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U.S. Securities and Exchange Commission rescinds Guide 7

Updated regulations to allow U.S. mining and exploration companies to report mineral resources resources. Competent person requirements also feature in the new rules for the first time.

In October, the U.S. Securities and Exchange Commission (SEC) adopted a final rule that overhauls its existing disclosure requirements for mining company issuers. This represents the first major change since Guide 7 was adopted almost 30 years ago and brings the U.S. into line with countries following CRIRSCO reporting codes. U.S. companies will be required to begin to comply with the new rules in its first fiscal year beginning on or after Jan. 1, 2021.

Under the current SEC reporting rules, mining companies are not permitted to disclose mineral resources. In Canada, Australia, South Africa and other countries, companies have been required to disclose resources where it would be material information for investors.

Dual listed companies will benefit from decreased compliance costs. Previously, companies listed in the U.S.A. and a country following the CRIRSCO convention for mineral resource and ore reserve reporting were compelled to produce different annual reports and other public disclosure documents dealing with resources and reserves for different markets. U.S. exploration companies should find that the new rules assist with raising funds for exploration in the U.S.A. rather than having to resort to listing on overseas markets, including the TSX, TSX.V and ASX.

U.S. companies that are only subject to the SEC rules, may experience increased compliance costs because of the new requirement to disclose mineral resources and have statements of resources and reserves prepared by a qualified person. Canadian companies that are dual-listed in the US and Canada, have been allowed to comply with Canadian rules (NI 43-101) so are unlikely to be affected by the change.

The SEC announcement included some important provisions.

Geothermal energy is specifically excluded from the new rules.

A principles-based definition of materiality, consistent with Securities Act Rule 405 and Exchange Act Rule 12b-2, was adopted by the commission, whereby 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 securities. The commission also proposed that a company should follow an approach requiring aggregation of all mining properties, regardless of size or type of commodity produced, when assessing the materiality of a registrant’s mining operations.

The commission also adopted a definition of mining operations that includes operations on all mining properties that:

  • a company owns or in which it has, or it is probable that it will have, a direct or indirect economic interest;
  • possesses, or lis likely to possess under a lease or other legal agreement, a right to sell or otherwise dispose of mineral products; or,
  • has, or probably has, an associated royalty or similar right.

The commission also requires that companies materially disclose the basis for setting forward prices for commodities which form an essential component of asset valuation and, therefore, asset materiality. Companies may not exceed the average price for the preceding 24 months. Beyond this, however, qualified persons may use any reasonable and justifiable price, with transparent justification.

The new rules permit a mineral resources to be disclosed inclusive of mineral reserves, as long as mineral resources exclusive of reserves are also stated. This rule is more specific than current requirements of some other reporting codes, including the JORC Code (2012).

Inferred resources are also able to be used in economic analysis, as long as certain conditions are met.

The new rules adhere to the CRIRSCO convention where a public report about a company’s exploration results, mineral resources, and mineral reserves must be based on and fairly reflect information and supporting documentation prepared by a “competent” or “qualified person.” This is the first time that the commission has defined a role for competent persons which may be both individuals, or companies employing individuals responsible for preparing reports.

A “qualified person” is defined as 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”. Additionally, qualified persons must be “an eligible member or licensee in good standing of a recognised professional organisation at the time the technical report is prepared”. These requirements effectively mirror those of the JORC Code (2012).

The new rules allow multiple qualified persons to prepare a technical report provided the sections of the report for which individuals are responsible are clearly specified, signed dated and consented to by each individual.

Reports must include a consent statement from the qualified person, state whether the qualified person is an employee of the company and, if not an employee, what relationship or interests the qualified person may have in the company.

The rules specifically indemnify the qualified person from findings and conclusions regarding certain aspects of modifying factors discussed in technical reports that the qualified person specifically states were based on information provided by the company – another first and an important legal protection for individuals or groups acting as qualified persons.

A “recognised professional organisation” would have to be either recognised within the mining industry as a reputable professional association, or be a board authorised by U.S. federal, state or foreign statute to regulate professionals in the mining, geoscience, or related field.

Furthermore, the organization must: 

  • 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.

The commission has elected, however, to adopt a principles-based approach to professional organisation recognition rather than the approach adopted by existing CRIRSCO codes of publishing a list of Recognised Overseas Professional Organisations (ROPO) updated by organisations responsible for reporting standards in individual countries from time to time. AIG is considered to fully meet the commissions requirements of a recognised professional organisation, supported by it being recognised in all current jurisdictions where CRIRSCO template reporting codes are in use.

AIG welcomes the SEC announcement which brings the U.S.A. closer to countries with effective, transparent and material codes for exploration result, mineral resource and ore reserve reporting that provide informed investors with a basis for sound mineral asset investment decisions. The new rules also provide an opportunity for Australian geoscientists, experienced in the application of the JORC Code and Canada’s National Instrument NI 43-101, to share their knowledge and experience with their U.S. counterparts.

The SEC release announcing the new rules is available here.

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