Friday, June 17, 2016

SEC proposes rules to modernize mining industry disclosure requirements

By Jacquelyn Lumb

The SEC has issued a proposal to update the disclosure requirements for mining companies. The proposal is part of the SEC’s disclosure effectiveness initiative, and addresses the significant changes that have taken place in the mining industry since the SEC last updated Industry Guide 7. If adopted, the rules would rescind Industry Guide 7, which has not been updated for more than 30 years, and would include the new disclosure in a subpart of Regulation S-K. The comment period will be open for 60 days (Release No. 33-10098).

Global standards. Mining has become an increasingly globalized industry. The SEC noted that a number of foreign countries have adopted mining disclosure requirements that are based on the Committee for Mineral Reserves International Reporting Standards, which differ significantly from Industry Guide 7. The proposal would align the SEC’s disclosure requirements with global standards to enable investors to make more informed decisions.

Outdated guidance. Industry Guide 7 reflects the Division of Corporation Finance’s views on how mining company registrants can comply with the disclosure requirements in Item 102 of Regulation S-K. The centerpiece of the industry guide is the disclosure guidance for mineral reserves. The staff has provided supplemental guidance over the years, but registrants have urged the SEC to align its disclosure requirements with the international standards to allow them to disclose both mineral resources and reserves.

Members of Congress have also asked the SEC to update and harmonize Industry Guide 7 with global reporting standards to provide investors with a more complete understanding of the economic potential of a mining company’s properties and to put U.S. mining companies on a more level playing field with foreign companies that are subject to the international mining codes.

New disclosure proposal. The proposal would provide one standard for disclosing the mining operations that are material to a company’s business or financial condition. Registrants would be required to disclose mineral resources and material exploration results in addition to their mineral reserves. The rules would permit the disclosure of mineral reserves based on either a preliminary or a final feasibility study.

The proposal also would update the definitions of mineral reserves and mineral resources. It would require summary disclosure in a tabular format of the mining operations as a whole, along with more detailed disclosure about material individual properties.

A mining company’s registration statement must disclose information about mineral resources, reserves, and material exploration results, which must be supported and documented by a qualified person. The registrant also must obtain a summary report from the qualified person for each material property which includes the qualified person’s conclusions about exploration results, mineral resources or mineral reserves. The summary report, which would require the qualified person’s written consent to use, would be filed as an exhibit to the annual report or registration statement. A qualified person would be a mineral industry professional with at least five years of relevant experience.

Economic analysis. The proposal includes a 43-page economic analysis which concludes that the proposed revisions would increase the amount and quality of information about a registrant’s mining operations and provide a single source in Regulation S-K for the disclosure obligations. The analysis also concludes that the proposal would promote compliance by eliminating the complexity resulting from the disclosure obligations in Regulation S-K and the staff guidance in Industry Guide 7.

1 comment:

Ronaldo Dos Santos said...

This is a great summary about this significant move by SEC. I particularly believe that SEC’s proposal will promote better alignment with international standards. Unfortunately, I think that the mineral price limit for feasibility study is questionable because it can underestimate ROI associated with strategic minerals and/or new market opportunities. Also, although the proposed rule indicates that 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; environmental, including regulations governing water use and impacts, waste management, and biodiversity impacts; reclamation; and permitting regulations), I would recommend specific instructions for reporting permitted and unpermitted reserves.
Kind regards,