosure of
mineral resources, and preliminary or final feasibility studies used to
support disclosure of mineral reserves, for each material property, in
the technical report summary.\1073\ The qualified person also would be
required to sign and date the technical report summary.\1074\ We
proposed this latter requirement to help ensure the reliability of the
technical report summary.
---------------------------------------------------------------------------
\1072\ See Proposing Release, Section II.G.3.
\1073\ See id.
\1074\ See id.
---------------------------------------------------------------------------
We proposed specific requirements for the contents of the technical
report summary to elicit scientific and technical information to
support the determination and disclosure of mineral resources, mineral
reserves, and material exploration results. The proposed requirements
are similar in most respects to the items of information required for
the summary report under Canada's NI 43-101.\1075\ They are also
similar to the contents suggested in the mining engineering
literature.\1076\ In the Proposing Release, we stated that these
similarities support our view that the proposed sections of the
technical report summary would provide relevant and useful information
to facilitate an investor's understanding of a registrant's mineral
resources, mineral reserves, and material exploration results.\1077\
---------------------------------------------------------------------------
\1075\ See Canada's Form 43-101F1 (prescribing 27 sections for
the technical report summary required for each material property
pursuant to Canada's NI 43-101), http://web.cim.org/standards/documents/Block484_Doc111.pdf.
\1076\ See, e.g., W. Hustrulid, M. Kuchta, and R. Martin, 1 Open
Pit Mine Planning & Design 14-16 (3rd ed. 2013); Richard West,
Preliminary, Prefeasibility and Feasibility Studies, Australian
Mineral Economics--A Survey of Important Issues (Philip Maxwell and
Pietro Guj, eds, 2006).
\1077\ See Proposing Release, supra note 5, at Section II.G.
---------------------------------------------------------------------------
We proposed that the technical report summary must not include
large amounts of technical or other project data, either in the report
or as appendices to the report.\1078\ In addition, the proposed rules
required the qualified person to draft the summary to conform, to the
extent practicable, with plain English principles under the Securities
Act and Exchange Act.\1079\ While the proposed requirements were
designed primarily to help improve the readability of the technical
report summary for the benefit of those investors who do not have a
technical scientific or engineering background, they would also benefit
more sophisticated investors to the extent that they result in a more
readable and understandable document. They also are consistent with
similar Canadian mining disclosure standards.\1080\
---------------------------------------------------------------------------
\1078\ See id.
\1079\ See 17 CFR 230.421 [Securities Act Rule 421] and 17 CFR
240.13a-20 [Securities Exchange Act Rule 13a-20].
\1080\ See Instruction 3 to Form 43-101F1 (``The qualified
person preparing the technical report should keep in mind that the
intended audience is the investing public and their advisors who, in
most cases, will not be mining experts. Therefore, to the extent
possible, technical reports should be simplified and understandable
to a reasonable investor. However, the technical report should
include sufficient context and cautionary language to allow a
reasonable investor to understand the nature, importance, and
limitations of the data, interpretations, and conclusions summarized
in the technical report'').
---------------------------------------------------------------------------
We proposed that the technical report summary consist of some or
all of 26 sections, depending upon the specific scope of the
summary.\1081\ As proposed, a technical report summary that reports the
results of a preliminary or final feasibility study would have to
include all 26 sections. A technical report summary that reports the
results of an initial assessment or that reports material exploration
results could omit information required by certain of the proposed
technical report summary sections.\1082\
---------------------------------------------------------------------------
\1081\ See Proposing Release, supra note 5, at Section II.G.3.
\1082\ See id.
---------------------------------------------------------------------------
Although the proposed sections were similar in most respects to the
items of information required for the summary
[[Page 66409]]
report under Canada's NI 43-101,\1083\ there were a couple of notable
differences. First, the proposed rules did not permit a qualified
person to include a disclaimer of responsibility if he or she relies on
a report, opinion, or statement of another expert in preparing the
technical report summary.\1084\ Second, we proposed to include sections
about hydrogeology and geotechnical data, including testing and
analysis, which are not included in Canada's NI 43-101.
---------------------------------------------------------------------------
\1083\ See supra note 1075 and accompanying text.
\1084\ In contrast, Canada's NI 43-101 would permit the
qualified person to include a disclaimer of responsibility if he or
she relies on a report, opinion, or statement of another expert who
is not a qualified person in preparing the technical report summary.
See Item 3 of Canada's Form NI 43-101F1.
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ii. Comments on the Rule Proposal
While acknowledging that the Commission's proposal to require 26
specified sections in the technical report summary is similar to the
content required under Canada's NI 43-101, numerous commenters urged
the Commission to follow explicitly the content and format of Canada's
Form 43-101F1 so that technical report summaries filed with the
Commission would be interchangeable with technical reports prepared
under Canada's NI 43-101.\1085\ One of those commenters also
recommended that the Commission explicitly incorporate the Canadian
form by reference, ``which would allow for regular updates without
going through additional rulemaking.'' \1086\ Several other commenters,
however, recommended that the technical report summary follow the
format of CRIRSCO's Table 1 and the corresponding guidance in JORC or
SAMREC rather than the format and guidance under Canada's NI43-101
because they viewed the latter as being too prescriptive.\1087\ One of
those commenters further recommended that the Commission adopt ``carve-
outs'' for commercially sensitive information.\1088\ Another commenter
opposed the proposed technical report summary requirement as being too
prescriptive and recommended that the Commission refer U.S. registrants
to the 2014 SME Guide, which would be included as an appendix to the
final rules.\1089\
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\1085\ See letters from AIPG, Amec, Coeur, Eggleston, Gold
Resource, Northern Dynasty, SME 1, and Willis.
\1086\ Letter from AIPG.
\1087\ See letters from AngloGold, BHP, JORC, MMSA, Randgold,
Rio Tinto, and SAMCODES 1.
\1088\ See letter from BHP.
\1089\ See letter from CRIRSCO.
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Two commenters opposed the technical report summary filing
requirement on the grounds that it ``is a significant change to the
current SEC rules and goes beyond most CRIRSCO-based disclosure
regimes, other than Canada and Australia, which do not require filing
of expert reports.'' \1090\ One of those commenters also believed that
many of the required sections in the proposed technical report summary
seemed designed to satisfy some unstated social or political goal
rather than to provide material information to investors.\1091\ The
other commenter stated that the proposed rules would require a
registrant in the aggregates business to collect and report on data
that management typically does not use in its own analysis of its
business.\1092\ Because that commenter believed that many sections of
the technical report summary would result in immaterial information to
investors due to the nature of the aggregates industry, and because of
its concern that some of the requested information, such as pricing,
would place confidential business plan information into the public
domain to the detriment of its competitive position, the commenter
requested that the Commission exclude registrants in the aggregates
business from having to comply with the technical report summary
requirement.\1093\
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\1090\ See letters from Chamber and NSSGA.
\1091\ See letter from Chamber.
\1092\ See letter from NSSGA.
\1093\ See id.
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One commenter who opposed the proposed technical report summary
because of its differences with CRIRSCO-based disclosure requirements
stated that ideally the Commission should adopt mining disclosure rules
that are substantially the same as the CRIRSCO-based codes. As an
alternative, however, that commenter recommended that the Commission
adopt a ``reciprocal recognition'' approach that would allow foreign
issuers to file their home country (CRIRSCO-based) reports in
satisfaction of the U.S. rules and U.S. issuers to file U.S. compliant
reports in satisfaction of foreign requirements.\1094\
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\1094\ See letter from PDAC.
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Several commenters recommended changing the name of the technical
report summary to either ``summary technical report'' or just
``technical report.'' \1095\ Commenters urged such a change in order to
align the name of the required report with that required under the
CRIRSCO-based codes and because the Commission's proposed name suggests
that there is a full technical report when in many instances there is
not.
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\1095\ See letters from AIPG, Coeur, Eggleston, Gold Resource,
Midas, and SME 1.
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Some commenters generally approved of the proposed 26 sections of
the technical report summary while suggesting modifications for certain
sections. For example, one commenter stated that adding sections on
hydrogeology and geotechnical would be appropriate for reserve
determination but not for resource estimation because such information
is typically not available.\1096\ Another commenter recommended
excluding those sections when disclosing exploration results for the
same reason.\1097\ A third commenter recommended excluding from the
technical report summary detailed hydrogeology and geotechnical data as
well as any other detailed technical data that most investors would not
find meaningful.\1098\
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\1096\ See letter from Midas; see also letter from MMSA.
\1097\ See letter from Eggleston; see also letter from SRK 1
(recommending excluding those sections for both exploration results
and resource estimation).
\1098\ See letter from Andrews & Kurth; see also letter from
Amec (recommending exclusion of hydrogeology and geotechnical
sections in conjunction with recommendation to exclude mineral
brines and geothermal energy from scope of rules).
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Another commenter, however, supported the inclusion of sections on
hydrology and rock mechanics.\1099\ This commenter agreed with most of
the topics included in the proposed technical report summary
requirement, but opposed requiring annual cash flow forecasts and
measures of economic viability, such as net present value, internal
rate of return and payback period of capital, under ``results of the
economic analysis'' on the grounds that such information is sensitive
and should only be requested under specific situations and afforded
confidential treatment.\1100\
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\1099\ See letter from CBRR.
\1100\ Id.
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One commenter urged the Commission to adopt a technical report
summary provision requiring ``detailed descriptions of infrastructure
needs for mining projects, especially dams, tailings disposal, water
and energy access.'' \1101\ That commenter also supported adoption of
the technical report summary provision requiring descriptions of the
environmental, permitting, and social or community factors related to
the project, which the commenter indicated would include a description
of ``social license to operate'' risks.\1102\
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\1101\ Letter from Earthworks.
\1102\ See Id.
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Another commenter disagreed with the proposed requirement that a
[[Page 66410]]
qualified person opine on whether all issues relating to all relevant
modifying factors can be resolved with further work. The commenter
further opposed the proposed provision requiring a qualified person to
justify the use of a pre-feasibility study instead of a feasibility
study. According to that commenter, because the CRIRSCO standards
require a pre-feasibility study to be sufficient for a competent
person, acting reasonably, to determine if all or part of a mineral
resource may be converted to a mineral reserve at the time of
reporting, no additional justification for use of a pre-feasibility
should be required.\1103\
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\1103\ See letter from Amec.
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In response to our solicitation of comment regarding whether we
should expand the disclosure required by the technical report summary,
most commenters \1104\ that addressed the issue did not favor expanding
the technical report summary provision that would require the qualified
person to describe the environmental, permitting, and social or
community factors related to the project.\1105\ One of those commenters
objected to expanding the mining property disclosure requirements to
include a more detailed discussion regarding sustainability and related
issues on the grounds that it already discloses material environmental,
social, and governance information for investors in its corporate
social responsibility reports that it publishes annually on its web
site.\1106\ The commenter further noted that, to the extent that
sustainability issues present a material risk, a registrant would
already have to disclose that risk in the Risk Factors section of its
Exchange Act annual report.\1107\
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\1104\ See letters from Alliance, Amec, AngloGold, CRIRSCO,
Eggleston, JORC, Midas, Newmont, NMA 1, Rio Tinto, SME 1, and SRK 1.
See also letter from CBRR (stating that the proposed items are
sufficient but suggesting that the Commission clarify that a
registrant may add ``any other significant information that is
relevant to the project'').
\1105\ See, e.g., letter from Alliance (``We believe that
requiring disclosure of issues related to environmental, permitting
and social or community factors, such as how the registrant is going
to manage greenhouse gases, workforce health, safety and well-being,
within the technical report summary could require a qualified person
to attempt to estimate amounts or impacts for which they have no
expertise. . . . We believe that a qualified person should include
in the technical report those amounts that can be readily determined
based on the professional qualifications of the qualified person'').
\1106\ See letter from Newmont.
\1107\ See id.
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Some commenters, however, recommended that the Commission require a
registrant and its qualified person(s) to consider sustainability
factors when determining mineral resources and reserves.\1108\ For
example, one commenter suggested that the Commission explicitly require
a carbon budget analysis in the economic viability determination for
proven reserves.\1109\ This commenter also recommended that the
Commission: (i) Require the use of a spectrum of price forecasts and
sensitivity analysis in assessing the economic recoverability of a coal
deposit; and (ii) expand the definition of a qualified person to
require an expertise in conducting a carbon budget analysis.\1110\
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\1108\ See letters from Carbon Tracker, Columbia, CRIRSCO,
CSP\2\, Earthworks, and SASB.
\1109\ See letter from Carbon Tracker. Such a provision would
require a qualified person, as part of his or her coal resource and
reserve determinations, to consider, as a modifying factor, whether
the reserve could be economically produced in a scenario in which
demand is consistent with the climate change prevention goal of
maintaining a global temperature increase of no greater than 2[deg]
C on an annual basis.
\1110\ See id.
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Another commenter urged the Commission to require the consideration
of numerous sustainability topics when applying the modifying factors
in mineral resource and reserve determinations.\1111\ Under this
approach, for metals mining, a qualified person would have to consider
greenhouse gas emissions, air quality, biodiversity impacts, community
relations and rights of indigenous peoples, and workforce health,
safety, and well-being together with energy management, water
management, and waste and hazardous materials management. The commenter
further recommended that the Commission explicitly require a qualified
person to have relevant experience to assess and render judgment on any
potential modifying factor.\1112\
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\1111\ See letter from SASB.
\1112\ See id; see also letter from CSP\2\ (stressing the
importance of identifying potential environmental liabilities in the
technical report summary); letter from Columbia (recommending
requiring in the technical report summary a detailed discussion of
three particular areas of water-related risk: Water scarcity;
tailings dam operation and extreme rainfall; and environmental
performance); and letter from Earthworks (recommending requiring a
registrant to disclose several additional material environmental and
social risks associated with its mining operations, including:
Externalized impacts resulting from a particular mining project that
fall upon the local community rather than the mining company; risks
resulting from a registrant's reliance on self-bonds and other
corporate guarantees; the potential for acid mine drainage and heavy
metal discharge as revealed by initial exploratory drilling; risks
from litigation or permit challenges; and local, regional, and state
government resolutions against a mining project).
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One commenter supported the consideration of climate,
environmental, social, safety, and health modifying factors both in
technical studies and company reports.\1113\ Noting that most companies
address sustainability issues in detail in separate reports, the
commenter recommended that sustainability information should only be
provided in a technical report in summary form.\1114\ Another commenter
noted that, although environmental and social matters have become
``extremely important'' in the estimation of mineral resources and
reserves, those matters are already part of the modifying factors
required to be considered under the CRIRSCO framework.\1115\
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\1113\ See letter from CRIRSCO.
\1114\ See id.
\1115\ See letter from JORC.
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One commenter requested clarification of two instructions to the
proposed technical report summary provision that requires a qualified
person to describe the current or proposed mineral processing methods
and the reasons for selecting these methods as the most suitable for
extracting the valuable products from the mineralization under
consideration. That commenter objected to the use of the term
``successfully'' to qualify processing methods, plant designs, and
other parameters that have not yet been used in a commercial production
of the valuable product from the mineralization under consideration
because he believed that the term was vague.\1116\ The commenter found
the phrase ``successfully extract'' to be technically vague and
questioned whether there is a particular scale at which extraction is
successful and whether ``successful'' means economically profitable or
technically demonstrated. The commenter recommended replacing
``successfully extract'' with ``commercially'' or ``in production.''
The commenter also stated that ``[f]urther clarification is warranted
to clarify if demonstration plants or pilot plant operations can be
used to warrant a process method as `successful'.'' \1117\
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\1116\ See letter from Moats.
\1117\ Id. Another commenter recommended substituting for
proposed Instruction 2 to paragraph (b)(96)(iv)(B)(16) the
following: ``If the processing method, plant design or other
parameters have never been used to successfully extract the valuable
product from such mineralization and is still under development,
then it is the responsibility of the Qualified Person to assess the
scale and type of testing that has been completed and the entirety
of the metallurgical data to determine whether or not mineral
resources or mineral reserves can be disclosed. Justifications for
the disclosures must be fully reported and detailed.'' Letter from
Newmont. That commenter suggested this revised instruction to avoid
unnecessarily restricting the application of future processing
methods or designs in delineating resource and reserve estimates.
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Some commenters urged the Commission to modify the proposed
[[Page 66411]]
technical report summary provision requiring a qualified person to
describe the results of the economic analysis, including annual cash
flow forecasts based on an annual production schedule for the life of
the project. Those commenters requested that the Commission follow
Canada's NI 43-101 by allowing producing registrants to omit annual
cash flow forecasts unless a material expansion of existing production
is planned on the grounds that detailed information regarding costs,
production, and cash flow is confidential business information.\1118\
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\1118\ See letters from Amec, Newmont, SME 1, and Vale.
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Most commenters that addressed the issue agreed with the
Commission's proposal that the technical report summary not include
large amounts of technical or other project data either in the report
or as appendices to the report.\1119\ One commenter, however, stated
that technical reports must include sufficient data to demonstrate the
viability of mineral resources and mineral reserves, questioned the
point at which the number of data becomes ``large,'' and recommended
that the Commission require the inclusion of as much summary data as
practicable.\1120\ Another commenter stated that it is not necessary
that large amounts of technical data, such as hydrologic and
geotechnical information, be included as appendices in the technical
report as long as the information is publicly available and accessible,
and references to the information are provided.\1121\
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\1119\ See letters from Alliance, Amec, AngloGold, CBRR, Gold
Resource, Midas, Northern Dynasty, Rio Tinto, and SRK 1.
\1120\ See letter from Eggleston.
\1121\ See letter from CSP\2\.
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Most commenters that addressed the issue also supported the
Commission's proposal to require the public filing of the technical
report summary as an exhibit to the Commission filing in which the
registrant first discloses mineral resources, mineral reserves, or
material exploration results or reports a material change to the
previously disclosed estimates.\1122\ Some commenters, however, opposed
the proposed public filing requirement of a technical report summary on
the grounds that: Because currently only two jurisdictions (Canada and
Australia) require the public filing of a technical report summary, the
proposed requirement would result in an incremental reporting burden in
the United States relative to most other jurisdictions; \1123\ or the
technical report summary would require the inclusion of voluminous
amounts of technical data, some of which would be competitively
sensitive, and most of which would not be meaningful to investors, and
which would be burdensome to produce.\1124\ In lieu of a technical
report summary, one of those commenters suggested that the Commission
allow registrants to prepare reports in accordance with the guidelines
set forth in CRIRSCO Table 1 or JORC Table 1.\1125\
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\1122\ See letters from Amec, AngloGold, Carbon Tracker,
Eggleston, Gold Resource, Midas, Northern Dynasty, Rio Tinto, SME 1,
SRK 1, and Willis. Amec and Gold Resource supported the proposed
filing requirement for mineral resources and reserves but not for
material exploration results.
\1123\ See letter from Davis Polk.
\1124\ See letters from Alliance and FCX.
\1125\ See letter from FCX.
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iii. Final Rules
Like the proposed rules, the final rules require a registrant
disclosing information concerning its mineral resources or mineral
reserves determined to be on a material property to file a technical
report summary by one or more qualified persons to support such
disclosure of mineral resources or reserves.\1126\ While the disclosure
requirements for the technical report summary are based in particular
on Canada's NI 43-101F1, they are substantially similar to the criteria
specified in CRIRSCO's Table 1 and JORC's Table 1, which must be
considered by the qualified or competent person when preparing reports
on exploration results, mineral resources, or mineral reserves.\1127\
---------------------------------------------------------------------------
\1126\ 17 CFR 229.601(b)(96)(i) [Item 601(b)(96)(i) of
Regulation S-K].
\1127\ There is substantial overlap in the substantive
requirements under Canada's NI 43-101F1 and the criteria specified
in CRIRSCO's Table 1 and JORC's Table 1. The primary difference
between Canada's NI 43-101F1 and the latter two Tables is in the
format and organization of the resulting report. The ``checklist''
format of the two Tables tends to result in more abbreviated
reporting than the more formal requirements of Canada's NI 43-101F1.
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Many commenters supported the Commission's proposal to require a
registrant to obtain a technical report summary from the qualified
person for each material property when first reporting estimates of
mineral resources or mineral reserves, or when reporting a material
change in previously reported estimates.\1128\ As one commenter
indicated, many mining companies, including U.S. registrants that are
cross-listed, already prepare technical reports in CRIRSCO-based
jurisdictions either for public filing or for internal use.\1129\ In
addition to Canada and Australia, other foreign jurisdictions have
adopted formal requirements for a technical report by a qualified or
competent person, which are substantially similar to our final rule
requirements.\1130\ This confirms our view that our technical report
summary requirement is consistent with the CRIRSCO standards and will
help promote comparability in the reporting by qualified persons.
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\1128\ See supra note 193 and accompanying text.
\1129\ See letter from SRK 1.
\1130\ For example, the South African SAMREC Code includes
requirements for a competent person's report that are substantially
similar to our final rule requirements and those under Canada's NI
43-101F1 both in terms of content and organizational format. The
SAMREC code recommends that all public disclosure of exploration
results, mineral resources, and mineral reserves include a competent
person's report or a reference to one. See SAMREC Code (2016), supra
note 267, Appendix 1. The London Stock Exchange and its Alternative
Investment Market also require a competent person's report from
mining issuers as part of their initial listing requirements. These
requirements are also similar to our final rule requirements. See
London Stock Exchange, AIM Note for Mining and Oil & Gas Companies
(June 2009).
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The final rules require that, for each material property, the
qualified person(s) must identify and summarize the scientific and
technical information and conclusions reached concerning initial
assessments used to support disclosure of mineral resources, or
concerning preliminary or final feasibility studies used to support
disclosure of mineral reserves, in the technical report summary.\1131\
The requirements for the contents of the technical report summary are
intended to elicit the scientific and technical information necessary
to support the determination and disclosure of mineral resources,
mineral reserves, and, as applicable, exploration results, to the
extent they are material to investors. Because these requirements are
similar in most respects to the items of information required for the
summary report under Canada's NI 43-101 \1132\ and the criteria
specified in CRIRSCO Table 1 and JORC Table 1 as well as to the
contents suggested in the mining engineering literature,\1133\ we
continue to believe that the specified sections of the technical report
summary will provide relevant and useful information to facilitate an
investor's understanding of a registrant's mineral resources, mineral
reserves, and material exploration results.
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\1131\ See Item 601(b)(96)(i) of Regulation S-K. As previously
discussed, see supra Section II.C.1.iii., each qualified person who
has prepared the technical report summary must sign and date the
technical report summary. If more than one qualified person has
prepared the technical report summary, the technical report summary
must clearly delineate the section or sections of the summary
prepared by each qualified person. See Item 1302(b)(1) of Regulation
S-K. The qualified person's signature must comply with 17 CFR
230.402(e) or 17 CFR 240.12b-11(d).
\1132\ See supra note 1075 and accompanying text.
\1133\ See supra note 1076 and accompanying text.
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[[Page 66412]]
While we are adopting the technical report summary requirements
largely as proposed,\1134\ in response to the concern of some
commenters \1135\ that the proposed technical report summary
requirement would impose an undue compliance burden on registrants, we
have made a number of changes in the required content of the technical
report summary. For example, the final rules clarify that the
information specified under the various sections of the technical
report summary is to be provided only to the extent that it is
material.\1136\ This clarification recognizes that, due to the
diversity of operations in the mining industry, some sections may
require little to no disclosure for certain registrants because those
sections are not material to an investor's understanding of their
particular mining operations.
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\1134\ 17 CFR 229.601(b)(96)(iii)(B) [Item 601(b)(96)(iii)(B) of
Regulation S-K], which is set forth in its entirety in Section VII,
below. A technical report summary that reports the results of a
preliminary or final feasibility study must include all of the
information specified in these sections. A technical report summary
that reports the results of an initial assessment or that reports
material exploration results could omit information required by
certain of these sections. See 17 CFR 229.601(b)(96)(iii)(A) [Item
601(b)(96)(iii)(A) of Regulation S-K].
\1135\ See, e.g., letters from Chamber and NSSGA.
\1136\ See Item 601(b)(96)(iii)(B) of Regulation S-K.
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Other revisions to the required content of the technical report
summary reflect changes to the proposed disclosure rules that have
already been discussed in some detail. We believe these changes will
help decrease the compliance burden of the technical report summary
requirement, relative to the proposed requirement. For example, the
final rules:
No longer require the technical report summary to
include a quantitative assessment of risk for resource
determination; \1137\
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\1137\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(v).
---------------------------------------------------------------------------
permit the qualified person to disclose mineral
resource estimates that include mineral reserves; \1138\
---------------------------------------------------------------------------
\1138\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(ii) [Item
601(b)(96)(iii)(B)(11)(ii) of Regulation S-K ]. The qualified person
must also disclose mineral resource estimates that exclude the
mineral reserves.
---------------------------------------------------------------------------
permit the qualified person to use any reasonable and
justifiable price when determining both mineral resource and reserve
estimates; \1139\
---------------------------------------------------------------------------
\1139\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(iii) [Item
601(b)(96) )(iii)(B)(11)(iii) of Regulation S-K]; and 17 CFR
229.601(b)(96)(iii)(B)(12)(iii) [Item 601(b)(96) )(iii)(B)(12)(iii)
of Regulation S-K ].
---------------------------------------------------------------------------
permit the qualified person to estimate both mineral
resources and mineral reserves at a single point of reference
selected by the qualified person; \1140\
---------------------------------------------------------------------------
\1140\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(i) [Item
601(b)(96)(iii)(B)(11)(i) of Regulation S-K]; and 17 CFR
229.601(b)(96)(iii)(B)(12)(i) [Item 601(b)(96)(iii)(B)(12)(i) of
Regulation S-K].
---------------------------------------------------------------------------
permit the qualified person to include inferred
resources in the technical report summary's economic analysis when
determining and disclosing mineral resource estimates; \1141\ and
---------------------------------------------------------------------------
\1141\ See 17 CFR 229.601(b)(96)(iii)(B)(19)(iv) [Item
601(b)(96)(iii)(B)(19)(iv) of Regulation S-K].
---------------------------------------------------------------------------
require the qualified person to provide information
describing the underlying property in which a royalty company
registrant holds an interest only to the extent known or reasonably
available.\1142\
---------------------------------------------------------------------------
\1142\ See 17 CFR 229.601(b)(96)(iii)(B)(3)(vii) [Item
601(b)(96)(iii)(B)(3)(vii) of Regulation S-K].
In addition, unlike the proposed rules, the final rules permit, but
do not require, a registrant to file a technical report summary to
support the disclosure of material exploration results.\1143\ We
believe that this elective treatment will also help limit the final
rules' compliance burden.
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\1143\ See Item 601(b)(96)(i) of Regulation S-K.
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In another change from the proposed rules, in response to comments
received,\1144\ the final rules do not require separate sections about
hydrogeology and geotechnical data, including testing and analysis. We
have instead included the requirements for hydrogeology and
geotechnical data, including testing and analysis, in the requirements
for exploration data.\1145\ Consistent with the views of some
commenters,\1146\ we continue to believe that disclosure regarding
these two items, to the extent that they are material, is important and
will benefit investors. Hydrogeology and geotechnical data are the
basis for determining several design parameters that directly affect
the safety of the designed mine. Moreover, these design parameters can
affect the operating and capital costs and can, therefore, directly
affect the economics of the mine (i.e., the determination of reserves).
Detailed hydrogeology and geotechnical data will therefore provide
insight into the adequacy and appropriateness of the mine's design
parameters, which will allow investors and their advisors to evaluate
fully the disclosed economic viability of the mine. Nevertheless, by
moving the disclosure requirements for these two items in the section
regarding exploration data, we believe that it will be easier for
registrants to understand and comply with those requirements since they
will be placed within their proper context.
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\1144\ See supra notes 1097-1098 and accompanying text.
\1145\ 17 CFR 229.601(b)(96)(iii)(B)(7) [Item
601(b)(96)(iii)(B)(7) of Regulation S-K].
\1146\ See, e.g., letters from Midas and MMSA.
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In response to the commenter \1147\ who suggested that our
instructions to the required disclosure on ``processing and recovery
methods'' were vague because we used the term ``successfully'' to
qualify processing methods, plant designs, and other parameters that
have not yet been used in a commercial production of the valuable
product from the mineralization under consideration, we are adopting an
alternative provision.\1148\ This provision states that, if the
processing method, plant design or other parameters have never been
used to ``commercially'' extract the valuable product from such
mineralization, the qualified person must so state and provide a
justification for why he or she believes the approach will be
successful in this instance.\1149\ Similarly, an instruction provides
that, if the processing method, plant design, or other parameter has
never been used to ``commercially'' extract the valuable product from
such mineralization and is still under development, then no mineral
resources or reserves can be disclosed on the basis of that method,
design, or other parameter.\1150\ We are also clarifying, in response
to a commenter's concern,\1151\ that we consider a processing method or
plant design that has been demonstrated to be effective in a
demonstration or pilot plant to be adequate to meet the standard that
it is no longer ``under development.'' Such a processing method, plant
design, or other parameters resulting from the demonstration or pilot
plant can, therefore, be the basis for disclosure of mineral resources
or reserves.
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\1147\ See letter from Moats.
\1148\ This provision is similar, although not identical, to the
instruction suggested by another commenter. See letter from Newmont.
\1149\ 17 CFR 229.601(b)(96)(iii)(B)(14)(iv) [Item
601(b)(96)(iii)(B)(14)(iv) of Regulation S-K].
\1150\ Instruction 1 to 17 CFR 229.601(b)(96)(iii)(B)(14) [Item
601(b)(96)(iii)(B)(14) of Regulation S-K].
\1151\ See letter from Amec.
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Consistent with comments received,\1152\ we are adopting final
rules, as proposed, that restrict the technical report summary from
including large amounts of technical or other project data, either in
the report or as appendices to the report.\1153\ In addition, the
qualified person must draft the summary to conform, to the extent
practicable, with the plain English principles set forth under the
Securities Act and Exchange Act.\1154\ These
[[Page 66413]]
requirements should help improve the readability of the technical
report summary for the benefit of investors, particularly for those who
lack a scientific background, but also for more sophisticated investors
who may be familiar with the mining industry but who are not geologists
or mining engineers. These requirements are consistent with similar
Canadian mining disclosure standards \1155\ and also with the
transparency principle under the CRIRSCO standards, which ``requires
that the reader of a Public Report is provided with sufficient
information, the presentation of which is clear and unambiguous, so as
to understand the report and not to be misled.'' \1156\
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\1152\ See supra note 1119 and accompanying text.
\1153\ 17 CFR 229.601(b)(96)(ii) [Item 601(b)(96)(ii) of
Regulation S-K].
\1154\ See id; see also Securities Act Rule 421 and Securities
Exchange Act Rule 13a-20.
\1155\ See Instruction 3 to Canada's Form 43-101F1.
\1156\ CRIRSCO International Reporting Template, supra note 20,
at cl. 3. Also as proposed, the final rules similarly require a
registrant, when providing either summary or individual property
disclosure: To use plain English principles, to the extent
practicable; to not include detailed illustrations and technical
reports, full feasibility studies, or other highly technical data,
but to furnish such reports and other material supplementally to the
staff upon request; and to provide an appropriate glossary if the
disclosure requires the use of technical terms relating to geology,
mining, or related matters, which cannot readily be found in
conventional dictionaries. See 17 CFR 229.1301(d). The first two
requirements are consistent with Securities Act Rule 421 and
Exchange Act Rule 13a-20. The third requirement is consistent with
current practice pursuant to Guide 7's guidance that an appropriate
glossary should be included in a Commission filing if technical
terms relating to geology, mining, or related matters, whose
definition cannot readily be found in conventional dictionaries, are
used. See paragraph (b)(6) of Guide 7.
---------------------------------------------------------------------------
While we acknowledge the concerns of those commenters \1157\ that
stated that we should use a different name, we continue to believe
``technical report summary'' more accurately reflects the disclosure we
are requiring. By using this name, we do not mean to imply that there
necessarily exists, in all cases, a single compilation of all the
technical information and documentation (a ``technical report'') from
which the qualified person will summarize the information and prepare
the technical report summary. However, we believe that, in all cases,
there will be such information and documentation (even if there is no
single compilation), which forms the basis of the qualified person's
(or persons') determination that there exist exploration results,
mineral resources, or mineral reserves. Because, in preparing the
technical report summary, the qualified person must summarize such
information, we believe the name is appropriate.
---------------------------------------------------------------------------
\1157\ See supra note 1095 and accompanying text.
---------------------------------------------------------------------------
We agree with those commenters that stated there is no need to
expand the technical report summary provision to require the qualified
person to describe in more detail the factors pertaining to
environmental compliance, permitting, and local individuals or groups,
which are related to the project. We do not believe it is necessary to
prescribe more specific requirements about those factors because they
are already required to be considered and disclosed by the qualified
person as a technical or modifying factor.\1158\ As is current industry
practice, the final rules require the qualified person to describe all
relevant factors pertaining to environmental compliance, permitting,
and local individuals or groups, which are material to establishing
reasonable prospects of economic extraction for mineral resources and
economic viability for mineral reserves.\1159\ The final rules require
the technical report summary to include, among other matters: The
results of environmental studies, such as environmental baseline
studies or impact assessments; requirements and plans for waste and
tailings disposal; project permitting requirements; plans,
negotiations, and agreements with local individuals or groups; and mine
closure plans, including remediation and reclamation plans, and the
associated costs.\1160\ The technical report summary must also include
the qualified person's opinion on the adequacy of current plans to
address any issues related to environmental compliance, permitting, and
local individuals or groups. We believe the scope of these technical
report summary requirements is sufficient to address the environmental
and sustainability issues of concern to investors. We also agree with
those commenters that stated that requiring additional disclosure on
these issues in a registrant's technical report summary would be overly
prescriptive and could duplicate disclosure that the registrant may
provide in its corporate social responsibility report.\1161\
---------------------------------------------------------------------------
\1158\ See supra note 1104 and accompanying text.
\1159\ See Item 601(b)(96)(iii)(B)(17) of Regulation S-K.
\1160\ See id.
\1161\ See, e.g., letter from CRIRSCO.
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As proposed, the adopted rules require the qualified person to
provide the results of the economic analysis in the technical report
summary, which is filed as an exhibit to the registrant's
disclosure.\1162\ This further aligns our rules with the transparency
principle underlying the CRIRSCO-based codes by requiring public
disclosure of the underlying technical and economic analysis that is
the basis for a disclosure of mineral resources or reserves. We note
that Canada's NI 43-101 and Australia's JORC require disclosure of
investment decision criteria such as net present value (NPV) and
internal rate of return (IRR) to support the disclosure of mineral
resources and reserves.\1163\ Therefore, we believe this requirement
should not impose an unduly high compliance burden, especially for
those US registrants that are dual-listed in Canada or Australia.
---------------------------------------------------------------------------
\1162\ 17 CFR 229.601(b)(96)(iii)(B)(19) [Item
601(b)(96)(iii)(B)(19) of Regulation S-K].
\1163\ See, e.g., Canada's NI 43-101 F1, Item 22 (requesting the
qualified person to ``[p]rovide an economic analysis that includes .
. . (c) a discussion of net present value (NPV), internal rate of
return (IRR), and payback period of capital with imputed or actual
interest''). See also JORC Code, supra note 175, Table 1, Section 4
(requesting ``[t]he inputs to the economic analysis to produce the
net present value (NPV) in the study, the source and confidence of
these economic inputs including estimated inflation, discount rate,
etc. NPV ranges and sensitivity to variations in the significant
assumptions and inputs'').
---------------------------------------------------------------------------
The final rules do not provide exemptions for any particular class
of registrants because we believe investors in all registrants with
material mining operations will benefit from the requirement to file a
technical report summary. This is generally consistent with the
approach taken in those CRIRSCO-based jurisdictions that require
disclosure of technical report summaries.\1164\ Although some
commenters requested that we permit producing registrants to omit cash
flow forecasts under certain circumstances,\1165\ we decline to do so
because we believe that such an exemption could result in the omission
of material information, to the detriment of investors. Cash flow
forecasts are essential to establishing whether portions of indicated
and measured mineral resources can be mined economically (at a profit)
and, thus, meet the definition of a mineral reserve. Without this
information, investors will have no basis to know the level of
confidence to associate with any mineral reserve determination,
especially since registrants, through management, choose what economic
criteria to apply to make the determination that the mining is
economic.
---------------------------------------------------------------------------
\1164\ For example, Canada's NI 43-101 and JORC provide no
exemptions from the requirement to provide technical report
summaries to support mining property disclosures. We also note that
Canadian registrants are subject to a broader technical report
summary requirement in NI 43-101, which requires all material
properties to have a technical report regardless of whether the
registrant is disclosing mineral resources and reserves or not.
\1165\ See supra note 1118 and accompanying text.
---------------------------------------------------------------------------
For similar reasons, we decline to exempt registrants from
disclosing the qualified person's price assumption
[[Page 66414]]
used to determine whether portions of indicated and measured mineral
resources can be mined economically, in the technical report summary.
We note that CRIRSCO-based codes also consider the price assumption to
be a material assumption that the registrant must disclose in the
supporting documentation.\1166\
---------------------------------------------------------------------------
\1166\ For example, both CRIRSCO Table 1 and JORC Table 1
require disclosure of the price for mineral reserve disclosure under
``revenue factors.''
---------------------------------------------------------------------------
We also are not exempting registrants in the industrial minerals or
aggregates industry from the technical report summary requirements, as
requested by some commenters.\1167\ We note that industrial minerals or
aggregates registrants are much less likely to ever have to provide
technical report summaries since most have no individually material
mining properties. If such a registrant has individually material
properties, then we believe it is appropriate to provide a technical
report summary as any disclosure of mineral resources and reserves on
those properties will likely be material to investors. Also, since
industrial minerals and aggregates registrants go through the same
scientific and engineering analysis to estimate mineral resources and
reserves, they should already generate much of the information we are
requesting in the technical report summaries.
---------------------------------------------------------------------------
\1167\ See letters from Alliance and NSSGA.
---------------------------------------------------------------------------
The final rules also do not incorporate by reference or otherwise
adopt on a going forward basis the technical report requirements in
Canada's NI 43-101,\1168\ JORC,\1169\ or the SME Guide,\1170\ as
suggested by some commenters. As previously mentioned, we believe that
doing so would effectively bind the Commission's rules to current and
future iterations and interpretations of these requirements, over which
the Commission would have little to no control or influence.\1171\
---------------------------------------------------------------------------
\1168\ See supra note 1085 and accompanying text.
\1169\ See supra note 1087 and accompanying text.
\1170\ See letter from NMA 2 and SME 3.
\1171\ See supra Section II.C.2.
---------------------------------------------------------------------------
We also are not adopting a ``reciprocal recognition'' approach that
would allow non-U.S. foreign issuers to file their home country
(CRIRSCO-based) reports in satisfaction of the Commission's rules, as
suggested by some commenters.\1172\ We do not believe a reciprocal
recognition approach is appropriate because, although we have more
closely aligned our technical report summary requirements with the
CRIRSCO standards and, in particular, with the Canadian technical
report requirements, there are nevertheless important differences, such
as the final rules' prohibition against disclaimers of liability for
information provided by the qualified person based on the work of a
third-party specialist who the qualified person has hired.\1173\ We
believe these differences provide meaningful protection for investors.
---------------------------------------------------------------------------
\1172\ See, e.g., letters from Dorsey & Whitney and PDAC.
\1173\ Other differences include the final rules' requirement
that a registrant disclose resource estimates exclusive of reserves
and the inclusion of mineral brines in the definition of mineral
resources.
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4. Requirements for Internal Controls Disclosure
i. Rule Proposal
We proposed to require that a registrant describe the internal
controls \1174\ that it uses in its exploration and mineral resource
and reserve estimation efforts. As proposed, such disclosure should
address quality control and quality assurance programs, verification of
analytical procedures, and comprehensive risk inherent in the
estimation.\1175\ We proposed an instruction stating that a registrant
must provide the required internal controls disclosure whether it is
providing summary disclosure under proposed Item 1303, individual
property disclosure under proposed Item 1304, or under both
items.\1176\
---------------------------------------------------------------------------
\1174\ Internal controls in this context refers to the internal
controls used to ensure reliable disclosure of exploration results
and estimation of mineral resources and mineral reserves. It is not
to be confused with internal control over financial reporting. In
this regard, the Commission's disclosure requirements for
registrants engaged in oil and gas producing activities require
similar disclosure of internal controls over estimation efforts. See
17 CFR 229.1202(a)(7) [Item 1202(a)(7) of Regulation S-K].
\1175\ See Proposing Release, supra note 5, at Section II.G.4.
\1176\ See id.
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ii. Comments on the Rule Proposal
Most commenters that addressed the issue supported the proposal to
require registrants to describe the internal controls that they use to
help ensure the reliability of their disclosure of exploration results
and estimates of mineral resources and mineral reserves.\1177\ One
commenter, however, opposed such a requirement, other than for mineral
reserve estimates, indicating that this information should already be
included as part of management's discussion of internal controls over
financial reporting. According to that commenter, anything beyond that
would create a significant burden on registrants and greatly outweigh
any marginal benefit to investors.\1178\ A second commenter opposed an
internal controls disclosure requirement as part of the Commission's
revised mining property disclosure rules on the grounds that there
should be a global alignment of minimum reporting requirements for
mining registrants. According to that commenter, the proposed internal
controls disclosure requirement would impose a greater disclosure
requirement on registrants reporting under a CRIRSCO-based code, such
as JORC or SAMREC.\1179\
---------------------------------------------------------------------------
\1177\ See, e.g., letters from AngloGold, CBRR, Eggleston, Midas
and Rio Tinto.
\1178\ See letter from Alliance.
\1179\ See letter from Randgold.
---------------------------------------------------------------------------
One commenter suggested a more detailed framework for the
disclosure of internal controls. This framework addressed the
accountability of management in the assessment of exploration results
and estimates of mineral resources and mineral reserves, the assessment
of internal controls over the reporting of exploration results and
estimates of mineral resources and reserves, and changes in internal
controls over the reporting of exploration results and estimates of
mineral resources and reserves.\1180\
---------------------------------------------------------------------------
\1180\ See letter from AngloGold.
---------------------------------------------------------------------------
Another commenter stated that it is common industry practice to
have QA/QC programs when undertaking mineral exploration.\1181\
According to the commenter, however, the Commission's proposed internal
control provision may have inappropriately included internal controls
for corporate governance purposes. That commenter therefore requested
that the Commission provide clear instructions regarding how the mining
industry can achieve the objective of the internal controls
requirement.\1182\
---------------------------------------------------------------------------
\1181\ See letter from Amec.
\1182\ See id.
---------------------------------------------------------------------------
iii. Final Rules
We are adopting rules that, as proposed, require a registrant to
describe the internal controls that it uses in its exploration and
mineral resource and reserve estimation efforts, as proposed.\1183\ The
final rules specify that such disclosure should address quality control
and quality assurance programs, verification of analytical procedures,
and comprehensive risk inherent in the estimation.\1184\ We
[[Page 66415]]
continue to believe that such internal controls disclosure would be
beneficial to investors as it would help them evaluate whether the
registrant has established acceptable levels of certainty and precision
during exploration and whether and how it has verified and validated
the quality of the data used in its analyses. This requirement is
consistent with disclosure requirements in most foreign mining
jurisdictions. The CRIRSCO-based codes require the disclosure of
quality control and quality assurance procedures as they relate to
exploration results (data) and techniques and assumptions (analysis)
used for mineral resource and reserve estimation.\1185\ In addition,
the listing rules of some of these jurisdictions specifically call for
disclosure of the internal controls relating to estimates of mineral
resources and reserves.\1186\
---------------------------------------------------------------------------
\1183\ 17 CFR 229.1305(a) [Item 1305(a) of Regulation S-K].
\1184\ See id. In this regard we are not adopting the detailed
internal controls disclosure framework suggested by one commenter.
See letter from AngloGold. While we recognize that some registrants
may find it useful to model their internal controls disclosure along
the lines suggested by this commenter, other registrants may
reasonably conclude that a different or more abbreviated format is
suitable for their mining operations.
\1185\ See, e.g., JORC Code, supra note 175, Table 1; Canada's
NI 43-101, supra note 123, at pt. 3.3; SAMREC Code, supra note 267,
Table 1, at pt. 3.6. The SME Petition also recognized the need for
and importance of appropriate internal and disclosure controls in
the estimation of mineral reserves. See SME Petition for Rulemaking,
supra note 6, at 17.
\1186\ See, e.g., ASX Listing Rule 5.21.5 (requiring registrants
to disclose ``[a] summary of the governance arrangements and
internal controls that the mining entity has put in place with
respect to its estimates of mineral resources and ore reserves and
the estimation process'').
---------------------------------------------------------------------------
Although not called for by Guide 7, some registrants provide
disclosure about their internal controls, including quality control and
quality assurance measures, which they have put in place to help ensure
the reliability of their disclosure of exploration results and
estimates of mineral resources and mineral reserves. The staff has also
requested, on a case by case basis, that registrants provide a brief
description of the quality control and quality assurance protocols for
sample preparation, controls, custody, assay precision and accuracy as
they relate to exploration programs. This current practice reinforces
our belief that requiring internal controls disclosure by registrants
regarding their exploration results and mineral resource and reserve
estimates is appropriate and should not impose an undue burden.
Another provision states that a registrant must provide the
required internal controls disclosure whether it is providing summary
disclosure under Item 1303, individual property disclosure under Item
1304, or under both items.\1187\ Estimating mineral resources and
reserves requires use of statistical techniques to estimate tonnages
and grades based on data derived from laboratory analysis of
representative samples. In any such scientific study, best practice
requires the analyst to disclose the quality control and quality
assurance techniques employed to ensure the data used in the analysis
is reliable.\1188\ We believe this same practice should apply when
preparing and analyzing data for the purpose of individually material
property disclosure as well as disclosure regarding properties that are
only material in the aggregate. We also believe an internal controls
disclosure requirement is particularly important for a company with
multiple properties to ensure that best practice is followed across all
properties.
---------------------------------------------------------------------------
\1187\ See 17 CFR 229.1305(b) [Item 1305(b) of Regulation S-K].
\1188\ See S. C. Kazmierczak, Laboratory Quality Control: Using
Patient Data to Assess Analytical Performance, Clinical Chemistry
and Laboratory Medicine 617-627 (2003); see generally M. J. Chandra,
Statistical Quality Control (2001).
---------------------------------------------------------------------------
In response to commenters,\1189\ we are clarifying that Item 1305
requires disclosure of internal controls that the registrant has put in
place to ensure that its exploration results and mineral resource and
reserve estimates on its mining properties are reliable, and not for
any other purpose. Given the similarity between our mining property
internal controls requirement and those of other mining jurisdictions,
our requirement should not significantly alter the disclosure practices
of those registrants that are listed in these jurisdictions. For
registrants that are not currently subject to an internal controls
disclosure requirement, and for which providing such disclosure has not
become current practice, we believe investors will benefit from such
disclosure, though we recognize that registrants will incur additional
costs.
---------------------------------------------------------------------------
\1189\ See letters by FCX and Amec.
---------------------------------------------------------------------------
H. Conforming Changes to Certain Forms Not Subject to Regulation S-K
1. Form 20-F
i. Rule Proposal
Foreign private issuers \1190\ use Form 20-F \1191\ as a
registration statement under Section 12 of the Exchange Act \1192\ or
as an annual or transition report filed under Section 13(a) \1193\ or
15(d) of the Exchange Act.\1194\ Form 20-F also provides much of the
substantive disclosure requirements for foreign private issuers filing
Securities Act registration statements on Forms F-1,\1195\ F-3 \1196\
and F-4.\1197\
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\1190\ A foreign private issuer is any foreign issuer other than
a foreign government, except for an issuer that has more than 50% of
its outstanding voting securities held of record by U.S. residents,
and regarding which any of the following is true: A majority of its
officers and directors are citizens or residents of the United
States, more than 50 percent of its assets are located in the United
States, or its business is principally administered in the United
States. See Securities Act Rule 405 and 17 CFR 240.3b-4(c) [Exchange
Act Rule 3b-4(c)].
\1191\ 17 CFR 249.220f.
\1192\ 15 U.S.C. 78l.
\1193\ 15 U.S.C. 78m(a).
\1194\ 15 U.S.C. 78o(d).
\1195\ 17 CFR 239.31.
\1196\ 17 CFR 239.33.
\1197\ 17 CFR 239.34.
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The Commission revised Form 20-F in 1999 to conform its disclosure
requirements to the international disclosure standards endorsed by the
International Organization of Securities Commissions (``IOSCO'') in
September 1998.\1198\ As a result, Form 20-F, rather than Regulation S-
K, provides the primary non-financial disclosure requirements for
foreign private issuers under the Securities Act and the Exchange Act.
For example, Item 4.D of Form 20-F sets forth the disclosure
requirements for a foreign private issuer's property \1199\ rather than
Item 102 of Regulation S-K. An instruction to Item 4 directs the
registrant to ``[f]urnish the information specified in any industry
guide listed in subpart 229.800 of Regulation S-K.'' \1200\ Thus, like
domestic registrants, foreign private issuers currently provide the
disclosures set forth in Guide 7.
---------------------------------------------------------------------------
\1198\ See Securities Act Release No. 33-7745 (September 28,
1999) [64 FR 53900].
\1199\ Form 20-F Item 4.D provides that the registrant must
provide information regarding any material tangible fixed assets,
including leased properties, and any major encumbrances thereon,
including a description of the size and uses of the property;
productive capacity and extent of utilization of the company's
facilities; how the assets are held; the products produced; and the
location. The registrant must also describe any environmental issues
that may affect the company's utilization of the assets. With regard
to any material plans to construct, expand or improve facilities,
the registrant must describe the nature of and reason for the plan,
an estimate of the amount of expenditures including the amount of
expenditures already paid, a description of the method of financing
the activity, the estimated dates of start and completion of the
activity, and the increase of production capacity anticipated after
completion.
\1200\ Instruction 1 to Item 4 of Form 20-F.
---------------------------------------------------------------------------
Because of our belief that the Commission's mining property
disclosure rules should continue to apply to both foreign private
issuers and domestic registrants, we proposed to amend Form 20-F by
adding an instruction to Item 4 that issuers engaged in mining
operations must refer to and, if required, provide the disclosure under
subpart 1300 of Regulation S-K.\1201\ We further proposed to remove in
their entirety the current instructions to Item 4.D of Form 20-F,
which, among other matters, limit
[[Page 66416]]
the disclosure of estimates to proven and probable reserves.\1202\
---------------------------------------------------------------------------
\1201\ See Proposing Release, supra note 5, at Section II.H.1.
\1202\ These instructions provide, among other matters, that, in
the case of an extractive enterprise, other than an oil and gas
producing activity, the issuer must provide material information
about production, reserves, locations, developments and the nature
of its interest. If individual properties are of major significance,
the issuer must provide more detailed information about those
properties and use maps to disclose information about their
location. These instructions further provide that, in documents
filed publicly with the Commission, the issuer must not disclose
estimates of reserves unless the reserves are proven or probable and
must not give estimated values of those reserves, unless foreign or
state law requires the issuer to disclose the information. See
Instruction 1 to Item 4.D of Form 20-F.
---------------------------------------------------------------------------
In addition, we proposed to add an instruction to the exhibits
section of Form 20-F stating that a registrant that is required to file
a technical report summary pursuant to Item 1302(b)(2) of Regulation S-
K must provide the information specified in Item 601(b)(96) of
Regulation S-K as an exhibit to its registration statement or annual
report on Form 20-F.\1203\
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\1203\ See Proposing Release, Section II.H.1. Because Forms F-1,
F-3, and F-4 are already subject to the exhibit requirements of Item
601 of Regulation S-K, registrants using those forms that meet the
requirements of proposed Item 1302(b)(2) would be required to file a
technical report summary as an exhibit pursuant to proposed Item
601(b)(96).
---------------------------------------------------------------------------
As previously mentioned, we proposed to eliminate the ``foreign or
state law'' exception under Item 102 and Guide 7 whereby Canadian
registrants that report pursuant to Form 20-F and file registration
statements on Forms F-1, F-3, and F-4 are currently permitted to
provide mining disclosure that meets the requirements of Canada's NI
43-101.\1204\ Thus, as proposed, the sole group of Canadian registrants
that could continue to report pursuant to Canadian disclosure
requirements following adoption of the revised mining disclosure rules
would be those Canadian issuers that report pursuant to the
Multijurisdictional Disclosure System (``MJDS'').\1205\
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\1204\ See supra Section II.E.1.
\1205\ The MJDS permits seasoned Canadian issuers meeting
certain other requirements to use their Canadian disclosure
documents when filing their Exchange Act registration statements and
annual reports on Form 40-F or their Securities Act registration
statements on Forms F-10, F-7, F-8 and F-80.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Commenters that addressed the issue supported the Commission's
proposal to amend Form 20-F to conform it to the disclosure
requirements of proposed subpart 1300 and proposed Item 601(b)(96) of
Regulation S-K so that foreign private issuers that use or refer to
Form 20-F for their Commission filings would be subject to the same
mining disclosure requirements as domestic mining registrants.\1206\
One commenter also approved of the proposal to preclude Canadian
issuers, other than MJDS issuers, from providing reports pursuant to
Canada's NI 43-101 in order to ensure comparability of reporting under
the proposed rules.\1207\
---------------------------------------------------------------------------
\1206\ See letters from Alliance, Amec, AngloGold, CBRR,
Eggleston, Midas, Rio Tinto, SAMCODES 2, and SRK 1.
\1207\ See letter from CBRR.
---------------------------------------------------------------------------
Numerous commenters, however, recommended permitting Canadian
registrants, including those that do not qualify for the MJDS, to
continue providing mining disclosure that meets the requirements of
Canada's NI 43-101.\1208\ As one commenter explained, ``the Foreign Law
Exception should remain in place for Canadian foreign private issuers
of all sizes as a recognition of the sufficiency of NI 43-101 for the
protection of investors and the burdens of dual compliance for Canadian
20-F Filers.'' \1209\
---------------------------------------------------------------------------
\1208\ See letters from Amec, AngloGold, Dorsey & Whitney,
Eggleston, Midas, SAMCODES 2, SME 1, SRK 1, and Troutman Sanders.
\1209\ Letter from Troutman Sanders.
---------------------------------------------------------------------------
Some commenters recommended allowing non-Canadian issuers to file
the disclosure documents produced under their home country listing
requirements as long as those requirements met CRIRSCO standards, such
as JORC or SAMREC.\1210\ Some commenters stated that not permitting
these issuers to file their CRIRSCO-based disclosure documents would be
burdensome particularly if the Commission adopted the mining property
disclosure requirements as proposed.\1211\
---------------------------------------------------------------------------
\1210\ See letters from AngloGold, Midas, and Rio Tinto.
\1211\ See, e.g., letters from Eggleston, Energy Fuels, and SME
1.
---------------------------------------------------------------------------
iii. Final Rules
We are adopting the proposed revisions to Form 20-F so that foreign
private issuers that use Form 20-F to file their Exchange Act annual
reports and registration statements, or that refer to Form 20-F for
their Securities Act registration statements on Forms F-1, F-3, and F-
4, will have to comply with the mining disclosure requirements of new
subpart 1300 of Regulation S-K and the technical report summary
requirements in Item 601(b)(96), as applicable. We continue to believe
that, with the exception of MJDS registrants, foreign private issuers
with material mining operations should be subject to the same mining
property disclosure requirements as domestic registrants. This
treatment will protect investors, who require information about the
material mining operations of foreign registrants just as much as those
of domestic registrants, and facilitate the comparison of mining
property disclosure among most registrants.
The final rules do not permit Canadian registrants that are not
MJDS-eligible to continue to provide disclosure that meets the
requirements of Canada's NI 43-101, nor do they permit non-Canadian
registrants to file disclosure documents that meet the requirements of
another CRIRSCO-based code to satisfy their U.S. reporting obligations,
as recommended by some commenters. Commenters that made these
recommendations were concerned about the significant differences
between the CRIRSCO standards and the proposed rules, and the
correspondingly significant compliance burden that a dual-listed
registrant would incur if the Commission adopted those rules as
proposed.\1212\ The final rules eliminate many of these differences,
and are less prescriptive than the proposed rules in several
respects.\1213\ For example, the final rules permit the registrant and
its qualified person to use any reasonable and justifiable price when
determining and disclosing estimates of mineral resources or mineral
reserves. The final rules also permit a qualified person to prepare a
pre-feasibility study for reserve determination, even in high risk
situations, without being required to justify its use instead of a
final feasibility study. We believe that these changes to the proposed
rules, together with many others that we are adopting, will
significantly limit the incremental burden of the final rules for dual-
listed issuers, and in particular for Canadian registrants.
Furthermore, although most of the technical report summary requirements
are based on the Canadian NI 43-101F1, there nevertheless are important
differences between the Canadian technical report requirements and the
final rules, such as the final rules' general prohibition against using
disclaimers of liability. For these reasons, we do not believe it is
necessary or appropriate to continue to permit Canadian issuers to
prepare and submit their Commission filings in accordance with Canada's
NI 43-101 under the ``foreign or state law'' exception or otherwise.
---------------------------------------------------------------------------
\1212\ See, e.g., letters from Dorsey & Whitney, SME 1, and
Troutman Sanders.
\1213\ See supra Section I.B. for a summary of the principal
changes to the proposed rules.
---------------------------------------------------------------------------
We are not requiring MJDS registrants to comply with new subpart
1300 because, as we explained in the Proposing Release,\1214\ the
ability of
[[Page 66417]]
those registrants to use their Canadian disclosure documents for
purposes of their Exchange Act and Securities Act filings is based on
their eligibility to file under the MJDS, and not on the ``foreign or
state law'' exception under Guide 7 and Item 102. At least one
commenter expressly approved of the Commission's proposal to permit
MJDS filers to continue to meet their mining property disclosure
obligations pursuant to Canada's NI 43-101.\1215\
---------------------------------------------------------------------------
\1214\ See Proposing Release, supra note 5, at Section II.H.1.
\1215\ See letter from Dorsey & Whitney.
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2. Form 1-A
i. Rule Proposal
Regulation A provides an exemption from the registration
requirements of the Securities Act for certain securities offerings
that satisfy specified conditions, such as filing an offering statement
with the Commission,\1216\ limiting the dollar amount of the offering
\1217\ and, in certain instances, filing ongoing reports with the
Commission.\1218\ Form 1-A is the offering statement used by issuers
that are eligible to engage in securities offerings under Regulation
A.\1219\
---------------------------------------------------------------------------
\1216\ See 17 CFR 230.251(d) [Securities Act Rule 251(d)].
\1217\ See 17 CFR 230.251(a) [Securities Act Rule 251(a)].
\1218\ See 17 CFR 230.257 [Securities Act Rule 257].
\1219\ 17 CFR 230.251-230.263.
---------------------------------------------------------------------------
When the Commission amended Regulation A in 2015,\1220\ it updated
Item 7 of Part II of Form 1-A concerning the required ``Description of
Business'' disclosure by adding a provision stating that the disclosure
guidelines in all Securities Act Industry Guides must be followed. The
provision also stated that, to the extent that the industry guides are
codified into Regulation S-K, the Regulation S-K industry disclosure
items must be followed.\1221\
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\1220\ See Securities Act Release No. 33-9741 (March 25, 2015)
[80 FR 21806] (``Regulation A Adopting Release'').
\1221\ See Form 1-A, Part II, Item 7(c).
---------------------------------------------------------------------------
Because this provision, however, only appears in Item 7(c) of Part
II, which governs ``business'' disclosure, we proposed to amend Part II
of Form 1-A to apply the scope of the requirement to the description of
property for certain issuers by adding similar language under Item 8 of
Part II to Form 1-A.\1222\ Specifically, in order to require the Form
1-A property disclosure requirements to include the mining disclosure
provisions under proposed subpart 1300 of Regulation S-K, we proposed
to add a provision stating that issuers engaged in mining operations
must refer to and, if required, provide the disclosure under subpart
1300 of Regulation S-K in addition to any disclosure required by Item
8.
---------------------------------------------------------------------------
\1222\ See Proposing Release, supra note 5, at Section II.H.2.
See also Item 8 of Part II to Form 1-A (Description of Property)
(requiring that an issuer: ``[s]tate briefly the location and
general character of any principal plants or other material physical
properties of the issuer and its subsidiaries. If any such property
is not held in fee or is held subject to any major encumbrance, so
state and briefly describe how held. Include information regarding
the suitability, adequacy, productive capacity and extent of
utilization of the properties and facilities used in the issuer's
business''). We proposed to designate this current provision as
paragraph (a) of Item 8.
---------------------------------------------------------------------------
We also proposed to amend the instruction to Item 8, which
currently provides that ``[d]etailed descriptions of the physical
characteristics of individual properties or legal descriptions by metes
and bounds are not required and should not be given.'' Because much of
the disclosure under proposed subpart 1300 would require detailed
descriptions of mining properties, we proposed to amend this
instruction by excepting from its scope the disclosure required under
the proposed rules, as referenced in paragraph (b) of Item 8.
In order to require Regulation A issuers engaged in mining
operations to be subject to the new subpart's technical report summary
filing requirement, we proposed to amend Item 17 (Description of
Exhibits) of Part III under Form 1-A by adding a provision stating that
an issuer that is required to file a technical report summary pursuant
to Item 1302(b)(2) of Regulation S-K must provide the information
specified in Item 601(b)(96) of Regulation S-K as an exhibit to its
Form 1-A.\1223\
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\1223\ See Proposing Release, supra note 5, at Section II.H.2.
---------------------------------------------------------------------------
ii. Comments on the Rule Proposal
Several commenters addressed the Commission's proposal to amend
Form 1-A to conform it to the disclosure requirements of proposed
subpart 1300 and proposed Item 601(b)(96) of Regulation S-K so that
Regulation A issuers engaged in mining operations would be subject to
the same disclosure requirements as other issuers with mining
operations.\1224\ One commenter stated that because Form 1-A filers are
subject to the property disclosures outlined in Guide 7, it would be
appropriate to subject them to the new mining property disclosure
requirements.\1225\ Another commenter supported including Form 1-A
filers within the scope of the new rules in order to align the mining
property disclosure standards regardless of the type of
registrant.\1226\ The other commenters supported the proposal without
explanation.\1227\ No commenter opposed including Regulation A issuers
within the scope of the new rules.
---------------------------------------------------------------------------
\1224\ See letters from Alliance, AngloGold, CBRR, Midas, Rio
Tinto, and SRK 1.
\1225\ See letter from Alliance.
\1226\ See letter from Rio Tinto.
\1227\ See letters from AngloGold, CBRR, Midas, and SRK 1. One
other commenter stated that he had no comment regarding the
proposal. See letter from Eggleston.
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iii. Final Rules
We are adopting the proposed revisions to Form 1-A to require
Regulation A issuers with material mining operations to comply with all
of the disclosure requirements in subpart 1300 of Regulation S-K as
well as the technical report summary requirements in Item 601(b)(96),
as applicable. We continue to believe that investors in Regulation A
offerings by issuers with material mining operations require the same
information about those operations as investors in registered
offerings. This treatment will also facilitate a comparison of mining
property disclosure among issuers regardless of the type of issuer.
I. Transition Period and Compliance Date
Several commenters requested that the Commission provide a
transition period in order to give registrants ample time to prepare
their Commission filings in compliance with the new mining property
disclosure regime.\1228\ Several commenters recommended that the
Commission provide a two-year transition period before the new regime
would become mandatory.\1229\ Other commenters recommended a three-year
transition period.\1230\ Commenters justified the need for a transition
period based on the extensive changes to the current disclosure
framework under Guide 7 \1231\ and because some registrants may not be
subject to similar disclosure requirements under the CRIRSCO-based
codes.\1232\ One of the commenters suggested that the Commission should
permit registrants to comply earlier on a voluntary basis.\1233\
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\1228\ The Proposing Release did not specify a particular
compliance date for the proposed rules.
\1229\ See letters from Cleary & Gottlieb, FCX, SME 1, and Vale.
\1230\ See letters from Davis Polk and NMA 1.
\1231\ See letter from Vale.
\1232\ See, e.g., letter from Davis Polk.
\1233\ See id.
---------------------------------------------------------------------------
Although we have made numerous changes to the proposed rules that
will more closely align our mining property disclosure regime with the
CRIRSCO standards, we are persuaded by commenters that adoption of an
appropriate transition period would
[[Page 66418]]
help to ease the burden of complying with the final rules. We are
therefore adopting a two-year transition period so that a registrant
will not be required to comply with the new rules until the first
fiscal year beginning on or after January 1, 2021. Thus, for a calendar
year-end company, a registrant will be required to comply with the
final rules when filing Securities Act and Exchange Act registration
statements on or after this date and when filing its Form 10-K or Form
20-F annual report for the fiscal year ended December 31, 2021.
We believe this transition period will provide ample time for
mining registrants that are not familiar with the CRIRSCO standards to
comply with the new rules. If any registrant not subject to the CRIRSCO
standards finds that it faces unique challenges meeting the new
disclosure requirements, we encourage such registrant to contact the
staff.
The transition period also will help registrants that are currently
subject to one or more of the CRIRSCO-based codes to comply with the
few requirements under subpart 1300 that differ from the CRIRSCO
standards (e.g., the general prohibition against using disclaimers of
liability). At the same time, we do not believe this transition period
will significantly delay the benefits of the final rules for investors.
A registrant may decide that it would like to take advantage of the
final rules (e.g., by disclosing mineral resources in a Commission
filing) prior to the completion of the transition period. Once the
Commission has completed EDGAR reprogramming made necessary by the
final rules, we will permit registrants to comply with the new mining
property disclosure rules prior to the compliance date as long as they
abide by all of subpart 1300's requirements.\1234\ Until then,
registrants should continue looking to Guide 7 for their mining
property disclosures. Guide 7 will remain effective until all
registrants are required to comply with the final rules, at which time
Guide 7 will be rescinded.
---------------------------------------------------------------------------
\1234\ Notice of EDGAR system readiness will be provided in a
manner similar to notices of EDGAR Filer Manual updates.
---------------------------------------------------------------------------
III. Other Matters
If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
IV. Economic Analysis
We are adopting amendments to modernize the property disclosure
requirements for mining registrants, and related guidance, currently
set forth in Item 102 of Regulation S-K and in Industry Guide 7. The
discussion below addresses the economic effects of the final rules,
including the likely costs and benefits of those rules, as well as the
likely effect of the final rules on efficiency, competition, and
capital formation.
We are mindful of the costs imposed by, and the benefits obtained
from, the rules we adopt. Securities Act Section 2(b) and Exchange Act
Section 3(f) require us, when engaging in rulemaking that requires us
to consider or determine whether an action is necessary or appropriate
in the public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.\1235\ Exchange Act Section 23(a)(2) requires us,
when adopting rules under the Exchange Act, to consider the impact that
any new rule would have on competition and to not adopt any rule that
would impose a burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\1236\
We have considered the likely costs and benefits that will result from
the final rules, as well as the potential effects on efficiency,
competition, and capital formation.
---------------------------------------------------------------------------
\1235\ 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
\1236\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
We also have analyzed the potential benefits and costs of
reasonable alternatives to the final rules. The alternatives we
consider below represent different approaches to achieving the goal of
modernizing the Commission's mining property disclosure requirements
and policies. Given the goal of updating the existing regulatory
framework, we evaluate the potential costs and benefits of these
alternative approaches against the potential costs and benefits of the
final rules' disclosure requirements, rather than against the baseline.
The final rules are intended to modernize the Commission's mining
property disclosure requirements by providing investors with a more
comprehensive and accurate understanding of a registrant's mining
properties, all of which should help investors make more informed
investment decisions. This, in turn, will reduce the cost of capital
and enhance capital formation. As suggested by several
commenters,\1237\ the U.S. capital markets may be comparatively less
attractive to potential mining registrants due, in part, to the
Commission's current disclosure regime, with some commenters \1238\
citing the comparatively low amount of capital among mining companies
in the U.S. markets. The final rules will also align more closely with
industry practices and standards as reflected in CRIRSCO-based
disclosure standards.
---------------------------------------------------------------------------
\1237\ See letters from Coeur, Midas Gold, NMA, SME 1, SRK 1,
and Ur-Energy.
\1238\ See letters from SRK 1 and Royal Gold.
---------------------------------------------------------------------------
A. Baseline
To assess the economic impact of the final rules, we consider, as
part of our baseline, the current disclosure requirements and policies
in Item 102 of Regulation S-K, Guide 7, Form 20-F, and Form 1-A, as
well as current market practices. We also consider the disclosure
standards of various CRIRSCO-based disclosure standards, because mining
registrants compete in the international commodities and capital
markets, making international disclosure standards an important
benchmark for analysts and investors evaluating mining companies.
Furthermore, these standards are relevant to consider because, as
discussed above, many mining registrants are foreign private issuers or
U.S.-incorporated registrants with reporting obligations in foreign
jurisdictions. Thus, to the extent that the final rules align the
Commission's requirements with CRIRSCO-based disclosure standards, we
expect their economic impact to be less for these registrants.
1. Affected Parties
The final rules will primarily affect registrants with mining
activities that are subject to the mining disclosure requirements and
policies contained in Item 102 of Regulation S-K and in Guide 7. In
addition to U.S. registrants with mining operations that are required
to report under Regulation S-K in their annual reports and registration
statements, the final rules will affect foreign private issuers with
mining operations that file their Exchange Act annual reports and
registration statements using Form 20-F or that refer to Form 20-F for
certain of their disclosure obligations under Securities Act
registration statements filed on Forms F-1, F-3, and F-4. Moreover, the
affected registrants will include mining companies filing Form 1-A
offering statements under Regulation A. Investors, analysts, and other
users of
[[Page 66419]]
the information in annual reports, registration statements, and
offering statements filed with the Commission also will be affected by
the final rules. Finally, mining professionals, such as geologists and
mining engineers, who provide services to registrants related to
exploration and estimation of mineral resources and reserves will
potentially be affected due to the qualified person requirement and
related provisions.
To estimate the number of current registrants that will potentially
be affected by the final rules, we first identify those registrants as
of December 2017 that filed annual reports or relevant registration
statements at least once from January 2016 through December 2017. We
then identify registrants with mining primary Standard Industrial
Classification (``SIC'') codes.\1239\ We also identify those
registrants without mining primary SIC codes that provide disclosure
concerning their mining operations in their SEC filings pursuant to
Item 102 of Regulation S-K and Guide 7. Based on this approach, we
estimate that the total number of potentially affected registrants is
267 (46 of which are registrants that do not have mining primary SIC
codes), which includes one Regulation A issuer.
---------------------------------------------------------------------------
\1239\ Specifically, the mining SIC codes considered are 1000,
1011, 1021, 1031, 1040, 1041, 1044, 1061, 1081, 1090, 1094, 1099,
1220, 1221, 1222, 1231, 1400, 1422, 1423, 1429, 1442, 1446, 1455,
1459, 1474, 1475, 1479, 1481, 1499, 3330, 3334, and 6795.
---------------------------------------------------------------------------
Among these registrants, we anticipate that the final rules will
have a more significant effect on those mining registrants that are not
currently reporting consistent with CRIRSCO-based disclosure standards.
To estimate the number of registrants reporting consistent with
CRIRSCO-based disclosure standards, we identify those registrants
disclosing mining operations in jurisdictions using CRIRSCO-based codes
in addition to those U.S.-incorporated registrants that we can manually
verify are cross- or dual-listed, or otherwise reporting, in CRIRSCO
jurisdictions. Out of 267 registrants, we identify 107 registrants--70
foreign private issuers and 37 U.S. registrants--that are potentially
reporting mining operations according to CRIRSCO-based disclosure
standards. Accordingly, we estimate that there are 160 identified
registrants that report solely to the Commission and will therefore
potentially be more affected by the final rules than registrants that
currently report elsewhere according to CRIRSCO-based disclosure
standards.
Included among the 107 registrants that are potentially reporting
mining operations according to CRIRSCO-based disclosure standards are
85 registrants that are registered with one of the Canadian provincial
securities administrators and therefore subject to the disclosure
requirements of Canada's NI 43-101. Out of these registrants, 37 are
U.S. domestic registrants and 48 are foreign private issuers (mainly
companies incorporated in Canada). Among the 48 foreign private issuers
registered in Canada, 10 voluntarily file with the Commission using
domestic forms and 38 use the forms for foreign private issuers. As
discussed above, Canadian registrants are currently able to provide
disclosure in their Commission filings pursuant to NI 43-101, in
addition to the disclosure called for by Guide 7 or Form 20-F. A number
of the provisions in the final rules will more closely align our
disclosure requirements with those in NI 43-101. As such, we estimate
that the 38 Canadian registrants that are currently providing
disclosure pursuant to NI 43-101 in their filings with the Commission
will likely be the least affected by the final rules. In addition, we
expect the 47 domestic registrants and foreign private issuers filing
disclosures pursuant to NI 43-101 with Canadian securities
administrators will be less affected than the remaining 22 foreign
private issuers that are not Canadian registrants, but that are
potentially reporting mining operations according to CRIRSCO-based
disclosure standards.
Among the 22 foreign private issuers that are potentially reporting
mining operations according to CRIRSCO-based (but not Canadian)
disclosure standards are 14 companies listed in foreign jurisdictions
with CRIRSCO-based codes that require technical reports similar to our
final rule requirements.\1240\ The degree of similarity of foreign
jurisdictions' requirements to our final rule requirements should limit
the degree to which foreign private issuers experience any increases in
compliance costs. However, to the extent the requirements in these
jurisdictions are less closely aligned with Canada's NI 43-101F1
compared to the requirements for the technical report summary in the
final rules, we expect that these foreign private issuers will be
affected by the final rules more than Canadian registrants, as the
final rules are quite similar to Canadian disclosure requirements. On
the other hand, we expect these foreign private issuers to be affected
by the final rules less than foreign private issuers listed in other
non-Canadian jurisdictions that have adopted CRIRSCO-based standards,
but do not have requirements for technical reports, as these foreign
private issuers will be familiar with a technical report requirement.
---------------------------------------------------------------------------
\1240\ Among these companies are four companies listed in
Australia and reporting pursuant to JORC, six companies listed on
the London Stock Exchange and reporting pursuant to PERC, and six
companies listed in South Africa and reporting pursuant to SAMREC.
For a discussion of the requirements for technical reports in these
codes, see supra notes 1127 and 1130, and accompanying text.
---------------------------------------------------------------------------
As discussed above, we believe that some domestic mining
registrants are currently following certain of the CRIRSCO-based
disclosure standards, such as those relating to the determination of
mineral resources, for their own internal purposes, even if they are
not currently permitted to disclose mineral resources in their
Commission filings.\1241\ These registrants also will be less affected
by the final rules. Based on the comments received, it appears that
domestic registrants in the industrial minerals and aggregates sector
of the mining industry currently are least likely to follow CRIRSCO
standards, such as those relating to mineral resources.\1242\
Accordingly, we expect that registrants in the industrial minerals and
aggregates sector will be more affected on average by the final rules.
We estimate that 33 of the 267 registrants potentially affected by the
final rules operate in the industrial minerals/aggregates industry.
Five of those registrants may already be subject to the CRIRSCO
standards.
---------------------------------------------------------------------------
\1241\ See supra note 447 and accompanying text.
\1242\ See supra notes 438-439 and accompanying text.
---------------------------------------------------------------------------
We estimate that 43% of mining registrants (114 out of the 267
registrants identified above) have $5 million or less in total assets.
Exploration-stage issuers, by definition, have no disclosed mineral
reserves and are therefore likely to be under the $5 million asset
threshold. In contrast, development-stage and production-stage issuers,
by definition, have mineral reserves on material properties and are
therefore likely to have assets that will push them above the $5
million threshold. Thus, it is likely that many of these smaller mining
registrants are exploration-stage issuers. We expect that these smaller
registrants may be comparatively more affected by the final rules
compared to larger registrants. For example, the benefits of being able
to disclose exploration targets and mineral resources may be relatively
larger for these firms, as by definition they have no mineral reserves
to disclose. In addition, although many of the disclosure requirements
are qualified by a materiality standard, the effect of the final rules'
compliance costs may be disproportionately larger for these
[[Page 66420]]
registrants to the extent such compliance costs have a fixed cost
component.
The final rules will also affect mining professionals, in
particular those individuals who conduct the work that forms the basis
for disclosure of exploration results, mineral resources, and mineral
reserves. Commenters noted that many registrants already employ or hire
professionals who meet the definition of a qualified person.\1243\ More
generally, we estimate that there are currently a large number of
professionals in the United States who would meet the definition of
qualified person. For example, the Society for Mining, Metallurgy, and
Exploration currently has 15,000 members around the world.\1244\ More
than 800 of these members are registered with the organization and
already meet the definition of a qualified person.\1245\ Moreover, a
study by the Bureau of Labor Statistics reported that in 2014 there
were 34,000 geoscientists, 16,500 geological and petroleum technicians,
and 8,300 mining and geological engineers employed in the United
States.\1246\ A significant fraction of these professionals likely meet
the definition of qualified person, or could meet it after some
professional development. For example, California alone had more than
5,000 recorded licensed professional geologists as of November
2014.\1247\ We note that these estimates largely exclude professionals
who are active in foreign markets and who could also qualify. Although
we do not have access to information that would allow us to estimate
how many foreign professionals may qualify as qualified persons, we
believe there will be a significant number of such professionals who
meet the criteria because similar requirements are in place in
jurisdictions, such as Canada and Australia, that together have more
than 1,800 publicly-listed mining companies.\1248\
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\1243\ See letters from AIPG, Alliance, Amec, Davis Polk,
Eggleston, FCX, Golder, Graves, JORC, Rio Tinto, Shearman &
Sterling, SME 1, SRK 1, Vale, and Willis.
\1244\ See the SME website at: https://www.smenet.org/about-sme/overview.
\1245\ See the SME website at: http://www.smenet.org/membership/registered-member-directory.
\1246\ See Bureau of Labor Statistics, U.S. Department of Labor,
Occupational Outlook Handbook, 2016-17 Edition, Geoscientists
(available at: http://www.bls.gov/ooh/life-physical-and-social-science/geoscientists.htm), Geological and Petroleum Technicians
(available at: http://www.bls.gov/ooh/life-physical-and-social-science/geological-and-petroleum-technicians.htm), and Mining and
Geological Engineers (available at: http://www.bls.gov/ooh/architecture-and-engineering/mining-and-geological-engineers.htm).
\1247\ See the website of the National Association of State
Boards of Geology, http://asbog.org/states/cd_states.htm#California.
A geologist licensed by any state in the United States, provided he
or she has five years' relevant experience in mining with respect to
the type of mineralization under consideration, will likely meet the
definition of a qualified person.
\1248\ For statistics on the number of listed mining issuers in
Canada, see https://www.tsx.com/listings/listing-with-us/sector-and-product-profiles/mining. For statistics on the number of listed
mining issuers in Australia, see https://www.asx.com.au/documents/resources/00180_MetalsMiningSector_FactSheet_web.pdf.
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2. Current Regulatory Framework and Market Practices
As discussed above, we evaluate the economic effects of the final
rules against the Commission's current disclosure requirements and
policies. Below we highlight three economically important aspects: (1)
The structure and detail of the current disclosure framework, (2) the
scope of the current disclosure framework, and (3) the lack of an
expertise requirement for the preparer of technical information in the
disclosures.\1249\
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\1249\ In addition, the current regulatory requirements impose
Section 11 liability on the named person who prepares mineral
reserve estimates. See supra note 278 and accompanying discussion.
---------------------------------------------------------------------------
i. Structure and Detail of Current Disclosure Framework
The following aspects of the current disclosure regime can give
rise to compliance burdens for mining registrants:
Overlapping disclosure framework. The current
disclosure framework is set forth in Item 102 of Regulation S-K,
which is a Commission rule, Form 20-F, which is a form used by
foreign private issuers that contains disclosure requirements,\1250\
and Industry Guide 7, which represents the disclosure policies and
practices followed by the Division of Corporation Finance. This
overlapping structure may give rise to unnecessary complexity and
uncertainty for mining registrants.\1251\
---------------------------------------------------------------------------
\1250\ See 17 CFR 249.220f.
\1251\ See supra Section II.A. and note 36 and accompanying
text.
---------------------------------------------------------------------------
Multiple thresholds for disclosure. Item 102 of
Regulation S-K currently implies a two-tiered reporting standard.
Registrants with ``significant'' mining operations are referred to
the more extensive disclosure policies in Guide 7, whereas
registrants without significant mining operations, but with one or
more ``principal'' mines or other ``materially important''
properties, are required to comply with the more limited disclosure
requirements in Item 102. As discussed above, Commission staff
historically has advised that registrants apply a materiality
standard for disclosure and, when that standard is met, provide
disclosure according to both Item 102 and Guide 7.
Level of detail. Because the disclosure policies in
Guide 7 are broadly drafted, registrants often look to staff
guidance to apply those policies. For example, as discussed above,
Guide 7 calls for the disclosure of mineral reserves, defined as the
part of a mineral deposit that can be economically and legally
extracted or produced. It does not, however, specify the level of
geological evidence or the analysis, such as the modifying factors
the registrant should consider, to convert existing mineral deposits
to reserves. By contrast, CRIRSCO-based disclosure standards specify
a more detailed framework for determination and disclosure of
mineral reserves that specifically addresses such issues. These
aspects of the current disclosure framework can be burdensome for
mining registrants, especially new registrants. In this regard, some
industry participants have raised concerns regarding the need to
look to informal staff guidance to achieve compliance.\1252\
---------------------------------------------------------------------------
\1252\ See supra note 28 and accompanying text.
---------------------------------------------------------------------------
ii. Scope of the Current Disclosure Requirements and Policies
As discussed above, Item 102 of Regulation S-K, Guide 7, and Form
20-F currently call for the disclosure of mineral reserves and preclude
the disclosure of non-reserve estimates such as mineral resources,
unless required by foreign or state law.\1253\ Further, none of these
provisions requires disclosure of mineral exploration results. By
contrast, for mining companies providing disclosure in certain foreign
jurisdictions, CRIRSCO-based codes require disclosure of material
mineral resources in addition to material mineral reserves and require
the disclosure of exploration results when they become material to
investors.
---------------------------------------------------------------------------
\1253\ In practice, only Canadian issuers have been able to take
advantage of this exception because only Canada has adopted its
mining disclosure requirements as a matter of law. See supra note
423 and accompanying text.
---------------------------------------------------------------------------
The scope of the Commission's current disclosure regime relative to
current industry practices for evaluating the prospects of mining
properties can result in mining registrants omitting from their
disclosures information about mineral resources they possess but are
not allowed to disclose. Omitting such information may increase
information asymmetries between mining registrants and investors, which
could lead to potentially negative capital market consequences, such as
reduced stock market liquidity and higher cost of capital.\1254\
Moreover, because mining companies providing disclosure
[[Page 66421]]
consistent with CRIRSCO-based disclosure standards in foreign
jurisdictions are required to disclose mineral resources, U.S.
registrants may suffer adverse competitive effects to the extent that
the more limited scope of their disclosures has negative capital market
effects. Industry participants have raised concerns regarding the
adverse competitive effects potentially stemming from the current
disclosure regime and, in particular, from the inability to disclose
mineral resources.\1255\
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\1254\ The link between asymmetric information and cost of
capital is well established in the academic literature. See, e.g.,
Douglas W. Diamond and Robert E. Verrecchia ``Disclosure, Liquidity,
and the Cost of Capital'' (1991), Journal of Finance, Volume 46,
Issue 4, pp. 1325-1359, and David Easley and Maureen O'Hara,
``Information and the cost of capital'' (2004), Journal of Finance,
Volume 59, Issue 4, pp. 1553-1583.
\1255\ See supra note 34 and accompanying text.
---------------------------------------------------------------------------
Currently, registrants can supplement, to some extent, the scope of
their mining property disclosures in several ways. First, although
there is no requirement to disclose exploration results, registrants
can voluntarily disclose such information in their SEC filings. While
voluntary disclosures can serve as a useful signaling device for
investors, the value of voluntary disclosures may be limited in the
absence of a requirement that ensures consistency and quality of the
disclosures.
Second, regarding the disclosure of mineral resources, Commission
staff has periodically, on a case-by-case basis, not objected to
disclosure of non-reserve mineral deposits in the form of ``mineralized
material.'' \1256\ In practice, the mineral resources covered by the
definition of ``mineralized material'' generally correspond with the
indicated and measured mineral resource categories defined in CRIRSCO-
based disclosure standards. Commission staff previously has advised
registrants that they should not disclose as mineralized material in
their SEC filings non-reserve mineral deposits that would be equivalent
to inferred resources. The absence of specific, published guidelines
establishing how registrants should estimate and report mineralized
materials may have contributed to compliance uncertainty and lack of
consistency in disclosures.
---------------------------------------------------------------------------
\1256\ See supra Section II.A.
---------------------------------------------------------------------------
Further, under the exception for disclosure of mineral resources,
if required by foreign or state law, issuers registered in Canada are
able to disclose mineral resources in SEC filings if they do so in
their Canadian filings. Therefore, any potential competitive
disadvantage of not being allowed to disclose mineral resources in SEC
filings primarily affects registrants not also registered in
Canada,\1257\ which in our estimates represent about 82% of the
registrants potentially affected by the final rules.\1258\
---------------------------------------------------------------------------
\1257\ See SME Petition for Rulemaking, supra note 6, at 14.
\1258\ We do not include foreign private issuers that are
registered in Canada but are voluntarily reporting on domestic forms
in this estimate, as such registrants can transition to filing on
Form 20-F instead of domestic forms if they perceive the burden of
continuing to voluntarily file on domestic forms to be too large,
for example due to competitive reasons.
---------------------------------------------------------------------------
Given this, and also given that the disclosures of mineralized
material that are currently permitted in SEC filings are not directly
comparable to the disclosures of mineral resources required by CRIRSCO-
based disclosure standards, some registrants have reported their
mineral resources in press releases, on their website, or in their
annual reports. Such disclosures, made outside of SEC filings, may
present risks for investors who rely on them. These disclosures are not
subject to the full range of disclosure rules and regulations,
including corresponding liability provisions, to which SEC filings are
subject (although disclosures outside SEC filings would be subject to
the anti-fraud provisions of the federal securities laws). They also
are not subject to staff review and comment, and may not be reported
using commonly recognized standards.
iii. Role of Experts in Support of Disclosures of Mineral Reserves
Guide 7 provides, and Form 20-F requires, that a registrant
disclose the name of the person estimating mineral reserves and
describe the nature of his or her relationship to the registrant. There
is, however, no current disclosure policy or requirement in Guide 7,
Item 102, or Form 20-F that a registrant must base disclosures of
mineral reserves (or a study or technical report supporting such
disclosures) on findings of a professional with a particular level of
expertise. The absence of an expertise requirement is in contrast to
CRIRSCO-based disclosure standards, which require that disclosures of
mineral reserves--as well as exploration targets, exploration results,
and mineral resources--be based on information and supporting
documentation prepared by a ``competent'' or ``qualified person.''
\1259\
---------------------------------------------------------------------------
\1259\ An author of a study or technical report that forms the
basis of mineral reserves disclosure in a Securities Act
registration statement is required to consent to the use of his or
her name as an expert and thereby becomes subject to expert
liability under Section 11 of the Securities Act. See 17 CFR 230.436
and 17 CFR 229.601(b)(23). While this provides some assurance that
the disclosure accurately reflects the technical study or report, it
does not require that the author have any minimum level of technical
expertise. CRIRSCO-based disclosure codes are based on the mutually
reinforcing principles of transparency, materiality, and competence.
---------------------------------------------------------------------------
In the absence of an expertise requirement, disclosures of
exploration targets, exploration results, mineral resources, and
mineral reserves may be viewed by investors as less credible.\1260\ An
expertise requirement provides greater assurance that the information
provided by the qualified person is accurate. The lack of an expertise
requirement may put U.S. registrants at a comparative disadvantage in
terms of how investors value the disclosed information compared to
companies disclosing exploration targets, exploration results, mineral
resources, and mineral reserves according to CRIRSCO-based disclosure
standards.\1261\
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\1260\ See infra Section IV.B.4.i.
\1261\ Under the current disclosure regime, registrants can
choose to hire an expert with similar qualifications as those
required by CRIRSCO-based disclosure standards and voluntarily
disclose this fact to mitigate any competitive disadvantage.
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B. Analysis of Potential Economic Effects
In this section, we analyze the anticipated costs and benefits
associated with the final rules against the baseline described above.
We have attempted to quantify to the extent feasible the costs,
benefits, and effects on efficiency, competition, and capital formation
expected to result from the final rules. In many cases, however, we are
unable to quantify the economic effects. Many of the relevant economic
effects, such as the effects of disclosure on information asymmetries
experienced by investors, are inherently difficult to quantify. In
other cases, we lack the information necessary to provide reasonable
estimates, including costs of incomplete convergence with CRIRSCO-based
disclosure standards, benefits of disclosing mineral resources, or
additional costs of hiring a qualified person subject to Section 11
liability, because, to our knowledge, no such data are publicly
available and commenters have not provided data to allow such
quantification. To the extent commenters have provided data to allow
quantification of the expected economic effects of the final rules,
including cost estimates, we examine that data below.
1. Broad Economic Effects of the Final Rules and Impact on Efficiency,
Competition, and Capital Formation
We expect the final rules to increase the quality and availability
of information about registrants' mining properties and thereby promote
efficiency, competition, and capital formation. For example, the final
rules require registrants with material mining
[[Page 66422]]
operations to disclose determined mineral reserves, mineral resources,
and material exploration results. These requirements better align the
Commission's disclosure requirements with the current practices used by
mining companies to evaluate their projects, thereby reducing
information asymmetries between registrants and investors about the
prospects of mining operations. In addition, the qualified person
requirement, together with detailed requirements for the supporting
technical studies, should generate higher quality and more consistent
disclosures, which should reduce uncertainty surrounding the
disclosures. In turn, reduced information asymmetries and reduced
uncertainty about the disclosures may help investors achieve a more
efficient capital allocation while increasing demand for securities
offerings, reducing the cost of capital, and enhancing capital
formation for registrants.\1262\
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\1262\ The significant risk and negative impact on capital
formation from uncertainty surrounding mining disclosure is
illustrated by the evidence in William O. Brown, Jr. and Richard
C.K. Burdekin, ``Fraud and Financial Markets: The 1997 Collapse of
the Junior Mining Stocks'' (2000), Journal of Economics and
Business, Volume 52, Issue 3, pp. 277-288. The authors utilize an
event study methodology to analyze the effect on Canadian mining
companies' stock returns around the revelations in spring 1997 of
fraudulent disclosures of gold resources by the Canadian mining
company Bre-X. The study documents that a portfolio of 59 Canadian
gold mining stocks experienced significantly negative abnormal stock
returns around the Bre-X fraud revelations. Similarly, the Vancouver
Composite Index, which at the time was dominated by natural resource
companies, also experienced significantly negative abnormal returns
for the same event time period. We note that the Bre-X fraud
contributed to the development of the Canadian NI 43-101 mining
disclosure standards.
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In particular, we believe that the requirements for disclosure of
material exploration results and mineral resources will reduce
information asymmetries and uncertainty for smaller mining registrants,
as these registrants tend to have mining properties in earlier stages
of development with relatively fewer, if any, reported mineral
reserves. As a result, we expect the anticipated positive effects on
efficiency and capital formation to be relatively larger for smaller
registrants. However, these effects may only materialize to the extent
smaller registrants are able to pay for the studies that are required
to support disclosure in the first place. We anticipate that there may
be some smaller registrants who do not have access to the liquid funds
needed to make that investment.
Although we expect the overall amount of disclosed information to
increase under the final rules, there may be exceptions. We expect that
the adopted disclosure requirements may increase the compliance costs
for disclosure of material exploration results and the currently
allowed (on a case-by-case basis) equivalent of mineral resources
(i.e., mineralized material). Registrants may also bear costs to the
extent that the disclosure requirements will result in the disclosure
of commercially-sensitive information to competitors.\1263\ Therefore,
despite the anticipated benefits from the final disclosure
requirements, some registrants may, for certain expected lower-value
exploration projects, find that these benefits do not outweigh the
compliance and competitive costs and may not undertake the work
necessary to disclose exploration targets or exploration results or to
determine mineral reserves or mineral resources in accordance with the
final rules. In such cases, this will reduce the information available
to investors about a registrants' full range of projects and could have
a negative impact on cost of capital and capital formation. However,
this effect may be limited, in that expected lower-value projects are
less likely to attract capital even if they were fully disclosed,
whether voluntarily or not.
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\1263\ As discussed in supra Section II.D.3, we believe that the
underlying documentation for exploration results is most likely to
be associated with concerns about disclosing commercially sensitive
information. To mitigate these concerns, the final rules make filing
a technical report summary to support disclosure of material
exploration results optional for registrants.
---------------------------------------------------------------------------
The positive effects we expect on efficiency and capital formation
from the final rules may be lower for registrants that currently report
in foreign jurisdictions with CRIRSCO-based disclosure codes. These
registrants to a large degree already provide the disclosures required
by the final rules. This is particularly the case for Canadian
registrants, who disclose information pursuant to NI 43-101 standards
in their Forms 20-F under the ``foreign or state law'' exception.
We expect the final rules to have certain competitive effects. For
example, there may be reallocation of capital as registrants that
previously could not disclose mineral resources or could not afford the
feasibility studies required for disclosure of mineral reserves (but
could afford pre-feasibility studies) may start to disclose a broader
range of their business prospects, making it easier for these
registrants to raise capital and compete with the mining companies that
already report material mineral resources and reserves. We also
anticipate that by aligning our disclosure requirements with CRIRSCO-
based disclosure standards, the final rules will improve the
competitiveness of U.S. securities markets and increase the likelihood
of prospective registrants listing their securities in the United
States, while decreasing the likelihood that current registrants would
exit U.S. markets.\1264\ In particular the qualified person requirement
and associated requirements for the supporting technical studies may
improve the global competiveness of U.S. registrants because such
quality assurances have become internationally recognized practice and
may help signal to market participants that U.S. registrants are able
to meet the standards codified by the final rules.
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\1264\ All else equal, the limited ability to provide valuable
disclosure (e.g., the full range of mineral resources or exploration
targets) decreases the attractiveness of the U.S. capital markets
for mining registrants relative to jurisdictions in which fuller
disclosure is possible (if not required, as in Canada).
---------------------------------------------------------------------------
There could be an opposite effect in some cases. Among foreign
private issuers, registrants not currently reporting in foreign
jurisdictions with CRIRSCO-based disclosure standards are most likely
to experience an increase in compliance costs. If these compliance
costs become too burdensome, some of these foreign private issuers may
choose to withdraw from U.S securities markets. The impact of such a
potential outcome is limited, however, as we have only identified six
(as of December 31, 2017) foreign private issuers that are not subject
to CRIRSCO-based reporting standards. Moreover, a company that did not
want to comply with these or similar disclosure standards would only
have a limited number of alternative jurisdictions in which to list,
none of whose markets are as developed or robust as the U.S. or other
financial markets that have such standards.
Some aspects of the final rules that are different from CRIRSCO-
based disclosure standards, such as the imposition of Section 11
liability for qualified persons, may discourage prospective registrants
from conducting registered offerings in the United States to the extent
registrants will incur additional costs related to this
liability.\1265\ However, the final rules
[[Page 66423]]
provide for some limitations on qualified persons' individual Section
11 liability with respect to when they rely on certain information
outside their expertise provided by registrants, or when they are
employed by third-party firms,\1266\ which should mitigate such
effects. Overall, we expect that the alignment of our disclosure
requirements with international practices, as embodied in CRIRSCO-based
disclosure standards, will make U.S. capital markets more competitive,
notwithstanding these differences.
---------------------------------------------------------------------------
\1265\ Several commenters noted the increased costs that
subjecting qualified persons to Section 11 liability would likely
impose on registrants and the chilling effect it could have on
qualified persons' willingness to provide the required supporting
documentation. See letters from Alliance, Amec, Andrews Kurth,
Chamber, Cloud Peak, Davis Polk, Eggleston, Energy Fuels, Gold
Resource, FCX, MMSA, NMA, NSSGA 1, Rio Tinto, Shearman & Sterling,
Ur-Energy, and Vale. See also note 230 and accompanying discussion.
Commenters also noted that such costs could fall disproportionately
on small registrants. See letters from Gold Resource and Shearman &
Sterling.
\1266\ See supra Section II.C.1.iii.
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2. Consolidation of the Mining Disclosure Requirements
The final rules consolidate the mining disclosure requirements and
policies of Regulation S-K and Industry Guide 7 into new subpart 1300
of Regulation S-K and rescind Industry Guide 7. Codifying the
Commission's mining disclosure requirements in Regulation S-K will
provide a single source for a mining registrant's disclosure
obligations, eliminating the complexity and uncertainty associated with
the fact that Guide 7 provides staff guidance and is not incorporated
in Commission rules, such as in Regulation S-K, thus facilitating
compliance and promoting more consistent disclosures to investors. The
benefits of consolidation were confirmed by several commenters, who
stated that the Commission's current disclosure regime for mining
properties has caused compliance uncertainty for mining
registrants.\1267\ In contrast, one commenter \1268\ noted that the
status of Guide 7 was well understood by and presented little
uncertainty for its members. For registrants in this category the
benefits of reducing complexity and uncertainty by codifying and
consolidating the Commission's mining disclosure requirements may be
limited.
---------------------------------------------------------------------------
\1267\ See supra note 28 and accompanying text.
\1268\ See letter from NSSGA 1.
---------------------------------------------------------------------------
3. The Standard for Mining-Related Disclosure
i. Threshold Materiality Standard
The final rules replace the multiple standards of materiality in
the current rules with a single materiality standard for when a
registrant must provide disclosure about its mining properties or
operations.\1269\ In response to comments,\1270\ the final rules do not
include an instruction stating that a registrant's mining operations
are presumed to be material if they consist of 10% or more of its total
assets and emphasize that registrants may consider other quantitative
or qualitative factors to evaluate materiality. These clarifications
should help avoid the potential costs to investors of disclosing
immaterial information and the potential burden for registrants of
creating different disclosures for different jurisdictions.
---------------------------------------------------------------------------
\1269\ See supra Section II.B.1. The definition of ``material''
in the final rule is the same as under Securities Act Rule 405 and
Exchange Act Rule 12b-2. Establishing materiality as the threshold
for disclosure is also consistent with the disclosure standard under
CRIRSCO-based disclosure standards.
\1270\ See letters from Alliance, Amec, AngloGold, BHP,
Eggleston, JORC, Rio Tinto, SAMCODES 1 and 2, SME 1, and SRK 1.
---------------------------------------------------------------------------
The final rules will increase clarity in terms of the conditions
under which registrants must provide disclosure and may facilitate
compliance by more closely aligning the disclosure standard in the
final rules with CRIRSCO-based disclosure standards. The final rules
also will promote consistency in mining property disclosures, which may
benefit investors' ability to compare and evaluate these disclosures
over time and across registrants, thus fostering more efficient
investment decisions.
ii. Treatment of Vertically-Integrated Companies
New subpart 1300 of Regulation S-K will apply to all registrants
with material mining operations, including vertically-integrated
manufacturers.\1271\ Because requiring disclosure of mining operations
by vertically-integrated manufacturers is consistent with the
disclosure currently provided in Commission filings and under CRIRSCO-
based disclosure codes, we do not expect this requirement will impose
new compliance costs on registrants. By including vertically-integrated
manufacturers in the requirement to disclose material mining
operations, the final rules will provide investors with material
information about such operations that will help with investment
decisions, regardless of whether the company's primary business is
mining.\1272\
---------------------------------------------------------------------------
\1271\ See supra Section II.B.2.iii.
\1272\ See supra Section IV.B.1., regarding the broader economic
benefits of disclosure.
---------------------------------------------------------------------------
iii. Treatment of Multiple Property Ownership
We are adopting the proposed treatment of multiple property
ownership and the proposed treatment of ancillary properties, which,
depending on the facts and circumstances, could give rise to disclosure
obligations under the final rules.\1273\ These provisions require a
registrant to consider all of its mining properties in the aggregate,
as well as individually, when assessing the materiality of its mining
operations. These provisions should facilitate compliance for companies
with multiple mining properties while eliciting material information
for investors in appropriate circumstances. We also expect that the
treatment of multiple property ownership will result in more efficient
and more effective disclosure compared to current practice, as
registrants will be able to provide summary disclosure about all of
their mining properties where some or all of the properties are not
individually material.
---------------------------------------------------------------------------
\1273\ See supra Section II.B.3.
---------------------------------------------------------------------------
iv. Treatment of Royalty Companies
Because the value of a royalty company or similar registrant
derives from the underlying mining properties that generate payments to
the registrant, the final rules require these registrants to provide
disclosure of the material underlying mining properties, analogous to
that of mining companies. While the final rules are consistent with
prior disclosure practices, we expect that consistent application of
this requirement will provide investors with information useful to
making informed investment decisions.\1274\ To the extent the final
rules will increase the quality and amount of disclosure by royalty
companies and similar registrants about underlying material mining
properties, we expect investors to benefit from access to more and
higher quality information to aid their investment decisions. To the
extent that royalty companies and similar registrants are able to omit
information about underlying material mining properties that is not
otherwise available, including not having to file a technical report
summary, the benefits to investors will be limited.\1275\
---------------------------------------------------------------------------
\1274\ See supra Section II.B.4.iii.
\1275\ We have identified three mining royalty companies
registered with the Commission as of December 31, 2017. Similarly,
one commenter noted they were not aware of any ``primarily mining
finance companies that participate in any mining or processing
activities.'' See letter from Crowell & Moring.
---------------------------------------------------------------------------
We expect all royalty companies and similar registrants will incur
compliance costs related to assessment of access to required
information about underlying mining properties and/or the materiality
of the underlying properties. These compliance costs will be limited
for those royalty companies that already have access to the information
required to comply with the final rules. These compliance costs also
will be limited for those royalty companies that do not
[[Page 66424]]
have access to such information, as the final rules require disclosure
about underlying mining properties only insofar as the information is
known or reasonably available to the registrant.\1276\
---------------------------------------------------------------------------
\1276\ Id.
---------------------------------------------------------------------------
In addition, we expect royalty companies and similar registrants
that must provide disclosures and file technical report summaries about
underlying material mining properties to incur additional compliance
costs related to the preparation of those disclosures and reports.
These will include both direct and indirect costs related to gathering
the required information, potential payments to consultants, including
qualified persons, and costs associated with reporting the required
information in annual reports and registration statements filed with
the Commission. One commenter asserted that for royalty interests, the
costs of preparing the required disclosure for annual reports on Form
10-K could exceed $500,000.\1277\ However, it is not clear whether this
was a total cost or an incremental cost, or whether this was specific
to royalty companies. In the instances where a material property is
already covered by a technical report summary filed by the producing
registrant, we expect these additional compliance costs to be
substantially lower as the royalty company will be able to refer to the
producing registrant's report. As noted above, compliance costs also
will be limited to the extent the royalty company does not have access
to such information and the information is not otherwise known or
reasonably available to the registrant.
---------------------------------------------------------------------------
\1277\ See letter from Royal Gold.
---------------------------------------------------------------------------
Many commenters opposed the requirement for royalty companies to
provide disclosure for underlying mining properties that are
material,\1278\ but did not provide alternatives that would ensure that
investors have access to relevant information about these properties.
Excluding royalty companies from the final rules would eliminate the
practical difficulties and compliance costs associated with providing
disclosure about underlying mining properties. However, it also could
leave investors in royalty and similar companies with less information
about material mining properties than investors in other mining
registrants and thereby undermine the goal of providing enhanced mining
disclosure to the market generally. Some commenters noted that royalty
and other similar companies are unlike other mining registrants, in
that their revenue is based on royalty contracts and thus information
about these contracts may be more relevant for investors in such
companies.\1279\ However, the properties underlying the contracts are
the source of the revenue stream defined by those contracts. Thus, as
noted by other commenters,\1280\ royalty companies have an economic
interest in such properties. Consequently, providing information about
such properties' potential future production would enable investors in
royalty and other similar companies to make more informed investment
decisions.
---------------------------------------------------------------------------
\1278\ See supra note 127 and accompanying text.
\1279\ See letters from Crowell & Moring, NRP, Royal Gold, and
SME 2.
\1280\ See letters from Rio Tinto and SAMCODES 2.
---------------------------------------------------------------------------
v. Definitions of Exploration, Development, and Production Stage
The definitions adopted in the final rules of ``exploration stage
property,'' ``development stage property,'' and ``production stage
property,'' as well as the definitions of ``exploration stage issuer,''
``development stage issuer,'' and ``production stage issuer'' will
provide investors with clear, accurate, and consistent disclosure about
the type of company and level of risk.\1281\ For example, because the
classification at issuer level would be derived from the individual
property classifications, the final rules would prevent a registrant
without material reserves from characterizing itself as a development
stage or production stage issuer, which is possible under the current
classification scheme. By clarifying and codifying existing practices,
the final rules will also benefit registrants by reducing regulatory
uncertainty.
---------------------------------------------------------------------------
\1281\ See 17 CFR 229.1304(c)(1).
---------------------------------------------------------------------------
Because registrants already possess the information necessary to be
able to classify properties at the individual property level and
because the final classifications are consistent with prior disclosure
practices, we do not expect these provisions to increase compliance
costs for most registrants. However, because the final rules change how
registrants can classify themselves at the issuer level, there may be
some issuers that incur costs because they cannot continue to identify
themselves as development or production stage issuers under the final
rules. For example, some current production stage issuers (who under
the new rules will not be able to classify themselves as such) may find
it more costly to raise capital to the extent investors assign a higher
risk to the company's mining operations based on the change in
classification. Moreover, some current production stage issuers that
are able to continue classifying themselves as such under the new rules
may need to undertake additional work in order to do so (e.g., hiring a
qualified person to make a determination about mineral resources and
mineral reserves) and would therefore incur additional compliance
costs.
4. Qualified Person and Responsibility for Disclosure
i. The ``Qualified Person'' Requirement
We are adopting the proposed requirement that every disclosure of
mineral resources, mineral reserves, and material exploration results
be based on, and accurately reflect, information and supporting
documentation prepared by a qualified person.\1282\ In a change from
the proposed rules, the final rules will also permit the disclosure of
exploration targets, with the same requirement that such disclosure be
based on, and accurately reflect, information and supporting
documentation prepared by a qualified person. We anticipate that the
qualified person requirement, together with the technical report
summary requirement, will benefit investors by enhancing the accuracy
and transparency of disclosures. For example, the requirement that the
qualified person have at least five years of relevant experience and be
an eligible member or licensee in good standing of a recognized
professional association helps ensure that estimates provided in
disclosures are based on work consistent with current professional
practice. This should, in turn, increase the reliability and
informational value of the disclosures. Several commenters supported
the qualified person requirement, citing similar benefits.\1283\ For
example, one commenter noted that ``[e]xperience in consulting firms
has shown that when individual members of the firm are specifically
identified as qualified persons, the work undertaken by the members of
the firm in preparing or reviewing technical reports is more careful.''
\1284\ Other commenters similarly expected the qualified person
requirement to result in higher quality disclosure.\1285\ In addition,
the written consent requirement will help ensure that the qualified
person's findings and conclusions are accurately represented by the
registrant and should further increase the reliability of the
disclosures.
---------------------------------------------------------------------------
\1282\ See supra Section II.C.1.
\1283\ See note 183 and accompanying text.
\1284\ See SME 1.
\1285\ See letters from BHP, Eggleston, Rio Tinto, and SRK 1.
---------------------------------------------------------------------------
Moreover, because the qualified person requirement in the final
rules is
[[Page 66425]]
consistent with most foreign jurisdictions' mining disclosure
requirements, it should improve comparability between U.S. registrants
and foreign companies reporting in those other jurisdictions, which
will further benefit investors. A qualified person requirement helps
ensure that the individual preparing documentation to support mining
property disclosures in Commission filings possesses certain
professional credentials and relevant experience. Comparability should
therefore be improved, because qualified persons engaged by registrants
are likely to adhere to a common set of professional standards.
These benefits to investors from the qualified person requirement
will be accompanied by costs for mining registrants.\1286\ We expect
the increase in compliance costs to be primarily related to search and
hiring costs for qualified persons. Registrants that wish to disclose
mineral resources and reserves, but are not currently employing or
contracting with professionals meeting the definition of qualified
person, will incur expenses to identify a pool of professionals who
meet the definition of qualified person and are willing to provide
their services. The costs for services of a qualified person may also
be higher than the costs for services of the professionals currently
hired by such registrants due to the level of expertise required under
the final rules and the liability that professionals will face under
the final rules. In this regard, one commenter noted that a qualified
person likely commands a 15-25% salary premium over a non-qualified
person,\1287\ although that premium does not appear to include any
premium for accepting Section 11 liability.
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\1286\ Quantifying these costs is challenging due to data
limitations. For example, we do not have access to data that would
allow us to more precisely measure the current supply of mining
professionals meeting the definition of a ``qualified person''
outside of the United States. We also do not have access to readily
available data sources of comprehensive compensation data for
geologists and mining engineers (in the United Sates or other
countries) that would help us estimate the incremental cost of
hiring a qualified person with the minimum level of expertise versus
professionals who do not qualify as qualified persons.
\1287\ See letter from SRK 1.
---------------------------------------------------------------------------
Because the required disclosures derive from activities mining
registrants already perform as a crucial part of their businesses
(i.e., mineral exploration and estimation of mineral resources and
reserves), we believe that most registrants likely already engage
experienced professionals meeting the required level of expertise,
either as employees or as contractors.\1288\ In particular, this should
be the case for registrants reporting consistent with CRIRSCO-based
disclosure standards, as those standards already require a similarly
defined ``qualified'' or ``competent'' person to support the
disclosures.\1289\ To the extent registrants already engage
professionals meeting the final qualified person requirement, they will
not incur costs related to searching for qualified persons, as long as
currently engaged professionals agree to act in the capacity of a
qualified person to support disclosures.
---------------------------------------------------------------------------
\1288\ This view was affirmed by several commenters. See supra
note 1243.
\1289\ See, e.g., letter from SRK 1.
---------------------------------------------------------------------------
Even if registrants that are currently employing or contracting
with professionals meeting the final definition of a qualified person
do not incur additional costs associated with searching for and initial
hiring of such a person, they may nevertheless experience an increase
in compensation costs for these professionals. First, these
professionals may demand increased compensation due to increased
competition for the services of professionals meeting the definition of
a qualified person. We expect an increase in competition for these
services because registrants currently not hiring such professionals
will need to do so under the final rules to support disclosures of
mineral resources and reserves. Second, several commenters stated that
subjecting qualified persons to Section 11 liability would likely
reduce the willingness of individuals to serve in that role, which
would, in turn, limit the available supply and increase the cost of
hiring qualified persons. In a change from the proposed rules, the
final rules provide that the qualified person will not be subject to
Section 11 liability for any description of the procedures, findings,
and conclusions reached about matters based on information provided by
the registrant in certain required areas outside of the qualified
person's experience and expertise, which will limit a qualified
person's exposure to Section 11 liability.\1290\ Nevertheless, as a
general matter, we expect mining professionals who are already engaged
by registrants and who meet the definition of a qualified person would
request additional compensation for the imposition of Section 11
liability. However, given the nature of individual risk aversion and
the sunk costs in professional development, as well as the additional
factors of increased compensation and the ability to allocate potential
liability between individuals and firms (as discussed below), it is
difficult to reliably estimate the behavioral response of individuals
and firms to the imposition of Section 11 liability.
---------------------------------------------------------------------------
\1290\ See supra Section II.C.1.iii.
---------------------------------------------------------------------------
Rather than exiting the market entirely, professionals who
currently meet the definition of qualified person may be willing to
accept Section 11 liability, but only for a reduced scope of work. For
example, a technical report summary may involve the introduction of
analyses that draw on the range of experience and educational
backgrounds within the definition of qualified person under the final
rules.\1291\ Due to liability concerns, a qualified person--who would
be willing to assume responsibility for such items in a jurisdiction
without Section 11 liability--may be willing to assume responsibility
for only a subset of such items in Commission filings. In this case,
the registrant would need to hire or engage a greater number of
qualified persons to complete its technical report summary. For larger
registrants, this may not be a significant issue because they are
likely to already have access to multiple qualified persons. For
smaller registrants, this may be more costly, especially, as noted by
one commenter,\1292\ where the only qualified persons are executives of
the firm or, as noted by another commenter,\1293\ where exploration and
development companies with no production may not have qualified persons
with specific experience on their staff. To the extent hiring of
qualified persons to support disclosures becomes prohibitively costly
for some registrants, for example, due to search costs or increased
compensation demands in light of Section 11 liability, these
registrants may choose to forgo making disclosure about mineral
resources and reserves in their Commission filings, which would reduce
the benefit of such disclosure for both investors and registrants.
---------------------------------------------------------------------------
\1291\ See letters from MMSA and SASB. For similar reasons,
commenters requested that limited disclaimers be permitted. See
supra note 229. The final rules clarify that multiple qualified
persons may expertize a technical report summary, allowing a
qualified person to limit their liability to a scope of work with
which he or she is comfortable applying his or her competence,
education, and experience.
\1292\ See letter from SME 1.
\1293\ See letter from Eggleston.
---------------------------------------------------------------------------
It is difficult to assess the likelihood of these potential
negative outcomes, but we note that, based on the statistics reported
above in Section IV.A.1., there are many professionals who potentially
meet the definition of a qualified person in the United States alone,
and
[[Page 66426]]
therefore, broadly speaking, we believe it is unlikely that there will
not be a sufficient supply of qualified persons available to support
disclosures for at least larger-scale material mining properties, where
the benefits of disclosure for registrants likely outweigh any increase
in costs of qualified persons due to Section 11 liability. Moreover,
mining companies and mining consulting companies presently employ many
professionals who already meet the definition of qualified
person.\1294\ Nevertheless, because the mining industry is not
homogeneous, there may be segments of the mining industry for which the
supply of professionals meeting the qualified person requirement is
more limited, thus making it more difficult or costly for these
registrants to satisfy this requirement.
---------------------------------------------------------------------------
\1294\ See supra note 1288 and accompanying discussion.
---------------------------------------------------------------------------
Holding all else constant, the increased demand for qualified
persons' services is likely to incentivize more professionals to become
qualified, especially in areas in which the supply of qualified persons
is currently more limited, although there could be a lag in the time
required to obtain the relevant five years of experience. For smaller
registrants, whose material properties will be relatively less valuable
than the material properties of larger registrants, or registrants
engaged in mining of certain minerals, for which there is a limited
supply of professionals with the relevant experience, the potential
negative effects of Section 11 liability may be more pronounced.
Several additional factors may mitigate the costs of subjecting
qualified persons to Section 11 liability. Requiring the registrant to
obtain the qualified person's written consent is consistent with the
Commission's longstanding approach to the use of an expert's report in
Securities Act filings.\1295\ Because a mining registrant is currently
required to file the written consent of the mining engineer, geologist,
or other expert upon whom it has relied when filing a Securities Act
registration statement, and such consent is already given today, the
adopted written consent requirement may not impose a significant
additional burden.
---------------------------------------------------------------------------
\1295\ See supra note 268 and accompanying text.
---------------------------------------------------------------------------
Additionally, in a change from the proposed rules, the final rules
provide that a third-party firm comprising mining experts, such as
professional geologists or mining engineers, may sign the technical
report summary and provide the written consent instead of its employee,
member, or other affiliated person who prepared the summary, and need
not identify such individual.\1296\ Because the third-party firm will
be treated as the mining expert subject to potential Section 11
liability rather than the individual qualified person in these
circumstances, this provision could further mitigate the costs of
Section 11 liability for those individual professionals who are
employed by third-party firms by shifting liability to an entity that
is more equipped to bear it.
---------------------------------------------------------------------------
\1296\ See supra Section II.C.1.iii.
---------------------------------------------------------------------------
Furthermore, as noted above, the final rules provide that a
qualified person will not be subject to Section 11 liability for
certain information provided by the registrant upon which the qualified
person relies.\1297\ Qualified persons likely would be most concerned
about being subjected to Section 11 liability for information outside
their expertise that has been provided by others. By limiting qualified
persons' individual liability exposure in cases where such information
has been proved by the registrant, this provision, when applicable,
will serve to limit the costs of Section 11 liability. At the same
time, the provision is not likely to come at the expense of reduced
assurance of quality in mining disclosures, as the registrant who is
providing the information will retain residual Section 11 liability for
the information and therefore will be incentivized to exercise care its
preparation.
---------------------------------------------------------------------------
\1297\ See id.
---------------------------------------------------------------------------
Although the final rules do not provide a complete exemption from
Section 11 liability, it may be possible, as suggested by several
commenters, to obtain insurance to protect against costs that could
arise out of Section 11 litigation.\1298\ As commenters noted,\1299\
this would effectively impose an additional cost on registrants.\1300\
While insurance may reduce qualified persons' reluctance to accept
liability, we do not have access to data or other information that
would allow us to quantify how much registrants' costs will increase
due to higher compensation or provision of insurance.
---------------------------------------------------------------------------
\1298\ See letters from Chamber, Cleary Gottlieb, Energy Fuels,
FCX, Gold Resource, MMSA, NSSGA 1, Rio Tinto, Shearman & Sterling,
SME 1, and Vale.
\1299\ See letters from Energy Fuels, FCX, MMSA, NSSGA 1, Rio
Tinto, Shearman & Sterling, and Vale.
\1300\ One commenter cited increases in liability insurance
costs for registrants ``well into six figures.'' See letter from
MMSA.
---------------------------------------------------------------------------
Finally, the qualified persons will not be subject to strict
liability. Under Section 11, a qualified person, as an expert, would
have an affirmative defense against liability for misstatements or
omissions made on the authority of another expert if the qualified
person ``had no reasonable ground to believe and did not believe, at
the time such part of the registration statement became effective, that
the statements therein were untrue or that there was an omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that such part of the
registration statement did not fairly represent the statement of the
expert or was not a fair copy of or extract from the report or
valuation of the expert.'' \1301\ This framework may mitigate the costs
of subjecting qualified persons to Section 11 liability.
---------------------------------------------------------------------------
\1301\ 15 U.S.C. 77k(a)(4).
---------------------------------------------------------------------------
The final rules do not require the qualified person to be
independent of the registrant. The absence of an independence
requirement is consistent with CRIRSCO-based disclosure codes, with the
exception of Canada, where the qualified person must be independent of
the company for new registrants or, in cases of significant changes to
existing disclosures, for established registrants.\1302\ Although there
is some evidence that outside experts reduce information asymmetries
about companies' valuations more than internal experts in related
circumstances,\1303\ this benefit must be balanced against the
additional cost of having to find and hire an outside expert, instead
of using an existing affiliated expert. Moreover, an outside expert may
in practice not be independent of the company if the person derives a
large fraction of overall compensation from that same company.
---------------------------------------------------------------------------
\1302\ See Canada's NI 43-101, supra note 123, at pt. 5.3.
\1303\ See, e.g., Karl A. Muller III and Edward J. Riedl,
``External Monitoring of Property Appraisal Estimates and
Information Asymmetry'' (2002), Journal of Accounting Research,
Volume 40, Issue 3, pp. 865-881. Using a sample of UK investment
property firms, the paper finds that bid-ask spreads are lower for
firms employing external appraisers of property values versus those
employing internal appraisers, suggesting the information asymmetry
about the value of the company is lower in the former case.
---------------------------------------------------------------------------
As an alternative we could have exempted qualified persons from
Section 11 liability altogether. This would avoid the increased costs
associated with potential liability while retaining the benefit to both
registrants and investors of having qualified persons with relevant
credentials and experience provide the basis for disclosure of
exploration targets, exploration results, mineral resources, and
mineral reserves. The experience of other jurisdictions using CRIRSCO-
based codes that do not impose Section
[[Page 66427]]
11-type liability (but may have some other source of liability)
suggests that Section 11 liability is not necessary to obtain some
benefit from having a qualified person. However, relative to the final
rules, an outright exemption from Section 11 liability could reduce the
incentives for qualified persons to perform a thorough analysis of the
relevant properties and ensure that the disclosure in Commission
filings is complete and accurate.\1304\ In this way, we expect that
Section 11 liability will amplify the benefits of a qualified person
requirement and, thus, enhance investor protection relative to an
alternative that does not impose such liability, although we
acknowledge that such liability will come at a cost to mining companies
and investors in those companies.
---------------------------------------------------------------------------
\1304\ An outright exemption from Section 11 liability would
also be inconsistent with current requirements. See supra Section
II.C.1.iii. and notes 278 and 279.
---------------------------------------------------------------------------
ii. The Definition of ``Qualified Person''
We are adopting the proposed definition of a ``qualified person''
and related proposed criteria and provisions.\1305\ We believe this
definition will help ensure that disclosure of mineral resources,
mineral reserves, and material exploration results in Commission
filings is based on work by professionals who have the qualifications
necessary for the disclosure to be consistent with current professional
practices and accurately reflects the information and supporting
documentation.
---------------------------------------------------------------------------
\1305\ See supra Section II.C.2.
---------------------------------------------------------------------------
Providing a definition of qualified person will benefit investors
by establishing common criteria for persons supporting disclosures of
exploration results, mineral resources, and mineral reserves, thereby
increasing the reliability and comparability of those disclosures for
investors. As discussed above, however, the selection and hiring of
qualified persons will impose costs on registrants. As noted above,
these costs could be higher as a result of the level of expertise and
other professional credentials required by the adopted definition. To
the extent that professionals meeting all of the requirements are
scarce, the cost of hiring such professionals will tend to increase,
although this could draw more professionals into the field, thereby
bringing costs back down.
As an alternative, we could have added an educational requirement
to the definition (e.g., the attainment of a bachelor's or equivalent
degree in an area of geoscience, metallurgy, or mining engineering), as
recommended by several commenters.\1306\ An educational requirement may
help ensure subject matter expertise and increase the quality and
credibility of the mining disclosures. However, because the recognized
professional organizations typically address such a requirement in
their membership criteria,\1307\ we believe the incremental benefit
from adding such a requirement to the definition would be minimal as it
would be largely redundant.
---------------------------------------------------------------------------
\1306\ See supra note 322 and accompanying text.
\1307\ See supra note 324 and accompanying text.
---------------------------------------------------------------------------
As another alternative, we could have required that the qualified
person be a member of an approved list of ``recognized professional
organizations,'' similar to the approach under CRIRSCO-based standards.
This was recommended by numerous commenters.\1308\ This alternative
could provide more clarity for registrants about which organizations
are considered to be ``recognized professional organizations,'' thereby
facilitating compliance. However, as compared to the principles-based
approach in the final rules, an approved list would be less flexible
and could unduly restrict the pool of eligible qualified persons. In
addition, a specific list of organizations risks becoming outdated over
time as circumstances change, which could lead to deterioration in the
credentials of qualified persons and a corresponding reduction in
disclosure quality.
---------------------------------------------------------------------------
\1308\ See supra note 331 and accompanying text.
---------------------------------------------------------------------------
5. Treatment of Exploration Results
The final rules require a registrant to disclose exploration
results and corresponding exploration activity if they are material to
investors.\1309\ This approach aligns the Commission's disclosure
requirements for exploration results with those in CRIRSCO-based
disclosure standards in that the disclosure of exploration results and
corresponding exploration activity is largely voluntary until they
become material to investors. Compared to the proposed rules, the final
rules provide additional guidance for registrants to help them
determine when exploration results are material, which should
facilitate compliance to the benefit of both registrants and investors.
---------------------------------------------------------------------------
\1309\ See supra Section II.D.3.
---------------------------------------------------------------------------
Because exploration results can guide a registrants' economic
decision-making, such as internal decisions regarding whether to
continue a project and enter into the determination of mineral
resources and mineral reserves, we expect the disclosure of material
exploration results to benefit investors by providing material
information about registrants' mining operations and potential growth
opportunities. Several commenters generally supported requiring the
disclosure of material exploration results on material properties for
similar reasons.\1310\ We expect that exploration results by smaller
mining registrants are especially likely to be considered material to
investors because such registrants tend to have a narrower range of
mining operations and fewer individual projects. Investors in such
companies are therefore especially likely to benefit from this aspect
of the final rules.
---------------------------------------------------------------------------
\1310\ See supra note 365 and accompanying text.
---------------------------------------------------------------------------
Exploration results, by themselves, are inherently associated with
some level of uncertainty. Thus, it may be difficult for investors to
evaluate exploration results accurately. There is a risk that some
investors may weigh this information inappropriately, which, in turn,
could lead to inefficient investment decisions. The final rules
mitigate potential costs to investors related to both the reliability
of and the uncertainty associated with the disclosure of exploration
results in several ways. First, the final rules only require disclosure
of material exploration results, which should reduce the risk of
investors having to assess and possibly misconstrue the significance of
exploration results that inherently are of low informational value.
Second, the final rules preclude the use of exploration results, by
themselves, to derive estimates of tonnage, grade, and production
rates, or in an assessment of economic viability, which should decrease
the risk of conveying inaccurate information. As such, these provisions
should reduce the potential for investors to incorrectly value any
disclosed exploration results. Third, because the disclosure of
exploration results must be based on the analysis of a qualified
person, the accuracy and reliability of the disclosed exploration
results should be enhanced and the comparability of disclosures across
registrants may increase.
In addition, the final rules will align the disclosure of
exploration results in Commission filings with the requirements in
CRIRSCO-based disclosure standards, which may further improve the
comparability of the disclosed information relative to similar
disclosures by mining companies in jurisdictions such as Canada and
Australia, thereby improving the usefulness of this information for
investors.
Findings from an academic study suggest that disclosures of
exploration
[[Page 66428]]
results can be valuable to investors in mining stocks. The study
analyzes a sample of 1,260 exploration results announcements made by
307 unique Australian mining companies over the 2005-2008 time period
and documents an average abnormal stock return of 2.8% on the
announcement day.\1311\ For each such company, the abnormal return was
calculated relative to the return on the same day for a size-matched
non-announcing commodity peer. Consistent with the disclosed
exploration results being more value-relevant for smaller firms, the
study also finds a significantly higher announcement-day return for
smaller firms, where size is measured by pre-announcement market
capitalization. We note that the announcements of explorations results
in the sample were compliant with the 2004 edition of the Australian
JORC code for mining disclosure, which contains requirements for
disclosure of exploration results that are similar to the final
requirements.\1312\ Because it is unclear to what extent the companies
in the study were able to selectively disclose only positive
exploration results, the results should mainly be viewed as evidence of
exploration results having significant informational value, rather than
implying that all exploration results would be met by positive stock
market reactions.\1313\
---------------------------------------------------------------------------
\1311\ See Ron Bird, Matthew Grosse, and Danny Yeung, ``The
market response to exploration, resources, and reserve announcements
by mining companies: Australian data'' (2013), Australian Journal of
Management, Volume 38, Issue 2, pp. 311-331.
\1312\ See JORC Code supra note 175, at pts. 16-18.
\1313\ We also note that the study does not provide results for
different sub-sectors of the mining industry (e.g., aggregates and
industrial materials) and therefore any inferences drawn may not be
true across all types of mining companies.
---------------------------------------------------------------------------
In terms of benefits to registrants, the final rules should help
limit compliance costs by more closely aligning the Commission's
disclosure requirements with CRIRSCO-based disclosure standards and may
reduce regulatory uncertainty by directly addressing the treatment of
material exploration results. As noted by one commenter, U.S.
registrants will be on a more equal footing if they are ``able to
disclose the potential value of their properties through the disclosure
of exploration results.'' \1314\
---------------------------------------------------------------------------
\1314\ See letter from Northern Dynasty.
---------------------------------------------------------------------------
While a registrant is required to base disclosure of exploration
results on information and supporting documentation provided by a
qualified person, the final rules do not require a technical report
summary for disclosure. A commenter noted that exploration results are
the basis of valuation for small exploration-stage and even some
development-stage issuers, so the ability to disclose exploration
results without incurring the cost of a technical report summary could
yield significant cost savings for such registrants.\1315\ Even larger
registrants--regardless of production stage--may wish to disclose
exploration results. In general, being able to disclose exploration
results without a technical report summary constitutes a cost saving of
the final rules relative to the proposed rules for any registrant. For
example, one commenter estimated costs in Canada and Australia to range
between $20,000 and $40,000 if a company has to hire a qualified person
working for a third-party consulting firm to prepare a technical report
in support of material exploration results.\1316\ Another commenter
also noted that, although exploration results support the disclosure of
mineral resources and mineral reserves, ``exploration results are the
only non-speculative information that an exploration program has.''
\1317\ We believe maintaining the requirement for a qualified person to
prepare the supporting documentation and analysis for material
exploration results without requiring the filing of a technical report
summary will promote meaningful disclosure without unduly burdening
registrants.
---------------------------------------------------------------------------
\1315\ See letter from Eggleston.
\1316\ See letter from SRK 1.
\1317\ See letter from Eggleston.
---------------------------------------------------------------------------
Due to the lack of data, heterogeneity among registrants, and
inability to know the precise tradeoffs faced by registrants, we are
not able to quantify the costs and benefits associated with requiring
registrants to disclose material exploration results. We expect an
increase in compliance costs for those registrants that disclose
material exploration results for the first time for any particular
project. These costs may include the assessment of materiality, the
costs of employing a qualified person to prepare the findings and
conclusions, and the costs of reporting the results in annual reports
and registration statements filed with the Commission. To the extent
that these costs are fixed and do not scale with the size of the
project, the cost burden may be relatively larger for smaller
registrants. We believe many registrants are already likely to engage
professionals who meet the definition of qualified person to conduct
exploration and to document and analyze exploration results, in which
case the additional compliance costs will be associated mainly with
producing required disclosures. In addition, the compliance costs
should be substantially mitigated for registrants that already report
according to CRIRSCO-based disclosure standards, as those standards
have similar disclosure requirements for material exploration results.
However, as Section 11 liability likely will lead professionals that
meet the definition of qualified person to demand increased
compensation for their services, costs also may increase for
registrants currently employing such professionals for exploration
activities, including those registrants that report in jurisdictions
with CRIRSCO-based disclosure standards.\1318\
---------------------------------------------------------------------------
\1318\ See supra Section IV.B.4.i.
---------------------------------------------------------------------------
Several commenters expressed concern that requiring the disclosure
of material exploration results could come at the cost of disclosing
commercially sensitive information or potentially violating
confidentiality agreements with joint venture partners and other mining
operators.\1319\ We acknowledge that disclosure of material exploration
results in this situation would impose costs for both registrants and
their investors. However, the final rules do not require the filing of
a technical report summary to support the disclosure of exploration
results, which may help mitigate concerns about disclosure of
commercially sensitive information. This is because such information is
more likely to be found in the technical report summary's detailed
disclosure requirements for exploration activity and exploration
results (compared to the disclosure required in the narrative part of
the Commission filing). We also note that the final requirement to
disclose material exploration results does not impose an affirmative
obligation to hire a qualified person to undertake the work necessary
to make a determination about exploration results for purposes of
disclosing such results in Commission filings.
---------------------------------------------------------------------------
\1319\ See supra note 371 and accompanying text.
---------------------------------------------------------------------------
A few commenters urged us to make disclosure of material
exploration results (and mineral resources) optional in all
cases.\1320\ Making disclosure of material exploration results (and
mineral resources) optional in all cases would reduce the costs
associated with developing the required documentation by a qualified
person and any costs associated with disclosing commercially sensitive
information, because registrants would only choose to disclose when it
is economically beneficial to do so. However, making disclosure
optional in all cases would
[[Page 66429]]
undercut the benefits of disclosure that the rules are intended to
achieve and would not align with CRIRSCO-based disclosure standards.
Under this alternative, investors could be deprived of material
information developed by the registrant for its own decision-making,
but that is not in the registrant's best interest to disclose. In
addition, where a registrant also produces disclosure in a jurisdiction
that adheres to CRIRSCO-based disclosure standards (and would thus
disclose such information), there could be a lack of comparability and
confusion among investors.
---------------------------------------------------------------------------
\1320\ See letters from Davis Polk and Royal Gold.
---------------------------------------------------------------------------
As noted above, the final rule will permit the disclosure of
exploration targets in Commission filings. This change more closely
aligns the final rule with CRIRSCO-based disclosure standards.
Moreover, allowing registrants to disclose exploration targets provides
registrants with a credible way to communicate value-relevant
information that could be important for investors' decision making.
This will put U.S. registrants on a more equal footing with other
registrants who may be able to disclose exploration targets in other
jurisdictions. In addition, as suggested by one commenter, exploration
targets may reflect a significant portion of the value of the company
for small registrants.\1321\ As such, permitting the disclosure of
exploration targets in Commission filings could reduce registrants'
cost of capital, especially for small registrants. Finally, registrants
will be able to provide investors with information in their Commission
filings that, due to the qualified person requirement, should be of
higher quality and reliability than if this information is otherwise
provided by the mining registrants outside Commission filings, such as
on company websites.
---------------------------------------------------------------------------
\1321\ See letter from Eggleston.
---------------------------------------------------------------------------
Because exploration targets may have no or limited empirical basis,
allowing the disclosure of exploration targets, even with cautionary
language, could result in misleading or confusing disclosures, causing
investors to misconstrue exploration targets as actual findings of
exploration results or even mineral resources. However, industry and
CRIRSCO definitions of exploration targets as well as the disclosure
requirements in the final rules \1322\ mitigate this risk of investor
confusion.
---------------------------------------------------------------------------
\1322\ See supra Section II.D.3.
---------------------------------------------------------------------------
As an alternative, we could have prohibited disclosure of
exploration targets in Commission filings. We note that such a
prohibition would not preclude a registrant from releasing the
information about exploration targets in other media (e.g., websites,
blog posts, newsletters, or analysts' discussions). Because exploration
targets could still be communicated by registrants outside of
Commission filings, the availability of such information without the
assurances provided by a qualified person requirement and the other
protections associated with Commission filings could put investors at
risk of being misled. Moreover, the benefits from allowing the
disclosure of exploration targets discussed above would be foregone.
6. Treatment of Mineral Resources
i. Mineral Resource Disclosure Requirement
The final rules provide that a registrant with material mining
operations must disclose specified information in its Securities Act
and Exchange Act filings concerning mineral resources that have been
determined based on information and supporting documentation from a
qualified person.\1323\ Absent such information and supporting
documentation, the registrant would not have determined mineral
resources as defined in the final rules and, as such, would not be
required or allowed to disclose mineral resources in a Commission
filing. Because disclosure of mineral resources is currently precluded
in Commission filings unless required pursuant to foreign or state law,
this provision will expand the scope of the current disclosure regime,
while aligning the Commission's mining disclosure requirements with
those in foreign jurisdictions that adopt CRIRSCO-based disclosure
standards. Industry participants have raised concerns regarding the
adverse competitive effects potentially stemming from the inability of
U.S. registrants to disclose mineral resources. These industry
participants have stated that mining companies and their investors
consider mineral resource estimates to be material and fundamental
information about a company and its projects.\1324\
---------------------------------------------------------------------------
\1323\ See supra Section II.E.1.iii.
\1324\ See supra Section II.E.1.ii.
---------------------------------------------------------------------------
We expect the final rules will result in investors gaining access
to additional useful information concerning a mining registrant's
operations and prospects, which will help improve their investment
decisions. Because mining registrants assess mineral resources in the
course of developing mining projects, requiring information about
mineral resources to be disclosed will significantly reduce information
asymmetries between investors and registrants and should lower
registrants' cost of capital, promote capital formation, and improve
the efficiency of investors' capital allocation.
As discussed above, allowing the disclosure of mineral resources is
consistent with CRIRSCO-based disclosure standards. Closer alignment
with international practice will enable U.S. registrants to provide
disclosure that more closely matches that of Canadian mining
registrants and non-U.S. mining companies that are subject to one or
more of the other CRIRSCO-based mining disclosure codes. As such, the
final rules will improve the ability of U.S. registrants to provide
valuable information that analysts and investors are accustomed to
receiving from non-U.S. companies, thus removing a competitive
disadvantage and placing U.S. registrants on a more equal footing with
non-U.S. registrants in terms of accessing capital markets. The ability
to disclose mineral resources in Commission filings may be particularly
beneficial to smaller exploration stage mining registrants (and their
investors) as their valuations may be more dependent on non-reserve
mineral deposits. The ability to disclose mineral resources may also
improve the attractiveness of U.S. capital markets for mining companies
more generally and encourage entry of new registrants, both domestic
and foreign, in particular exploration and development stage companies
that are not permitted to disclose mineral resources in filings with
the Commission under the current rules.\1325\
---------------------------------------------------------------------------
\1325\ Similar arguments were made by several commenters. See,
e.g., letters from Rio Tinto, SME 1, and SRK 1.
---------------------------------------------------------------------------
For registrants that currently disclose ``mineralized materials''
there should be a comparatively lower incremental reduction in
information asymmetries. Nonetheless, we expect the final rules to
result in disclosures that are more consistently presented and more
transparent to investors, thereby increasing comparability of such
information across mining registrants. For example, the differences
between measured and indicated mineral resources will be clearer under
the final rules since they are distinct and not aggregated as
mineralized material. In addition, the final rules require a registrant
with material mining operations to disclose inferred resources, which
are not included in the definition of mineralized material. The
requirement that disclosures must be supported by information and
[[Page 66430]]
documentation provided by a qualified person also will improve the
quality and reliability of the disclosures compared to the current
disclosures of mineralized material, which will benefit investors. To
the extent the above expected improvement in disclosure to investors
reduces information asymmetries, the efficiency of investment decisions
will increase and registrants that currently disclose mineralized
material may experience a reduction in the cost of capital.
There is some empirical evidence suggesting that investors respond
favorably to disclosures of mineral resources. For example, the
previously discussed study regarding the disclosure of exploration
results also analyzes the announcement returns to disclosures of
mineral resources.\1326\ Analyzing 624 resource announcements by 278
publicly-traded Australian firms between 2005 and 2008, the authors
document an average abnormal stock return of 2.5% on the announcement
day. As for the exploration results announcements, the abnormal return
was calculated relative to the return on the same day for a size-
matched non-announcing commodity peer. Unlike the announcements of
exploration results, the authors find no relation between company size
and abnormal returns. However, abnormal returns are significantly
greater when a mining company announces mineral resources for the first
time.\1327\ The authors suggest this may be the case because much of
the existing information asymmetry is resolved at the time of the first
announcement.
---------------------------------------------------------------------------
\1326\ See supra note 1311 and accompanying text.
\1327\ See supra note 1313 on the generalizability of the
results.
---------------------------------------------------------------------------
The final rules will generate compliance costs for registrants that
are required to disclose mineral resources. The incremental compliance
costs will be greater for registrants not currently disclosing
mineralized material. These include incremental costs (above the
registrant's regular mineral resource assessment practices) of an
initial assessment when first determining mineral resources and when
disclosing a material change to mineral resource estimates that have
been previously reported.\1328\
---------------------------------------------------------------------------
\1328\ See supra Section IV.B.4.i., for discussion of the
additional search costs and compensation costs that registrants also
may incur.
---------------------------------------------------------------------------
The compliance costs associated with disclosure of mineral
resources may be mitigated to some extent for registrants that report
in foreign jurisdictions with CRIRSCO-based disclosure codes given the
similarity between the requirements in those codes and the final rules.
In this regard, however, although all CRIRSCO-based disclosure codes
require some type of documentation to support the determination and
disclosure of mineral resources, most do not define a specific type of
study. As such, the final requirement for an initial assessment
(discussed further below) could result in increased burdens for these
mining registrants to the extent that the initial assessment differs
from registrants' prior practices for determining resources. To the
extent industry practice in other jurisdictions is already largely
consistent with CRIRSCO-based disclosure standards, whether or not such
jurisdictions' disclosure codes are based on those standards, the
marginal increase in costs to comply with the final rules is likely to
be limited and to comprise a one-time switching cost to new disclosure
formats and terminology, though this new terminology reflects current
industry practice and usage.
ii. Definition of Mineral Resource
We are adopting the definition of mineral resource, as proposed, to
mean a concentration or occurrence of material of economic interest in
or on the Earth's crust in such form, grade or quality, and quantity
that there are reasonable prospects for economic extraction.\1329\ This
definition generally aligns with the definition used in CRIRSCO-based
disclosure standards and industry practice, and should therefore
benefit investors by making the disclosure of mineral resources by U.S.
mining registrants comparable to the disclosures in foreign
jurisdictions.
---------------------------------------------------------------------------
\1329\ See supra Section II.E.2.
---------------------------------------------------------------------------
We do not expect the adopted definition of mineral resources to
impose any significant compliance costs, by itself, on registrants who
are currently estimating mineral resources based on a similar
definition for internal purposes and for reporting in foreign
jurisdictions with CRISCO-based mining disclosure requirements. To the
extent that registrants do not currently estimate resources similar to
the definition in the final rules, they may incur incremental costs
from having to change their estimation practices to meet the specific
definition of mineral resources in the final rules. We note that these
costs would need to be incurred only insofar as such registrants desire
to disclose mineral resources in Commission filings. Registrants that
find the benefit of disclosing mineral resources does not exceed the
costs of determining mineral resources according to the definition in
the final rules have no obligation to do so. It is possible to engage
in mineral production without disclosing mineral resources or mineral
reserves. Such issuers, however, absent any other material mineral
reserves, would be classified as exploration-stage issuers. Registrants
that currently find disclosure of mineral reserves to be valuable will
have to incur the cost of determining and disclosing mineral resources
in order to disclose mineral reserves. We believe, however, that it is
reasonable to expect a mining industry participant that wishes to
monetize mineral material (that could be disclosed as a mineral
resource) would choose to determine the value of the mineral material,
especially if the company is currently estimating and disclosing
mineral reserves.
As an alternative to the final rules, we could have excluded
mineral brines from the definition of mineral resource, as suggested by
several commenters.\1330\ This would further align our definition with
CRIRSCO-based standards, which define a mineral resource as ``solid
material,'' and could reduce compliance costs for registrants
extracting minerals brines, especially if they are also reporting in
jurisdictions where mineral brines do not need to be included in
disclosure of mineral resources. To the extent the industry practice
regarding extracting mineral brines is different from the industry
practice of extracting solid minerals, subjecting such firms to a
disclosure regime developed for solid mineral extraction may increase
compliance costs related to reporting. However, as discussed above,
mineral brines are regulated under Canada's NI 43[dash]101 code by at
least one Canadian provincial securities administrator,\1331\ which
suggests it may not be outside industry practice to treat extraction of
mineral brines in a similar way to extraction of solid minerals. In
addition, the scientific and engineering principles used to
characterize mineral brine and resources and reserves are substantially
similar to those used to characterize solid mineral resources and
reserves, and Guide 7 has been applied historically to registrants that
own or operate mining properties containing mineral brines.\1332\
Therefore, excluding mineral brines from the definition of mineral
resource could result in investors receiving less information about
these resources than under the current disclosure framework.
---------------------------------------------------------------------------
\1330\ See supra note 479 and accompanying text.
\1331\ See supra note 502 and accompanying text.
\1332\ See supra Section II.E.2.iii.
---------------------------------------------------------------------------
iii. Classification of Mineral Resources
We are adopting the proposed requirement that a registrant with
[[Page 66431]]
material mining operations classify its mineral resources into
inferred, indicated, and measured mineral resources, in order of
increasing confidence based on the level of underlying geological
evidence.\1333\ This more closely aligns the Commission's disclosure
framework for mining registrants with CRIRSCO-based disclosure
standards. We do not expect this requirement to result in significant
compliance costs for registrants.
---------------------------------------------------------------------------
\1333\ See supra Section II.E.3.
---------------------------------------------------------------------------
Estimates of mineral resources are associated with a greater
geological uncertainty than estimates of mineral reserves. As discussed
above, geological uncertainty is a crucial factor in a registrant's
determination of mineral resources.\1334\ As such, the classification
of mineral resources in the final rules, which is based on the level of
geological uncertainty, will benefit investors by helping them better
assess the uncertainty surrounding mineral resource estimates.
---------------------------------------------------------------------------
\1334\ See supra Section II.E.3.iii.
---------------------------------------------------------------------------
The adopted definition of inferred mineral resource provides that
the level of geological uncertainty associated with an inferred mineral
resource is too high to apply relevant technical and economic factors
likely to influence prospects of economic extraction in a manner useful
for evaluation of economic viability.\1335\ This change from the
proposal will make the adopted definition substantially similar to the
definition under CRIRSCO-based disclosure standards, further increasing
the comparability of registrants' mineral resource disclosures with
those in foreign jurisdictions.
---------------------------------------------------------------------------
\1335\ See id.
---------------------------------------------------------------------------
Despite the low level of geological confidence in inferred
resources, we believe investors' understanding of a registrant's mining
operations will be increased by the required disclosure of inferred
resources because these resources may be converted into indicated or
measure mineral resources. However, such disclosure could lead to
inefficient capital allocation decisions if investors overestimate the
value of these resources. The risk that investors will overestimate the
value of inferred resources is mitigated by the fact that the
definition of inferred resources clearly indicates to investors that
these are the mineral resources with the highest degree of geological
uncertainty. Moreover, registrants are precluded from using inferred
mineral resources as a direct basis for determining mineral reserves
(they would first have to be converted into indicated or measured
mineral resources). Therefore, registrants will have limited incentive
to aggressively report inferred resources, because the likelihood that
these mineral resources will ultimately be determined to be mineral
reserves in the future is low.
The final rules do not require that a qualified person quantify the
minimum percentage of inferred mineral resources he or she believes
will be converted to indicated and measured mineral resources with
further exploration. The final rules also do not require the qualified
person to disclose the uncertainty associated with indicated and
measured mineral resources by providing the confidence limits of
relative accuracy, at a specific confidence level, of the preliminarily
estimated production quantities per period derived from these
resources.\1336\ Although this approach for reporting the level of
uncertainty is consistent with current practice in the industry,\1337\
several commenters indicated that it could be impractical or
inappropriate, unduly burdensome, and costly for many
registrants.\1338\ The less prescriptive approach we are adopting will
avoid these potential costs. It will also mitigate potential
misinterpretation of the information by investors, who--under the more
prescriptive approach--might have misconstrued information to be more
precise than it, in fact, is. In turn, investors may have made
insufficiently informed decisions, leading to inefficient capital
allocation. Additionally, the final rule will ensure greater
consistency with CRIRSCO-based disclosure standards. As noted
elsewhere, consistency with CRIRSCO-based disclosure standards reduces
the compliance burden and costs associated with duplication of effort
for registrants who are required to provide disclosure in multiple
jurisdictions. Consistency also reduces the scope for investor
confusion arising from differing standards of disclosure in different
jurisdictions and the costs of gathering and processing information for
investors.
---------------------------------------------------------------------------
\1336\ See supra Section II.E.3.iii.c.
\1337\ See supra note 531 and accompanying text, affirmed by SME
1.
\1338\ See, e .g., letters from CBRR, MMSA, Rio Tinto, SME 1,
and Vale.
---------------------------------------------------------------------------
iv. Initial Assessment Requirement
Mineral resource disclosures must be supported by an initial
assessment by a qualified person. This assessment, at a minimum, must
include a qualitative evaluation of technical and economic factors to
establish the economic potential of the mining property or
project.\1339\ Compared to the proposed rule, which required the
application of modifying factors, the final rule is closer to CRIRSCO-
based disclosure codes. The initial assessment requirement--by
supporting the disclosure of mineral resources--yields the benefits
noted above from permitting the disclosure of mineral resources and
serves to improve the accuracy and reliability of the mineral resource
estimates for investors.\1340\ The term ``initial assessment'' varies
from the term ``resource report,'' as is commonly used in jurisdictions
adhering to CRIRSCO-based disclosure standards. As noted by some
commenters,\1341\ this variation, in addition to other minor
differences, could create uncertainty for registrants. However, given
that the final rules are in much greater alignment with CRIRSCO-based
disclosure standards, we do not expect these differences to result in
significant additional compliance burdens for the majority of
registrants reporting in jurisdictions adhering to CRIRSCO-based
disclosure standards.
---------------------------------------------------------------------------
\1339\ See supra Section II.E.4.
\1340\ See supra Section IV.B.6.i.
\1341\ See letters from AngloGold, BHP, Eggleston, MMSA, and SRK
1.
---------------------------------------------------------------------------
However, some registrants may face duplication costs or additional
compliance costs to the extent that the different requirements are not
interchangeable or do impose additional requirements. For example,
since the final rules require qualified persons who choose to include
inferred mineral resources in cash flow analysis in an initial
assessment to disclose the results of the analysis with and without
inferred mineral resources,\1342\ which is not required by Canada's NI
43-101, a registrant that is dual-listed in Canada may be required to
conduct the extra analysis and produce further documentation to comply
with both disclosure standards. In these situations, there could be a
cost to investors in terms of processing information, as investors may
be unsure of how to reconcile and interpret differences. However, if
the differences (e.g., analysis with and without inferred resources) in
the final rules vis-[agrave]-vis CRIRSCO-based disclosure standards
enhance the quality of disclosure, then investors will benefit.
---------------------------------------------------------------------------
\1342\ See Item 1302(d)(4)(ii) of Regulation S-K.
---------------------------------------------------------------------------
An alternative suggested by some commenters is to not define
``initial assessment,'' but instead adopt the standard used in CRIRSCO-
based codes to make determinations of mineral resources. It is
difficult to assess whether this alternative would result in lower
costs for registrants since CRIRSCO-based disclosure standards do
[[Page 66432]]
not prescribe the specific requirements that a technical report must
satisfy to support a determination of resources. For registrants not
disclosing under CRIRSCO-based disclosure codes, there is likely to be
no significant difference in the additional costs between adopting the
final rules or simply adopting CRIRSCO-based disclosure standards.
However, for registrants that already provide disclosure of resources
in jurisdictions that conform to CRIRSCO-based disclosure standards,
there may be lower compliance costs under this alternative to the
extent the initial assessment requirement is different from the type of
study the registrants currently conduct to determine and support
disclosure of mineral resources.
In a change from the proposed rules in response to comments
received, we are not requiring that the qualified person use a
commodity price that is no higher than the average spot price during
the 24-month period prior to the end of the last fiscal year, unless
prices are defined by contractual arrangements.\1343\ The final rules
instead provide that, when estimating mineral prices, the qualified
person must use a price assumption that is current as of the end of the
registrant's most recently completed fiscal year for each commodity
that provides a reasonable basis for establishing the prospects of
economic extraction for mineral resources.\1344\ Similar to the
proposed rules, the qualified person may use a price set by contractual
arrangement, provided that such price is reasonable, and that the use
of such a contractual price is disclosed.\1345\
---------------------------------------------------------------------------
\1343\ See supra Section II.E.4.iii.
\1344\ See Item 1302(d)(2) of Regulation S-K.
\1345\ See id. We are also adopting this estimated pricing
methodology for the determination and disclosure of mineral
reserves. See infra Section II.F.
---------------------------------------------------------------------------
Providing greater flexibility in the methodology used for
estimating prices will bring the Commission's requirements closer to
global industry practice as well as the practice that registrants use
for economic decision-making.\1346\ In this regard, the final rules
will allow registrants to use the same prices for disclosing mineral
resources in Commission filings as they do for their own internal
management purposes and when reporting in CRIRSCO-based jurisdictions,
which should significantly limit the compliance costs of the final
rules while allowing the qualified person to exercise professional
judgment commensurate and consistent with the regulatory intent of the
qualified person requirement. A potential cost of the increased
flexibility of the final rules is that registrants may use this
discretion to select overly optimistic prices, which the proposed rules
restricted through a ceiling price feature. Overly optimistic prices
may mislead investors about the actual prospects of the mining
operations by inflating the value of the estimated mineral resources.
Any tendency for registrants to select overly optimistic prices in an
attempt to inflate estimates is mitigated under the final rules by the
requirement that the qualified person disclose the price used and
explain his or her reasons for selecting the particular price,
including the material assumptions underlying the selection.
---------------------------------------------------------------------------
\1346\ See supra note 651.
---------------------------------------------------------------------------
An alternative to the final rule would be to require registrants
also to provide a sensitivity analysis of the estimates of mineral
resources and reserves with respect to the commodity price used, where
the price points used in the sensitivity analysis surrounding the base
price would be selected by the registrant. A sensitivity analysis with
respect to price would help investors better assess the price risk
associated with the estimated mineral resources and reserves and could,
therefore, lead to more informed investment decisions. However, because
a sensitivity analysis would require registrants to calculate at least
three estimates of resources and reserves (the base prices, as well as
one price each above and below the base price, respectively),
compliance costs would be higher than under the final rules. These
compliance costs would be mitigated to the extent that registrants are
able to use estimates based on existing calculations from an internal
sensitivity analysis.
Another alternative would be to use a ceiling price model as in the
proposed rules, but calculate the ceiling price differently, for
example, as spot, forward, or futures price as of the end of the last
fiscal year to incorporate more quickly shifts in price trends.
However, due to the volatility associated with prices from any given
specific day, the disclosed estimates of mineral resources and reserves
may fluctuate more than the underlying fundamental values of the
resources and reserves, thus increasing the uncertainty of the
estimates for investors. The higher volatility of this alternative
ceiling price may create even higher compliance costs as registrants
may have to provide more frequent recalculations of their mineral
resources and reserves, solely for the purpose of their SEC filings.
7. Treatment of Mineral Reserves
i. Framework for Determining Mineral Reserves
We are revising, as proposed, the definition of mineral reserves to
align it with CRIRSCO-based disclosure standards by requiring that a
qualified person apply defined modifying factors to indicated and
measured mineral resources in order to convert them to mineral
reserves.\1347\ The adopted framework requires a registrant's
disclosure of mineral reserves to be based on a qualified person's
detailed evaluation of the modifying factors as applied to indicated or
measured mineral resources, which would demonstrate the economic
viability of the mining property or project. The final rules require
disclosure of reserves to be based on the work of a qualified
person.\1348\ Because the adopted treatment of mineral reserves is
consistent with established practices in the mining industry, we do not
expect a significant increase in compliance costs for most registrants
beyond the potential cost increases related to the qualified person
requirement and the filing of the technical report summary, as
discussed above.
---------------------------------------------------------------------------
\1347\ See supra Section II.F.1.iii.
\1348\ See id.
---------------------------------------------------------------------------
In a change from the proposed rules, the adopted definition of
mineral reserve provides that a mineral reserve includes diluting
materials and allowances for losses that may occur when the material is
mined or extracted.\1349\ In response to commenters' concerns, we have
adopted this change to make the definition consistent with the
comparable definition in CRIRSCO-based disclosure standards, and to
remove an inconsistency in the proposed rules.\1350\ By removing this
inconsistency and more closely aligning with CRIRSCO-based disclosure
codes, the final rules will facilitate compliance and avoid potential
confusion for registrants and investors.
---------------------------------------------------------------------------
\1349\ See the definition of mineral reserve in 17 CFR 229.1300.
\1350\ See supra note 768 and accompanying text.
---------------------------------------------------------------------------
In another change to the proposed rules, as a result of comments
received, the final rules no longer define modifying factors to include
factors used to establish the economic prospects of mineral resources.
Instead, the adopted definition provides that modifying factors are the
factors that a qualified person must consider applying to indicated and
measured resources and then evaluate in order to establish the economic
viability of mineral
[[Page 66433]]
reserves.\1351\ This change is consistent with the change made to the
initial assessment requirement, which no longer requires application of
the modifying factors at the resource determination stage.\1352\
Referencing modifying factors solely in the context of mineral reserve
determination aligns the final rules with CRIRSCO-based disclosure
standards, which will benefit registrants and investors by clarifying
the level of analysis required at the resource determination stage.
---------------------------------------------------------------------------
\1351\ See the definition of modifying factors in 17 CFR
229.1300.
\1352\ See supra Section II.E.4.
---------------------------------------------------------------------------
In response to comments received, the final rules no longer require
the qualified person to use a price that is no higher than the 24-month
trailing average price, as proposed. Instead, the qualified person must
use a price for each commodity that provides a reasonable basis for
establishing that the project is economically viable. The qualified
person will be required to explain his or her reasons for selecting the
price and the underlying material assumptions regarding the
selection.\1353\ We expect the same economic effects related to the
final pricing requirement for mineral reserves estimation as those
discussed in relation to the final pricing requirement for mineral
resources estimation.\1354\
---------------------------------------------------------------------------
\1353\ See supra Section II.F.2.
\1354\ See supra Section IV.B.6.iv.
---------------------------------------------------------------------------
In addition, because of this change from the proposed rules, the
final rules will fully allow the use of different prices for estimation
of mineral resources and mineral reserves by not imposing a price
ceiling, which would otherwise require the prices to be the same when
the ceiling is binding. As noted by commenters,\1355\ the use of
different prices for resources and reserves is a common industry
practice. A registrant develops prices and other financial inputs that
align with its expected operational schedule. The timeframes for
development of resources can differ significantly compared to those for
reserves. For these reasons, the removal of a price ceiling will
benefit registrants by giving the qualified person more flexibility
than under the proposed rules to use different prices for estimation of
resources and reserves.
---------------------------------------------------------------------------
\1355\ See letters from AIPG, Alliance, Amec, AngloGold, BHP,
CBRR, CRIRSCO, Eggleston, MMSA, Rio Tinto, SAMCODES 1, SME 1, SRK 1,
Vale, and Willis.
---------------------------------------------------------------------------
ii. The Type of Study Required To Support a Reserve Determination
The final rules permit registrants to disclose mineral reserves
based on a pre-feasibility study rather than a feasibility study as
required by current practice. In a change from the proposed rules, we
are not requiring the qualified person to justify the use of a pre-
feasibility study in lieu of a feasibility study.\1356\ In addition, we
are not requiring the use of a feasibility study in high-risk
situations as required by the proposed rules. Under the final rules,
the qualified person will determine the appropriate level of study
required to support the determination of mineral reserves under the
circumstances based on his or her professional judgment.\1357\
---------------------------------------------------------------------------
\1356\ See supra Section II.F.2.
\1357\ See supra note 845 and accompanying text.
---------------------------------------------------------------------------
Pre-feasibility studies, while adequate for disclosure of mineral
reserves, require less time to produce than feasibility studies. For
example, one study estimates that between 12% and 15% of the
engineering work on a project is completed by the end of the pre-
feasibility study compared to between 18% and 25% at the end of the
feasibility study.\1358\ One commenter, a professional mining
consulting company, provided cost estimates for a third-party qualified
person producing and filing technical reports in support of disclosure
of reserves in Canada and Australia.\1359\ For technical reports based
on a pre-feasibility study the estimated cost range is $200,000-
$500,000, whereas for technical reports based on a feasibility study,
this commenter estimated the cost range to be $500,000-
$1,500,000.\1360\ Another commenter, a large multinational foreign
private issuer, stated that: ``For major projects, Pre-Feasibility
Studies can cost around 30 to 50% of the cost of Feasibility Studies.''
\1361\ These estimates suggest that a pre-feasibility study will be
significantly less costly than a feasibility study, but also that there
is significant variability in the relative cost of pre-feasibility
studies compared to feasibility studies.
---------------------------------------------------------------------------
\1358\ See Richard L. Bullock, ``Mineral Property Feasibility
Studies,'' in 1 SME Mining Engineering Handbook, at 227-261.
\1359\ See letter from SRK 1.
\1360\ These cost estimates are from a single comment letter,
and we lack other data by which we can evaluate or verify these
estimates. However, we use these cost estimates to generally
illustrate the potential magnitude of the aggregate cost savings to
all mining registrants from the permitted use of pre-feasibility
studies. For example, assuming the 267 current mining registrants on
average determines reserves on one property per year, if they use a
feasibility study, the aggregate cost would be $267 million at the
mid-range value of the estimated cost of a feasibility study (267 x
$1,000,000). If they instead use a pre-feasibility study, the
aggregate cost would be $97.5 million at the mid-range value of the
estimated cost of a pre-feasibility study (267 x $350,000), which
would represent aggregate cost savings of approximately $170 million
relative to completing a feasibility study.
\1361\ See letter from Rio Tinto.
---------------------------------------------------------------------------
Allowing pre-feasibility studies may be especially beneficial for
registrants that already have studies meeting the pre-feasibility
standard, but not the feasibility standard. The lower cost may also
benefit smaller registrants more to the extent they are likely to be
more capital constrained than larger registrants and to the extent
feasibility studies are associated with greater fixed costs. Allowing
the use of pre-feasibility studies may therefore facilitate disclosures
of mineral reserves by smaller registrants, which should be beneficial
both to the registrants and investors.
In addition to compliance cost savings, allowing the use of pre-
feasibility studies could provide several ancillary benefits for
registrants and investors. Because CRIRSCO-based disclosure standards
already allow the use of pre-feasibility studies, allowing their use
under the final rules will place U.S and non-Canadian foreign
registrants on an equal footing with Canadian registrants availing
themselves of the ``foreign or state law'' exception and with other
mining companies reporting only in jurisdictions using CRIRSCO-based
disclosure standards. Thus, allowing the use of a pre-feasibility study
will allow U.S. and non-Canadian foreign registrants to avoid producing
studies that they find unnecessary and, consequently, to avoid
compliance costs that could place them at a competitive disadvantage.
The final rules allow a qualified person to exercise the same
discretion as qualified persons in other jurisdictions, thus providing
a level of rigor appropriate for internal economic decision making and
for investors. Finally, the detailed requirements for feasibility
studies should facilitate compliance, while increasing consistency in
disclosures where feasibility studies are used to determine mineral
reserves.
A pre-feasibility study is typically associated with a lower
confidence level than a feasibility study. Therefore, allowing the use
of pre-feasibility studies may lead to higher uncertainty associated
with mineral reserve disclosures. The greater uncertainty associated
with the lower level of rigor of a pre-feasibility study vis-[agrave]-
vis a feasibility study may lead to less accurate or less complete
information being disclosed to investors, thus decreasing investors'
ability to make efficient investment decisions. However, we note that
the registrant has incentives to choose the level of rigor that is
appropriate for its own economic
[[Page 66434]]
decision making, and that is needed to attract investors and lower its
cost of capital. We expect that registrants will balance the benefits
(including the reduced costs of capital) of a feasibility study against
the incremental cost of producing such a study (vis-[agrave]-vis a pre-
feasibility study). Therefore, we expect some registrants will still
find it beneficial to conduct feasibility studies in support of
determination of mineral reserves, just as mining companies in other
jurisdictions using CRIRSCO-based disclosure rules sometimes choose
feasibility studies to support mineral reserve determination.
Moreover, several aspects of the final rules mitigate the risk
resulting from permitting the use of a pre-feasibility study to support
the determination and disclosure of mineral reserves.\1362\ For
example, a qualified person cannot convert an inferred mineral resource
to a mineral reserve without first obtaining new evidence that
justifies converting it to an indicated or measured mineral resource.
This will help limit the uncertainty of mineral reserve estimates based
on a pre-feasibility study. Another example is the provision that
requires that the pre-feasibility study identify sources of uncertainty
that require further refinement in a final feasibility study. The
disclosure of these sources of uncertainty will help investors assess
the risk of the mineral reserve estimates based on a pre-feasibility
study. A third example is the requirement that the qualified person
will have to perform additional evaluative work in high-risk situations
to meet the level of certainty required for a pre-feasibility
study.\1363\
---------------------------------------------------------------------------
\1362\ See supra II.F.2.iii.
\1363\ See supra II.F.2.iii.
---------------------------------------------------------------------------
Similar to the proposal, the final rules provide that a pre-
feasibility or feasibility study must define, analyze, or otherwise
address in detail, to the extent material, various factors such as
environmental regulatory compliance, the ability to obtain necessary
permits, and other legal challenges that can directly impact the
economic viability of a mining project. Some commenters objected to
this aspect of the proposed rules, with one commenter urging the
Commission to remove these factors due to the potential for duplication
or imposition of new, burdensome requirements.\1364\ Another commenter
noted that there are other regulatory agencies for such concerns,\1365\
while other commenters observed that the factors are outside of the
expertise of most qualified persons.\1366\ Because registrants may
already incorporate some of these concerns into the permitting process
with state, federal, and other regulators, analyzing such items would,
as noted above, impose a duplication cost. However, as suggested by
commenters concerned with duplication, consideration of these factors
is already part of industry practice. Moreover, investors may benefit
from the discussion and analysis of these factors, as they become
better informed about relevant constraints that face the registrant and
that may decrease or eliminate the value of a registrant's project.
This, in turn, would allow investors to incorporate this non-
operational, but value-relevant, information into their decision
making, thereby reducing information asymmetries between investors and
registrants. In addition, modifications to this requirement, such as
adding a materiality qualifier and simplifying and clarifying the
description of the factors, will help mitigate any additional costs for
registrants.
---------------------------------------------------------------------------
\1364\ See letter from NMA 2.
\1365\ See letter from SME 1.
\1366\ See letters from AIPG, Amec, CIM, Davis Polk, Energy
Fuels, FCX, NMA 2, SASB, SME 1, and Ur-Energy.
---------------------------------------------------------------------------
As noted by several commenters,\1367\ some mining sectors are not
as complex as others, allowing them to make reserve (or resource)
determinations with more focus on modifying factors that ``may be
significantly more critical than geoscientific knowledge of the deposit
in determining mineral resources and mineral reserves.'' \1368\ One
coal mining company, in particular, objected to the requirement for
either a pre-feasibility or feasibility study for reserve determination
on the grounds that it would cost ``several million dollars'' without
providing a benefit \1369\ and also asserted that public disclosure of
information contained in those studies would likely cause it
competitive harm.\1370\ To address concerns that certain registrants'
practices do not meet industry standards for mineral reserves
determination, one alternative to the final rules, as suggested by one
commenter \1371\ would be to allow reliance on on-going operations or
other internally developed analyses, which may be less rigorous than
the final rules' requirements to support a mineral reserves
determination for certain less complex operations (e.g., coal and
certain industrial minerals such as aggregates). Such an alternative
would impose no additional costs on these registrants. To the extent
that such an accommodation would not diminish the value of information
that investors receive vis-[agrave]-vis the requirements of the final
rules, investors will not experience a reduction in benefits compared
to the baseline. However, this alternative could come at a cost of the
decreased rigor relative to that contained in a pre-feasibility or
feasibility study that meets the requirements of the final rules. This
lack of rigor may deprive investors of information that would better
inform their investment decisions. Moreover, any such accommodations
would dilute the harmonization efforts of the new rules.
---------------------------------------------------------------------------
\1367\ See letters from AIPG, Alliance, NSSGA 1, and NSSGA 2.
\1368\ See letter from AIPG.
\1369\ See supra note 851 and accompanying text.
\1370\ See supra note 852 and accompanying text.
\1371\ See letter from Alliance. The commenter states that
``coal companies operating in well-defined coal fields'' do not
conduct ``formal studies'' because ``on-going operations provide all
the feasibility information that is required.'' In such cases, it
appears that the information required for a feasibility study (not
to mention a pre-feasibility study) is already available. Moreover,
the commenter acknowledges that ``coal companies have sufficient
technical expertise on staff,'' ``the majority of reserve estimate
reports prepared for the coal industry meet all the qualifications
outlined in the proposal to define a qualified person,'' and ``A
very large number of qualified persons are available to perform this
work [resource and reserve determination under USGS Circulars 831
and 891],'' suggesting that coal companies already employ qualified
persons who could readily prepare a pre-feasibility or feasibility
study with extant information.
---------------------------------------------------------------------------
8. Specific Disclosure Requirements
i. Requirements for Summary Disclosure
Guide 7 does not explicitly address what disclosure should be
provided when a registrant has multiple mining properties. The final
rules require that registrants that own or otherwise have economic
interest in multiple mining properties provide summary disclosure of
their mining operations.\1372\
---------------------------------------------------------------------------
\1372\ See supra Section II.G.1.
---------------------------------------------------------------------------
We expect that, for registrants with material mining operations,
requiring an overview of their mining operations, regardless of whether
they have material individual properties, will be useful to investors
and help foster more efficient and effective disclosure. The
information required to be disclosed aligns with what most registrants
already provide in their SEC filings, but the requirement will ensure
that the summary information is provided by all registrants, thereby
incrementally improving comparability across registrants. We believe
the summary disclosure requirement will in particular be beneficial to
investors in the cases where no individual mining property is material
to the registrants but the mining operations in aggregate are material.
In these cases, the summary disclosure requirement will
[[Page 66435]]
help ensure that investors are provided with at least an overview of
the registrant's mining operations that can help them make investment
decisions.
More specifically, we believe that the summary disclosure of
mineral resources and mineral reserves operations at fiscal year's end
will provide investors with information that is relevant for their
valuation of registrants' mining operations.\1373\ For example, the
required breakdown of the mineral resources and reserves by category
and source (geographic area and property) will provide investors with
information helpful for assessing the risk of mining operations. In a
change from the proposed rules, and consistent with some commenters'
suggestion,\1374\ the final rules require registrants to use separate
tables when reporting mineral resources and reserves. This change will
increase the clarity of the presented information about mineral
resources and reserves while reducing the potential for confusion among
investors.
---------------------------------------------------------------------------
\1373\ See supra note 955 and accompanying discussion.
.
\1374\ See supra note 931 and accompanying text.
---------------------------------------------------------------------------
The summary disclosure requirement will increase costs for
registrants, albeit to a varying degree. Given that the requirement for
summary disclosure in the final rules largely aligns with what most
registrants already provide in their SEC filings, we expect any
increase in costs to be limited for such registrants. For registrants
that do not already provide summary disclosure, whether reporting
pursuant to Guide 7 or under any of the CRIRSCO-based codes, there
could be additional costs to comply with the summary disclosure
requirements.
Based on the concern of some commenters that the proposed summary
disclosure requirements were too prescriptive,\1375\ the final rules
have been revised to be more flexible and provide for discretion in
choice of format for disclosure. For example, instead of requiring a
presentation in tabular form of certain specified information about the
20 properties with the largest asset values, the final rules will
permit a registrant to present an overview of its mining properties and
operations in either narrative or tabular format.\1376\ The less
prescriptive nature of this requirement should reduce the reporting
burden for registrants and could also result in more useful information
being disclosed to investors as registrants can tailor the disclosure
more to their own specific circumstances. This change will also align
the summary disclosure requirements in the final rules more closely
with the CRIRSCO-based disclosure standards.\1377\
---------------------------------------------------------------------------
\1375\ See, e.g., supra note 923 and accompanying text.
\1376\ See supra Section II.G.1.iii.
\1377\ See id.
---------------------------------------------------------------------------
A more prescriptive approach, such as in the proposed rules, which
may have relatively increased comparability, would have reduced each
registrant's ability to capture the specific circumstances of their
operations in the disclosure, and could have imposed additional costs
to registrants in preparing supplemental clarifying disclosure. As
several commenters indicated, due to the diversity of operations in the
mining industry, much of the required data will be specific to each
registrant.\1378\
---------------------------------------------------------------------------
\1378\ See supra note 925 and accompanying text.
---------------------------------------------------------------------------
An alternative to the proposed summary requirements would be to
also require the disclosure required in Tables 1 and 2 to paragraph (b)
of Item 1303 to be made available in a structured data format, such as
XBRL. When registrants provide disclosure items in a structured data
format, investors and other data users (e.g., analysts) can easily
retrieve and use the information reported by registrants and perform
comparisons. Because the final rules permit tailoring of the
disclosures in Tables 1 and 2 to paragraph (b) of Item 1303 to
registrants' unique facts and circumstances and provide filers with
some flexibility in how to report the required information, the
usefulness of requiring the data in these tables to be made available
in the XBRL format will be decreased. As discussed above, several
commenters indicated that much of the required data would be specific
to each registrant.\1379\ For these reasons we believe such a
requirement would provide limited benefit to investors while increasing
the compliance burden on registrants.
---------------------------------------------------------------------------
\1379\ Id.
---------------------------------------------------------------------------
ii. Requirements for Individual Property Disclosure
We are adopting, with some modifications, the proposed requirement
that a registrant with material mining operations must disclose certain
information about each property that is material to its business or
financial condition.\1380\ The items required to be disclosed for
material individual properties are substantially similar to items
called for by Item 102 of Regulation S-K and Guide 7.\1381\ Also, these
disclosures are substantially similar to what is called for under
CRIRSCO-based disclosure standards.\1382\ However, we expect the
individual disclosure requirements in the final rules will increase the
amount and type of individual property information that registrants
disclose. Much of this new information will be a direct consequence of
the requirements in the final rules to disclose material exploration
results and mineral resources. Another new item of information will be
the required comparison of a registrant's mineral resources and mineral
reserves as of the end of the last fiscal year against the mineral
resources and mineral reserves as of the end of the preceding fiscal
year, with an explanation of any change between the two.\1383\
---------------------------------------------------------------------------
\1380\ See supra Section I.G.2
\1381\ See supra note 1033
\1382\ See supra note 1034.
\1383\ See supra Section II.G.2.iii.
---------------------------------------------------------------------------
The requirement for individual property disclosure in the final
rules will benefit investors by providing more consistency in mining
registrants' disclosures and increasing the amount of information about
registrants' material mining properties available to investors, thereby
improving their ability to assess the value and risk of these
properties. By helping investors gain a more comprehensive
understanding of a registrant's mining operations beyond the
information provided in the summary disclosure, investors should be
able to better assess the value and the risk associated with a
registrant's material mining properties. In a change from the proposed
rules, and for the same reasons as the corresponding change to the
summary disclosure requirement, the final rules require registrants to
use separate tables when reporting mineral resources and mineral
reserves for material properties. As in the case of summary disclosure,
we believe this change will reduce the potential for confusion among
investors.
We expect that the individual property disclosure requirement will
result in additional compliance costs for registrants to the extent
they do not currently disclose substantially similar information. In
particular, because the required year-over-year comparison of a
registrant's mineral resources and reserves is not required by Guide 7,
we expect registrants that are not currently complying with foreign
codes requiring such disclosure to incur additional compliance costs
related to this requirement. We expect the incremental compliance costs
associated with property disclosure in Commission filings will be the
largest the first time registrants prepare the disclosure and then may
decline over time because companies should only incur the costs
[[Page 66436]]
to update their systems and procedures to collect and format the
required information once, and thereafter will only have to update the
reported information.
Based on the concern of some commenters that the proposed
individual property disclosure requirements were too
prescriptive,\1384\ the final rules have been revised to be more
flexible and provide for discretion in choice of format for disclosure.
In particular, the removal of the requirement for tabular formats for
several of the required disclosures, including the year-over-year
comparison of mineral resources and mineral reserves, will reduce
compliance costs for registrants relative to the proposed rules, while
still eliciting useful information for investors.\1385\ The individual
property disclosure requirement in the final rules is also more closely
aligned with the CRIRSCO-based disclosure standards than the proposed
rules, which should help limit the burden for registrants that are
subject to one or more of the other CRIRSCO-based mining disclosure
codes. For example, as with the summary disclosure requirement, the
final rules provide that a qualified person must base each mineral
resource and mineral reserve estimate on a reasonable and justifiable
price, which will allow registrants to use the same prices for
disclosing mineral resources and mineral reserves in Commission filings
as they do for their own internal management purposes and when
reporting in CRIRSCO-based jurisdictions.
---------------------------------------------------------------------------
\1384\ See supra note 982 and accompanying text.
\1385\ See supra Section II.G.2.iii.
---------------------------------------------------------------------------
In a change from the proposed rule, and as a result of comments
received, a provision relating to the individual property disclosure
requirement permits a registrant to include historical estimates of the
quantity, grade, or metal or mineral content of a deposit or
exploration results that a registrant has not verified as a current
mineral resource, a current mineral reserve, or current exploration
results, in a filing pertaining to mergers, acquisitions, or business
combinations if the registrant is unable to update the estimate prior
to completion of the relevant transaction.\1386\ In such an instance,
the registrant must disclose the source and date of the estimate, state
that a qualified person has not done sufficient work to classify the
estimate as a current estimate of mineral resources or mineral
reserves, and state that the registrant is not treating the estimate as
a current estimate of mineral resources or mineral reserves.\1387\
Without this provision, certain value increasing acquisitions or other
similar business transactions will be more difficult to complete, which
could hamper the growth opportunities of registrants and impose an
undue burden. However, permitting the use of historical estimates may
increase the potential risk to investors because they will have to rely
on information that is not current. To mitigate this risk, in the event
historical estimates are permitted, the adopted provision will require
that investors receive additional information to help them evaluate an
investment in a registrant that has engaged in a merger or similar
business transaction involving the use of a historical estimate.\1388\
---------------------------------------------------------------------------
\1386\ See Item 1304(h) of Regulation S-K
\1387\ See id.
\1388\ See supra note 1069 and accompanying text.
---------------------------------------------------------------------------
Similar to the summary disclosure requirement, we could have, as an
alternative, required the disclosures in Tables 1 and 2 to paragraph
(d)(1) of Item 1304 to be made available in XBRL format. In light of
the flexibility provided in the final rules for the disclosures in
Tables 1 and 2 to paragraph (d)(1) of Item 1304, for similar reasons as
those discussed above in the case of the summary disclosure
requirement, we believe requiring this data to be presented in a
structured format would provide limited benefits to investors while
increasing the compliance burden on registrants. Several commenters
opposed an XBRL requirement due to the cost burden and limited benefits
for users of the information.\1389\
---------------------------------------------------------------------------
\1389\ See supra notes 1015-1017 and accompanying text.
---------------------------------------------------------------------------
iii. Requirements for Technical Report Summaries
The final rules require a registrant disclosing information
concerning its mineral resources or mineral reserves determined to be
on a material property to file a technical report summary by one or
more qualified persons to support such disclosure of mineral resources
or mineral reserves.\1390\ However, as previously discussed, unlike the
proposed rules, the final rules permit, but do not require, a
registrant to file a technical report summary to support the disclosure
of material exploration results.\1391\
---------------------------------------------------------------------------
\1390\ See supra Section II.G.3.
\1391\ See id.
---------------------------------------------------------------------------
Requiring registrants to file a technical report summary in support
of disclosure of mineral resources or mineral reserves will enhance the
transparency and credibility of the disclosures and also provide
investors and analysts with technical details to allow them to improve
their own individual assessments of the value of the mining
properties.\1392\ These benefits should be especially pronounced in
conjunction with the disclosure of mineral resources, which are
typically associated with a higher degree of uncertainty compared to
estimates of mineral reserves.
---------------------------------------------------------------------------
\1392\ See supra notes 445, 959, and 1262 along with the
accompanying discussions. See also, Kenneth A. Fox, ``The usefulness
of NI 43-101 technical reports for financial analysts'' (2017),
Resources Policy, Volume 51, pp. 225-233.
---------------------------------------------------------------------------
We expect that registrants will experience an increase in
compliance costs related to the preparation of the technical report
summaries for material mining properties. Even registrants that
currently produce technical documentation and reports in compliance
with similar requirements in other jurisdictions will likely incur
additional costs to conform the reports to the specific requirements in
the final rules. In this regard, the final rules seek to limit the
additional compliance costs by requiring that a registrant only has to
file a technical report for material properties, rather than for all
its properties, and only when the registrant is first reporting, or
reporting a material change in, mineral resources or mineral reserves.
We also note that the technical report summary requirement may be
relatively more burdensome for smaller registrants, as suggested by
commenters,\1393\ due to the fixed cost in preparing a technical report
summary and because smaller registrants are likely to have a higher
fraction of mining properties classified as material to the extent they
have fewer mining properties than larger registrants. However, in
response to such concerns, the final rules do not require the filing of
technical report summaries when disclosing material exploration
results. To the extent that smaller registrants are more likely to be
engaged in exploration activities, this change in the final rules will
help limit the regulatory burden for smaller registrants in particular.
Nevertheless, smaller registrants conducting mining operations beyond
exploration may still incur relatively larger compliance costs.
---------------------------------------------------------------------------
\1393\ See supra note 205 and accompanying text.
---------------------------------------------------------------------------
The technical report summary requirement is similar to the
corresponding requirements in CRIRSCO-based disclosure standards, which
generally should mitigate the incremental impact of the final rules on
registrants currently reporting in jurisdictions that use these codes.
However, some of the differences may
[[Page 66437]]
be economically important. For example, although jurisdictions adopting
CRIRSCO-based disclosure standards require that a company's mineral
resources and mineral reserves be based on and fairly reflect
information and supporting documentation prepared by a ``competent'' or
``qualified'' person, only some jurisdictions require the filing of a
technical report to support such disclosure.\1394\ Accordingly, we
expect that the final technical report summary requirement will impose
incremental compliance costs for registrants currently reporting in
foreign jurisdictions without requirements to file technical reports
that may approach the magnitude of the incremental costs for
registrants not reporting in foreign jurisdictions. At the same time,
these registrants may experience higher incremental benefits (as
identified above) in connection with the requirement to file technical
report summaries, since that information will not necessarily be
disclosed elsewhere.
---------------------------------------------------------------------------
\1394\ See supra Section IV.A.1. We estimate that 99 out of the
267 identified mining registrants (approximately 37%) also report in
foreign jurisdictions that require the filing of a technical report
as of December 31, 2017.
---------------------------------------------------------------------------
One commenter estimated that the cost of hiring a third-party
qualified person to prepare a technical report in support of resource
estimates would range from $40,000 to $80,000.\1395\ Another commenter
estimated that the cost of preparing a technical report summary will
typically require 300 to 500 hours at a cost of over $100,000 ``when
all the information is already available to the QP.'' \1396\ This
suggests the estimate is the incremental cost associated with the
reporting requirement alone. It is not clear to what extent this
estimate varies with property or company size, type of mining
operations, or whether a company is already providing similar
disclosures, for example on NI 43-101F1.
---------------------------------------------------------------------------
\1396\ See letter from MMSA. This estimate was provided in
response to a question about the costs associated with producing and
filing technical reports in Canada or Australia, and may not include
the costs of a study like the initial assessment required under the
final rules. As discussed above, to the extent these costs are also
representative of the costs of a qualified person preparing a
technical report summary in support of disclosure of mineral
resource estimates under the final rules, we expect registrants that
are reporting consistent with CRIRSCO-based disclosure standards to
already incur these costs, and therefore will only incur limited
additional costs in terms of conforming the reports to the specific
requirements in the final rules.
---------------------------------------------------------------------------
As an alternative to the final rule, and in line with some
commenters' views,\1397\ we could have omitted the requirement to file
a technical report summary, which would reduce expected compliance
costs and be consistent with the majority of CRIRSCO-based disclosure
codes, although it would not be consistent with major markets for
mining companies such as Canada, Australia, and South Africa. Under
this alternative, the potential benefits discussed above that come from
investors having access to the information in the technical report
summary would be foregone. Any benefit from the increased
accountability that comes with liability for filing the information
with the Commission also would be foregone under this alternative.
Another alternative would be not to require the preparation of a
technical report summary to support disclosure of mineral reserve and
mineral resource estimates in Commission filings. This alternative
would further reduce compliance costs relative to the proposed rules.
However, it also could reduce consistency in the required disclosures
and increase the uncertainty about the quality of mineral resources
estimates, given that the level of confidence is lower for mineral
resource estimates than for mineral reserves estimates.
---------------------------------------------------------------------------
\1397\ See supra note 1090 and accompanying text.
---------------------------------------------------------------------------
iv. Requirements for Internal Controls Disclosure
The final rules require a registrant to describe the internal
controls that it uses in the disclosure of its exploration results and
in its estimates of mineral resources and mineral reserves.\1398\ This
requirement aligns the Commission's disclosure regime with the
requirements of CRIRSCO-based disclosure standards.
---------------------------------------------------------------------------
\1398\ See supra Section II.G.4.
---------------------------------------------------------------------------
We expect disclosure of the internal controls that a registrant
uses to improve investors' understanding of the risks related to the
quality and reliability of a registrant's disclosure of exploration
results and estimates of mineral resources and mineral reserves, which
may help improve investment decisions. We also expect the requirement
will increase compliance costs for registrants. However, registrants
already disclosing internal controls in jurisdictions using CRIRSCO-
based disclosure standards or currently voluntarily providing similar
disclosures in their SEC filings should not face substantial additional
compliance burdens.
9. Conforming Changes to Certain Forms Not Subject to Regulation S-K
i. Form 20-F
We are adopting conforming changes to Form 20-F that are intended
to ensure consistency in mining disclosures across both domestic
registrants and foreign private issuers (excluding Canadian Form 40-F
filers).\1399\ The changes may affect Canadian registrants that report
pursuant to Form 20-F and are currently permitted to provide additional
mining disclosure under NI 43-101 pursuant to the ``foreign or state
law'' exception under Industry Guide 7.\1400\ The final rules eliminate
this exception, which may benefit investors by increasing comparability
across all registrants.
---------------------------------------------------------------------------
\1399\ See supra Section II.H.1.
\1400\ As previously mentioned, Instruction 1 to Item 4 of Form
20-F directs a registrant to furnish the information specified in
Industry Guide 7. See supra note 1200 and accompanying text.
---------------------------------------------------------------------------
Compliance costs for affected registrants may increase to the
extent that, as discussed previously, the final disclosure requirements
differ from NI 43-101. We do not generally expect these costs to be
significant given that the adopted disclosure requirements are based on
the NI 43[dash]101 requirements.
ii. Form 1-A
We are adopting conforming changes to Form 1-A that will require
Regulation A issuers with material mining operations to comply with the
mining disclosure requirements in subpart 1300 of Regulation S-K.\1401\
Thus, these issuers will incur the benefits and costs of these
requirements, as previously discussed. Because Regulation A issuers are
typically smaller companies, the economic considerations discussed
above with respect to smaller companies may apply to this group of
issuers. In general, we expect that the final rules may benefit
Regulation A issuers, given that smaller companies typically experience
a higher degree of information asymmetry between the company and
investors, which may increase capital costs and reduce access to
financing. In particular, we believe the new ability to disclose
mineral resources provided by the requirements in the final rules may
be beneficial to Regulation A issuers, given that smaller companies are
more likely to be exploration stage issuers.
---------------------------------------------------------------------------
\1401\ See supra Section II.H.2.
---------------------------------------------------------------------------
Nevertheless, the expected increase in compliance costs from the
adopted mining disclosure requirements may be of particular importance
for mining issuers that are likely to consider Regulation A offerings.
If these costs are perceived to be too high, such issuers may choose to
pursue alternative methods of financing, such as raising capital in
private offerings pursuant to Regulation D or another exemption
[[Page 66438]]
under the Securities Act. To the extent these alternative methods of
financing are less efficient or provide fewer investor protections than
Regulation A offerings, there could be adverse consequences for both
issuers and investors. Under the final rules, mining issuers may avoid
the costs associated with the prescribed technical reports by forgoing
disclosure of exploration results, mineral resources, and mineral
reserves, as defined, which may mitigate any negative effect of
increased compliance costs on the propensity to use a Regulation A
offering. However, foregoing these disclosures may put such issuers at
a competitive disadvantage relative to their peers that are raising
capital with the benefit of these disclosures. In addition, in response
to concerns about compliance costs, we have adopted several provisions
that we believe will help limit the overall compliance burden for all
issuers, including smaller companies.\1402\ Overall, considering that
we have identified only one Regulation A issuer that currently provides
disclosure about its mining operations, we do not expect the Form 1-A
conforming amendments to have a significant economic impact on
Regulation A offering practices.
---------------------------------------------------------------------------
\1402\ See infra Section VI.F. for examples of adopted
provisions that we expect will help limit the overall compliance
burden for registrants.
---------------------------------------------------------------------------
One alternative to the conforming amendments to Form 1-A would be
to require the proposed mining disclosures for Tier 2 offerings only.
Because Tier 2 offerings may be larger than Tier 1 offerings, the
relative importance of fixed compliance costs could be lower for Tier 2
issuers, and thus the net benefit to Tier 2 issuers from the disclosure
requirements could potentially be larger. However, under this
alternative, the benefits from providing mining disclosure, as
discussed above, would be foregone for Tier 1 issuers. We note that the
sole Regulation A issuer that currently provides disclosure about its
mining operations conducted a Tier 2 offering and would not be affected
by this alternative. Another alternative would be to require disclosure
only of the information in the summary disclosure requirement discussed
in Section II.G.1., above, including for issuers that only own one
material mining property. This would lower compliance costs, but would
also reduce the information available to investors about material
mining properties.
V. Paperwork Reduction Act
A. Background
Certain provisions of the proposed rules contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\1403\ The Commission published a
notice requesting comment on the collection of information requirements
in the Proposing Release, and submitted the proposed rules to the
Office of Management and Budget (``OMB'') for review in accordance with
the PRA.\1404\ While several commenters provided comments on the
possible costs of the proposed rules, only a few commenters
specifically addressed our PRA analysis and provided their own
compliance estimates.\1405\ We discuss these comments below. Where
appropriate, we have revised our burden estimates in part after
considering these comments as well as differences between the proposed
and final rules.
---------------------------------------------------------------------------
\1403\ 44 U.S.C. 3501 et seq.
\1404\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
\1405\ See, e.g., letters from BHP and SRK 1.
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An agency may not conduct or sponsor, and a person is not required
to comply with, a collection of information unless it displays a
currently valid control number. The titles for the collections of
information are:
``Regulation S-K'' (OMB Control No. 3235-007); \1406\
---------------------------------------------------------------------------
\1406\ The paperwork burden from Regulation S-K is imposed
through the forms that are subject to the requirements in that
regulation and is reflected in the analysis of those forms. To avoid
a Paperwork Reduction Act inventory reflecting duplicative burdens
and for administrative convenience, we assign a one hour burden to
Regulation S-K. For similar reasons, we assign a one hour burden to
the Industry Guides.
---------------------------------------------------------------------------
``Form S-1'' (OMB Control No. 3235-0065);
``Form S-4'' (OMB Control No. 3235-0324);
``Form F-1'' (OMB Control No. 3235-0258);
``Form F-4'' (OMB Control No. 3235-0325);
``Form 10'' (OMB Control No. 3235-0064);
``Form 10-K'' (OMB Control No. 3235-0063);
``Form 20-F'' (OMB Control No. 3235-0063);
Regulation A (Form 1-A) (OMB Control No. 3235-0286);
and
Industry Guide 7 (OMB Control No. 3235-0069).
We adopted Regulation S-K and these forms pursuant to the
Securities Act and/or the Exchange Act. Regulation S-K and the forms,
other than Form 1-A, set forth the disclosure requirements for
registration statements and annual reports that are prepared by
registrants to provide investors with the information they need to make
informed investment decisions in registered offerings and in secondary
market transactions. We adopted Regulation A to provide an exemption
from registration under the Securities Act for offerings that satisfy
certain conditions, such as filing an offering statement with the
Commission on Form 1-A, limiting the dollar amount of the offering and,
in certain instances, filing ongoing reports with the Commission.
The hours and costs associated with preparing and filing the forms
constitute reporting and cost burdens imposed by each collection of
information. Compliance with the final rules is mandatory. Responses to
the information collections will not be kept confidential, and there
will be no mandatory retention period for the information disclosed.
B. Summary of Collection of Information Requirements
Similar to the proposed rules, a principal purpose of the final
rules is to modernize the Commission's disclosure requirements and
policies for mining properties by more closely aligning them with
current industry and global regulatory requirements under the CRIRSCO
standards. Like the proposed rules, the final rules require a
registrant with material mining operations to:
Disclose its determined mineral resources, mineral
reserves and exploration results in Securities Act registration
statements filed on Forms S-1, S-4, F-1 and F-4, in Exchange Act
registration statements on Forms 10 and 20-F, in Exchange Act annual
reports on Forms 10-K and 20-F,\1407\ and in Regulation A offering
statements filed on Form 1-A;
---------------------------------------------------------------------------
\1407\ Form 20-F is the form used by a foreign private issuer to
file either a registration statement or annual report under the
Exchange Act. Because the rule amendments will impose the same
substantive requirements for a registration statement and annual
report filed under Form 20-F, we have not separately allocated the
estimated reporting and cost burdens for a Form 20-F registration
statement and Form 20-F annual report.
---------------------------------------------------------------------------
base its disclosure regarding mineral resources,
mineral reserves and exploration results in Commission filings on
information and supporting documentation by a qualified person; and
file as an exhibit to its Securities Act registration
statement, Exchange Act registration statement or report, or Form 1-
A offering statement, in certain circumstances, a technical report
summary prepared by the qualified person for each material property
that summarizes the information and supporting documentation forming
the basis of the registrant's disclosure in the Commission
form.\1408\
---------------------------------------------------------------------------
\1408\ A registrant with one or more material mining properties
must file the technical report summary when it first reports mineral
resources or mineral reserves or when it reports a material change
in a prior disclosure of resources or reserves. When disclosing
exploration results, a registrant may elect, but is not required, to
file a supporting technical report summary.
[[Page 66439]]
---------------------------------------------------------------------------
The Commission's existing disclosure regime for mining registrants
precludes the disclosure of non-reserves, such as mineral resources,
unless such disclosure is required by foreign or state law.\1409\ In
addition, the existing regime permits, but does not require, the
disclosure of exploration results. The existing regime also does not
currently require a registrant to base its mining disclosure on
information and supporting documentation of a qualified person or to
file a technical report.
---------------------------------------------------------------------------
\1409\ Because only Canada has adopted its mining code as a
matter of law, the disclosure of non-reserves in Commission filings
has been limited to Canadian registrants.
---------------------------------------------------------------------------
Accordingly, we expect the final rules to increase the reporting
and cost burdens for each collection of information. Because the
additional requirements imposed by the final rules will be similar to
requirements under the CRIRSCO-based mining codes, we expect the
increase in reporting and cost burdens to be less for those registrants
that are already subject to the CRIRSCO standards. Nevertheless,
because there are differences between the final rules' requirements and
those under the CRIRSCO-based codes, we expect there will be some
increase in reporting and cost burdens even for those registrants
already subject to foreign mining code requirements.\1410\
---------------------------------------------------------------------------
\1410\ For example, unlike most of the CRIRSCO-based codes, the
final rules require a particular type of technical study, an
``initial assessment,'' to support the disclosure of mineral
resources in Commission filings. Only Canada's NI 43-101 and
Australia's JORC impose a technical report requirement. See supra
Section II.E.4. In addition, unlike the CRIRSCO-based codes, the
final rules prohibit a qualified person from disclaiming liability
for work performed by other experts upon whom the qualified person
has relied. See supra Section II.C.1.
---------------------------------------------------------------------------
C. Estimate of Potentially Affected Registrants
We estimate the number of registrants potentially affected by the
final rules to be 267.\1411\ Of these registrants, we estimate that 107
are already subject to the disclosure requirements under one or more of
the CRIRSCO-based codes and 160 are subject to only the Commission's
disclosure requirements. We therefore expect that 107 registrants will
likely incur a smaller increase in reporting and cost burdens to comply
with the final rules' requirements \1412\ compared with the 160
registrants that will bear the full paperwork burden of the final
rules.
---------------------------------------------------------------------------
\1411\ We have based this estimate on the number of registrants
with mining operations that filed the above described Securities Act
and Exchange Act forms from January 2016 through December 2017. In
contrast, we estimated that 345 registrants would be affected by the
proposed rules based on the number of registrants with mining
operations that filed Commission forms from January 2014 through
December 2015.
\1412\ Most of these registrants are subject to the disclosure
requirements in Canada's NI 43-101.
---------------------------------------------------------------------------
The following table summarizes the number of potentially affected
registrants by the particular form expected to be filed and whether the
registrant is subject to CRIRSCO-based code requirements in addition to
the final rules.
PRA Table 1--Estimated Number of Affected Registrants per Form
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1 S-4 F-1 F-4 10 10-K 20-F 1-A All forms
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Affected Registrants Subject to 4 2 1 1 0 40 58 1 107
CRIRSCO Requirements.......................
Number of Affected Registrants Not Subject 14 3 1 0 4 129 9 0 160
to CRIRSCO Requirements....................
-----------------------------------------------------------------------------------------------------------
Total Number of Affected Registrants.... 18 5 2 1 4 169 67 1 267
--------------------------------------------------------------------------------------------------------------------------------------------------------
D. Estimate of Reporting and Cost Burdens
After considering the comments received, as discussed below, we
have estimated the reporting and cost burdens of the final rules by
estimating the average number of hours it will take a registrant to
prepare, review and file the disclosure required by the final rules for
each collection of information. In deriving our estimates, we recognize
that the burdens will likely vary among individual registrants based on
a number of factors, including the size and complexity of their mining
operations. The estimates represent the average burden for all
registrants, both large and small.
We believe that the resulting increase in reporting and cost
burdens will be substantially the same for each collection of
information since the final rules will require substantially the same
disclosure for a Securities Act registration statement or Regulation A
offering statement as they will for an Exchange Act registration
statement or report. The sole difference between the final rules'
effect on Securities Act registrants and Form 1-A issuers, on the one
hand, and Exchange Act registrants, on the other, is that a Securities
Act registrant and a Regulation A issuer will be required to obtain and
file as an exhibit the written consent of each qualified person whose
information and supporting documentation provides the basis for the
disclosure required under the final rules.\1413\ To account for this
difference, we have allocated one additional hour to the reporting
burdens estimated for the Securities Act registration statement forms
and Regulation A's Form 1-A.
---------------------------------------------------------------------------
\1413\ A Securities Act registrant must file the written consent
of an expert upon which it has relied pursuant to Securities Act
Rule 436. A Regulation A issuer's obligation to file the written
consent of an expert is based on Item 17(11)(a) of Form 1-A.
---------------------------------------------------------------------------
We have based our estimated burden hours and costs under the final
rules on an assessment by the Commission's staff mining engineers of
the work required to prepare the required information for disclosure.
In particular, our estimates have been based on the staff engineers'
assessment of similar reporting requirements under CRIRSCO standards
(especially Canada's NI 43-101 and Australia's JORC).
[[Page 66440]]
In addition, we have considered the views of commenters that
addressed our PRA estimates for the proposed rules. One commenter is a
global mining consulting firm that provides disclosure support for a
wide range of mining companies reporting under Canada's NI 43-101 and
Australia's JORC.\1414\ That commenter indicated that, while our PRA
estimates may be appropriate for larger registrants and those
registrants that already follow the CRIRSCO standards, they are likely
to be low for registrants that do not follow the CRIRSCO standards. The
commenter estimated that the latter group of registrants would likely
incur a compliance burden that is two to four times the PRA burden
estimated for the proposed rules.\1415\
---------------------------------------------------------------------------
\1414\ See letter from SRK 1.
\1415\ See id. Another commenter more generally indicated that
we had significantly underestimated the PRA burdens for the proposed
rules but did not provide alternative estimates of its own. See
letter from NSSGA.
---------------------------------------------------------------------------
The second commenter is a large global mining company with mineral
assets that encompass over 200 individual mineral resource and mineral
reserve models, which are currently summarized into supporting
technical documentation of approximately 20 separate qualified persons'
reports.\1416\ That commenter stated that we had significantly
underestimated the incremental burden for the Form 20-F annual report,
which we estimated would increase by 40 burden hours for registrants
subject to the CRIRSCO standards. According to the commenter, the
proposed rules would likely result in an increase of 12 FTE \1417\ in
the first year of compliance, which would eventually diminish to 7 FTE
in subsequent years.
---------------------------------------------------------------------------
\1416\ See letter from BHP.
\1417\ FTE stands for ``full-time equivalent,'' which is the
number of hours worked by one employee on a full-time basis.
---------------------------------------------------------------------------
When estimating the incremental effects of the proposed rules, the
second commenter focused primarily on how the proposed rules' 24-month
trailing average pricing standard would affect its mineral resource and
mineral reserve estimates.\1418\ As previously discussed, we are not
adopting the proposed pricing requirement and instead have substituted
a pricing requirement that is substantially similar to the ``any
reasonable and justifiable'' pricing standard under the CRIRSCO-based
codes.\1419\ We also note that, in several other respects, the final
rules are more closely aligned to the CRIRSCO standards than were the
proposed rules.\1420\
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\1418\ See id.
\1419\ See, e.g., supra Sections II.E.4., II.F.2., II.G.1.-2.
\1420\ For example, similar to the CRIRSCO-based codes, the
final rules permit: The inclusion of inferred mineral resources in a
quantitative assessment of a deposit's potential economic viability
(see supra Section II.E.4.); the use of historical estimates in the
context of a merger, acquisition or business combination if certain
conditions are met (see supra Section II.G.2.); the inclusion of
diluting materials and allowances for losses when disclosing mineral
reserve estimates (see supra Section II.F.1.); and the use of a pre-
feasibility study, rather than a feasibility study, without
requiring a justification for such use, even in high risk situations
(see supra Section II.F.2.).
---------------------------------------------------------------------------
Because of the differences between the proposed and final rules,
and because the second commenter's incremental burden estimates are
those of a registrant that is significantly larger than many of the
Commission's current mining registrants,\1421\ we are adopting the same
incremental burden and cost estimates for CRIRSCO-compliant issuers
under the final rules as under the proposed rules, which as noted by
the first commenter, may be appropriate for these issuers.\1422\ We
have not reduced the incremental burden and cost estimates of the final
rules for such issuers, despite the increased symmetry between the
final rules and the CRIRSCO standards, because we recognize that there
are still differences between our rules and those standards, the impact
of which will be experienced differently by various registrants,
depending on their size and type of mining operation. We believe that,
on average, the incremental burden and cost estimates of the final
rules will be sufficient to account, for example, for a CRIRSCO-
compliant issuer's adjustment to the general prohibition against
disclaimers of liability by a qualified person in a technical report
summary.
---------------------------------------------------------------------------
\1421\ In this regard, based on the staff's review of Securities
Act and Exchange Act filings made by registrants with mining
operations from January 2016 through December 2017, we estimate that
approximately 114 of the 267 registrants may be considered small
entities.
\1422\ See letter from SRK 1.
---------------------------------------------------------------------------
For registrants that are not currently subject to the CRIRSCO
standards, we are following the suggestion of the first commenter and
increasing our incremental burden and cost estimates.\1423\ As
commenters have noted,\1424\ many registrants in this second category
may already be adhering to some of the CRIRSCO standards because they
have become accepted industry practice, such as by hiring a qualified
person to determine mineral resources in order to eventually be able to
determine mineral reserves. However, other registrants, such as those
in the industrial minerals and aggregates industry,\1425\ may not be
complying with any of CRIRSCO's requirements. To the extent that
registrants in this latter group intend to engage in public capital-
raising, they will incur additional compliance costs and burdens. We
believe that our increased incremental burden and cost estimates will
on average account for these additional compliance costs and burdens.
---------------------------------------------------------------------------
\1423\ We are doubling our previous incremental burden and cost
estimates, which is within the range suggested by the first
commenter. See letter from SRK 1.
\1424\ See, e.g., letters from Eggleston and SRK 1.
\1425\ The staff has estimated that 33 of the 267 registrants
potentially affected by the final rules operate in the industrial
minerals/aggregates industry. Five of those registrants may already
be subject to the CRIRSCO standards.
---------------------------------------------------------------------------
We estimate that the final rules will cause a registrant that is
not already subject to the CRIRSCO standards to incur an increase of
191 hours in the reporting burden for each Securities Act registration
statement (Forms S-1, S-4, F-1, and F-4) and Form 1-A offering
statement, and an increase of 190 hours in the reporting burden for
each Exchange Act registration statement or annual report (Forms 10,
10-K and 20-F).\1426\ For a registrant that is subject to the CRIRSCO
standard, we estimate that the final rules will cause an increase of 41
hours in the reporting burden for Securities Act registration
statements and Form 1-A offering statements, and an increase of 40
hours in the reporting burden for Exchange Act registration statements
and annual reports.\1427\
---------------------------------------------------------------------------
\1426\ This is in comparison to the proposed estimates of an
increase of 96 and 95 reporting burdens, respectively.
\1427\ For purposes of this PRA analysis, we estimate that
registrants subject to the CRIRSCO standards would each incur 11
hours, and registrants not subject to those standards would each
incur 100 hours, to prepare the required technical report summary.
---------------------------------------------------------------------------
The following tables summarize, respectively, the estimated
incremental and total reporting costs and burdens resulting from the
final rules. When determining these estimates, for all forms other than
Form 10-K and Form 1-A, we have assumed that 25% of the burden of
preparation is carried by the registrant internally and 75% of the
burden of preparation is carried by outside professionals retained by
the registrant at an average cost of $400 per hour.\1428\ For Form 10-K
and Form 1-A, we have assumed that 75% of the burden of preparation is
carried by the registrant internally and 25% of the
[[Page 66441]]
burden of preparation is carried by outside professionals at an average
cost of $400 per hour. The portion of the burden carried by outside
professionals is reflected as a cost, while the portion of the burden
carried by the registrant internally is reflected in hours.
---------------------------------------------------------------------------
\1428\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This is the rate we
typically estimate for outside services used in connection with
public company reporting.
---------------------------------------------------------------------------
We have determined the estimated total incremental burden hours for
each form under the final rules by first determining the hour burden
per registrant response estimated as a weighted average of the burden
hours of registrants subject to, and those not subject to, the CRIRSCO
standards.\1429\ We then multiplied this average burden hour per
response by the total number of responses for each form estimated to
occur annually. We similarly estimated the incremental professional
costs for each form by first estimating the incremental professional
costs as a weighted average of the incremental professional costs
estimated to be incurred by registrants subject to, and not subject to,
the CRIRSCO requirements. We then multiplied the average incremental
professional costs by the total number of annual responses estimated to
occur for each form.\1430\
---------------------------------------------------------------------------
\1429\ For example, we determined the estimated incremental
burden hours for Form S-1 as follows: 41 hours x 0.25 = 10.25
internal burden hours for CRIRSCO filers; 10.25 hours x 4 = 41 total
incremental hours for CRIRSCO filers. 191 hours x 0.25 = 47.75
internal burden hours for non-CRIRSCO filers; 47.75 hours x 14 =
668.5 total incremental burden hours for non-CRIRSCO filers. 41
hours + 668.5 hours = 709.5 total internal hours. 709.5 hours/18 =
39.42 avg. incremental burden hours.
\1430\ For example, we determined the estimated incremental
professional costs for Form S-1 as follows: 41 hours x 0.75 = 30.75
outside hours for CRIRSCO filers; 30.75 hours x 4 = 123 total
outside hours for CRIRSCO filers. 191 hours x 0.75 = 143.25 outside
hours for non-CRIRSCO filers; 143.25 hours x 14 = 2,005.5 total
outside hours for non-CRIRSCO filers. 123 hours + 2005.5 hours =
2,128.5 total outside hours. 2128.5 hours x $400 = $851,400 total
incremental professional costs.
---------------------------------------------------------------------------
Based on these calculations, as set forth below, we estimate that
the total number of incremental burden hours for all forms resulting
from complying with the final rules is 21,753 burden hours. We further
estimate that the resulting total incremental professional costs for
all forms under the final rules is $5,181,900.\1431\
---------------------------------------------------------------------------
\1431\ The total incremental burden hours and total incremental
professional costs are rounded to the nearest whole number.
PRA Table 2--Estimated Incremental Burden and Costs Under the Final Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Total incremental Incremental Total incremental
annual Hour burden registrant burden professional professional
responses per response hours * costs costs *
(A) (B) (C) = (A) x (B) (D) (E) = (A) x (D)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1.......................................................... 18 39.42 710 $47,300 $851,400
Form S-4.......................................................... 5 32.75 164 39,300 196,500
Form F-1.......................................................... 2 29 58 34,800 69,600
Form F-4.......................................................... 1 10.25 10 12,300 12,300
Form 10........................................................... 4 47.5 190 57,000 228,000
Form 10-K......................................................... 169 115.87 19,582 15,449.704 2,611,000
Form 20-F......................................................... 67 15.04 1,008 18,044.78 1,209,000
Regulation A (Form 1-A)........................................... 1 30.75 31 4,100 4,100
-------------------------------------------------------------------------------------
Total......................................................... 267 .............. 21,753 .............. 5,181,900
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Rounded to nearest whole number.
We have determined the estimated total burden of complying with the
final rules for each form by adding the above described estimated
incremental company burden hours to the current burden hours estimated
for each form. We have similarly determined the estimated total
professional costs for each form by adding the estimated total
incremental professional costs to the current professional costs
estimated for each form. Based on these calculations, as summarized
below, we estimate that, as a result of the final rules, the estimated
annual burden for all forms will increase to 15,551,483 hours, compared
to the current annual estimate of 15,529,730 hours. We further estimate
that the final rules will result in estimated annual professional costs
for all forms of $3,409,023,661, compared to the current annual
estimate of $3,403,841,761.
PRA Table 3--Estimated Total Burden and Costs Under the Final Rules
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Revised Current Increase Revised Current Increase in Revised
Current annual responses annual burden in burden burden professional professional professional
responses hours hours hours costs costs costs
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1 901.............................................................. 901 150,998 710 151,708 $181,197,300 $851,400 $182,048,700
Form S-4 551.............................................................. 551 565,079 164 565,243 678,094,704 196,500 678,291,204
Form F-1 63............................................................... 63 26,980 58 27,038 $32,375,700 $69,600 $32,445,300
Form F-4 39............................................................... 39 14,245 10 14,255 17,093,700 12,300 17,106,000
Form 10 216.............................................................. 216 11,774 190 11,964 14,128,888 228,000 14,356,888
Form 10-K 8,137............................................................ 8,137 14,217,344 19,582 14,236,926 1,896,280,86 2,611,000 1,898,891,869
9
Form 20-F 725.............................................................. 725 480,226 1,008 481,234 576,270,600 1,209,000 577,479,600
Reg. A (Form 1-A) 112.............................................................. 112 63,084 31 63,115 8,400,000 4,100 8,404,100
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total........ 10,744........................................................... 10,744 15,529,730 21,753 15,551,483 3,403,841,76 5,181,900 3,409,023,661
1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 66442]]
VI. Final Regulatory Flexibility Act Analysis
This Final Regulatory Flexibility Act Analysis (``FRFA'') has been
prepared in accordance with the Regulatory Flexibility Act.\1432\ It
relates to rule and form amendments that we are adopting today to
revise the mining property disclosure requirements for registrants
engaged in mining operations. An Initial Regulatory Flexibility
Analysis (``IRFA'') was prepared in accordance with the Regulatory
Flexibility Act and included in the Proposing Release.
---------------------------------------------------------------------------
\1432\ 5 U.S.C. 603.
---------------------------------------------------------------------------
A. Need for, and Objectives of, the Final Rules
The Commission's mining property disclosure requirements and
policies have not been updated since 1982. In the ensuing decades,
mining has become an increasingly globalized industry, and several
foreign mining disclosure codes have been adopted based on the CRIRSCO
standards that significantly differ from the Commission's mining
disclosure requirements and guidance. The rule and form amendments that
we are adopting are intended to modernize the Commission's mining
property disclosure requirements and policies by more closely aligning
them with current industry and global regulatory practices and
disclosure requirements, as embodied in the CRIRSCO standards. In so
doing, the final amendments will provide investors with a more
comprehensive understanding of a registrant's mining operations, which
should help them make more informed investment decisions.\1433\
---------------------------------------------------------------------------
\1433\ The need for, and objectives of, the final rules are
discussed in more detail throughout this release, particularly in
Sections I and II, supra.
---------------------------------------------------------------------------
B. Significant Issues Raised by Public Comments
In the Proposing Release, we requested comment on every aspect of
the IRFA. We received one comment letter that specifically addressed
the IRFA.\1434\ That commenter stated that it would be a disservice to
investors if the Commission were to reduce or streamline the disclosure
requirements for small entities that are funded entirely by outside
investment. That commenter also stated that, because there are only a
few small mining companies that currently use U.S. exchanges for their
primary listing, the impact on small entities from the proposed
amendments would be limited, but could vary depending on the final
disclosure requirements. According to the commenter, if the Commission
adopted the amendments as proposed, small entities would have little
interest in listing on U.S. exchanges as they would find more
attractive the current disclosure requirements under foreign
jurisdictions, such as Canada's NI 43-101 or Australia's JORC. However,
the commenter also indicated that, if the Commission were to adopt
amendments that aligned with Canada's NI 43-101, there would be a
significant number of small entities that would choose to list in the
United States. We have considered these comments when revising the
proposed amendments to more closely align with CRIRSCO's standards,
including Canada's NI 43-101.
---------------------------------------------------------------------------
\1434\ See letter from SRK 1.
---------------------------------------------------------------------------
Although not specifically addressing the IRFA, other commenters
indicated that the proposed rules would impose the greatest
proportionate compliance burden on small entities. For example, one
commenter stated that, because the proposed rules would require the
disclosure of voluminous amounts of information, they would discourage
many companies from seeking or maintaining a public listing, and that
this effect would be most acute for smaller companies that lack the
internal resources to compile and report on all the proposed required
information.\1435\ This commenter further stated that smaller companies
would be placed at a significant competitive disadvantage if they were
required to disclose sensitive operational information to larger
competitors.\1436\
---------------------------------------------------------------------------
\1435\ See, e.g. letter from NSSGA.
\1436\ See id.
---------------------------------------------------------------------------
Other commenters stated that the proposed requirement to obtain a
technical report summary for material mining properties would be
especially burdensome for smaller entities, but that the Commission
could alleviate this burden by adopting certain measures, such as by
not requiring the filing of the technical report summary more
frequently than under the CRIRSCO-based codes, not requiring the
disclosure of exploration results, or minimizing the required use of an
independent qualified person.\1437\ Another commenter maintained that
the proposed requirement to quantify the percentage of inferred mineral
resources that would likely be converted to indicated mineral resources
would be difficult for smaller entities to meet.\1438\ As discussed
below, we have considered all of these comments when evaluating
alternatives to, and revising, the proposed rules.\1439\
---------------------------------------------------------------------------
\1437\ See, e.g., letters from AngloGold, Eggleston and Gold
Resource.
\1438\ See letter from MMSA.
\1439\ See infra Section VI.F.
---------------------------------------------------------------------------
C. Small Entities Subject to the Final Rules
The final rules will affect small entities that have material
mining operations, and which file registration statements under Section
6 of the Securities Act \1440\ or Section 12 of the Exchange Act, and
reports under Section 13(a) or 15(d) of the Exchange Act. For purposes
of the RFA, under our rules, an issuer, other than an investment
company, is a ``small business'' or ``small organization'' if it has
total assets of $5 million or less as of the end of its most recent
fiscal year and is engaged or proposing to engage in an offering of
securities that does not exceed $5 million.\1441\ From staff review of
Securities Act and Exchange Act filings made by registrants with mining
operations from January 2016 through December 2017, we estimate that
there are approximately 114 issuers that may be considered small
entities.\1442\ One of those small entities was a filer of a Form 1-A
offering statement.
---------------------------------------------------------------------------
\1440\ 15 U.S.C. 77f.
\1441\ See 17 CFR 230.157 [Securities Act Rule 157]; and 17 CFR
240.0-10(a) [Exchange Act Rule 0-10(a)].
\1442\ See supra Section IV.A.1. for a discussion of how the
staff estimated the number of registrants, including small entities,
that will be subject to the final rules.
---------------------------------------------------------------------------
D. Reporting, Recordkeeping, and Other Compliance Requirements
As described in greater detail above, the final rules will enhance
the Securities Act and Exchange Act disclosure requirements of
registrants, including small entities, with material mining operations
by requiring:
The disclosure of estimates and other information about
determined mineral resources and exploration results that are
material to investors in addition to mineral reserves;
the disclosure of exploration results, mineral
resources and mineral reserves in Commission filings to be based on
and accurately reflect information and supporting documentation
prepared by a qualified person; and
the filing of a technical report summary prepared by a
qualified person for each material property for certain Commission
filings.
The final rules also will codify certain existing disclosure
policies for registrants with material mining operations, including
small entities. The same mining disclosure requirements will apply to
both U.S. and foreign registrants.\1443\ The professional skills
[[Page 66443]]
necessary to comply with the final rules include legal, accounting, and
information technology skills. In addition, the final rules require the
involvement of qualified persons with certain specified credentials and
relevant experience.\1444\
---------------------------------------------------------------------------
\1443\ The final rules are discussed in detail in Section II,
supra. We discuss the economic impact, including the estimated
compliance costs and burdens, of the final rules in Section IV
(Economic Analysis) and Section V (Paperwork Reduction Act), supra.
\1444\ See supra Section II.C.
---------------------------------------------------------------------------
E. Duplicative, Overlapping or Conflicting Federal Rules
As noted above, the final rules will generally establish new mining
disclosure requirements that we believe will not duplicate or overlap
with other federal rules. The final rules will consolidate and codify
all of the Commission's mining property disclosure requirements and
policies, which currently exist in Item 102 of Regulation S-K and in
Guide 7, the status and overlapping structure of which has caused some
uncertainty for mining registrants.\1445\ We believe that this
consolidation and codification will help a mining registrant, including
a small entity, comply with its disclosure obligations under the
Securities Act and Exchange Act, which could mitigate its reporting
burden. The final rules also will more closely align our mining
property disclosure requirements with global industry practices and
standards, which should also mitigate a registrant's, including a small
entity's, reporting burden to the extent that it is already subject to
one or more of the CRIRSCO-based codes. We do not believe that the
final rules will conflict with other federal rules.
---------------------------------------------------------------------------
\1445\ See supra note 28 and accompanying text.
---------------------------------------------------------------------------
F. Agency Action To Minimize Effect on Small Entities
The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with adopting the final rules, we considered, as
alternatives: Establishing different compliance or reporting
requirements that take into account the resources available to smaller
entities; exempting smaller entities from coverage of the disclosure
requirements, or any part thereof; clarifying, consolidating, or
simplifying the disclosure requirements for small entities; and using
performance standards rather than design standards.
Neither the current mining disclosure requirements nor the final
rules exempt or treat differently a small entity with material mining
operations. Providing an exemption for, or imposing less extensive
disclosure requirements on, small entities with material mining
operations would likely increase the risk of inaccurate or incomplete
disclosure concerning those entities' mineral resources, mineral
reserves and exploration results, to the detriment of investors.\1446\
Moreover, as noted above, a primary goal of the final rules is
generally to align the Commission's mining disclosure regime with the
standards that have developed under the CRIRSCO-based codes so that
investors will have a more complete understanding of a registrant's
mining operations and be able to make more informed investment
decisions. The CRIRSCO-based codes do not provide an exemption for
small entities or otherwise treat such entities differently. Therefore,
we believe it would be inappropriate for our rules to provide an
exemption for, or otherwise treat differently, small entities with
material mining operations.
---------------------------------------------------------------------------
\1446\ In this regard, only one commenter directly addressed the
IRFA and whether we should adopt alternatives to the proposed rules,
including exempting or treating differently small entities. That
commenter opposed such alternative treatment for small entities,
stating that such alternative treatment would be a disservice to
investors. See letter from SRK 1.
---------------------------------------------------------------------------
We also note that, because a significant percentage of mining
registrants (approximately 43% based on the staff's most recent review
of Commission filings) \1447\ are small entities, exempting them from
the final rules will effectively disapply the Commission's mining
disclosure regime to a large segment of the companies for which such
disclosure would be potentially beneficial. By exempting small entities
from the final rules, we would be creating a significant gap in the
transparency of registrants' disclosure concerning their mining
properties, which would defeat one of the primary purposes of the final
rules.
---------------------------------------------------------------------------
\1447\ See supra Section IV.A.1.
---------------------------------------------------------------------------
In accordance with the Regulatory Flexibility Act, and in response
to commenters' concerns described above, we have considered and adopted
alternatives to several of the proposed disclosure requirements, which
we believe will limit the compliance burden for registrants, including
small entities. For example, the final rules:
Clarify that a registrant is not required to disclose
exploration results until they become material to investors;
do not require the filing of a technical report summary
to support the disclosure of exploration results;
limit the required filing of a technical report summary
that supports the disclosure of determined mineral resources and
reserves to when the registrant first discloses resource or reserve
estimates, or when it discloses a material change in the previously
disclosed estimates;
eliminate the proposed requirement to quantify the
level of risk concerning mineral resources, including inferred
mineral resources;
reduce the number of required tables from seven to two,
and permit most of the required disclosure concerning material
mining properties and mineral resources, mineral reserves, and
exploration results to be disclosed in either narrative or tabular
format;
permit the use of a pre-feasibility study instead of a
final feasibility study without requiring justification for such
use, and even when used for high-risk situations; and
align our mining property disclosure requirements with
the CRIRSCO standards in many significant respects, such as by
adopting a reasonable and justifiable price standard for the
determination and disclosure of mineral resources and mineral
reserves, which could include a forward-looking price, instead of
the proposed 24-month trailing average price requirement.
We believe that all of the above revisions to the proposed rules
will limit the final rules' compliance burden for registrants,
including small entities.\1448\ We also believe that certain of these
changes, in particular those regarding the disclosure of exploration
results, will reduce the final rules' potential for the disclosure of
proprietary, commercially sensitive information for registrants,
including small entities.
---------------------------------------------------------------------------
\1448\ Under the final rules, the qualified person is not
required to be independent of the registrant. As commenters noted,
this approach should also help to limit the compliance burden for
registrants, including small entities. See supra note 1437 and
accompanying text.
---------------------------------------------------------------------------
As noted above, the final rules will consolidate and codify the
Commission's mining property disclosure rules and policies and thereby
facilitate compliance for all registrants, including small entities. We
have used design rather than performance standards in connection with
the final rules because, based on our past experience, we believe the
final rules will be more beneficial to investors if there are specific
disclosure requirements that are uniform for all registrants with
material mining operations. Nevertheless, we have made revisions to the
proposed rules to make the disclosure requirements less prescriptive
and provide more flexibility in how the required information is
presented, which should help ease the compliance burden associated with
these requirements.
[[Page 66444]]
VII. Statutory Authority
We are adopting the amendments contained in this document pursuant
to Sections 3(b), 7, 10, 19(a), and 28 of the Securities Act and
Sections 3(b), 12, 13, 15(d), 23(a), and 36(a) of the Exchange Act.
List of Subjects
17 CFR Part 229, 17 CFR Part 230, 17 CFR Part 239
Reporting and recordkeeping requirements, Securities.
17 CFR Part 249
Brokers, Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is amended as follows:
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
0
1. The authority citation for part 229 continues to read as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c),
80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350;
sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec.
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).
0
2. Amend Sec. 229.102 by:
0
a. Removing ``, mines'' in the introductory text;
0
b. Removing the heading ``Instructions to Item 102:'';
0
c. Redesignating Instructions 1, 2, 3, and 4 as ``Instruction 1 to Item
102:'', ``Instruction 2 to Item 102:'', ``Instruction 3 to Item 102:'',
and ``Instruction 4 to Item 102:'';
0
d. Revising newly redesignated Instruction 3 to Item 102;
0
e. Removing Instructions 5 and 7 to Item 102; and
0
f. Redesignating instruction 6 as ``Instruction 5 to Item 102:'' and
Instructions 8 and 9 as ``Instruction 6 to Item 102:'' and
``Instruction 7 to Item 102:'', respectively.
The revision reads as follows:
Sec. 229.102 (Item 102) Description of property.
* * * * *
Instruction 3 to Item 102: Registrants engaged in mining operations
must refer to and, if required, provide the disclosure under Sec. Sec.
229.1300 through 229.1305 (subpart 1300 of Regulation S-K), in addition
to any disclosure required by this section.
* * * * *
0
3. Amend Sec. 229.601 by:
0
a. In the exhibit table in paragraph (a), adding entry (96) and
footnote 7; and
0
b. Adding paragraph (b)(96).
The additions read as follows:
Sec. 229.601 (Item 601) Exhibits.
(a) * * *
Exhibit Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
Securities Act Forms Exchange Act Forms
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-4 F-4 8-K
S-1 S-3 SF-1 SF-3 \1\ S-8 S-11 F-1 F-3 \1\ 10 \2\ 10-D 10-Q 10-K ABS-EE
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * *
(96) Technical report summary X X ...... ...... X ...... ...... X X X X ..... ..... ..... X ........
\7\.
* * * * * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * *
\7\ If required pursuant to Sec. 229.1302 (Item 1302 of Regulation S-K).
(b) * * *
(96) Technical report summary. (i) A registrant that, pursuant to
Sec. Sec. 229.1300 through 229.1305 (subpart 229.1300 of Regulation S-
K), discloses information concerning its mineral resources or mineral
reserves must file a technical report summary by one or more qualified
persons that, for each material property, identifies and summarizes the
scientific and technical information and conclusions reached concerning
an initial assessment used to support disclosure of mineral resources,
or concerning a preliminary or final feasibility study used to support
disclosure of mineral reserves. At its election, a registrant may also
file a technical report summary from a qualified person that identifies
and summarizes the information reviewed and conclusions reached by the
qualified person about the registrant's exploration results. Please
refer to Sec. 229.1302(b) (Item 1302(b) of Regulation S-K) for when a
registrant must file the technical report summary as an exhibit to its
Securities Act registration statement or Exchange Act registration
statement or report.
(ii) The technical report summary must not include large amounts of
technical or other project data, either in the report or as appendices
to the report. The qualified person must draft the summary to conform,
to the extent practicable, with the plain English principles set forth
in Sec. 230.421 or Sec. 240.13a-20 of this chapter.
(iii)(A) A technical report summary that reports the results of a
preliminary or final feasibility study must provide all of the
information specified in paragraph (b)(96)(iii)(B) of this section. A
technical report summary that reports the results of an initial
assessment must, at a minimum, provide the information specified in
paragraphs (b)(96)(iii)(B)(1) through (11) and (20) through (25) of
this section, and may also include the information specified in
paragraph (b)(96)(iii)(B)(19) of this section. A technical report
summary that reports exploration results must, at a minimum, provide
the information specified in paragraphs (b)(96)(iii)(B)(1) through (9)
and (20) through (25) of this section.
(B) A qualified person must include the following information in
the technical report summary, as required by paragraph (b)(96)(iii)(A)
of this section, to the extent the information is material.
(1) Executive summary. Briefly summarize the most significant
information in the technical report
[[Page 66445]]
summary, including property description (including mineral rights) and
ownership, geology and mineralization, the status of exploration,
development and operations, mineral resource and mineral reserve
estimates, summary capital and operating cost estimates, permitting
requirements, and the qualified person's conclusions and
recommendations. The executive summary must be brief and should not
contain all of the detailed information in the technical support
summary.
(2) Introduction. Disclose:
(i) The registrant for whom the technical report summary was
prepared;
(ii) The terms of reference and purpose for which the technical
report summary was prepared, including whether the technical report
summary's purpose was to report mineral resources, mineral reserves, or
exploration results;
(iii) The sources of information and data contained in the
technical report summary or used in its preparation, with citations if
applicable;
(iv) The details of the personal inspection on the property by each
qualified person or, if applicable, the reason why a personal
inspection has not been completed; and
(v) That the technical report summary updates a previously filed
technical report summary, identified by name and date, when applicable.
(3) Property description. (i) Describe the location of the
property, accurate to within one mile, using an easily recognizable
coordinate system. The qualified person must provide appropriate maps,
with proper engineering detail (such as scale, orientation, and titles)
to portray the location of the property. Such maps must be legible on
the page when printed.
(ii) Disclose the area of the property.
(iii) Disclose the name or number of each title, claim, mineral
right, lease, or option under which the registrant and its subsidiaries
have or will have the right to hold or operate the property. If held by
leases or options, the registrant must provide the expiration dates of
such leases or options and associated payments.
(iv) Describe the mineral rights, and how such rights have been
obtained at this location, indicating any conditions that the
registrant must meet in order to obtain or retain the property.
(v) Describe any significant encumbrances to the property,
including current and future permitting requirements and associated
timelines, permit conditions, and violations and fines.
(vi) Disclose any other significant factors and risks that may
affect access, title, or the right or ability to perform work on the
property.
(vii) If the registrant holds a royalty or similar interest in the
property, except as provided under Sec. Sec. 229.1303(a)(3) and
229.1304(a)(2), the information in paragraph (b)(96)(iii)(B)(3) of this
section must be provided for the property that is owned or operated by
a party other than the registrant. In this event, for example, the
report must address the documents under which the owner or operator
holds or operates the property, the mineral rights held by the owner or
operator, conditions required to be met by the owner or operator,
significant encumbrances, and significant factors and risks relating to
the property or work on the property.
(4) Accessibility, climate, local resources, infrastructure and
physiography. Describe:
(i) The topography, elevation, and vegetation;
(ii) The means of access to the property, including highways,
towns, rivers, railroads, and airports;
(iii) The climate and the length of the operating season, as
applicable; and
(iv) The availability of and required infrastructure, including
sources of water, electricity, personnel, and supplies.
(5) History. Describe:
(i) Previous operations, including the names of previous operators,
insofar as known; and
(ii) The type, amount, quantity, and general results of exploration
and development work undertaken by any previous owners or operators.
(6) Geological setting, mineralization, and deposit. (i) Describe
briefly the regional, local, and property geology and the significant
mineralized zones encountered on the property, including a summary of
the surrounding rock types, relevant geological controls, and the
length, width, depth, and continuity of the mineralization, together
with a description of the type, character, and distribution of the
mineralization.
(ii) Each mineral deposit type that is the subject of investigation
or exploration together with the geological model or concepts being
applied in the investigation or forming the basis of the exploration
program.
(iii) The qualified person must include at least one stratigraphic
column and one cross-section of the local geology to meet the
requirements of paragraph (b)(96)(iii)(B)(6) of this section.
(7) Exploration. Describe the nature and extent of all relevant
exploration work, conducted by or on behalf of, the registrant.
(i) For all exploration work other than drilling, describe: The
procedures and parameters relating to the surveys and investigations;
the sampling methods and sample quality, including whether the samples
are representative, and any factors that may have resulted in sample
biases; the location, number, type, nature, and spacing or density of
samples collected, and the size of the area covered; and the
significant results of and the qualified person's interpretation of the
exploration information.
(ii) For drilling, describe: The type and extent of drilling
including the procedures followed; any drilling, sampling, or recovery
factors that could materially affect the accuracy and reliability of
the results; and the material results and interpretation of the
drilling results. For a technical report summary to support disclosure
of exploration results, the qualified person must provide information
on all samples or drill holes to meet the requirements of this
paragraph. If some information is excluded, the qualified person must
identify the omitted information and explain why that information is
not material.
(iii) For characterization of hydrogeology, describe: The nature
and quality of the sampling methods used to acquire data on surface and
groundwater parameters; the type and appropriateness of laboratory
techniques used to test for groundwater flow parameters such as
permeability, and include discussions of the quality control and
quality assurance procedures; results of laboratory testing and the
qualified person's interpretation, including any material assumptions,
which must include descriptions of permeable zones or aquifers, flow
rates, in-situ saturation, recharge rates and water balance; and the
groundwater models used to characterize aquifers, including material
assumptions used in the modeling.
(iv) For geotechnical data, testing and analysis, describe: The
nature and quality of the sampling methods used to acquire geotechnical
data; the type and appropriateness of laboratory techniques used to
test for soil and rock strength parameters, including discussions of
the quality control and quality assurance procedures; and results of
laboratory testing and the qualified person's interpretation, including
any material assumptions.
(v) Reports must include a plan view of the property showing
locations of all drill holes and other samples.
[[Page 66446]]
(vi) The technical report summary must include a description of
data concerning drilling, hydrogeology, or geotechnical data only to
the extent such data is relevant and available.
Instruction 1 to paragraph (b)(96)(iii)(B)(7): The technical report
summary must comply with all disclosure standards for exploration
results under Sec. Sec. 229.1300 through 229.1305 (subpart 229.1300 of
Regulation S-K).
Instruction 2 to paragraph (b)(96)(iii)(B)(7): For a technical
report summary to support disclosure of mineral resources or mineral
reserves, the qualified person can meet the requirements of paragraph
(b)(96)(iii)(B)(7)(ii) of this section by providing sampling (including
drilling) plans, representative plans, and cross-sections of results.
Instruction 3 to paragraph (b)(96)(iii)(B)(7): If disclosing an
exploration target, provide such disclosure in a subsection of the
Exploration section of the technical report summary that is clearly
captioned as a discussion of an exploration target. That section must
include all of the disclosure required under Sec. 229.1302(c).
(8) Sample preparation, analyses, and security. Describe:
(i) Sample preparation methods and quality control measures
employed prior to sending samples to an analytical or testing
laboratory, sample splitting and reduction methods, and the security
measures taken to ensure the validity and integrity of samples;
(ii) Sample preparation, assaying and analytical procedures used,
the name and location of the analytical or testing laboratories, the
relationship of the laboratory to the registrant, and whether the
laboratories are certified by any standards association and the
particulars of such certification;
(iii) The nature, extent, and results of quality control procedures
and quality assurance actions taken or recommended to provide adequate
confidence in the data collection and estimation process;
(iv) The adequacy of sample preparation, security, and analytical
procedures, in the opinion of the qualified person; and
(v) If the analytical procedures used are not part of conventional
industry practice, a justification by the qualified person for why he
or she believes the procedure is appropriate in this instance.
(9) Data verification. Describe the steps taken by the qualified
person to verify the data being reported on or which is the basis of
this technical report summary, including:
(i) Data verification procedures applied by the qualified person;
(ii) Any limitations on or failure to conduct such verification,
and the reasons for any such limitations or failure; and
(iii) The qualified person's opinion on the adequacy of the data
for the purposes used in the technical report summary.
(10) Mineral processing and metallurgical testing. Describe:
(i) The nature and extent of the mineral processing or
metallurgical testing and analytical procedures;
(ii) The degree to which the test samples are representative of the
various types and styles of mineralization and the mineral deposit as a
whole;
(iii) The name and location of the analytical or testing
laboratories, the relationship of the laboratory to the registrant,
whether the laboratories are certified by any standards association and
the particulars of such certification;
(iv) The relevant results including the basis for any assumptions
or predictions about recovery estimates. Discuss any processing factors
or deleterious elements that could have a significant effect on
potential economic extraction; and
(v) The adequacy of the data for the purposes used in the technical
report summary, in the opinion of the qualified person. If the
analytical procedures used in the analysis are not part of conventional
industry practice, the qualified person must state so and provide a
justification for why he or she believes the procedure is appropriate
in this instance.
(11) Mineral resource estimates. If this item is included, the
technical report summary must:
(i) Describe the key assumptions, parameters, and methods used to
estimate the mineral resources, in sufficient detail for a reasonably
informed person to understand the basis for and how the qualified
person estimated the mineral resources. The technical report summary
must include mineral resource estimates at a specific point of
reference selected by the qualified person. The selected point of
reference must be disclosed in the technical report summary;
(ii) Provide the qualified person's estimates of mineral resources
for all commodities, including estimates of quantities, grade or
quality, cut-off grades, and metallurgical or processing recoveries.
Unless otherwise stated, cut-off grades also refer to net smelter
returns, pay limits, and other similar terms. The qualified person
preparing the mineral resource estimates must round off, to appropriate
significant figures chosen to reflect order of accuracy, any estimates
of quantity and grade or quality. If the qualified person chooses to
disclose mineral resources inclusive of mineral reserves, he or she
must also clearly state the mineral resources exclusive of mineral
reserves in the technical report summary;
(iii) Include the qualified person's estimates of cut-off grades
based on assumed costs for surface or underground operations and
commodity prices that provide a reasonable basis for establishing the
prospects of economic extraction for mineral resources. The qualified
person must disclose the price used for each commodity and explain,
with particularity, his or her reasons for using the selected price,
including the material assumptions underlying the selection. This
explanation must include disclosure of the time frame used to estimate
the commodity price and unit costs for cut-off grade estimation and the
reasons justifying the selection of that time frame. The qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used;
(iv) Provide the qualified person's classification of mineral
resources into inferred, indicated, and measured mineral resources in
accordance with Sec. 229.1302(d)(1)(iii)(A) (Item 1302(d)(1)(iii)(A)
of Regulation S-K). The qualified person must disclose the criteria
used to classify a resource as inferred, indicated, or measured and
must justify the classification;
(v) Discuss the uncertainty in the estimates of inferred,
indicated, and measured mineral resources, and explain the sources of
uncertainty and how they were considered in the uncertainty estimates.
The qualified person must consider all sources of uncertainty
associated with each class of mineral resources. Sources of uncertainty
that affect such reporting of uncertainty include sampling or drilling
methods, data processing and handling, geologic modeling, and
estimation. The qualified person must support the disclosure of
uncertainty associated with each class of mineral resources with a list
of all factors considered and explain how those factors contributed to
the final conclusion about the level of uncertainty underlying the
resource estimates. The qualified person is not required to use
estimates of confidence limits derived from geostatistics or other
numerical methods to support the disclosure of uncertainty surrounding
[[Page 66447]]
mineral resource classification. If the qualified person chooses to use
confidence limit estimates from geostatistics or other numerical
methods, he or she should consider the limitations of these methods and
adjust the estimates appropriately to reflect sources of uncertainty
that are not accounted for by these methods;
(vi) When reporting the grade or quality for a multiple commodity
mineral resource as metal or mineral equivalent, disclose the
individual grade of each metal or mineral and the commodity prices,
recoveries, and any other relevant conversion factors used to estimate
the metal or mineral equivalent grade; and
(vii) Provide the qualified person's opinion on whether all issues
relating to all relevant technical and economic factors likely to
influence the prospect of economic extraction can be resolved with
further work.
Instruction 1 to paragraph (b)(96)(iii)(B)(11): The technical
report summary must comply with all disclosure standards for mineral
resources under Sec. Sec. 229.1300 through 229.1305 (subpart 229.1300
of Regulation S-K).
Instruction 2 to paragraph(b)(96)(iii)(B)(11): Sections 229.1303
and 229.1304 (Items 1303 and 1304 of Regulation S-K) notwithstanding,
in this technical report summary, mineral resource estimates may be
inclusive of mineral reserves so long as this is clearly stated with
equal prominence to the rest of the item.
(12) Mineral reserve estimates. If this item is included, the
technical report summary must:
(i) Describe the key assumptions, parameters, and methods used to
estimate the mineral reserves, in sufficient detail for a reasonably
informed person to understand the basis for converting, and how the
qualified person converted, indicated and measured mineral resources
into the mineral reserves. The technical report summary must include
mineral reserve estimates at a specific point of reference selected by
the qualified person. The qualified person must disclose the selected
point of reference in the technical report summary;
(ii) Provide the qualified person's estimates of mineral reserves
for all commodities, including estimates of quantities, grade or
quality, cut-off grades, and metallurgical or processing recoveries.
The qualified person preparing the mineral resource estimates must
round off, to appropriate significant figures chosen to reflect order
of accuracy, any estimates of quantity and grade or quality;
(iii) Include the qualified person's estimates of cut-off grades
based on detailed cut-off grade analysis that includes a long term
price that provides a reasonable basis for establishing that the
project is economically viable. The qualified person must disclose the
price used for each commodity and explain, with particularity, his or
her reasons for using the selected price, including the material
assumptions underlying the selection. This explanation must include
disclosure of the time frame used to estimate the price and costs and
the reasons justifying the selection of that time frame. The qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used;
(iv) Provide the qualified person's classification of mineral
reserves into probable and proven mineral reserves in accordance with
Sec. 229.1302(e)(2) (Item 1302(e)(2) of Regulation S-K);
(v) When reporting the grade or quality for a multiple commodity
mineral reserve as metal or mineral equivalent, disclose the individual
grade of each metal or mineral and the commodity prices, recoveries,
and any other relevant conversion factors used to estimate the metal or
mineral equivalent grade; and
(vi) Provide the qualified person's opinion on how the mineral
reserve estimates could be materially affected by risk factors
associated with or changes to any aspect of the modifying factors.
Instruction 1 to paragraph (b)(96)(iii)(B)(12): The technical
report summary must comply with all disclosure standards for mineral
reserves under Sec. Sec. 229.1300 through 1305 (subpart 229.1300 of
Regulation S-K).
(13) Mining methods. Describe the current or proposed mining
methods and the reasons for selecting these methods as the most
suitable for the mineral reserves under consideration. Include:
(i) Geotechnical and hydrological models, and other parameters
relevant to mine designs and plans;
(ii) Production rates, expected mine life, mining unit dimensions,
and mining dilution and recovery factors;
(iii) Requirements for stripping, underground development, and
backfilling;
(iv) Required mining equipment fleet and machinery, and personnel;
and
(v) At least one map of the final mine outline.
(14) Processing and recovery methods. Describe the current or
proposed mineral processing methods and the reasons for selecting these
methods as the most suitable for extracting the valuable products from
the mineralization under consideration. Include:
(i) A description or flow sheet of any current or proposed process
plant;
(ii) Plant throughput and design, equipment characteristics and
specifications;
(iii) Current or projected requirements for energy, water, process
materials, and personnel; and
(iv) If the processing method, plant design, or other parameter has
never been used to commercially extract the valuable product from such
mineralization, a justification by the qualified person for why he or
she believes the approach will be successful in this instance.
Instruction 1 to paragraph (b)(96)(iii)(B)(14): If the processing
method, plant design, or other parameter has never been used to
commercially extract the valuable product from such mineralization and
is still under development, then no mineral resources or reserves can
be disclosed on the basis of that method, design, or other parameter.
(15) Infrastructure. Describe the required infrastructure for the
project, including roads, rail, port facilities, dams, dumps and leach
pads, tailings disposal, power, water, and pipelines, as applicable.
Include at least one map showing the layout of the infrastructure.
(16) Market studies. Describe the market for the products of the
mine, including justification for demand or sales over the life of the
mine (or length of cash flow projections). Include:
(i) Information concerning markets for the property's production,
including the nature and material terms of any agency relationships and
the results of any relevant market studies, commodity price
projections, product valuation, market entry strategies, and product
specification requirements; and
(ii) Descriptions of all material contracts required for the issuer
to develop the property, including mining, concentrating, smelting,
refining, transportation, handling, hedging arrangements, and forward
sales contracts. State which contracts have been executed and which are
still under negotiation. For all contracts with affiliated parties,
discuss whether the registrant obtained the same terms, rates or
charges as could be obtained had the contract been negotiated at arm's
length with an unaffiliated third party.
[[Page 66448]]
(17) Environmental studies, permitting, and plans, negotiations, or
agreements with local individuals or groups. Describe the factors
pertaining to environmental compliance, permitting, and local
individuals or groups, which are related to the project. Include:
(i) The results of environmental studies (e.g., environmental
baseline studies or impact assessments);
(ii) Requirements and plans for waste and tailings disposal, site
monitoring, and water management during operations and after mine
closure;
(iii) Project permitting requirements, the status of any permit
applications, and any known requirements to post performance or
reclamation bonds;
(iv) Plans, negotiations, or agreements with local individuals or
groups;
(v) Mine closure plans, including remediation and reclamation
plans, and the associated costs;
(vi) The qualified person's opinion on the adequacy of current
plans to address any issues related to environmental compliance,
permitting, and local individuals or groups; and
(vii) Descriptions of any commitments to ensure local procurement
and hiring.
(18) Capital and operating costs. (i) Provide estimates of capital
and operating costs, with the major components set out in tabular form.
Explain and justify the basis for the cost estimates including any
contingency budget estimates. State the accuracy level of the capital
and operating cost estimates.
(ii) To assess the accuracy of the capital and operating cost
estimates, the qualified person must take into account the risks
associated with the specific engineering estimation methods used to
arrive at the estimates. As part of this analysis, the qualified person
must take into consideration the accuracy of the estimation methods in
prior similar environments. The accuracy of capital and operating cost
estimates must comply with Sec. 229.1302 (Item 1302 of Regulation S-
K).
(19) Economic analysis. (i) Describe the key assumptions,
parameters, and methods used to demonstrate economic viability, and
provide all material assumptions including discount rates, exchange
rates, commodity prices, and taxes, royalties, and other government
levies or interests applicable to the mineral project or to production,
and to revenues or income from the mineral project.
(ii) Disclose the results of the economic analysis, including
annual cash flow forecasts based on an annual production schedule for
the life of project, and measures of economic viability such as net
present value (NPV), internal rate of return (IRR), and payback period
of capital.
(iii) Include sensitivity analysis results using variants in
commodity price, grade, capital and operating costs, or other
significant input parameters, as appropriate, and discuss the impact on
the results of the economic analysis.
(iv) The qualified person may, but is not required to, include an
economic analysis in an initial assessment. If the qualified person
includes an economic analysis in an initial assessment, the qualified
person must also include a statement, of equal prominence to the rest
of this section, that, unlike mineral reserves, mineral resources do
not have demonstrated economic viability. The qualified person may
include inferred mineral resources in the economic analysis only if he
or she satisfies the conditions set forth in Sec. 229.1302(d)(4)(ii)
(Item 1302(d)(4)(ii) of Regulation S-K).
(20) Adjacent properties. Where applicable, a qualified person may
include relevant information concerning an adjacent property if:
(i) Such information was publicly disclosed by the owner or
operator of the adjacent property;
(ii) The source of the information is identified;
(iii) The qualified person states that he or she has been unable to
verify the information and that the information is not necessarily
indicative of the mineralization on the property that is the subject of
the technical report summary; and
(iv) The technical report summary clearly distinguishes between the
information from the adjacent property and the information from the
property that is the subject of the technical report summary.
(21) Other relevant data and information. Include any additional
information or explanation necessary to provide a complete and balanced
presentation of the value of the property to the registrant.
Information included in this item must comply with Sec. Sec. 229.1300
through 229.1305 (subpart 229.1300 of Regulation S-K).
(22) Interpretation and conclusions. The qualified person must
summarize the interpretations of and conclusions based on the data and
analysis in the technical report summary. He or she must also discuss
any significant risks and uncertainties that could reasonably be
expected to affect the reliability or confidence in the exploration
results, mineral resource or mineral reserve estimates, or projected
economic outcomes.
(23) Recommendations. If applicable, the qualified person must
describe the recommendations for additional work with associated costs.
If the additional work program is divided into phases, the costs for
each phase must be provided along with decision points at the end of
each phase.
(24) References. Include a list of all references cited in the
technical report summary in sufficient detail so that a reader can
locate each reference.
(25) Reliance on information provided by the registrant. If relying
on information provided by the registrant for matters discussed in the
technical report summary, as permitted under Sec. 229.1302(f), provide
the disclosure required pursuant to Sec. 229.1302(f)(2).
* * * * *
Sec. 229.801 [Amended]
0
4. Amend Sec. 229.801 by removing paragraph (g).
Sec. 229.802 [Amended]
0
5. Amend Sec. 229.802 by removing paragraph (g).
0
6. Add subpart 229.1300 to read as follows:
Subpart 229.1300--Disclosure by Registrants Engaged in Mining
Operations
Sec.
229.1300 (Item 1300) Definitions.
229.1301 (Item 1301) General instructions.
229.1302 (Item 1302) Qualified person, technical report summary, and
technical studies.
229.1303 (Item 1303) Summary disclosure.
229.1304 (Item 1304) Individual property disclosure.
229.1305 (Item 1305) Internal controls disclosure.
Subpart 229.1300--Disclosure by Registrants Engaged in Mining
Operations
Sec. 229.1300 (Item 1300) Definitions.
As used in this subpart, these terms have the following meanings:
Adequate geological evidence, when used in the context of mineral
resource determination, means evidence that is sufficient to establish
geological and grade or quality continuity with reasonable certainty.
Conclusive geological evidence, when used in the context of mineral
resource determination, means evidence that is sufficient to test and
confirm geological and grade or quality continuity.
Cut-off grade is the grade (i.e., the concentration of metal or
mineral in rock) that determines the destination of the material during
mining. For purposes of establishing ``prospects of economic
extraction,'' the cut-off grade is the grade that distinguishes
material
[[Page 66449]]
deemed to have no economic value (it will not be mined in underground
mining or if mined in surface mining, its destination will be the waste
dump) from material deemed to have economic value (its ultimate
destination during mining will be a processing facility). Other terms
used in similar fashion as cut-off grade include net smelter return,
pay limit, and break-even stripping ratio.
Development stage issuer is an issuer that is engaged in the
preparation of mineral reserves for extraction on at least one material
property.
Development stage property is a property that has mineral reserves
disclosed, pursuant to this subpart, but no material extraction.
Economically viable, when used in the context of mineral reserve
determination, means that the qualified person has determined, using a
discounted cash flow analysis, or has otherwise analytically
determined, that extraction of the mineral reserve is economically
viable under reasonable investment and market assumptions.
Exploration results are data and information generated by mineral
exploration programs (i.e., programs consisting of sampling, drilling,
trenching, analytical testing, assaying, and other similar activities
undertaken to locate, investigate, define or delineate a mineral
prospect or mineral deposit) that are not part of a disclosure of
mineral resources or reserves. A registrant must not use exploration
results alone to derive estimates of tonnage, grade, and production
rates, or in an assessment of economic viability.
Exploration stage issuer is an issuer that has no material property
with mineral reserves disclosed.
Exploration stage property is a property that has no mineral
reserves disclosed.
Exploration target is a statement or estimate of the exploration
potential of a mineral deposit in a defined geological setting where
the statement or estimate, quoted as a range of tonnage and a range of
grade (or quality), relates to mineralization for which there has been
insufficient exploration to estimate a mineral resource.
Feasibility study is a comprehensive technical and economic study
of the selected development option for a mineral project, which
includes detailed assessments of all applicable modifying factors, as
defined by this section, together with any other relevant operational
factors, and detailed financial analysis that are necessary to
demonstrate, at the time of reporting, that extraction is economically
viable. The results of the study may serve as the basis for a final
decision by a proponent or financial institution to proceed with, or
finance, the development of the project.
(1) A feasibility study is more comprehensive, and with a higher
degree of accuracy, than a pre-feasibility study. It must contain
mining, infrastructure, and process designs completed with sufficient
rigor to serve as the basis for an investment decision or to support
project financing.
(2) The confidence level in the results of a feasibility study is
higher than the confidence level in the results of a pre-feasibility
study. Terms such as full, final, comprehensive, bankable, or
definitive feasibility study are equivalent to a feasibility study.
Final market study is a comprehensive study to determine and
support the existence of a readily accessible market for the mineral.
It must, at a minimum, include product specifications based on final
geologic and metallurgical testing, supply and demand forecasts,
historical prices for the preceding five or more years, estimated long
term prices, evaluation of competitors (including products and
estimates of production volumes, sales, and prices), customer
evaluation of product specifications, and market entry strategies or
sales contracts. The study must provide justification for all
assumptions, which must include assumptions concerning the material
contracts required to develop and sell the mineral reserves.
Indicated mineral resource is that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
adequate geological evidence and sampling. The level of geological
certainty associated with an indicated mineral resource is sufficient
to allow a qualified person to apply modifying factors in sufficient
detail to support mine planning and evaluation of the economic
viability of the deposit. Because an indicated mineral resource has a
lower level of confidence than the level of confidence of a measured
mineral resource, an indicated mineral resource may only be converted
to a probable mineral reserve.
Inferred mineral resource is that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
limited geological evidence and sampling. The level of geological
uncertainty associated with an inferred mineral resource is too high to
apply relevant technical and economic factors likely to influence the
prospects of economic extraction in a manner useful for evaluation of
economic viability. Because an inferred mineral resource has the lowest
level of geological confidence of all mineral resources, which prevents
the application of the modifying factors in a manner useful for
evaluation of economic viability, an inferred mineral resource may not
be considered when assessing the economic viability of a mining
project, and may not be converted to a mineral reserve.
Initial assessment is a preliminary technical and economic study of
the economic potential of all or parts of mineralization to support the
disclosure of mineral resources. The initial assessment must be
prepared by a qualified person and must include appropriate assessments
of reasonably assumed technical and economic factors, together with any
other relevant operational factors, that are necessary to demonstrate
at the time of reporting that there are reasonable prospects for
economic extraction. An initial assessment is required for disclosure
of mineral resources but cannot be used as the basis for disclosure of
mineral reserves.
Investment and market assumptions, when used in the context of
mineral reserve determination, includes all assumptions made about the
prices, exchange rates, interest and discount rates, sales volumes, and
costs that are necessary to determine the economic viability of the
mineral reserves. The qualified person must use a price for each
commodity that provides a reasonable basis for establishing that the
project is economically viable.
Limited geological evidence, when used in the context of mineral
resource determination, means evidence that is only sufficient to
establish that geological and grade or quality continuity are more
likely than not.
Material has the same meaning as under Sec. 230.405 or Sec.
240.12b-2 of this chapter.
Material of economic interest, when used in the context of mineral
resource determination, includes mineralization, including dumps and
tailings, mineral brines, and other resources extracted on or within
the earth's crust. It does not include oil and gas resources resulting
from oil and gas producing activities, as defined in Sec. 210.4-
10(a)(16)(i) of this chapter, gases (e.g., helium and carbon dioxide),
geothermal fields, and water.
Measured mineral resource is that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
conclusive geological evidence and sampling. The level of geological
certainty associated with a measured mineral resource is sufficient to
allow a qualified person to apply modifying factors, as defined in this
section, in sufficient detail to
[[Page 66450]]
support detailed mine planning and final evaluation of the economic
viability of the deposit. Because a measured mineral resource has a
higher level of confidence than the level of confidence of either an
indicated mineral resource or an inferred mineral resource, a measured
mineral resource may be converted to a proven mineral reserve or to a
probable mineral reserve.
Mineral reserve is an estimate of tonnage and grade or quality of
indicated and measured mineral resources that, in the opinion of the
qualified person, can be the basis of an economically viable project.
More specifically, it is the economically mineable part of a measured
or indicated mineral resource, which includes diluting materials and
allowances for losses that may occur when the material is mined or
extracted.
Mineral resource is a concentration or occurrence of material of
economic interest in or on the Earth's crust in such form, grade or
quality, and quantity that there are reasonable prospects for economic
extraction. A mineral resource is a reasonable estimate of
mineralization, taking into account relevant factors such as cut-off
grade, likely mining dimensions, location or continuity, that, with the
assumed and justifiable technical and economic conditions, is likely
to, in whole or in part, become economically extractable. It is not
merely an inventory of all mineralization drilled or sampled.
Modifying factors are the factors that a qualified person must
apply to indicated and measured mineral resources and then evaluate in
order to establish the economic viability of mineral reserves. A
qualified person must apply and evaluate modifying factors to convert
measured and indicated mineral resources to proven and probable mineral
reserves. These factors include, but are not restricted to: Mining;
processing; metallurgical; infrastructure; economic; marketing; legal;
environmental compliance; plans, negotiations, or agreements with local
individuals or groups; and governmental factors. The number, type and
specific characteristics of the modifying factors applied will
necessarily be a function of and depend upon the mineral, mine,
property, or project.
Preliminary feasibility study (or pre-feasibility study) is a
comprehensive study of a range of options for the technical and
economic viability of a mineral project that has advanced to a stage
where a qualified person has determined (in the case of underground
mining) a preferred mining method, or (in the case of surface mining) a
pit configuration, and in all cases has determined an effective method
of mineral processing and an effective plan to sell the product.
(1) A pre-feasibility study includes a financial analysis based on
reasonable assumptions, based on appropriate testing, about the
modifying factors and the evaluation of any other relevant factors that
are sufficient for a qualified person to determine if all or part of
the indicated and measured mineral resources may be converted to
mineral reserves at the time of reporting. The financial analysis must
have the level of detail necessary to demonstrate, at the time of
reporting, that extraction is economically viable.
(2) A pre-feasibility study is less comprehensive and results in a
lower confidence level than a feasibility study. A pre-feasibility
study is more comprehensive and results in a higher confidence level
than an initial assessment.
Preliminary market study is a study that is sufficiently rigorous
and comprehensive to determine and support the existence of a readily
accessible market for the mineral. It must, at a minimum, include
product specifications based on preliminary geologic and metallurgical
testing, supply and demand forecasts, historical prices for the
preceding five or more years, estimated long term prices, evaluation of
competitors (including products and estimates of production volumes,
sales, and prices), customer evaluation of product specifications, and
market entry strategies. The study must provide justification for all
assumptions. It can, however, be less rigorous and comprehensive than a
final market study, which is required for a full feasibility study.
Probable mineral reserve is the economically mineable part of an
indicated and, in some cases, a measured mineral resource.
Production stage issuer is an issuer that is engaged in material
extraction of mineral reserves on at least one material property.
Production stage property is a property with material extraction of
mineral reserves.
Proven mineral reserve is the economically mineable part of a
measured mineral resource and can only result from conversion of a
measured mineral resource.
Qualified person is an individual who is:
(1) A mineral industry professional with at least five years of
relevant experience in the type of mineralization and type of deposit
under consideration and in the specific type of activity that person is
undertaking on behalf of the registrant; and
(2) An eligible member or licensee in good standing of a recognized
professional organization at the time the technical report is prepared.
For an organization to be a recognized professional organization, it
must:
(i) Be either:
(A) An organization recognized within the mining industry as a
reputable professional association; or
(B) A board authorized by U.S. federal, state or foreign statute to
regulate professionals in the mining, geoscience or related field;
(ii) Admit eligible members primarily on the basis of their
academic qualifications and experience;
(iii) Establish and require compliance with professional standards
of competence and ethics;
(iv) Require or encourage continuing professional development;
(v) Have and apply disciplinary powers, including the power to
suspend or expel a member regardless of where the member practices or
resides; and
(vi) Provide a public list of members in good standing.
Relevant experience means, for purposes of determining whether a
party is a qualified person, that the party has experience in the
specific type of activity that the person is undertaking on behalf of
the registrant. If the qualified person is preparing or supervising the
preparation of a technical report concerning exploration results, the
relevant experience must be in exploration. If the qualified person is
estimating, or supervising the estimation of mineral resources, the
relevant experience must be in the estimation, assessment and
evaluation of mineral resources and associated technical and economic
factors likely to influence the prospect of economic extraction. If the
qualified person is estimating, or supervising the estimation of
mineral reserves, the relevant experience must be in engineering and
other disciplines required for the estimation, assessment, evaluation
and economic extraction of mineral reserves.
(1) Relevant experience also means, for purposes of determining
whether a party is a qualified person, that the party has experience
evaluating the specific type of mineral deposit under consideration
(e.g., coal, metal, base metal, industrial mineral, or mineral brine).
The type of experience necessary to qualify as relevant is a facts and
circumstances determination. For example, experience in a high-nugget,
vein-type mineralization such as tin or tungsten would likely be
relevant
[[Page 66451]]
experience for estimating mineral resources for vein-gold
mineralization, whereas experience in a low grade disseminated gold
deposit likely would not be relevant.
Note 1 to paragraph (1) of the definition of relevant experience:
It is not always necessary for a person to have five years' experience
in each and every type of deposit in order to be an eligible qualified
person if that person has relevant experience in similar deposit types.
For example, a person with 20 years' experience in estimating mineral
resources for a variety of metalliferous hard-rock deposit types may
not require as much as five years of specific experience in porphyry-
copper deposits to act as a qualified person. Relevant experience in
the other deposit types could count towards the experience in relation
to porphyry-copper deposits.
(2) For a qualified person providing a technical report for
exploration results or mineral resource estimates, relevant experience
also requires, in addition to experience in the type of mineralization,
sufficient experience with the sampling and analytical techniques, as
well as extraction and processing techniques, relevant to the mineral
deposit under consideration. Sufficient experience means that level of
experience necessary to be able to identify, with substantial
confidence, problems that could affect the reliability of data and
issues associated with processing.
(3) For a qualified person applying the modifying factors, as
defined by this section, to convert mineral resources to mineral
reserves, relevant experience also requires:
(i) Sufficient knowledge and experience in the application of these
factors to the mineral deposit under consideration; and
(ii) Experience with the geology, geostatistics, mining, extraction
and processing that is applicable to the type of mineral and mining
under consideration.
Sec. 229.1301 (Item 1301) General instructions.
(a) As used in this section, the term mining operations includes
operations on all mining properties that a registrant:
(1) Owns or in which it has, or it is probable that it will have, a
direct or indirect economic interest;
(2) Operates, or it is probable that it will operate, under a lease
or other legal agreement that grants the registrant ownership or
similar rights that authorize it, as principal, to sell or otherwise
dispose of the mineral; or
(3) Has, or it is probable that it will have, an associated royalty
or similar right.
(b) A registrant must provide the disclosure specified in this
subpart if its mining operations are material to its business or
financial condition.
(c) When determining whether its mining operations are material, a
registrant must:
(1) Consider both quantitative and qualitative factors, assessed in
the context of the registrant's overall business and financial
condition;
(2) Aggregate mining operations on all of its mining properties,
regardless of the stage of the mining property, and size or type of
commodity produced, including coal, metalliferous minerals, industrial
materials, and mineral brines; and
(3) Include, for each property, as applicable, all related
activities from exploration through extraction to the first point of
material external sale, including processing, transportation, and
warehousing.
(d) Upon a determination that its mining operations are material, a
registrant must provide summary disclosure concerning all of its mining
activities, as specified in Sec. 229.1303, as well as individual
property disclosure concerning each of its mining properties that is
material to its business or financial condition, as specified in Sec.
229.1304. When providing either summary or individual property
disclosure, the registrant:
(1) Should provide an appropriate glossary if the disclosure
requires the use of technical terms relating to geology, mining or
related matters, which cannot readily be found in conventional
dictionaries;
(2) Should not include detailed illustrations and technical
reports, full feasibility studies or other highly technical data. The
registrant shall, however, furnish such reports and other material
supplementally to the staff upon request; and
(3) Should use plain English principles, to the extent practicable,
such as those provided in Sec. Sec. 230.421 and 240.13a-20 of this
chapter, to enhance the readability of the disclosure for investors.
Sec. 229.1302 (Item 1302) Qualified person, technical report
summary, and technical studies.
(a)(1) A registrant's disclosure of exploration results, mineral
resources, or mineral reserves, as required by Sec. Sec. 229.1303 and
229.1304, must be based on and accurately reflect information and
supporting documentation prepared by a qualified person, as defined in
Sec. 229.1300. As used in this section, the term information includes
the findings and conclusions of a qualified person relating to
exploration results or estimates of mineral resources or mineral
reserves.
(2) The registrant is responsible for determining that the person
meets the qualifications specified under the definition of qualified
person in Sec. 229.1300, and that the disclosure in the registrant's
filing accurately reflects the information provided by the qualified
person.
(3) If a registrant has relied on more than one qualified person to
prepare the information and documentation supporting its disclosure of
exploration results, mineral resources, or mineral reserves, the
registrant's responsibilities as specified in this paragraph (a)
pertain to each qualified person.
(b)(1) The registrant must obtain a dated and signed technical
report summary from the qualified person that, pursuant to Sec.
229.601(b)(96), identifies and summarizes the information reviewed and
conclusions reached by the qualified person about the registrant's
mineral resources or mineral reserves determined to be on each material
property. At its election, the registrant may also obtain a dated and
signed technical report summary from the qualified person that,
pursuant to Sec. 229.601(b)(96), identifies and summarizes the
information reviewed and conclusions reached by the qualified person
about the registrant's exploration results.
(i) Except as provided in paragraph (b)(1)(ii) of this section, if
more than one qualified person has prepared the technical report
summary, each qualified person must date and sign the technical report
summary. The qualified person's signature must comply with Sec.
230.402(e) or Sec. 240.12b-11(d) of this chapter. The technical report
summary must also clearly delineate the section or sections of the
summary prepared by each qualified person.
(ii) A third-party firm comprising mining experts, such as
professional geologists or mining engineers, may date and sign the
technical report summary instead of, and without naming, its employee,
member or other affiliated person who prepared the technical report
summary.
(2)(i) The registrant must file the technical report summary as an
exhibit to the relevant registration statement or other Commission
filing when disclosing for the first time mineral reserves or mineral
resources or when there is a material change in the mineral reserves or
mineral resources from the
[[Page 66452]]
last technical report summary filed for the property.
(ii) If a registrant files a technical report summary to support
the disclosure of exploration results, it must also file a technical
report summary when there is a material change in the exploration
results from the last technical report summary filed for the property.
In each instance, the registrant must file the technical report summary
as an exhibit to the relevant Commission filing.
(3)(i) A registrant that has a royalty, streaming, or other similar
right is not required to submit a separate technical report summary for
a property that is covered by a current technical report summary filed
by the producing mining registrant. In that situation, the registrant
holding the royalty, streaming, or other similar right should refer to
the producing registrant's previously filed technical report summary in
its filing with the Commission. Such a reference will not be deemed to
incorporate by reference, pursuant to Sec. 230.411 or Sec. 240.12b-23
of this chapter, the previously filed technical report summary into the
royalty company's or other similar company's filing absent an express
statement to so incorporate by reference the previously filed technical
report summary.
(ii) A registrant that has a royalty, streaming, or other similar
right is not required to file a technical report summary for an
underlying property if the registrant lacks access to the technical
report summary because:
(A) Obtaining the information would result in an unreasonable
burden or expense; or
(B) It requested the technical report summary from the owner,
operator, or other person possessing the technical report summary, who
is not affiliated with the registrant, and who denied the request.
(4)(i) The registrant must obtain the written consent of the
qualified person to the use of the qualified person's name, or any
quotation from, or summarization of, the technical report summary in
the relevant registration statement or report, and to the filing of the
technical report summary as an exhibit to the registration statement or
report.
(ii) Except as provided in paragraph (b)(4)(iii) of this section,
if more than one qualified person has prepared the technical report
summary, the registrant must obtain the written consent required by
this section from each qualified person pertaining to the particular
section or sections of the technical report summary prepared by each
qualified person.
(iii) If, pursuant to paragraph (b)(1)(ii) of this section, a
third-party firm has signed the technical report summary, the third-
party firm must provide the written consent. If a qualified person is
an employee or person affiliated with the registrant, the qualified
person must provide the written consent on an individual basis.
(iv) For Securities Act filings, the registrant must file the
written consent as an exhibit to the registration statement pursuant to
Sec. Sec. 230.436 and 230.601(b)(23) of this chapter. For Exchange Act
reports, the registrant is not required to file the written consent
obtained from the qualified person, but should retain the written
consent for as long as it is relying on the qualified person's
information and supporting documentation for its current estimates
regarding mineral resources, mineral reserves, or exploration results.
(5) The registrant must state in the filed registration statement
or report whether each qualified person who prepared the technical
report summary is an employee of the registrant. If the qualified
person is not an employee of the registrant, the registrant must name
the qualified person's employer, disclose whether the qualified person
or the qualified person's employer is affiliated with the registrant or
another entity that has an ownership, royalty, or other interest in the
property that is the subject of the technical report summary, and if
affiliated, describe the nature of the affiliation. As used in this
section, affiliate or affiliated has the same meaning as in Sec.
230.405 or Sec. 240.12b-2 of this chapter.
(6)(i) A qualified person may include in the technical report
summary information and documentation provided by a third-party
specialist who is not a qualified person, as defined in Sec. 229.1300,
such as an attorney, appraiser, and economic or environmental
consultant, upon which the qualified person has relied in preparing the
technical report summary.
(ii) The qualified person may not disclaim responsibility for any
information or documentation prepared by a third-party specialist upon
which the qualified person has relied, or any part of the technical
report summary based upon or related to that information and
documentation.
(iii) A registrant is not required to file a written consent of any
third-party specialist upon which a qualified person has relied
pursuant to paragraph (b)(6)(i) of this section.
(c)(1) A registrant may disclose an exploration target, as defined
in Sec. 229.1300, for one or more of its properties that is based upon
and accurately reflects information and supporting documentation of a
qualified person. The qualified person may include a discussion of an
exploration target in a technical report summary.
(2) Any disclosure of an exploration target must appear in a
separate section of the Commission filing or technical report summary
that is clearly captioned as a discussion of an exploration target.
That section must include a clear and prominent statement that:
(i) The ranges of potential tonnage and grade (or quality) of the
exploration target are conceptual in nature;
(ii) There has been insufficient exploration of the relevant
property or properties to estimate a mineral resource;
(iii) It is uncertain if further exploration will result in the
estimation of a mineral resource; and
(iv) The exploration target therefore does not represent, and
should not be construed to be, an estimate of a mineral resource or
mineral reserve.
(3) Any disclosure of an exploration target must also include:
(i) A detailed explanation of the basis for the exploration target,
such as the conceptual geological model used to develop the target;
(ii) An explanation of the process used to determine the ranges of
tonnage and grade, which must be expressed as approximations;
(iii) A statement clarifying whether the exploration target is
based on actual exploration results or on one or more proposed
exploration programs, which should include a description of the level
of exploration activity already completed, the proposed exploration
activities designed to test the validity of the exploration target, and
the time frame in which those activities are expected to be completed;
and
(iv) A statement that the ranges of tonnage and grade (or quality)
of the exploration target could change as the proposed exploration
activities are completed.
(d)(1) A registrant's disclosure of mineral resources under this
subpart must be based upon a qualified person's initial assessment, as
defined in Sec. 229.1300, which includes and supports the qualified
person's determination of mineral resources.
(i) When determining the existence of a mineral resource, a
qualified person must:
(A) Be able to estimate or interpret the location, quantity, grade
or quality continuity, and other geological characteristics of the
mineral resource
[[Page 66453]]
from specific geological evidence and knowledge, including sampling;
and
(B) Conclude that there are reasonable prospects for economic
extraction of the mineral resource based on his or her initial
assessment. At a minimum, the initial assessment must include the
qualified person's qualitative evaluation of relevant technical and
economic factors likely to influence the prospect of economic
extraction to establish the economic potential of the mining property
or project.
(ii) For a material property, the technical report summary
submitted by the qualified person to support a determination of mineral
resources must describe the procedures, findings and conclusions
reached for the initial assessment, as required by Sec.
229.601(b)(96).
(iii)(A) When determining mineral resources, a qualified person
must subdivide mineral resources, in order of increasing geological
confidence, into inferred, indicated, and measured mineral resources.
(B) For inferred mineral resources, a qualified person:
(1) Must have a reasonable expectation that the majority of
inferred mineral resources could be upgraded to indicated or measured
mineral resources with continued exploration; and
(2) Should be able to defend the basis of this expectation before
his or her peers.
(iv) The qualified person should refer to Table 1 to paragraph (d)
of this section for the assumptions permitted to be made when preparing
the initial assessment.
(2) A qualified person must include cut-off grade estimation, based
on assumed unit costs for surface or underground operations and
estimated mineral prices, in the initial assessment. To estimate
mineral prices, the qualified person must use a price for each
commodity that provides a reasonable basis for establishing the
prospects of economic extraction for mineral resources. The qualified
person must disclose the price used and explain, with particularity,
his or her reasons for using the selected price, including the material
assumptions underlying the selection. This explanation must include
disclosure of the time frame used to estimate the commodity price and
unit costs for cut-off grade estimation and the reasons justifying the
selection of that time frame. The qualified person may use a price set
by contractual arrangement, provided that such price is reasonable, and
the qualified person discloses that he or she is using a contractual
price when disclosing the price used. The selected price required by
this section and all material assumptions underlying it must be current
as of the end of the registrant's most recently completed fiscal year.
(3) The qualified person must provide a qualitative assessment of
all relevant technical and economic factors likely to influence the
prospect of economic extraction to establish economic potential and
justify why he or she believes that all issues can be resolved with
further exploration and analysis. As provided by Table 1 to paragraph
(d) of this section, those factors include, but are not limited to, to
the extent material:
(i) Site infrastructure (e.g., whether access to power and site is
possible);
(ii) Mine design and planning (e.g., what is the broadly defined
mining method);
(iii) Processing plant (e.g., whether all products used in
assessing prospects of economic extraction can be processed with
methods consistent with each other);
(iv) Environmental compliance and permitting (e.g., what are the
required permits and corresponding agencies and whether significant
obstacles exist to obtaining those permits); and
(v) Any other reasonably assumed technical and economic factors,
including plans, negotiations, or agreements with local individuals or
groups, which are necessary to demonstrate reasonable prospects for
economic extraction.
(4)(i) A qualified person may include cash flow analysis in an
initial assessment to demonstrate economic potential. If the qualified
person includes cash flow analysis in the initial assessment, then
operating and capital cost estimates must have an accuracy level of at
least approximately 50% and a contingency level of no
greater than 25%, as provided by Table 1 to paragraph (d) of this
section. The qualified person must state the accuracy and contingency
levels in the initial assessment.
(ii) If providing an economic analysis in the initial assessment, a
qualified person may include inferred mineral resources in the economic
analysis, provided that the qualified person:
(A) States with equal prominence to the disclosure of mineral
resource estimates that the assessment is preliminary in nature, it
includes inferred mineral resources that are considered too speculative
geologically to have modifying factors applied to them that would
enable them to be categorized as mineral reserves, and there is no
certainty that this economic assessment will be realized;
(B) Discloses the percentage of the mineral resources used in the
cash flow analysis that was classified as inferred mineral resources;
and
(C) Discloses, with equal prominence, the results of the economic
analysis excluding inferred mineral resources in addition to the
results that include inferred mineral resources.
Table 1 to Paragraph (d)--Summary Description of Relevant Factors Evaluated in Technical Studies
----------------------------------------------------------------------------------------------------------------
Preliminary feasibility
Factors \1\ Initial assessment study Feasibility study
----------------------------------------------------------------------------------------------------------------
Site infrastructure.............. Establish whether or not Required access roads, Required access roads,
access to power and site infrastructure location infrastructure location
is possible. Assume and plant area defined. and plant area
infrastructure location, Source of all utilities finalized. Source of
plant area required, (power, water, etc.) all required utilities
type of power supply, required for (power, water, etc.)
site access roads, and development and for development and
camp/town site, if production defined with production finalized.
required. initial designs Camp/Town site
suitable for cost finalized.
estimates. Camp/Town
site finalized.
Mine design & planning........... Mining method defined Preferred underground Mining method finalized.
broadly as surface or mining method or the Detailed mine layouts
underground. Production pit configuration for finalized for preferred
rates assumed. surface mine defined. alternative.
Detailed mine layouts Development and
drawn for each production plan
alternative. finalized for preferred
Development and alternative with
production plan defined required equipment
for each alternative fleet specified.
with required equipment
fleet specified.
[[Page 66454]]
Processing plant................. Establish that all Detailed bench lab tests Detailed bench lab tests
products used in conducted. Detailed conducted. Pilot plant
assessing prospects of process flow sheet, test completed, if
economic extraction can equipment sizes, and required, based on
be processed with general arrangement risk. Process flow
methods consistent with completed. Detailed sheet, equipment sizes,
each other. Processing plant throughput and general arrangement
method and plant specified. finalized. Final plant
throughput assumed. throughput specified.
Environmental compliance & List of required permits Identification and Identification and
permitting. & agencies drawn. detailed analysis of detailed analysis of
Determine if significant environmental environmental
obstacles exist to compliance and compliance and
obtaining permits. permitting permitting requirements
Identify pre-mining land requirements. Detailed finalized. Completed
uses. Assess baseline studies with baseline studies with
requirements for preliminary impact final impact assessment
baseline studies. Assume assessment (internal). (internal). Tailings
post-mining land uses. Detailed tailings disposal, reclamation,
Assume tailings disposal, reclamation, and mitigation plans
disposal, reclamation, and mitigation plans. finalized.
and mitigation plans.
Other relevant factors \2\....... Appropriate assessments Reasonable assumptions, Detailed assessments of
of other reasonably based on appropriate modifying factors
assumed technical and testing, on the necessary to
economic factors modifying factors demonstrate that
necessary to demonstrate sufficient to extraction is
reasonable prospects for demonstrate that economically viable.
economic extraction. extraction is
economically viable.
Capital costs.................... Optional.\3\ If included: Accuracy: 25%. minus>15%.
minus>50%.. Contingency: <=15%...... Contingency: <=10%.
Contingency: <=25%.......
Operating costs.................. Optional.\3\ If included: Accuracy: 25%. minus>15%.
minus>50%.. Contingency: <=15%...... Contingency: <=10%.
Contingency: <=25%.......
Economic analysis \4\............ Optional. If included: Taxes described in Taxes described in
Taxes and revenues are detail; revenues are detail; revenues are
assumed. Discounted cash estimated based on at estimated based on at
flow analysis based on least a preliminary least a final market
assumed production rates market study; economic study or possible
and revenues from viability assessed by letters of intent to
available measured and detailed discounted purchase; economic
indicated mineral cash flow analysis. viability assessed by
resources. detailed discounted
cash flow analysis.
----------------------------------------------------------------------------------------------------------------
\1\ When applied in an initial assessment, these factors pertain to the relevant technical and economic factors
likely to influence the prospect of economic extraction. When applied in a preliminary or final feasibility
study, these factors pertain to the modifying factors, as defined in this subpart.
\2\ The relevant technical and economic factors to be applied in an initial assessment, and the modifying
factors to be applied in a pre-feasibility or final feasibility study, include, but are not limited to, the
factors listed in this table. The number, type, and specific characteristics of the applicable factors will be
a function of and depend upon the particular mineral, mine, property, or project.
\3\ Initial assessment, as defined in this subpart, does not require a cash flow analysis or operating and
capital cost estimates. The qualified person may include a cash flow analysis at his or her discretion.
\4\ An initial assessment does not require capital and operating cost estimates or economic analysis, although
it requires unit cost assumptions based on an assumption that the resource will be exploited with surface or
underground mining methods. An economic analysis, if included, may be based only on measured and indicated
mineral resources, or also may include inferred resources if additional conditions are met.
(e)(1) A registrant's disclosure of mineral reserves under this
subpart must be based upon a qualified person's preliminary feasibility
(pre-feasibility) study or feasibility study, each as defined in Sec.
229.1300, which includes and supports the qualified person's
determination of mineral reserves. The pre-feasibility or feasibility
study must include the qualified person's detailed evaluation of all
applicable modifying factors to demonstrate the economic viability of
the mining property or project. For a material property, the technical
report summary submitted by the qualified person to support a
determination of mineral reserves must describe the procedures,
findings and conclusions reached for the pre-feasibility or feasibility
study, as required by Sec. 229.601(b)(96).
(2) When determining mineral reserves, a qualified person must
subdivide mineral reserves, in order of increasing confidence, into
probable mineral reserves and proven mineral reserves, as defined in
Sec. 229.1300. The determination of probable or proven mineral
reserves must be based on a qualified person's application of the
modifying factors to indicated or measured mineral resources, which
results in the qualified person's determination that part of the
indicated or measured mineral resource is economically mineable.
(i) For a probable mineral reserve, the qualified person's
confidence in the results obtained from the application of the
modifying factors and in the estimates of tonnage and grade or quality
is lower than what is sufficient for a classification as a proven
mineral reserve, but is still sufficient to demonstrate that, at the
time of reporting, extraction of the mineral reserve is economically
viable under reasonable investment and market assumptions. The lower
level of confidence is due to higher geologic uncertainty when the
qualified person converts an indicated mineral resource to a probable
reserve or higher risk in the results of the application of modifying
factors at the time when the qualified person converts a measured
mineral resource to a probable mineral reserve. A qualified person must
classify a measured mineral resource as a probable mineral reserve when
his or her confidence in the results obtained from the application of
the modifying factors to the measured mineral resource is lower than
what is sufficient for a proven mineral reserve.
(ii) For a proven mineral reserve, the qualified person must have a
high degree of confidence in the results obtained from the application
of the modifying factors and in the estimates of tonnage and grade or
quality.
[[Page 66455]]
(3) The pre-feasibility study or feasibility study, which supports
the qualified person's determination of mineral reserves, must
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions. The study must establish a life of mine plan that is
technically achievable and economically viable, which will be the basis
of determining the mineral reserve.
(i) The term mineral reserves does not necessarily require that
extraction facilities are in place or operational, that the company has
obtained all necessary permits or that the company has entered into
sales contracts for the sale of mined products. It does require,
however, that the qualified person has, after reasonable investigation,
not identified any obstacles to obtaining permits and entering into the
necessary sales contracts, and reasonably believes that the chances of
obtaining such approvals and contracts in a timely manner are highly
likely.
(ii) In certain circumstances, the determination of mineral
reserves may require the completion of at least a preliminary market
study, as defined in Sec. 229.1300, in the context of a pre-
feasibility study, or a final market study, as defined in Sec.
229.1300, in the context of a feasibility study, to support the
qualified person's conclusions about the chances of obtaining revenues
from sales. For example, a preliminary or final market study would be
required where the mine's product cannot be traded on an exchange,
there is no other established market for the product, and no sales
contract exists. When assessing mineral reserves, the qualified person
must take into account the potential adverse impacts, if any, from any
unresolved material matter on which extraction is contingent and which
is dependent on a third party.
(4) For both a pre-feasibility and feasibility study, a qualified
person must use a price for each commodity that provides a reasonable
basis for establishing that the project is economically viable. The
qualified person must disclose the price used and explain, with
particularity, his or her reasons for using the selected price,
including the material assumptions underlying the selection. This
explanation must include disclosure of the time frame used to estimate
the price and costs and the reasons justifying the selection of that
time frame. The qualified person may use a price set by contractual
arrangement, provided that such price is reasonable, and the qualified
person discloses that he or she is using a contractual price when
disclosing the price used. The selected price required by this section
and all material assumptions underlying it must be current as of the
end of the registrant's most recently completed fiscal year.
(5) A pre-feasibility study must include an economic analysis that
supports the property's economic viability as assessed by a detailed
discounted cash flow analysis or other similar financial analysis. The
economic analysis must describe in detail applicable taxes and provide
an estimate of revenues. The qualified person must use a price for each
commodity in the economic analysis that meets the requirements of
paragraph (e)(4) of this section. As discussed in paragraph (e)(3) of
this section, in certain situations, estimates of revenues must be
based on at least a preliminary market study.
(6) The qualified person must exclude inferred mineral resources
from the pre-feasibility study's demonstration of economic viability in
support of a disclosure of a mineral reserve.
(7) Factors to be considered in a pre-feasibility study are
typically the same as those required for a final feasibility study, but
considered at a lower level of detail or at an earlier stage of
development. The list of factors is not exclusive. For example, as
provided in Table 1 to paragraph (d) of this section, a pre-feasibility
study must define, analyze or otherwise address in detail, to the
extent material:
(i) The required access roads, infrastructure location and plant
area, and the source of all utilities (e.g., power and water) required
for development and production;
(ii) The preferred underground mining method or surface mine pit
configuration, with detailed mine layouts drawn for each alternative;
(iii) The bench lab tests that have been conducted, the process
flow sheet, equipment sizes, and general arrangement that have been
completed, and the plant throughput;
(iv) The environmental compliance and permitting requirements, the
baseline studies, and the plans for tailings disposal, reclamation, and
mitigation, together with an analysis establishing that permitting is
possible; and
(v) Any other reasonable assumptions, based on appropriate testing,
on the modifying factors sufficient to demonstrate that extraction is
economically viable.
(8) A pre-feasibility study must also identify sources of
uncertainty that require further refinement in a final feasibility
study.
(9) Operating and capital cost estimates in a pre-feasibility study
must, at a minimum, have an accuracy level of approximately 25% and a contingency range not exceeding 15%, as provided in
Table 1 of this section. The qualified person must state the accuracy
level and contingency range in the pre-feasibility study.
(10) A feasibility study must contain the application and
description of all relevant modifying factors in a more detailed form
and with more certainty than a pre-feasibility study. The list of
factors is not exclusive. For example, as provided in Table 1 to
paragraph (d) of this section, a feasibility study must define,
analyze, or otherwise address in detail, to the extent material:
(i) Final requirements for site infrastructure, including well-
defined access roads, finalized plans for infrastructure location,
plant area, and camp or town site, and the established source of all
required utilities (e.g., power and water) for development and
production;
(ii) Finalized mining method, including detailed mine layouts and
final development and production plan for the preferred alternative
with the required equipment fleet specified. The feasibility study must
address detailed mining schedules, construction and production ramp up,
and project execution plans;
(iii) Completed detailed bench lab tests and a pilot plant test, if
required, based on risk. The feasibility study must further address
final requirements for process flow sheet, equipment sizes, and general
arrangement and specify the final plant throughput;
(iv) The final identification and detailed analysis of
environmental compliance and permitting requirements, and the
completion of baseline studies and finalized plans for tailings
disposal, reclamation, and mitigation; and
(v) The final assessments of other modifying factors necessary to
demonstrate that extraction is economically viable.
(11) A feasibility study must also include an economic analysis
that describes taxes in detail, estimates revenues, and assesses
economic viability by a detailed discounted cash flow analysis. The
qualified person must use a price for each commodity in the economic
analysis that meets the requirements of paragraph (e)(4) of this
section. As discussed in paragraph (e)(3) of this section, in certain
situations, estimates of revenues must be based on
[[Page 66456]]
a final market study or letters of intent to purchase.
(12) Operating and capital cost estimates in a feasibility study
must, at a minimum, have an accuracy level of approximately 15% and a contingency range not exceeding 10%, as provided by
Table 1 of this section. The qualified person must state the accuracy
level and contingency range in the feasibility study.
(13) If the uncertainties in the results obtained from the
application of the modifying factors that prevented a measured mineral
resource from being converted to a proven mineral reserve no longer
exist, then the qualified person may convert the measured mineral
resource to a proven mineral reserve.
(14) The qualified person cannot convert an indicated mineral
resource to a proven mineral reserve unless new evidence first
justifies conversion to a measured mineral resource.
(15) The qualified person cannot convert an inferred mineral
resource to a mineral reserve without first obtaining new evidence that
justifies converting it to an indicated or measured mineral resource.
(f)(1) The qualified person may indicate in the technical report
summary that the qualified person has relied on information provided by
the registrant in preparing its findings and conclusions regarding the
following aspects of modifying factors:
(i) Macroeconomic trends, data, and assumptions, and interest
rates;
(ii) Marketing information and plans within the control of the
registrant;
(iii) Legal matters outside the expertise of the qualified person,
such as statutory and regulatory interpretations affecting the mine
plan;
(iv) Environmental matters outside the expertise of the qualified
person;
(v) Accommodations the registrant commits or plans to provide to
local individuals or groups in connection with its mine plans; and
(vi) Governmental factors outside the expertise of the qualified
person.
(2) In a separately captioned section of the technical report
summary entitled ``Reliance on Information Provided by the
Registrant,'' the qualified person must:
(i) Identify the categories of information provided by the
registrant;
(ii) Identify the particular portions of the technical report
summary that were prepared in reliance on information provided by the
registrant pursuant to paragraph (f)(1) of this section, and the extent
of that reliance; and
(iii) Disclose why the qualified person considers it reasonable to
rely upon the registrant for any of the information specified in
paragraph (f)(1) of this section.
(3) Notwithstanding the provisions of Sec. 230.436(a) and (b) of
this chapter, any description in the technical report summary or other
part of the registration statement of the procedures, findings, and
conclusions reached about matters identified by the qualified person as
having been based on information provided by the registrant pursuant to
this section shall not be considered a part of the registration
statement prepared or certified by the qualified person within the
meaning of Sections 7 and 11 of the Securities Act.
Sec. 229.1303 (Item 1303) Summary disclosure.
(a)(1) A registrant that has material mining operations, as
determined pursuant to Sec. 229.1301, and two or more mining
properties, must provide the information specified in paragraph (b) of
this section for all properties that the registrant:
(i) Owns or in which it has, or it is probable that it will have, a
direct or indirect economic interest;
(ii) Operates, or it is probable that it will operate, under a
lease or other legal agreement that grants the registrant ownership or
similar rights that authorize it, as principal, to sell or otherwise
dispose of the mineral; or
(iii) Has, or it is probable that it will have, an associated
royalty or similar right.
(2) A registrant that has material mining operations but only one
mining property is not required to provide the information specified in
paragraph (b) of this section. That registrant need only provide the
disclosure required by Sec. 229.1304 for the mining property that is
material to its business.
(3) A registrant that has a royalty, streaming or other similar
right, but which lacks access to any of the information specified in
paragraph (b) of this section about the underlying properties, may omit
such information, provided that the registrant:
(i) Specifies the information to which it lacks access;
(ii) Explains that it does not have access to the required
information because:
(A) Obtaining the information would result in an unreasonable
burden or expense; or
(B) It requested the information from a person possessing knowledge
of the information, who is not affiliated with the royalty company or
similar registrant, and who denied the request; and
(iii) Provides all required information that it does possess or
which it can acquire without incurring an unreasonable burden or
expense.
(b) Disclose the following information for all properties specified
in paragraph (a) of this section:
(1) A map or maps, of appropriate scale, showing the locations of
all properties. Such maps should be legible on the page when printed.
(2) An overview of the registrant's mining properties and
operations. This overview may be presented in narrative or tabular
format.
(i) The overview must include aggregate annual production for the
properties during each of the three most recently completed fiscal
years preceding the filing.
(ii) The overview should include, as relevant, the following items
of information for the mining properties considered in the aggregate:
(A) The location of the properties;
(B) The type and amount of ownership interests;
(C) The identity of the operator or operators;
(D) Titles, mineral rights, leases or options and acreage involved;
(E) The stages of the properties (exploration, development or
production);
(F) Key permit conditions;
(G) Mine types and mineralization styles; and
(H) Processing plants and other available facilities.
(iii) When presenting the overview, the registrant should include
the amount and type of disclosure concerning its mining properties that
is material to an investor's understanding of the registrant's
properties and mining operations in the aggregate. This disclosure will
depend upon a registrant's specific facts and circumstances and may
vary from registrant to registrant. A registrant should refer to,
rather than duplicate, any disclosure concerning individually material
properties provided in response to Sec. 229.1304.
(iv) A registrant with only a royalty or similar economic interest
should provide only the portion of the production that led to royalty
or other incomes for each of the three most recently completed fiscal
years.
(3) A summary of all mineral resources and mineral reserves, as
determined by the qualified person, at the end of the most recently
completed fiscal year by commodity and geographic area and for each
property containing 10% or more of the registrant's combined measured
and indicated mineral resources or containing 10% or more of the
registrant's mineral reserves. This
[[Page 66457]]
summary must be provided for each class of mineral resources (inferred,
indicated, and measured), together with total measured and indicated
mineral resources, and each class of mineral reserves (probable and
proven), together with total mineral reserves, using the format in
Table 1 to paragraph (b) of this section for mineral resources, and the
format in Table 2 to paragraph (b) of this section for mineral
reserves.
(i) The term by geographic area means by individual country,
regions of a country, state, groups of states, mining district, or
other political units, to the extent material to and necessary for an
investor's understanding of a registrant's mining operations.
(ii) All disclosure of mineral resources by the registrant must be
exclusive of mineral reserves.
(iii) All disclosure of mineral resources and reserves must be only
for the portion of the resources or reserves attributable to the
registrant's interest in the property.
(iv) Each mineral resource and reserve estimate must be based on a
reasonable and justifiable price selected by a qualified person
pursuant to Sec. 229.1302(d) or (e), which provides a reasonable basis
for establishing the prospects of economic extraction for mineral
resources, and is the expected price for mineral reserves.
(v) Each mineral resource and reserve estimate called for in Tables
1 and 2 to paragraph (b) of this section must be based on a specific
point of reference selected by a qualified person. The registrant must
disclose the selected point of reference for each of Tables 1 and 2 to
paragraph (b) of this section.
(vi) The registrant may modify the tabular formats in Tables 1 and
2 to paragraph (b) of this section for ease of presentation or to add
information.
(vii) All material assumptions and information pertaining to the
summary disclosure of a registrant's mineral resources and mineral
reserves required by this section, including material assumptions
related to price estimates, must be current as of the end of the
registrant's most recently completed fiscal year.
Table 1 to Paragraph (b)--Summary Mineral Resources at End of the Fiscal Year Ended [Date] Based on [Price] \1\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Measured mineral resources Indicated mineral resources Measured + indicated mineral resources Inferred mineral resources
---------------------------------------------------------------------------------------------------------------------------------------------------------------
Amount Grades/qualities Amount Grades/qualities Amount Grades/qualities Amount Grades/qualities
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity A:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area B
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property B
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Other mines/properties
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Other geographic areas
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity B:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area B
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property B
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Other mines/properties
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Other geographic areas
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\The registrant must use a reasonable and justifiable price for each commodity, which it must disclose, together with the time frame and point of reference used, when estimating mineral
resources for this Table 1.
Table 2 to Paragraph (b)--Summary Mineral Reserves at End of the Fiscal Year Ended [Date] Based on [Price] \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proven mineral reserves Probable mineral reserves Total mineral reserves
-----------------------------------------------------------------------------------------------------------------------
Amount Grades/qualities Amount Grades/qualities Amount Grades/qualities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity A:
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 66458]]
Geographic area A
--------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area B
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property A
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property B
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other mines/properties
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other geographic areas
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commodity B:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area A
--------------------------------------------------------------------------------------------------------------------------------------------------------
Geographic area B
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property A
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mine/Property B
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other mines/properties
--------------------------------------------------------------------------------------------------------------------------------------------------------
Other geographic areas
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The registrant must use a reasonable and justifiable price for each commodity, which it must disclose, together with the time frame and point of
reference used, when estimating mineral reserves for this Table 2.
Sec. 229.1304 (Item 1304) Individual property disclosure.
(a)(1) A registrant must disclose the information specified in this
section for each property that is material to its business or financial
condition. When determining the materiality of a property relative to
its business or financial condition, a registrant must apply the
standards and other considerations specified in Sec. 229.1301(c) to
each individual property that it:
(i) Owns or in which it has, or it is probable that it will have, a
direct or indirect economic interest;
(ii) Operates, or it is probable that it will operate, under a
lease or other legal agreement that grants the registrant ownership or
similar rights that authorize it, as principal, to sell or otherwise
dispose of the mineral; or
(iii) Has, or it is probable that it will have, an associated
royalty or similar right.
(2) A registrant that has a royalty, streaming or other similar
right, but which lacks access to any of the information specified in
this section about the underlying property or properties, may omit such
information, provided that the registrant:
(i) Specifies the information to which it lacks access;
(ii) Explains that it does not have access to the required
information because:
(A) Obtaining the information would result in an unreasonable
burden or expense; or
(B) It requested the information from a person possessing knowledge
of the information, who is not affiliated with the with the royalty
company or similar registrant, and who denied the request; and
(iii) Provides all required information that it does possess or
which it can acquire without incurring an unreasonable burden or
expense.
(b) Disclose the following information for each material property
specified in paragraph (a) of this section:
(1) A brief description of the property including:
(i) The location, accurate to within one mile, using an easily
recognizable coordinate system. The registrant must provide appropriate
maps, with proper engineering detail (such as scale, orientation, and
titles). Such maps must be legible on the page when printed;
(ii) Existing infrastructure including roads, railroads, airports,
towns, ports, sources of water, electricity, and personnel; and
(iii) A brief description, including the name or number and size
(acreage), of the titles, claims, concessions, mineral rights, leases
or options under which the registrant and its subsidiaries have or will
have the right to hold or operate the property, and how such rights are
obtained at this location, indicating any conditions that the
registrant must meet in order to obtain or retain the property. If held
by leases or options or if the mineral rights otherwise have
termination provisions, the registrant must provide the expiration
dates of such leases, options or mineral rights and associated
payments.
(iv) Except as provided in paragraph (a)(2) of this section, if the
registrant holds a royalty or similar interest or will have an
associated royalty or similar right, the disclosure must describe all
of the information in paragraph (b)(1) of this section, including, for
example, the documents under which the owner or operator holds or
operates the property,
[[Page 66459]]
the mineral rights held by the owner or operator, conditions required
to be met by the owner or operator, and the expiration dates of leases,
options and mineral rights. The registrant must also briefly describe
the agreement under which the registrant and its subsidiaries have or
will have the right to a royalty or similar interest in the property,
indicating any conditions that the registrant must meet in order to
obtain or retain the royalty or similar interest, and indicating the
expiration date.
(2) The following information, as relevant to the particular
property:
(i) A brief description of the present condition of the property,
the work completed by the registrant on the property, the registrant's
proposed program of exploration or development, the current stage of
the property as exploration, development or production, the current
state of exploration or development of the property, and the current
production activities. Mines should be identified as either surface or
underground, with a brief description of the mining method and
processing operations. If the property is without known reserves and
the proposed program is exploratory in nature or the registrant has
started extraction without determining mineral reserves, the registrant
must provide a statement to that effect;
(ii) The age, details as to modernization and physical condition of
the equipment, facilities, infrastructure, and underground development;
(iii) The total cost for or book value of the property and its
associated plant and equipment;
(iv) A brief history of previous operations, including the names of
previous operators, insofar as known; and
(v) A brief description of any significant encumbrances to the
property, including current and future permitting requirements and
associated timelines, permit conditions, and violations and fines.
(c) When providing the disclosure required by paragraph (b) of this
section:
(1) A registrant must identify an individual property with no
mineral reserves as an exploration stage property, even if it has other
properties in development or production. Similarly, a registrant that
does not have reserves on any of its properties cannot characterize
itself as a development or production stage company, even if it has
mineral resources or exploration results, or even if it is engaged in
extraction without first disclosing mineral reserves.
(2) A registrant should not include extensive description of
regional geology. Rather, it should include geological information that
is brief and relevant to property disclosure.
(d)(1) If mineral resources or reserves have been determined, the
registrant must provide a summary of all mineral resources or reserves
as of the end of the most recently completed fiscal year, which, for
each property, discloses in tabular form, as provided in Table 1 to
paragraph (d)(1) of this section for each class of mineral resources
(measured, indicated, and inferred), together with total measured and
indicated mineral resources, the estimated tonnages and grades (or
quality, where appropriate), and as provided in Table 2 to paragraph
(d)(1) of this section for each class of mineral reserves (proven and
probable), together with total mineral reserves, the estimated
tonnages, grades (or quality, where appropriate), cut-off grades, and
metallurgical recovery, based on a specific point of reference selected
by a qualified person pursuant to Sec. 229.601(b)(96). The registrant
must disclose the selected point of reference for each of Tables 1 and
2 to paragraph (d)(1) of this section.
Table 1 to Paragraph (D)(1)--[Individual Property Name]--Summary of [Commodity/Commodities] Mineral Resources at
the End of the Fiscal Year Ended [Date] Based on [Price] \1\
----------------------------------------------------------------------------------------------------------------
Resources
---------------------------------------------- Cut-off grades Metallurgical
Amount Grades/ qualities recovery
----------------------------------------------------------------------------------------------------------------
Measured mineral ..................... ..................... ..................... .....................
resources
Indicated mineral ..................... ..................... ..................... .....................
resources
Measured + Indicated ..................... ..................... ..................... .....................
mineral resources
Inferred mineral ..................... ..................... ..................... .....................
resources
----------------------------------------------------------------------------------------------------------------
\1\ The registrant must use a reasonable and justifiable price, which it must disclose, together with the time
frame and point of reference used, when estimating mineral resources for this Table 1.
Table 2 to Paragraph (D)(1)--[Individual Property Name]--Summary of [Commodity/Commodities] Mineral Reserves at
the End of the Fiscal Year Ended [Date] Based on [Price] \1\
----------------------------------------------------------------------------------------------------------------
Metallurgical
Amount Grades/ qualities Cut-off grades recovery
----------------------------------------------------------------------------------------------------------------
Proven mineral ..................... ..................... ..................... .....................
reserves
Probable mineral ..................... ..................... ..................... .....................
reserves
-------------------------------------------------------------------------------------------
Total mineral ..................... ..................... ..................... .....................
reserves
----------------------------------------------------------------------------------------------------------------
\1\ The registrant must use a reasonable and justifiable price for each commodity, which it must disclose,
together with the time frame and point of reference used, when estimating mineral reserves for this Table 2.
Instruction 1 to paragraph (d)(1): The registrant may modify the
tabular formats in Tables 1 and 2 to paragraph (d)(1) of this section
for ease of presentation, to add information, or to combine two or more
required tables. When combining tables, the registrant should not
report mineral resources and reserves in the same table.
(2) All disclosure of mineral resources by the registrant must be
exclusive of mineral reserves.
(3) A registrant with only a royalty or similar interest should
provide only the portion of the resources or reserves that are subject
to the royalty or similar agreement.
(e) Compare the property's mineral resources and reserves as of the
end of the last fiscal year with the mineral resources and reserves as
of the end of
[[Page 66460]]
the preceding fiscal year, and explain any material change between the
two. The comparison, which may be in either narrative or tabular
format, must disclose information concerning:
(1) The mineral resources or reserves at the end of the last two
fiscal years;
(2) The net difference between the mineral resources or reserves at
the end of the last completed fiscal year and the preceding fiscal
year, as a percentage of the resources or reserves at the end of the
fiscal year preceding the last completed one;
(3) An explanation of the causes of any discrepancy in mineral
resources including depletion or production, changes in commodity
prices, additional resources discovered through exploration, and
changes due to the methods employed; and
(4) An explanation of the causes of any discrepancy in mineral
reserves including depletion or production, changes in the resource
model, changes in commodity prices and operating costs, changes due to
the methods employed, and changes due to acquisition or disposal of
properties.
(f)(1) If the registrant has not previously disclosed mineral
reserve or resource estimates in a filing with the Commission or is
disclosing material changes to its previously disclosed mineral reserve
or resource estimates, provide a brief discussion of the material
assumptions and criteria in the disclosure and cite corresponding
sections of the technical report summary, which must be filed as an
exhibit pursuant to Sec. 229.1302(b).
(2) All material assumptions and information pertaining to the
disclosure of a registrant's mineral resources and mineral reserves
required by paragraphs (d), (e), and (f) of this section, including
material assumptions relating to all modifying factors, price
estimates, and scientific and technical information (e.g., sampling
data, estimation assumptions and methods), must be current as of the
end of the registrant's most recently completed fiscal year. To the
extent that the registrant is not filing a technical report summary but
instead is basing the required disclosure upon a previously filed
report, that report must also be current in these material respects. If
the previously filed report is not current in these material respects,
the registrant must file a revised or new technical report summary from
a qualified person, in compliance with Sec. 229.601(b)(96) (Item
601(b)(96) of Regulation S-K), that supports the registrant's mining
property disclosures.
(3) Regarding the disclosure required by paragraphs (e) and (f) of
this section, whether a change in mineral resources or mineral reserves
is material is based on all facts and circumstances, both quantitative
and qualitative.
(g)(1) If disclosing exploration activity for any material property
specified in paragraph (a) of this section for the most recently
completed fiscal year, provide a summary that describes the sampling
methods used, and, for each sampling method used, disclose the number
of samples, the total size or length of the samples, and the total
number of assays.
(2) If disclosing exploration results for any material property
specified in paragraph (a) of this section for the most recently
completed fiscal year, provide a summary that, for each property,
identifies the hole, trench or other sample that generated the
exploration results, describes the length, lithology, and key geologic
properties of the exploration results, and includes a brief discussion
of the exploration results' context and relevance. If the summary only
includes results from selected samples and intersections, it should be
accompanied with a discussion of the context and justification for
excluding other results.
(3) The information disclosed under this paragraph (g) may be
presented in either narrative or tabular format.
(4) A registrant must disclose exploration results and related
exploration activity for a material property under this section if they
are material to investors. When determining whether exploration results
and related exploration activity are material, the registrant should
consider all relevant facts and circumstances, such as the importance
of the exploration results in assessing the value of a material
property or in deciding whether to develop the property, and the
particular stage of the property.
(5) A registrant may disclose an exploration target when discussing
exploration results or exploration activity related to a material
property as long as the disclosure is in compliance with the
requirements of Sec. 229.1302(c).
(6)(i) If the registrant is disclosing exploration results, but has
not previously disclosed such results in a filing with the Commission,
or is disclosing material changes to its previously disclosed
exploration results, it must provide sufficient information to allow
for an accurate understanding of the significance of the exploration
results. The registrant must include information such as exploration
context, type and method of sampling, sampling intervals and methods,
relevant sample locations, distribution, dimensions, and relative
location of all relevant assay and physical data, data aggregation
methods, land tenure status, and any additional material information
that may be necessary to make the required disclosure concerning the
registrant's exploration results not misleading. If electing to file a
technical report summary, the registrant must cite corresponding
sections of the technical report summary, which must be filed as an
exhibit pursuant to Sec. 229.1302(b).
(ii) Whether a change in exploration results is material is based
on all facts and circumstances, both quantitative and qualitative.
(iii) A change in exploration results that significantly alters the
potential of the subject deposit is considered material.
(h) A report containing one or more estimates of the quantity,
grade, or metal or mineral content of a deposit or exploration results
that a registrant has not verified as a current estimate of mineral
resources, mineral reserves, or exploration results, and which was
prepared before the registrant acquired, or entered into an agreement
to acquire, an interest in the property that contains the deposit, is
not considered current and cannot be filed in support of disclosure.
Notwithstanding this prohibition, a registrant may include such an
estimate in a Commission filing that pertains to a merger, acquisition,
or business combination if the registrant is unable to update the
estimate prior to the completion of the relevant transaction. In that
event, when referring to the estimate, the registrant must disclose the
source and date of the estimate, and state that a qualified person has
not done sufficient work to classify the estimate as a current estimate
of mineral resources, mineral reserves, or exploration results and that
the registrant is not treating the estimate as a current estimate of
mineral resources, mineral reserves, or exploration results.
Sec. 229.1305 (Item 1305) Internal controls disclosure.
(a) Describe the internal controls that the registrant uses in its
exploration and mineral resource and reserve estimation efforts. This
disclosure should include quality control and quality assurance (QC/QA)
programs, verification of analytical procedures, and a discussion of
comprehensive risk inherent in the estimation.
(b) A registrant must provide the internal controls disclosure
required by this section whether it is providing the disclosure under
Sec. 229.1303, Sec. 229.1304, or under both sections.
[[Page 66461]]
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
7. The general authority citation for part 230 continues to read in
part as follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Public Law 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
* * * * *
0
8. Amend Sec. 230.436 by adding paragraph (h) to read as follows:
Sec. 230.436 Consents required in special cases.
* * * * *
(h) Notwithstanding the provisions of paragraphs (a) and (b) of
this section, any description about matters identified by a qualified
person pursuant to Sec. 229.1302(f) of this chapter shall not be
considered a part of the registration statement prepared or certified
by the qualified person within the meaning of Sections 7 and 11 of the
Securities Act.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
0
9. The general authority citation for part 239 continues to read in
part as follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll,
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26,
80a-29, 80a-30, and 80a-37; and sec. 107, Public Law 112-106, 126
Stat. 312, unless otherwise noted.
* * * * *
0
10. Amend Form 1-A (referenced in Sec. 239.90) by:
0
a. Designating the introductory text of Item 8 under Part II as
paragraph (a);
0
b. Adding paragraph (b) to Item 8 under Part II;
0
c. Revising the Instruction to Item 8 under Part II;
0
d. Redesignating paragraph (15) as paragraph (16) of Item 17
(Description of Exhibits) under Part III; and
0
e. Adding new paragraph (15) of Item 17 (Description of Exhibits) under
Part III.
The additions and revision read as follows:
Note: The text of Form 1-A does not, and these amendments will
not, appear in the Code of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-A
REGULATION A OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
PART II--INFORMATION REQUIRED IN OFFERING CIRCULAR
* * * * *
OFFERING CIRCULAR
* * * * *
Item 8. Description of Property
(a) State briefly the location and general character of any
principal plants or other material physical properties of the issuer
and its subsidiaries. If any such property is not held in fee or is
held subject to any major encumbrance, so state and briefly describe
how held. Include information regarding the suitability, adequacy,
productive capacity and extent of utilization of the properties and
facilities used in the issuer's business.
(b) Issuers engaged in mining operations must refer to and, if
required, provide the disclosure under subpart 1300 of Regulation S-K
(Sec. Sec. 229.1300 through 1305), in addition to any disclosure
required by this Item.
Instruction to Item 8:
Except as required by paragraph (b) of this Item, detailed
descriptions of the physical characteristics of individual properties
or legal descriptions by metes and bounds are not required and should
not be given.
* * * * *
PART III--EXHIBITS
* * * * *
Item 17. Description of Exhibits
* * * * *
15. The technical report summary under Item 601(b)(96) of
Regulation S-K--An issuer that is required to file a technical report
summary pursuant to Item 1302(b)(2) of Regulation S-K must provide the
information specified in Item 601(b)(96) of Regulation S-K as an
exhibit to Form 1-A.
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
11. The authority citation for part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Public Law 111-203, 124
Stat. 1904; Sec. 102(a)(3), Public Law 112-106, 126 Stat. 309
(2012); Sec. 107, Public Law 112-106, 126 Stat. 313 (2012), and Sec.
72001, Public Law 114-94, 129 Stat. 1312 (2015), unless otherwise
noted.
Section 249.220f is also issued under secs. 3(a), 202, 208, 302,
306(a), 401(a), 401(b), 406 and 407, Public Law 107-204, 116 Stat. 745.
* * * * *
0
12. Amend Form 20-F (referenced in Sec. 249.220f) by:
0
a. Revising the heading ``Instruction to Item 4:'';
0
b. Adding Instruction 3 to Item 4;
0
c. Removing the Instructions to Item 4.D;
0
d. Adding Instruction 17 to the Instructions as to Exhibits; and
0
e. Reserving paragraphs 18 through 99 under Instructions as to
Exhibits.
The revision and additions read as follows:
Note: The text of Form 20-F does not, and these amendments will
not, appear in the Code of Federal Regulations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
* * * * *
PART I
* * * * *
Instructions to Item 4:
* * * * *
3. Issuers engaged in mining operations must refer to and, if
required, provide the disclosure under subpart 1300 of Regulation S-K
(Sec. Sec. 229.1300 through 1305 of this chapter).
* * * * *
INSTRUCTIONS AS TO EXHIBITS
* * * * *
17. The technical report summary under Item 601(b)(96) of
Regulation S-K (Sec. 229.601 of this chapter).
A registrant that is required to file a technical report summary
pursuant to Item 1302(b)(2) of Regulation S-K (Sec. 229.1302(b)(2) of
this chapter) must provide the information specified in Item 601(b)(96)
of Regulation S-K as an exhibit to its registration statement or annual
report on Form 20-F.
18 through 99 [Reserved]
* * * * *
By the Commission.
Dated: October 31, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-26337 Filed 12-21-18; 8:45 am]
BILLING CODE 8011-01-P