On June 4, 2020, the Canadian Securities Administrators (the “CSA”) published CSA Staff Notice 43-311 – Review of Mineral Resource Estimates in Technical Reports (the “Notice”). The Notice summarizes the results of a review, completed by the CSA in late 2018, of the mineral resource estimates disclosed in 86 technical reports published by mining issuers under National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”).
While the CSA review found, in general, issuers’ disclosure on mineral resource estimates to be satisfactory, the Notice specifically highlights the following five key aspects of technical reports that were commonly deficient or inadequate:
1. Relevant Experience of Qualified Persons
Section 8.1 of NI 43-101 mandates that an issuer must, when filing a technical report, file a certificate (the “QP Certificate”) of each qualified person (as defined in NI 43-101) responsible for preparing or supervising the preparation of all or part of the technical report. Further, subsection 8.1(2)(c) of NI 43-101 requires the QP Certificate to set out, among other things, a brief summary of the qualified person’s relevant experience.
With respect to the aforementioned qualification requirement, the Notice indicates that more than 15% of the qualified persons responsible for a mineral resource estimate provided incomplete disclosure in the QP Certificate of their relevant experience in preparing estimates for the property’s commodity and deposit type.
CSA Guidance: To demonstrate relevant experience, the CSA suggests that the QP Certificate of a qualified person responsible for preparing a mineral resource estimate should include examples of mineral resource estimates that the qualified person has previously prepared for comparable mineral deposit types.
2. Independent Data Verification Process by Qualified Person
Items 12(a) and (b) of Form 43-101F1 – Technical Report (the “Form”) require technical reports that disclose a mineral resource estimate to contain a description of the steps taken by the qualified person to verify the applicable supporting data. Such a description is to include, among other things: (i) a description of the data verification procedures applied by the qualified person; and (ii) any limitation on or failure to conduct such verification, and the reasons for any such limitations or failures.
Disclosure relating to data verification procedures was one of the weakest areas identified in the CSA review, particularly in respect to technical reports for properties where former operators, and not the current operator/issuer, acquired a significant portion of the mineral resource database. While the use of legacy data obtained from former operators is acceptable, the current operator/issuer and its qualified persons must first carefully verify the integrity of such historical data and correctly document that verification process in the issuer’s technical reports.
CSA Guidance: Qualified persons should be cognizant of the distinction between the project operator’s quality assurance and quality control protocols and the qualified person’s own independent data verification. Notably, the CSA expressly highlights that, in its view, the qualified person responsible for the mineral resource estimate should perform a site visit as part of the data verification process.
3. Reasonable Prospects for Eventual Economic Extraction
According to the CIM Definition Standards for Mineral Resources and Mineral Reserves (the “CIM Definitions”), published by the Canadian Institute of Mining, Metallurgy and Petroleum and incorporated by reference into NI 43-101, a mineral deposit is not a mineral resource unless demonstrated to have a reasonable prospect for eventual economic extraction.
Further, the CIM Definitions specify that the phrase “reasonable prospects for eventual economic extraction” (“Reasonable Prospects”) implies a judgment by the qualified person in respect to the technical and economic factors likely to influence the prospect of economic extraction. When setting out a mineral resource estimate, a qualified person should consider and clearly state within the technical report the basis for determining that the mineralized material has a Reasonable Prospect. Assumptions should include estimates of cut-off grade and geological continuity at the selected cut-off, metallurgical recovery, smelter payments, commodity price or product value, mining and processing method, and mining, processing, general, and administrative costs.
In its review, the CSA often found the description of different technical and economic assumptions used by qualified persons to determine that the estimated mineralized material has a Reasonable Prospect to be lacking.
CSA Guidance: A reasonably informed reader requires complete disclosure of the assumptions applied to a project to understand how the deposit constitutes a mineral resource with demonstrated Reasonable Prospects. For early stage projects, qualified persons may show Reasonable Prospects by comparing the subject deposit to analogous mine operations. When doing so, a qualified person should: (i) state why specific analogues apply to the subject property; (ii) compare the key attributes between the subject deposits and the analogues; and (iii) adjust the cut-off grade of the mineral resource estimates to reflect the differences between the project and its analogues.
4. Sensitivity to Cut-off Grade
Indicating the relative robustness of a mineral resource estimate through variations to the cut-off grade can be useful information to include in a technical report. In this regard, Instruction #2 to Item 14 of the Form provides that when presenting multiple cut-off grade scenarios, all estimates resulting from each of the cut-off grade scenarios must meet the Reasonable Prospects test. Moreover, qualified persons must clearly identify and highlight the base case or preferred scenario.
The Notice indicates that more than 35% of the technical reports reviewed by the CSA did not adequately disclose sensitivities to cut-off grade. In some technical reports, sensitivity cases were presented that did not demonstrate Reasonable Prospects.
CSA Guidance: With respect to multiple cut-off grade scenarios, the CSA notes that an issuer’s disclosure must: (i) prominently show the mineral resource estimate at the base case cut-off grade; (ii) report only those cut-off grade scenarios that meet the Reasonable Prospects test; and (iii) exclude any estimates with a zero cut-off grade.
5. Risk Factor Disclosure
Subsection 3.4(d) of NI 43-101, together with Item 14(d) of the Form, requires a technical report containing a mineral resource estimate to include a general discussion on the extent to which the mineral resource estimate could be materially affected by any known environmental, permitting, legal, title, taxation, socio-economic, marketing, political, or other relevant factors.
The CSA identified that 40% of the reviewed technical reports had incomplete disclosure on risk factors specific to the project that could materially affect the mineral resource estimate, with many mining issuers reporting only generic risks or uncertainties that are common to the mining industry.
CSA Guidance: In the CSA’s view, omitting the specific risks relating to a mineral resource estimate may constitute misleading disclosure. As each mineral project has its own set of unique risks, mining issuers should avoid generic boilerplate risk disclosure.
In summary, mining issuers and qualified persons can view the Notice as a useful tool to better understand how securities regulatory authorities assess disclosure of mineral resource estimates in technical reports. Before publishing a mineral resource estimate, mining issuers should review the guidance offered by the CSA in the Notice as securities regulators will continue to pay special attention to the five disclosure matters described herein.
In the event that a technical report is being prepared in connection with a prospectus offering, mining issuers may wish to take advantage of the recently announced confidential pre-filing review process set out in CSA Staff Notice 43-310 – Confidential Pre-File Review of Prospectuses, pursuant to which the issuer may request securities regulatory staff to confidentially review in advance the contents of a prospectus, together with the accompanying technical reports and any other documents required to be filed, in order to rectify any potential disclosure issues or deficiencies prior to the preliminary public filing.
Should you require assistance with mineral resource estimate disclosure or other matters relating to NI 43‑101, please contact the author or any member of the Dentons mining team.
With contributions from Kendal Allemekinders student-at-law
