December 2018

New Rules Represent a Significant Departure for U.S. Companies

On October 31, 2018, the United States Securities and Exchange Commission (SEC) amended its rules to revise and modernize disclosure requirements applicable to companies with mining properties or operations. The amendments, the first such changes in over 30 years, are designed to promote efficiency, competition and capital formation, to remove disclosure requirements that may have placed U.S. mining companies at a competitive disadvantage to foreign companies and to help investors make more informed investment decisions about those companies. The entire text of the SEC’s 450 page release can be found here.

The amendments are effective for fiscal years beginning on or after January 1, 2021 but may be voluntarily adopted earlier, subject to implementation of technical revisions to the SEC’s Edgar reporting system.  

Below are a few of the noteworthy amendments that will be implemented:

  • Royalty Companies – A royalty or other company holding a similar economic interest that is not an operating mining company specifically will be subject to certain of the new rules if the underlying mining operations that generate the royalty are material to the company’s operation as a whole and if such information is known to or reasonably available to the company.
  • Qualified person – The new rules identify and define a “qualified person,” or “QP,” as an industry expert with recognized industry credentials that must approve certain disclosures required to be contained in each mining company’s SEC filings. All disclosure of exploration results, mineral resources or mineral reserves must be based upon and accurately reflect information and documentation prepared by a QP. The QP must be identified in the relevant SEC filing.
  • Resources – In perhaps the most radical change from existing rules, resource disclosure will be mandatory under the new rules for those companies that have completed such estimates. Under existing rules, resource disclosure is prohibited in filings with the SEC. The new rules also adopt the convention existing under widely-accepted industry standards of measured, indicated and inferred resources and permit companies to include inferred resources in an economic analysis if certain conditions are met.
  • Reserves – Under the new rules, reserve estimates, which presently require a final or “bankable” feasibility study, also may be based on a preliminary feasibility study. The new rules also identify specific factors that must be considered in order to convert a mineral deposit into a reserve.
  • Exploration Results – Disclosure of exploration activity and results will be voluntary until either becomes material to investors, at which time such disclosure becomes mandatory. 
  • Pricing – In determining prices used to estimate resources and reserves, the new rules will allow the QP to use any price, whether historical or prospective, that provides a reasonable basis for establishing the prospect of economic extraction (for resources) and a reasonable basis for economic viability (for reserves).  
  • Guide 7 – The historical supplement for companies engaged in the mining business will be revoked in favor of amendments to Regulation S-K that include very specific disclosure requirements.
  • Technical Reports – In another significant departure from current practice, the new rules will require companies to file a summary technical report to support exploration, resource and reserve disclosures under certain circumstances.
  • Disclosure format – The new rules will require that certain disclosures be provided in tabular form.
  • Historical Resource or Reserve Disclosures – Companies will be permitted to disclose historical estimates of mineral resources or reserves in SEC filings pertaining to mergers, acquisitions or other business combinations if the company is unable to update the estimate prior to completion of the transaction, subject to including certain other disclosures.
  • Definitions – The new rules include definitions to determine when a company or property is in the exploration, development or production stage and recognizes that a company may have properties in different stages.