SEC Issues Proposed Rules to Modernize Property Disclosures for Mining Companies | Practical Law

SEC Issues Proposed Rules to Modernize Property Disclosures for Mining Companies | Practical Law

The SEC issued proposed rules that would modernize the disclosure requirements for mining properties by aligning them with current industry and global regulatory practices and standards.

SEC Issues Proposed Rules to Modernize Property Disclosures for Mining Companies

Practical Law Legal Update w-002-6824 (Approx. 5 pages)

SEC Issues Proposed Rules to Modernize Property Disclosures for Mining Companies

by Practical Law Corporate & Securities
Published on 16 Jun 2016 • USA (National/Federal)
The SEC issued proposed rules that would modernize the disclosure requirements for mining properties by aligning them with current industry and global regulatory practices and standards.
On June 16, 2016, the SEC issued proposed rules that would revise the property disclosure requirements and related guidance for registrants with material mining operations (including royalty companies and other registrants that hold similar economic interests) currently set out in Item 102 of Regulation S-K and in Industry Guide 7. The purpose of the proposal is to provide investors with a more comprehensive understanding of a registrant's mining properties to help them make more informed investment decisions. The proposed rules would rescind Industry Guide 7 and include the SEC's mining property disclosure requirements in a new subpart 1300 of Regulation S-K.
Under the proposed rules, a registrant would be required to provide disclosure under proposed subpart 1300 if its mining operations (which would include all related activities from exploration through extraction to the first point of material external sale) are material to its business or financial condition. A registrant's mining operations would be presumed to be material if its mining assets constitute 10% or more of its total assets.
In addition, if a registrant's mining assets fell 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. These factors could include:
  • Mining operations that constitute 10% or more of some other financial measure, such as the registrant's total revenues, net income, or operating income.
  • Evidence that disclosure of a similar property or properties has had a significant impact on the price of a registrant's securities.
  • Public disclosure by the registrant discussing the importance to its operations (for example, from an operational or competitive standpoint) of a particular property or properties.
  • The unique or rare nature of the particular mineral or the importance of the mineral to the registrant's operations.
  • The actual and projected expenditures on the registrant's mining properties as compared to its expenditures on non-mining business activities.
  • The amount of capital raised or planned to be raised by the registrant for its mining properties.
Foreign private issuers that file a Form 20-F, F-1, F-3, or F-4 with material mining operations would be required to comply with the proposal. This would include Canadian registrants that report under Form 20-F and that currently are permitted to provide mining disclosure under Canada's NI 43-101 in accordance with the current "foreign or state law" exception under Item 102 and Industry Guide 7. Because the proposed rules would eliminate the "foreign or state law" exception, the sole group of Canadian registrants that could continue to report under Canadian disclosure requirements would be Canadian registrants that report under the multijurisdictional disclosure system.
The proposal would also apply to companies with material mining operations who issue securities under Regulation A.
The proposed rules would:
  • Require a registrant to disclose mineral resources and material exploration results in addition to its mineral reserves.
  • Permit disclosure of mineral reserves to be based on a preliminary feasibility study or a final feasibility study.
  • Require summary disclosure in a tabular format for a registrant's mining operations as a whole, along with more detailed disclosure for material individual properties.
  • Require that every disclosure of mineral resources, mineral reserves, and material exploration results reported in a registrant's registration statements and reports be based on, and accurately reflect, information and supporting documentation prepared by a "qualified person" (as defined in the proposal).
  • Require a registrant to obtain a 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.
The SEC is accepting comments on the proposed rules until 60 days after publication in the Federal Register.
Update: On August 23, 2016, the SEC extended the comment period until September 26, 2016.