For mining companies in Canada, there is a standard but crucial document that can have significant implications for disclosure regarding financings. Under the Canadian Securities Administrator’s National Instrument 43-101 – Standards of Disclosure for Mineral Projects, companies must prepare and publicly file a “technical report” on material properties.
This technical report is a detailed document addressing prescribed disclosure items and must be prepared by one or more “qualified persons” who have recognized professional experience and credentials.
Recently, a Vancouver company withdrew a prospectus offering because it was unable, within the relatively short time period for its offering, to resolve comments from the regulators about the use of certain economic analysis regarding its material property, which was referred to in both the company’s technical report and its published disclosure record.
The potential consequences of withdrawing a prospective offering are significant. The withdrawal of a prospectus offering by a company could result in unnecessary delays, costs and expenses totalling millions of dollars, and a missed opportunity to raise funds in favourable market conditions.
In addition, a company may need to amend or restate its existing public disclosure record, such as its annual information form, to address concerns arising from the regulators’ comments.
Below are some of the common trappings that may give rise to uncertainty regarding compliance with the requirements of NI 43-101 and could trigger regulatory action:
The form requirements are very specific and are stringently applied. For example, strict protocols outlining the section numbering and headings must be followed, and the authors of the technical report must respond to all required disclosure items, even if a particular response is “not applicable.”
Failure to comply with seemingly minor details, such as correctly including cross-references to figures and charts or properly presenting maps and plans with “northing arrows” and grid scales, can result in comments from regulators and potential delays.
The consent of the qualified person or persons who are the authors of the technical report must be obtained at the time the report and certain disclosure documents referred to in the report are filed. In particular, consent of the authors is necessary for a prospectus referring to a previously filed technical report. This requirement can sometimes present logistical difficulties if the author is unavailable, although recent amendments permitting consents to be signed by the engineering firm that employed the author of the technical report have provided some needed flexibility.
It is important to remember that the requirements of NI 43-101 apply to disclosure of all scientific and technical data. While a great deal of attention is paid to the contents of the company’s prospectus and related formal disclosure obligations, less attention is sometimes paid to other materials, such as investor slideshows and presentations, or information published on the company’s website.
All of these materials must be prepared or approved by a qualified person, as regulators will review these materials and will require non-compliant statements to be removed or amended.
Technical reports sometimes include improper “disclaimers” by the authors or statements that purport to restrict reliance on the technical report by third parties or otherwise limit disclosure by the company. These restrictions on reliance and disclosure are not acceptable as the technical report is filed publicly and forms part of the company’s continuous disclosure record.
The authors of a technical report are permitted to refer to statements of other experts set out in the report and to include a limited disclaimer of responsibility regarding such statements.
However, the scope of the disclaimer is restricted to statements pertaining to legal, political, environmental or tax matters relevant to the report, and the report must provide specific details including the name of the other expert and the specific portions of the other expert’s technical report that are being relied upon.
Technical reports, like other continuous disclosure filings, are not automatically reviewed or subject to pre-approval by regulators, and the onus is on the company to ensure that the technical report and all other disclosure of scientific or technical information complies with the requirements of NI 43-101.
However, the British Columbia Securities Commission has implemented a process to assist with NI 43-101 compliance available to companies for which the BCSC is “principal regulator.”
Upon request, the BCSC will review the company’s disclosure in advance of the filing of a short form prospectus, with a view to identifying any items of concern that could delay the issue of a receipt for the prospectus.
Organizations considering an offering may find this process to be of assistance in identifying and remedying any disclosure issues in advance of initiating the prospectus filing process.
Companies should also consider having their legal counsel perform a review of the technical report prior to filing to determine if all of the required disclosure items are addressed and that the report complies with the general requirements of NI 43-101.
Counsel can work with the qualified persons authoring the report to anticipate and address any areas of concern that may give rise to comments from the regulators and potential delays during the formal review process. •
