The Canadian Securities Administrators (CSA) recently published CSA Staff Notice 43-309 Review of Website Investor Presentations by Mining Issuers, which summarized the findings of a review of 130 investor presentations on mining issuers’ websites that had been conducted by the British Columbia Securities Commission, the Ontario Securities Commission and the Autorité des marchés financiers. The CSA notes that investor presentations and other forms of investor relations materials contained on mining issuers’ websites (including fact sheets, media articles and links to third-party content) fall within the definition of “written disclosure” in National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) and that the disclosure requirements of NI 43-101 apply to such materials.
The CSA found that there was room for improvement for mining issuers to comply with disclosure requirements. Areas in which the CSA found a high level of non-compliance with NI 43-101 are highlighted below:
- Failing to include on the website or in the investor relations material containing the scientific or technical disclosure the name of the qualified person (QP) who prepared or approved such disclosure and the QP’s relationship to the issuer. The CSA observed that a QP review of disclosure generally improves an issuer’s compliance with NI 43-101.
- Failing to provide the required cautionary statements, in respect of preliminary economic assessments (PEAs), that the PEA included inferred mineral resources and that the financial results of the PEA may not be realized.
- Failing to provide the required cautionary statement that mineral resources that are not mineral reserves do not have demonstrated economic viability. This statement is required under NI 43-101 where the disclosure includes the results of an economic analysis of mineral resources. The CSA notes that any disclosure implying that a PEA has demonstrated economic or technical viability is contrary to the definition of a PEA.
- Failing to clearly state whether mineral resources include or exclude mineral reserves. This is important to avoid double counting of the mineral resource estimate. The CSA notes that the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Estimation Best Practices Committee recommends that mineral resources should be reported separately and exclusive of mineral reserves.
- Failing to express potential quantity and grade of exploration targets as a range and failing to include NI 43-101 required statements outlining the target’s limitations. The CSA has significant concerns about the quality of disclosure of exploration targets and notes that if a mining issuer chooses to disclose the potential quantity and grade of an exploration target, it must provide a reasonable basis on which the disclosed potential quantity and grade has been determined and also make the public aware of the limitations of such disclosure.
- Failing to include the required disclosure and cautionary statements in respect of historical estimates. The CSA reminds issuers that simply stating that the historical estimates are “not NI 43-101 compliant” does not meet NI 43-101 disclosure requirements.The CSA also notes that, whenever historical estimates are disclosed, the source, date, reliability, key assumptions and other factors must be provided and the required cautionary statement must be included.
- Failing to disclose a summary of the quality assurance program and quality control measures applied and failing to provide the name and location of the testing laboratory used in relation to analytical or testing results disclosed and failing to include a statement as to whether or not a QP has verified the data disclosed (including sampling, analytical and test data underlying the information or opinions contained in the disclosure). The CSA notes that issuers can comply with these requirements by including a reference to the title and date of a document previously filed on SEDAR that contains the required information (such as a news release or technical report).
The CSA also notes the following areas that required additional improvement:
- Including only pre-tax financial results or no information about the tax rate for the mineral project. The CSA notes that reporting only pre-tax financial results for an advanced property, which include the results of a PEA, a pre-feasibility study or a feasibility study, does not provide complete and balanced information for investors to appropriately assess the financial results. The CSA notes that the cash flow model needs to include assumptions that have an economic impact such as taxes, royalties and other government levies.
- Omitting the assumed metal price used for determining mineral resource or mineral reserve estimates. The CSA states that metal or commodity price assumptions are key factors in establishing the cut-off grade for both mineral resources and mineral reserves and that these assumptions can have a significant impact on the size of the estimate. As such, the CSA notes that the assumed metal or commodity price and the cut-off grade must be clearly stated. The CSA suggests including a complete table of current mineral resources and mineral reserves with all material assumptions in an appendix to the investor presentation. If the assumed metal or commodity price is significantly below or above current prices, the CSA notes that issuers should make sure the disclosure is not misleading by clearly stating the key assumptions.
- Not including information on true widths of mineralized zones or not providing results of significantly higher grade intervals enclosed in a lower grade intersection. The CSA notes that when drilling results are reported, it is important to provide investors with information about the nature and context of the results such as true width and higher grade intersections. The CSA notes that mining issuers can reference and rely upon a previously filed document on SEDAR that contains the required information.
The CSA also refers to technical report triggers and states that it has significant concerns when information provided on a mining issuer’s website includes PEA disclosure that is not supported by an existing technical report. The CSA further notes that disclosure of economic projections in investor presentations, fact sheets, posted or linked third-party reports, or any statements on the issuer’s website may trigger the filing of a technical report to support the disclosure. Such PEA-like economic projections often include forecast mine production rates that might contain capital costs to develop and sustain the mining operation, operating costs and projected cash flows.
The CSA notes that over 50% of investor presentations did not include information concerning the material factors and assumptions used to develop the forward-looking information (FLI) in such presentations. The CSA reminds issuers that FLI includes metal price assumptions used in mineral resource and mineral reserve estimates as well as other assumptions used in economic analysis and financial projections based on engineering studies.
The CSA also notes that issuers, particularly those in the exploration stage or those with mineral resource estimates, have inappropriately used descriptive terms such as “world-class”, “spectacular and exceptional results”, “production ready” or “ore” in respect of their projects. The CSA points out that such statements may be overly promotional or misleading, potentially resulting in a misrepresentation under applicable Canadian securities laws.
The CSA notes that, of the 130 investor presentations reviewed, it sent letters to 49 mining issuers requiring them to amend their investor presentations and correct the non-compliant disclosure. Issuers that have received such letters are often placed on the defaulting reporting issuers list. In most cases, issuers have had to confirm that they would comply with NI 43-101 in the future, and in more serious cases, issuers have had to issue corrective news releases or file or refile technical reports (especially where there has been non-compliant disclosure of economic studies, PEAs, mineral resources, mineral reserves, exploration targets or historical estimates, or the use of overly promotional language). The CSA notes that where issuers fail to comply with its requests, the regulators may consider issuing a cease trade order until the deficiency is corrected.
The CSA states that it expected mining issuers to use the Staff Notice as a self-assessment tool to strengthen their compliance with securities laws, in particular the disclosure requirements set out in NI 43-101 and the FLI disclosure requirements.