Modernization of Property Disclosures for Mining Registrants

Federal RegisterJun 27, 2016

Ask Donna

What actually matters in this document.

Text

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 239, and 249

[Release Nos. 33-10098; 34-78086; File No. S7-10-16]

RIN 3235-AL81

Modernization of Property Disclosures for Mining Registrants

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule.

SUMMARY:

We are proposing revisions to the property disclosure requirements for mining registrants, and related guidance, currently set forth in Item 102 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and in Industry Guide 7. The proposed revisions are intended to provide investors with a more comprehensive understanding of a registrant's mining properties, which should help them make more informed investment decisions. The proposed revisions would also modernize the Commission's disclosure requirements and policies for mining properties by aligning them with current industry and global regulatory practices and standards. In addition, we are proposing to rescind Industry Guide 7 and include the Commission's mining property disclosure requirements in a new subpart of Regulation S-K.

DATES:

Comments should be received on or before August 26, 2016.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's Internet comment form (

http://www.sec.gov/rules/proposed.shtml

); or

• Send an Email to

rule-comments@sec.gov

. Please include File Number S7-10-16 on the subject line; or

• Use the Federal eRulemaking Portal (

http://www.regulations.gov

). Follow the instructions for submitting comments.

Paper Comments

• Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-10-16. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Web site (

http://www.sec.gov/rules/proposed.shtml

). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the SEC's Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at

www.sec.gov

to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

Elliot Staffin, Special Counsel, in the Division of Corporation Finance, at (202) 551-3450, or Dr. Kwame Awuah-Offei, Academic Mining Engineering Fellow, in the Division of Corporation Finance, at (202) 551-3790, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

We are proposing to rescind Industry Guide 7

under the Securities Act

and the Exchange Act,

amend section 102 of Regulation S-K,

add new exhibit (96) to Item 601 of Regulation S-K,

add new subpart 1300 of Regulation S-K,

amend Form 1-A,

and amend Form 20-F.

17 CFR 229.801(g) and 229.802(g).

15 U.S.C. 77a

et seq.

15 U.S.C. 78a

et seq.

17 CFR 229.102.

Proposed 17 CFR 229.601(b)(96).

Proposed 17 CFR 229.1301

et seq.

17 CFR 239.90.

17 CFR 249.220f.

Table of Contents

I. Introduction

II. Proposed Mining Disclosure Rules

A. Consolidation of the Mining Disclosure Requirements

B. The Standard for Mining-Related Disclosure

1. Overview

2. Definitions of Exploration, Development and Production Stage

C. Qualified Person and Responsibility for Disclosure

1. The “Qualified Person” Requirement

2. The Definition of “Qualified Person”

D. Treatment of Exploration Results

E. Treatment of Mineral Resources

1. Mineral Resource Definition

2. Mineral Resource Classification

3. The Initial Assessment Requirement

4. USGS Circular 831 and 891

F. Treatment of Mineral Reserves

1. The Framework for Determining Mineral Reserves

2. The Type of Study Required To Support a Reserve Determination

G. Specific Disclosure Requirements

1. Requirements for Summary Disclosure

2. Requirements for Individual Property Disclosure

3. Requirements for Technical Report Summaries

4. Requirements for Internal Controls Disclosure

H. Conforming Changes to Certain Forms Not Subject to Regulation S-K

1. Form 20-F

2. Form 1-A

III. General Request for Comments

IV. Economic Analysis

A. Baseline

1. Affected Parties

2. Current Regulatory Framework and Market Practices

B. Analysis of Potential Economic Effects

1. Consolidation and Harmonization of the Mining Disclosure Requirements

2. Qualified Person and Technical Report Summary Requirements

3. Treatment of Exploration Results

4. Treatment of Mineral Resources

5. Treatment of Mineral Reserves

6. The Pricing Model for Determination of Mineral Resources and Reserves

7. Specific Disclosure Requirements

8. Conforming Changes to Certain Forms Not Subject to Regulation S-K

9. Compliance Costs of Preparing and Filing Forms

C. Anticipated Impact on Efficiency, Competition, and Capital Formation

D. Request for Comment

V. Paperwork Reduction Act

A. Background

B. Summary of Collection of Information Requirements

C. Estimate of Potentially Affected Registrants

D. Estimate of Reporting and Cost Burdens

E. Request for Comments

VI. Initial Regulatory Flexibility Act Analysis

A. Reasons For, and Objectives of, the Proposed Action

B. Legal Basis

C. Small Entities Subject to the Proposed Rule Amendments

D. Reporting, Recordkeeping, and Other Compliance Requirements

E. Duplicative, Overlapping or Conflicting Federal Rules

F. Significant Alternatives

G. Request for Comment

VII. Small Business Regulatory Enforcement Fairness Act

VIII. Statutory Authority

I. Introduction

The Commission's disclosure requirements and related guidance for properties owned or operated by mining companies are contained in Item 102 of Regulation S-K and Industry Guide 7. Item 102 sets forth the basic disclosure requirements for a registrant's “principal” mines that are “materially

important.”

Instruction 3 to Item 102 requires disclosure of “material information” concerning the “production, reserves, locations, development, and the nature of the registrant's interest,” including additional disclosure requirements for individual properties that “are of major significance to an industry segment.” Instruction 7 to Item 102 states that “the attention of issuers engaged in significant mining operations is directed to the information called for in Guide 7,” which identifies disclosures beyond what is required by Item 102.

Instruction 2 to Item 102 refers registrants to Instruction 1 to Item 101 of Regulation S-K for the quantitative and qualitative factors they should take into account in determining whether properties should be described under Item 102.

Guide 7 sets forth the views of the staff of the Division of Corporation Finance on how mining company registrants can comply with the Commission's description of property disclosure requirements applicable to registrants.

The centerpiece of Guide 7 is its disclosure guidance for mineral reserves, which are defined as “that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination.”

Guide 7 further classifies mineral reserves into “proven” and “probable,” with proven mineral reserves having a higher degree of assurance than probable mineral reserves. The Guide does not define the term “mineral.”

When it published the first Industry Guides in 1968, the Commission stated that, “[t]hese guides are not rules of the Commission nor are they published as bearing the Commission's official approval. They represent policies and practices followed by the Commission's Division of Corporation Finance in the administration of the registration requirements of the Act, but do not purport to furnish complete criteria for the preparation of registration statements.” Release No. 33-4936 (December 9, 1968) [33 FR 18617] (December 17, 1968).

See

paragraph (a)(1) of Guide 7.

Under both Item 102 and the Guide, a registrant may not disclose estimates for non-reserve deposits, such as mineral resources,

unless such information is required to be disclosed “by foreign or state law” or unless “such estimates previously have been provided to a person (or any of its affiliates) that is offering to acquire, merge, or consolidate with the registrant, or otherwise to acquire the registrant's securities.”

While there are numerous foreign mining disclosure codes, only Canada

has adopted its code as a matter of law.

Resources are generally defined in international mining codes, and generally understood in the industry, as mineral deposits having prospects for economic extraction that are less certain than those for reserves because economic viability has yet to be demonstrated.

See, e.g,

SME Guide for Reporting Exploration Results, Mineral Resources and Mineral Reserves (“SME Guide”) pt. 33 (2014), which is available at:

http://www.smenet.org/docs/publications/2014_SME_Guide_Reporting_%20June_10_2014.pdf

See also

section II.E,

infra.

See

Instruction 5 to Item 102 of Regulation S-K. Instruction 3 to paragraph (b)(5) of Guide 7 also includes the same provision limiting disclosure of estimates for deposits other than mineral reserves, as does Instruction 1 to Item 4.D of Form 20-F.

See

Canada's National Instrument (“NI”) 43-101 (“Standards of Disclosure for Mineral Projects”) (2012), which is available at:

http://web.cim.org/standards/documents/Block484_Doc111.pdf

. Other foreign mining codes have been adopted as listing standards for foreign securities exchanges or as guidelines by foreign securities commissions. The staff in the Commission's Division of Corporation Finance has taken the view that these other codes are not covered by Item 102's “foreign or state law” exception. Therefore, in the staff's view, only the Canadian mining disclosure requirements serve as a basis for disclosure of mineral resource estimates in SEC filings, and only with respect to Canadian registrants.

We are not aware of any state mining disclosure laws that are applicable and have not observed a company providing mineral resource disclosure based on state law.

Guide 7 has not been updated for more than 30 years.

During this period, mining has become an increasingly globalized industry and several foreign countries have adopted mining disclosure standards based on the Committee for Mineral Reserves International Reporting Standards (CRIRSCO)

that significantly differ from the Guide. For example, the CRIRSCO standards

require companies to disclose material mineral resources; require that any public report about a company's exploration results,

mineral resources and mineral reserves be prepared by a “Competent or Qualified Person;”

and permit disclosure of mineral reserves to be based on a preliminary feasibility (“pre-feasibility”) study or a final feasibility study.

The disclosure requirements for companies engaged in mining activities were last updated in 1982 when the Commission amended Form S-18 to add certain disclosure requirements applicable to mining companies.

See

Release No. 33-6406 (June 4, 1982) [47 FR 25126] (June 10, 1982). The Commission later transferred its mining disclosure requirements from Form S-18 to Guide 7.

See

Release No. 33-6949 (July 30, 1992) [57 FR 36442] (August 13, 1992).

CRIRSCO is an international initiative to standardize definitions for mineral resources, mineral reserves, and related terms for public disclosure. CRIRSCO has representatives from professional societies involved in developing mineral reporting guidelines in Australasia (Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC)), Canada (Canadian Institute of Mining Metallurgy and Petroleum (CIM)), Chile (Minera Comision), Europe (Pan-European Reserves and Resources Reporting Committee (PERC)), Mongolia (Mongolian Professional Institute of Geosciences and Mining (MPIGM)), Russia (National Association for Subsoil Examination (NAEN)), South Africa (South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC)), and the USA (Society for Mining, Metallurgy and Exploration, Inc. (SME)). CRIRSCO's Web site is located at:

http://www.crirsco.com

The CRIRSCO-based codes, which are best practices of professional associations, have been incorporated into the listing rules of various foreign stock exchanges. All the codes (together with the listing rules that make them binding) require disclosure of exploration results, mineral resources, mineral reserves, and other information about mining properties as long as they are deemed material.

Exploration results are defined as data and information generated by mineral exploration programs that might be of use to investors but which do not form part of a disclosure of mineral resources or mineral reserves.

See, e.g.,

CRIRSCO's International Reporting Template pt. 18 (2013), which is available at:

http://www.crirsco.com/templates/international_reporting_template_november_2013.pdf

In addition, the CRIRSCO-based codes require that the qualified person must consider and apply certain factors (“modifying factors”) in his/her evaluation of the economic prospects and economic viability of the minerals. See the discussion in Sections II.F.1 and II.F.2,

infra.

A feasibility study is a technical and economic study of a mineral project necessary to demonstrate that extraction is economically viable. The two kinds of studies commonly used to demonstrate economic viability, in public disclosure, are preliminary feasibility (also called pre-feasibility) and final feasibility (also called feasibility) studies. A feasibility study is more comprehensive, and as a result more accurate, than a pre-feasibility study.

Over the years, as part of its filing review and comment process, the staff has provided supplemental guidance, including requesting clarifications or additional disclosure, to assist registrants in providing the appropriate disclosure about their mining operations and properties. For example, in contrast to the practice under the CRIRSCO standards, the staff historically has requested that a registrant obtain a specific type of feasibility study (

i.e.,

a final feasibility study) in order to support a determination of mineral reserves.

Because of the widespread adoption of the CRIRSCO standards, industry participants have requested revisions to Guide 7.

Among other matters,

these participants have urged the Commission to align its mining disclosure rules with the CRIRSCO-based codes by allowing a mining registrant to disclose both mineral resources and reserves.

These

participants asserted that this would provide investors with a more complete understanding of the economic potential of a registrant's properties.

Finally, these participants also requested that the Commission address what they characterize as the uncertainty caused by the fact that Guide 7 and staff comment letters are not rules of the Commission, but rather non-binding guidance provided by the Division of Corporation Finance (“Division”).

See, e.g.,

the petition for rulemaking by the Society for Mining, Metallurgy and Exploration, Inc. (“SME Petition for Rulemaking ”) (October 1, 2012), which is available at:

http://www.sec.gov/rules/petitions/2012/petn4-654.pdf

For example, the SME also specifically expressed concern regarding the limited guidance provided by the staff on when the disclosure of certain non-reserve deposits known as “mineralized material” would be appropriate.

We also have received letters from members of the United States Congress requesting that the Commission update and harmonize Guide 7 with global reporting requirements.

See

the letter, dated

July 7, 2014, from Representatives Shelley Moore Capito, Stevan Pearce, Blaine Luetkemeyer, Sean Duffy, Steve Stivers, Stephen Fincher, Mick Mulvaney, Randy Hultgren, Ann Wagner, Andy Barr, Tom Cotton, Keith Rothfus, and William Lacy Clay; and the letter, dated August 13, 2014, from Senators Dean Heller, Mike Crapo and John Tester. These letters are available at:

http://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml

Unless otherwise stated, in this release the term “property” refers to mining properties, which are properties at which the registrant engages in mining activities. Mining activities include exploration, development and production of minerals. The term “mine” refers to a specific geographic location at which the registrant produces minerals. A property could include multiple mines.

See

SME Petition for Rulemaking at 9.

In light of these global developments and industry participants' concerns, we are proposing to modernize our disclosure rules for properties owned or operated by mining companies by more closely aligning those rules with the CRIRSCO-based codes in several respects. For example, the proposed rules would require a registrant with material mining operations to disclose, in addition to its mineral reserves, mineral resources that have been determined based upon information and supporting documentation by one or more qualified persons. Industry participants assert that such an alignment should help place U.S. mining registrants on a more level playing field with non-U.S. mining companies that are subject to one or more of the CRIRSCO-based mining codes.

This release requests comment on all aspects of our proposed rules, and we encourage all interested parties, including investors, companies, and other market participants, to submit comments.

In this regard, the SME has questioned the attractiveness of the U.S. capital markets for mining companies in light of the differences between Guide 7 and the CRIRSCO-based codes: “All of these factors decrease the attractiveness of the U.S. market to current and potential reporting companies. In light of increased globalization, companies have more choices as to which capital markets to access. Although the U.S. still presents one of the largest markets and thus will attract companies on that basis alone, there is a marked reluctance, particularly among exploration-stage mining companies, to pursue initial listings in the U.S. This harms our stock exchanges, as well as our financial markets.” SME Petition for Rulemaking at 14.

The Commission also has issued a concept release on Regulation S-K seeking input on updating and modernizing our business and financial disclosure requirements.

See

Release No. 33-10064 (April 13, 2016), [81 FR 23916] (April 22, 2016). The concept release requests comment on a range of topics that also may apply to mining companies, such as disclosure pertaining to risk factors, description of property and sustainability. We continue to encourage interested parties to submit comments on the concept release.

II. Proposed Mining Disclosure Rules

A. Consolidation of the Mining Disclosure Requirements

As noted above, the Commission's current mining disclosure regime involves overlapping disclosure requirements and policies in different locations (Regulation S-K and Guide 7), with an instruction (Instruction 7 to Item 102) that registrants engaged in significant mining operations should “direct their attention” to Guide 7. The combination of the overlapping structure of the disclosure regime for mining registrants and the brevity of Guide 7 (which has led to a significant amount of staff interpretive guidance through the comment process) may have created some regulatory uncertainty among mining registrants, particularly new registrants.

To help address this uncertainty, we propose to rescind Guide 7 and create new Regulation S-K subpart 1300

that would govern disclosure for registrants with mining operations.

In addition, we propose to amend Item 102 of Regulation S-K to replace the instruction that “the attention of issuers engaged in significant mining operations is directed to the information called for in Guide 7” with a new instruction requiring all mining registrants to refer to and, if required, provide the disclosure under new Regulation S-K subpart 1300.

Proposed 17 CFR 229.1301

et seq.

Proposed Regulation S-K subpart 1300 would apply to registration statements under the Securities Act and the Exchange Act as well as to annual reports under the Exchange Act.

Registrants that have material non-mining operations would continue to provide non-mining property disclosures under Item 102 of Regulation S-K.

Foreign private issuers that use Form 20-F to file their Exchange Act registration statements and annual reports, or that refer to Form 20-F when filing their Securities Act registration statements on Forms F-1 and F-4, are generally not subject to Regulation S-K. Because we believe that the same property disclosure requirements should apply to both domestic and foreign mining registrants, the proposed rules would amend Form 20-F to instruct registrants to refer to, and if required, provide the disclosure under subpart 1300 of Regulation S-K.

This proposed treatment would be consistent with current staff practice whereby foreign registrants are subject to the same Guide 7 and other disclosures as domestic mining registrants.

See

section II.H.,

infra.

Having one source for mining disclosure obligations should facilitate mining registrants' compliance with their disclosure requirements by eliminating the complexity resulting from the existing structure of Commission disclosure obligations in Regulation S-K and staff disclosure guidance in Industry Guide 7. Moreover, consolidating the disclosure requirements from Guide 7 into Regulation S-K would eliminate any uncertainty about their authority.

See

note 26,

supra.

We discuss the expected benefits and costs of the proposed rules in section IV,

infra.

Request for Comment

1. The Commission's current mining disclosure regime consists of disclosure requirements located in Item 102 of Regulation S-K and disclosure policies located in Guide 7. Has this disclosure regime caused uncertainty for mining registrants? If so, would establishing a sole regulatory source for mining disclosure by rescinding Guide 7 and including the disclosure requirements for mining registrants in a new Regulation S-K subpart, as proposed, reduce this uncertainty?

2. Should we amend Item 102 of Regulation S-K by eliminating the instruction that refers mining registrants to the information called for in Guide 7 and instead instruct them to refer to, and if required, provide the disclosure under new Regulation S-K subpart 1300, as proposed? Should we instead retain Guide 7 and Item 102 of Regulation S-K as separate sources for mining disclosures? If so, how should they apply to registrants?

B. The Standard for Mining-Related Disclosure

1. Overview

Under Item 102 of Regulation S-K, registrants are required to disclose principal mines, other materially important physical properties, and significant mining operations. Guide 7 only applies to registrants engaged or to be engaged in significant mining operations. When construed together, Item 102 and Guide 7 suggest that there are two levels of reporting under the Commission's current mining disclosure regime. For registrants that have one or

more principal mines or other materially important properties but lack significant mining operations, Item 102 requires less detailed information. For registrants that have significant mining operations, Guide 7 calls for more extensive disclosures. Although both Item 102 and Guide 7 refer to “significant” mining operations, the staff historically has advised registrants to apply materiality in determining what disclosures to provide.

Guide 7 does not define “significant” mining operations while Item 102 does not specify the particular quantitative factors to be considered in determining the materiality of a mine. In the absence of specific guidance, the staff has historically used 10% of a registrant's total assets as the benchmark for determining the materiality of a registrant's mining operations.

We propose that a registrant be required to provide the disclosure under new subpart 1300 of Regulation S-K if its mining operations, as that term is defined in Instruction 1 to proposed Item 1301(b),

are material to its business or financial condition.

For purposes of the new subpart, the term “material” would have the same meaning as under Securities Act Rule 405 and Exchange Act Rule 12b-2.

The term “mining operations” would include operations on all mining properties that a registrant owns or in which it has, or it is probable that it will have, a direct or indirect economic interest. It also would include operations on mining properties that a registrant operates, or it is probable that it will operate, under a lease or other legal agreement that grants the registrant ownership or similar rights that authorize it, as principal, to sell or otherwise dispose of the mineral. Finally, “mining operations” would include operations on mining properties that a registrant has, or it is probable that it will have, an associated royalty or similar right.

See

Instruction 1 to proposed Item 1301(b). For purposes of subpart 1300, the term “probable” would have the same meaning as the U.S. GAAP definition of that term.

See

ASC Section 450-20-20.

See

proposed Regulation S-K Item 1301(a). Because we are proposing to consolidate the revised mining disclosure rules under new Regulation S-K subpart 1300, the proposed rules would eliminate Instruction 3 to Item 102, which requires the disclosure of certain specified material information, including “more detailed information” about a mining registrant's individual properties that “are of major significance.”

See Id.

Pursuant to Securities Act Rule 405 (17 CFR 230.405) and Exchange Act Rule 12b-2 (17 CFR 240.12b-2), 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 the securities registered. This definition is consistent with the U.S. Supreme Court's holding in

TSC Industries

Northway, Inc.,

426 U.S. 438, 449 (1976), that a fact is material if there is a substantial likelihood that the fact would have been viewed by a reasonable investor as having significantly altered the “total mix” of information made available.

Under proposed new subpart 1300, when determining the materiality of its mining operations, a registrant would have to:

• Consider both quantitative and qualitative factors, assessed in the context of the registrant's overall business and financial condition;

• aggregate mining operations on all of its mining properties, regardless of size or type of commodity produced, including coal, metalliferous minerals, industrial materials, geothermal energy, and mineral brines;

and

For a discussion of the treatment of mineral brines and energy under proposed subpart 1300,

see

section II.E.1,

infra.

• include, for each property, as applicable, all related mining operations from exploration through extraction to the first point of material external sale, including processing, transportation, and warehousing.

See

proposed Item 1301(b) of Regulation S-K.

Consistent with current staff guidance, we are proposing to define “mining operations” to include all related activities from exploration through extraction to the first point of material external sale.

We believe that including all activities up to the point of first material external sale is appropriate because all such activities are necessary to convert the mineral resource to saleable product, which generates the registrants' revenues. This definition would, however, exclude all activities subsequent to the first point of sale. Although such activities may add value to the saleable mining product, they are not necessary to convert the resource into a saleable product. For example, an aluminum producer who has material bauxite mining operations and material external bauxite sales would not include any subsequent refinery activities (such as processing the bauxite into aluminum) in the scope of its mining property disclosure. We also note that, because this approach would be consistent with current staff guidance, it is not expected to significantly alter existing disclosure practices.

See

proposed Item 1301(b)(3) of Regulation S-K.

Proposed new subpart 1300 would instruct that a registrant's mining operations are presumed to be material if its mining assets constitute 10% or more of its total assets.

We believe it would be appropriate to presume materiality under the proposed rules when mining assets are at or above a threshold of 10 percent of total assets because at that level the mining assets are likely to contribute significantly to the registrant's business or financial condition. We further believe that the 10% asset threshold is appropriate because it is consistent with similar 10% thresholds that the Commission has used to determine disclosure requirements under a variety of forms and rules.

Finally, the proposed asset test would provide registrants with an easily applied quantitative standard to use regarding whether they are subject to the new mining disclosure requirements.

See

Instruction 2 to proposed Item 1301(b) of Regulation S-K. The 10% test is a “rule of thumb” that the staff has historically applied in the mining context.

See, e.g.,

Item 2.01 of Form 8-K (17 CFR 249.308); sections 4-08 and 10-01 of Regulation S-X (17 CFR 210.4-08 and 210.10-01); and Items 101 and 911 of Regulation S-K (17 CFR 229.101 and 229.911);

See also

JORC Code pt. 9 and SME Guide pt. 3.

Guide 7 only calls for disclosure of the name of the person estimating the reserves and the nature of his or her relationship to the registrant.

See

Guide 7 paragraph (b)(5)(ii). In addition, if a registrant supplementally provides a copy of a technical report to Division staff, Guide 7 specifies that the copy include the name of its author and the date of its preparation, if known to the registrant.

See

Guide 7 paragraph (c)(2).

See

Securities Act Rule 436 (17 CFR 230.436);

See also

SME Guide pt. 31 and JORC Code pt. 18.

Despite these limitations, we believe that disclosure of material exploration results would provide investors with a more comprehensive picture of a registrant's mining operations and help them make more informed investment decisions. A company engaged in mining activities frequently uses exploration results, prior to a determination of mineral resources, to assess the economic potential of its property as part of its decision to develop a property. In addition, a

company uses exploration results to determine whether mineral resources exist and to estimate the mineral resources. To the extent that mineral resources (and mineral reserves estimated from them) on a particular property are material, depending on the facts and circumstances, the exploration results that led to the estimation of those mineral resources could also be material. For example, exploration results that have significantly impacted the registrant's analysis or estimates of the life of a material mining project would be considered material, thus triggering a disclosure obligation.

Requiring the disclosure of material exploration results would align our disclosure rules with most foreign mining codes,

119

which would help to provide for a consistent level of mining disclosure across relevant jurisdictions. We believe that the potential risk associated with the uncertainty inherent in exploration results would be mitigated by precluding the use of exploration results alone, without due consideration of geologic uncertainty and economic prospects, to serve as a basis for disclosure of tonnage, grade, and production rates, or in an assessment of economic viability.

119

See

note 111, supra.

At this time, we are not proposing to require the disclosure of exploration results by a registrant that has material mining operations in the aggregate but no individual properties that are material.

120

If a company has determined that it lacks material mining properties, we believe it is unlikely that such a company would have exploration results that are material. While a company with no material properties could voluntarily elect to disclose exploration results for its properties, we do not believe investors would benefit from a requirement to disclose exploration results under those circumstances.

120

An example of such a registrant would be an industrial minerals company that has more than 50 properties none of which is individually material. Under the proposed rules, such a company would be required to provide summary disclosure concerning its mineral resources and mineral reserves.

See

section II.G.1,

infra.

Request for Comment

42. Should we require a registrant to disclose material exploration results for each of its material properties, as proposed? Why or why not? Alternatively, should we permit registrants to provide exploration results in a summary form?

43. Should we define exploration results as data and information generated by mineral exploration programs (

i.e.,

programs consisting of sampling, drilling, trenching, analytical testing, assaying, and other similar activities undertaken to locate, investigate, define or delineate a mineral prospect or mineral deposit) that do not form part of a disclosure of mineral resources or reserves, as proposed? Why or why not? Are there other characteristics that we should include in the definition of exploration results? Are there other activities that we should include as examples of mineral exploration programs? Are there activities that we should exclude as examples of mineral exploration programs?

44. What are the risks that could result from requiring disclosure of material exploration results? Should we prohibit the use of exploration results to derive estimates of tonnage, grade, and production rates, or in an assessment of economic viability, as proposed? Why or why not? Would prohibiting the use of exploration results for these purposes, as proposed, adequately protect investors from the increased risk associated with including information having a lower level of certainty about the economic value of mining properties?

45. When determining whether exploration results are material, should a registrant consider their importance in assessing the value of a material property or in deciding whether to develop the property, as proposed? Why or why not? Are there other circumstances that would better define when exploration results are material? If so, what are those circumstances?

46. We are proposing to require the disclosure of material exploration results for each material property. Should we also require disclosure of material exploration results when the registrant has determined that it has in the aggregate material mining operations but no individual properties are material? Would disclosure of material exploration results for its properties in the aggregate (when none is individually material) provide additional meaningful disclosure for investors? If so, how should a registrant disclose such exploration results? Should it provide such results in summary form? Or should it provide detailed disclosure about all material exploration results for all of its properties?

E. Treatment of Mineral Resources

The determination of mineral resources is the second step, after mineral exploration, that geoscientists and engineers use to assess the value of a mining property.

121

Most foreign mining codes require the disclosure of material mineral resources.

122

In contrast, Item 102 and Guide 7 preclude the disclosure of mineral resources in Commission filings (subject to the “foreign or state law” exception discussed above).

123

According to some industry groups,

124

this restriction has limited the completeness and relevance of SEC filings.

121

First, they use the exploration results to determine if a mineral deposit is present. Next, they estimate the mineral resources, which are the portions of the mineral deposit that have prospects of economic extraction. The last step is the determination of mineral reserves, which are the economically mineable portions of the mineral resources.

122

See, e.g.

, the JORC Code pts. 4 and 14; the SAMREC Code pts. 4 and 14; the SME Guide pts. 3 and 20; and the PERC Reporting Standard pts. 4 and 13.

123

See

Instruction 3 to paragraph (b)(5) of Guide 7 and Instruction 5 to Item 102 of Regulation S-K.

124

See

the SME Petition for Rulemaking at 1.

We are proposing to require a registrant with material mining operations to disclose specified information in its Securities Act and Exchange Act filings concerning any mineral resources, as defined in the proposed rules, that have been determined based on information and supporting documentation from a qualified person. As proposed, a registrant with material mining operations that has multiple properties would have to provide both summary disclosure about its mineral resources and more detailed disclosure concerning its mineral resources for each material property.

125

See

sections II.G.1 and II.G.2,

infra,

respectively, for a discussion of the proposed summary and individual property disclosure requirements for mineral resources and reserves.

Under the proposed rules, a registrant could not disclose that it has determined that a mineral deposit constitutes a “mineral resource” (or, for that matter, a “mineral reserve”) unless that determination is based upon information and supporting documentation

126

prepared by a qualified person. Nevertheless, there would be no requirement that a registrant make such an affirmative determination. For example, a registrant could choose not to engage a qualified person to conduct the analyses and prepare the documentation necessary to support a determination that a mineral deposit is a mineral resource (or reserve). In that case, under the proposed rules, in the absence of such

information and supporting documentation, the registrant would be deemed not to have any mineral resources, and as such, would not be required to disclose mineral resources in a filing. If, however, the registrant did make the determination that it had mineral resources based upon information and supporting documentation prepared by a qualified person (

e.g.,

as part of its efforts to attract investors or secure project financing), then under the proposed rules the registrant would be required to disclose such mineral resources. This approach is consistent with the CRIRSCO-based codes.

127

126

As discussed in sections II.E.3 and II.F.2,

infra,

by “information and supporting documentation,” we mean an initial assessment for mineral resource determination and a preliminary or final feasibility study for mineral reserve determination.

127

Similarly, the other significant mining jurisdictions do not require a registrant to make the determination that it has mineral resources or reserves, as defined by those codes. The regulatory frameworks do, however, require disclosure of mineral resources and mineral reserves once the registrant has made the determination that it has them and they are material.

See, e.g.,

ASX Listing Rules 5.7, 5.8, and 5.9, which provide guidance for disclosure of exploration results, mineral resources and mineral reserves for “material mining projects,” and which are available at:

http://www.asx.com.au/documents/rules/Chapter05.pdf

Requiring a mining registrant with material mining operations to disclose mineral resources in addition to mineral reserves would provide investors with additional important information concerning the registrant's operations and prospects. The importance of this information is demonstrated by the fact that most foreign mining codes require the disclosure of mineral resources, U.S. registrants routinely disclose mineral resource information on their Web sites, and many mining company analysts consider mineral resource information as an important factor in their valuations and recommendations. Requiring the disclosure of mineral resources would also place U.S. registrants on a level playing field with Canadian mining registrants and non-U.S. mining companies that are subject to one or more of the other CRIRSCO-based mining codes.

Requiring disclosure of mineral resources in Commission filings could increase the reporting costs for those mining companies that do not currently disclose mineral resource information. We believe, however, that any such increase would be minimal as most mining companies already assess mineral resources in order to determine reserves.

128

Requiring the disclosure of mineral resources could also increase the possibility that investors may misunderstand the economic value of a mining company, given that mineral resources are less certain than mineral reserves. As explained below, however, we believe that this risk is limited by the proposed definition of the term mineral resource, by requiring disclosure of the particular class of mineral resource, and by requiring an initial assessment for mineral resource disclosure. We also believe that there are potential benefits to investors from the disclosure of mineral resources, including more comprehensive and potentially more accurate disclosure of mineral reserves.

129

128

Best practice in mining engineering is to first determine the quantity and quality of the material of economic interest (

i.e.,

mineral resource estimation), prior to engineering and economic evaluation, to determine if any or all of that material can be extracted economically (

i.e.,

mineral reserve estimation).

See, e.g.,

Alan C. Noble, “Mineral Resource Estimation,” in 1

SME Mining Engineering Handbook

203 (P. Darling, ed., 2011), which states “[t]he ore reserve estimate follows the resource estimate.”

129

Given that mineral reserves estimates are based on estimates of mineral resources, we believe that the rigor surrounding the disclosure of mineral resources as well as the attendant scrutiny from the qualified person, particularly with regards to mineral resource classification, is likely to lead to more reliable mineral reserves disclosure.

As previously noted, Item 102 and Guide 7 preclude the disclosure of estimates other than reserves in SEC filings unless such information is required to be disclosed by foreign or state law. Since we are proposing to require the disclosure of estimates for mineral resources in addition to mineral reserves by a registrant with material mining operations, the foreign or state law exception would no longer be necessary. Therefore, the proposed rules would eliminate this exception.

Request for Comment

47. Should we require a registrant with material mining operations to disclose mineral resources in addition to mineral reserves, as proposed? Why or why not?

48. What are the risks that could result from requiring a registrant with material mining operations to disclose its mineral resources? How could the Commission mitigate those risks?

49. Under the proposed rules, a registrant with material mining operations could choose not to engage a qualified person to determine whether a mineral deposit is a mineral resource, with the result that the registrant would not be required to disclose mineral resources that may exist. Should the rules, as proposed, preclude a registrant from disclosing mineral resources in an SEC filing if it has elected not to engage a qualified person to make the resource determination? Alternatively, should the rules permit a registrant to disclose mineral resources in an SEC filing, despite not having engaged a qualified person to make the resource determination, in certain instances? If so, in what instances would it be appropriate to permit such disclosure?

1. Mineral Resource Definition

Because both Item 102 and Guide 7 prohibit the disclosure of non-reserve estimates except as required under foreign or state law, there currently is no Commission definition of “mineral resource.” The proposed rules would define “mineral resource” as a concentration or occurrence of material of economic interest in or on the earth's crust in such form, grade or quality, and quantity that there are reasonable prospects for its economic extraction.

130

The proposed rules would define the term “material of economic interest,” as used in the definition of mineral resource, to include mineralization, including dumps and tailings,

131

geothermal fields, mineral brines, and other resources extracted on or within the earth's crust. As proposed, the term “material of economic interest” would not include oil and gas resources as defined in Regulation S-X,

132

gases (

e.g.

helium and carbon dioxide), or water.

133

130

See

proposed Item 1301(d)(14)(i) of Regulation S-K.

131

The term “dumps” refers to stockpiles of mined material. The term “tailings” refers to a mixture of fine mineral matter and process effluents generated by mineral processing plants.

132

See

17 CFR 210.4-10(a)(16)(D).

133

See

proposed Item 1301(d)(14)(ii) of Regulation S-K.

The proposed rules would further specify that, when determining the existence of a mineral resource, a qualified person must be able to estimate or interpret the location, quantity, grade or quality continuity, and other geological characteristics of the mineral resource from specific geological evidence and knowledge, including sampling.

134

In addition, when determining the existence of a mineral resource, as proposed, the qualified person must conclude that there are reasonable prospects for economic extraction of the mineral resource based on an initial assessment that he or she conducts by qualitatively applying the modifying factors

135

likely to influence the prospect of economic extraction.

136

134

See

proposed Item 1301(d)(14)(iii)(A) of Regulation S-K.

135

See

proposed Item 1301(d)(15) of Regulation S-K for the definition of modifying factors.

136

See

proposed Item 1301(d)(14)(iii)(B) of Regulation S-K.

Similar to the CRIRSCO-based codes, the proposed definition of mineral resource would state that it is not to be merely an inventory

137

of all

mineralization drilled or sampled.

138

A mineral resource is instead a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade,

139

likely mining dimensions, location or continuity, which, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable.

140

137

The term “inventory of mineralization” means an estimate of the total quantity of mineralization based on the available evidence.

138

See, e.g.,

JORC Code pt. 20; CRIRSCO International Reporting Template pt. 21; and SAMREC Code pt. 21.

139

The term cut-off grade refers to the grade (the concentration of metal or mineral in rock) at which the destination of the material changes during mining. For establishing prospects of economic extraction, it is the grade that distinguishes between the material that is uneconomic and the material that is economic and therefore going to be mined and processed. Terms with similar meanings include net smelter return, pay limit and break-even stripping ratio.

See

Proposed Item 1301(d)(1) of Regulation S-K.

140

See

Note to proposed Item 1301(d)(14)(i) of Regulation S-K.

As proposed, the definition of mineral resource would include non-solid matter, such as geothermal fields and mineral brines, in addition to mineralization. We believe this is appropriate because the scientific and engineering principles used to characterize mineral brine and geothermal resources and reserves are substantially similar to those used to characterize solid mineral resources and reserves. By definition, extracting minerals from mineral brines is mining.

141

Although extracting energy from geothermal fields in the earth's crust is not identical to extracting minerals, we believe there are sufficient similarities to justify including geothermal energy in the proposed rules. For example, the exploration and development techniques leading to geothermal extraction are similar to the techniques used for mineral extraction. Also, the extraction of fluid in geothermal fields is similar to in-situ solution mining.

142

In addition, mineral resource classification frameworks are widely accepted as appropriate for geothermal resource disclosure.

143

141

Mining can be defined as the “[p]rocess of obtaining useful minerals from the earth's crust.” Lewis & Clark,

Elements of Mining

20 (1964). Although the CRIRSCO-based codes define a mineral resource as “solid material” (

see, e.g.,

the CIM Definition Standards at 4 and the JORC code pt. 20), most of those codes regulate the mining of mineral brines under the same set of rules governing a mineral resource.

See e.g.,

Ontario Securities Commission (OSC) Notice 43-704,

Mineral Brine Projects and National Instrument 43-101 Standards of Disclosure for Mineral Projects

(July 22, 2011).

142

In-situ solution mining is the selective dissolution and recovery of a target mineral by dissolving the mineral in its original location and pumping the mineral-laden solution to a processing plant located on the surface, where the desired metals are produced for market. The solution that dissolves the target mineral is pumped into the rock via injection wells and the mineral-laden solution is recovered via production wells. Similarly, extracting energy from geothermal fields involves pumping fluids in and out of geologic material.

143

For example, the Australian Geothermal Energy Association's Geothermal Code Committee concluded that JORC was a better model for the Australian Geothermal Reporting Code than the Society of Petroleum Engineers' Resources Management System.

See

J.V. Lawless, M. Ward and G. Beardsmore, “The Australian Code for Geothermal Reserves and Resources Reporting: Practical Experience,” in

Proceedings of the World Geothermal Congress

(2010).

As such, we believe that including these non-solid materials in the proposed definition of mineral resource would provide a workable and reasonable framework for disclosure related to these activities. Moreover, including minerals extracted from mineral brines and energy extracted from geothermal fields within the definition should provide clarity and consistency for the disclosure obligations of registrants engaged in these activities.

The proposed definition of “mineral resource” also would include dumps and tailings in recognition of the fact that, under certain circumstances, these byproducts from older mining operations possess value. We also note that the inclusion of dumps and tailings in the definition of mineral resource reflects industry practice and is consistent with the CRIRSCO-based codes.

144

See, e.g.,

the JORC Code pt. 20, the SAMREC Code pt. 21, and the SME Guide pt. 33.

We are proposing to exclude oil and gas resources as defined by Regulation S-X from the definition of mineral resource because the Commission has adopted separate rules for oil and gas disclosure.

145

We are proposing to exclude gases (such as helium and carbon dioxide) and water because the scientific and engineering principles used to estimate these resources are substantially different from those used to estimate mineral resources.

145

See

subpart 1200 of Regulation S-K (17 CFR 230.1201

et seq.

As noted above, we are proposing to require that in order to classify a deposit as a resource, a qualified person must establish that there are reasonable prospects of economic extraction by estimating or interpreting key geological characteristics from specific geological evidence. We believe that requiring an analysis based on specific geological evidence to establish prospects of economic extraction would provide an appropriately exacting standard, and importantly, one that is more exacting than what we propose to require for the disclosure of exploration results. A qualified person should have a higher level of confidence to determine that a deposit is properly classified as a mineral resource (which is an estimate of tonnage and grade that has prospects of economic extraction) than to report exploration results (which may not indicate the existence of any tonnage with reasonable prospects of economic extraction) because of the relatively greater weight that investors are likely to place on estimates of mineral resources. This in turn should help mitigate the uncertainty inherent in the determination of mineral resources. Moreover, because the CRIRSCO-based codes impose a substantially similar requirement, we do not believe this aspect of the proposed definition of mineral resources would significantly alter existing disclosure practices of registrants subject to these codes.

Request for Comment

50. Should we define the term “mineral resource,” as proposed? Why or why not? In order for material to be classified as a mineral resource, should there be reasonable prospects for its economic extraction, as proposed? Why or why not?

51. Should the definition of mineral resource include mineralization, including dumps and tailings, as proposed? Should the definition of mineral resource also include geothermal fields and mineral brines, as proposed? Why or why not? Is there any other material that should be explicitly included in the definition of mineral resource?

52. Should the definition of mineral resource exclude oil and gas resources as defined in Regulation S-X,

146

gases (

e.g.,

helium and carbon dioxide), and water, as proposed? Why or why not? Is there any other material that should be explicitly excluded from the definition of mineral resource?

146

See

17 CFR 210.4-10(a)(16)(D).

53. Should the definition of mineral resource include the requirement that a qualified person estimate or interpret the location, quantity, grade or quality continuity, and other geological characteristics of the mineral resource from specific geological evidence and knowledge, including sampling, as proposed? Why or why not? Are there other geological characteristics that we should explicitly require a qualified person to estimate or interpret when determining the existence of mineral resources?

2. Mineral Resource Classification

The proposed rules would adopt the CRIRSCO-based classification of mineral

resources

147

into inferred, indicated and measured mineral resources, in order of increasing geological confidence,

148

and define those terms. Further, the proposed rules would require a registrant with material mining operations to classify its mineral resources into inferred, indicated and measured mineral resources, in order of increasing confidence based on the level of underlying geological evidence. We believe this classification requirement would contribute to the accuracy of a registrant's mining disclosure in SEC filings, and thereby benefit investors, because it is based upon an assessment of “geologic uncertainty,” which is the risk related to the quality, quantity and location of the mineral in the ground. Geologic uncertainty directly impacts two very significant estimates, production quantities per period and related cash flows, which are crucial to a registrant's determination, and an investor's understanding, of mineral resource disclosure. We, therefore, believe that the proposed rules should require, and not merely allow, the classification of mineral resources.

147

See, e.g.,

JORC Code pt. 20; CRIRSCO International Reporting Template pt. 21; and SAMREC Code pt. 21.

148

See

Note to proposed Item 1301(d)(14)(ii) of Regulation S-K.

Similar to the CRIRSCO-based codes,

149

we propose to define “inferred mineral resource” as that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling.

150

The proposed rules would explain that, as used in this proposed definition, “limited geological evidence” means evidence that is only sufficient to establish that geological and grade or quality continuity is more likely than not. The proposed rules would further provide that the level of geological uncertainty associated with an inferred mineral resource is too high to apply modifying factors in a manner useful for evaluation of economic viability.

151

Because an inferred mineral resource has the lowest level of geological confidence of all mineral resources, under the proposed rules, it may not be considered when assessing the economic viability of a mining project and may not be converted to a mineral reserve.

152

149

See, e.g.,

JORC Code pt. 21; CRIRSCO International Reporting Template pt. 22; and SAMREC Code pt. 22.

150

See

proposed Item 1301(d)(10)(i) of Regulation S-K.

151

See

proposed Item 1301(d)(10)(ii) of Regulation S-K.

152

See

Note to proposed Item 1301(d)(10) of Regulation S-K.

The proposed rules would establish the level of certainty that a qualified person must strive to achieve when determining the existence of an inferred mineral resource. First, the qualified person must have a reasonable expectation that the majority of inferred mineral resources could be upgraded to indicated or measured mineral resources with continued exploration. Second, the qualified person should be able to defend the basis of this expectation before his or her peers.

153

See

proposed Item 1301(d)(10)(iii) of Regulation S-K.

We understand that, because inferred mineral resources have the lowest level of geologic confidence, requiring their disclosure in a mining registrant's SEC filing could lead to investor misunderstanding about the nature of a registrant's mining operations (that would not be present absent such disclosure). We believe, however, that the proposed definition of inferred mineral resource

154

would reduce any potential misunderstanding by providing appropriate context for and limitations on such disclosure. First, the proposed definition would clearly highlight for investors that inferred mineral resources have the highest degree of uncertainty, allowing investors to take this into account when assessing a registrant's disclosure. Second, the proposed definition would prohibit a registrant from using inferred mineral resources as a basis to determine mineral reserves. Rather, inferred resources would first have to meet the definitional requirements of, and be converted into, measured or indicated mineral resources. Only then would such inferred resources be eligible to be considered as potential mineral reserves under the proposed rules. This should help limit the incentive for a registrant to be aggressive in disclosing inferred mineral resources because such disclosure would not increase the likelihood that such resources would ultimately be deemed to be mineral reserves.

154

See

proposed Item 1301(d)(10) of Regulation S-K.

We note that our proposal differs from the CRIRSCO-based codes, which allow a qualified person to make limited use of inferred mineral resources in his or her technical and economic studies as long as certain cautionary language is included in the disclosure.

155

We believe, however, that the significant uncertainty associated with estimates of inferred mineral resources could call into question the results of technical or economic studies based on inferred mineral resources. As such, we do not believe that any such disclosure would be useful for investors.

156

Consequently, our proposed rules would prohibit qualified persons from using inferred mineral resources in any economic analysis conducted to determine the economic viability of mineral projects or economic prospects of mineral deposits in support of SEC disclosures.

155

See, e.g.,

CRIRSCO International Reporting Template pt. 22, which states that “[c]onfidence in the [inferred mineral resource] estimate is usually not sufficient to allow the results of the application of technical and economic parameters to be used for detailed planning. For this reason, there is no direct link from an Inferred Resource to any category of Mineral Reserves. Caution should be exercised if this category is considered in technical and economic studies.” Also, Canada's NI 43-101 2.3(3) states, in part, that “[d]espite paragraph (1)(b), an issuer may disclose the results of a preliminary economic assessment that includes or is based on inferred mineral resources if the disclosure (a) states with equal prominence that the preliminary economic assessment is preliminary in nature, that it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized . . .”

See also

JORC Code pt. 21 and 38, SAMREC Code pt. 23, and SME Guide pt. 34, which contain similar cautionary language.

156

The CRIRSCO-based codes may allow the use of inferred resources in lower level technical or economic studies, but not in higher level studies to support a determination of economic viability.

See, e.g.,

CIM Definition Standards at 4 (2012) which states that “[c]onfidence in the [inferred mineral resource] estimate is insufficient to allow the meaningful application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. Inferred Mineral Resources must be excluded from estimates forming the basis of feasibility or other economic studies.”

We propose to define “indicated mineral resource” as that part of a mineral resource for which quantity and grade or quality are estimated on the basis of adequate geological evidence and sampling.

157

The proposed rules would explain that, as used in this definition, “adequate geological evidence” means evidence that is sufficient to establish geological and grade or quality continuity with reasonable certainty. This means that the level of geological certainty associated with an indicated mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit.

158

The proposed rules would further provide that an indicated mineral resource has a lower level of confidence than that applicable to a measured mineral resource and may only be

converted to a probable mineral reserve.

159

157

See

proposed Item 1301(d)(9)(i) of Regulation S-K.

158

See

proposed Item 1301(d)(9)(ii) of Regulation S-K.

159

See

Note to proposed Item 1301(d)(9) of Regulation S-K. We define “probable mineral reserve” at proposed Item 1301(d)(18) of Regulation S-K.

We propose to define “measured mineral resource” as that part of a mineral resource for which quantity and grade or quality are estimated on the basis of conclusive geological evidence and sampling.

160

The proposed rules would explain that, as used in this definition, “conclusive geological evidence” means evidence that is sufficient to test and confirm geological and grade or quality continuity. This means that the level of geological certainty associated with a measured mineral resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit.

161

The proposed rules would further provide that, because a measured mineral resource has a higher level of confidence than that applying to either an indicated mineral resource or an inferred mineral resource, it may be converted to a proven mineral reserve or to a probable mineral reserve.

162

160

See

proposed Item 1301(d)(12)(i) of Regulation S-K.

161

See

proposed Item 1301(d)(12)(ii) of Regulation S-K.

162

See

Note to proposed Item 1301(d)(12) of Regulation S-K.

The proposed definitions of “indicated mineral resource” and “measured mineral resource” are substantially similar to the corresponding CRIRSCO-based definitions. We believe aligning the U.S. definitions with the foreign mining code provisions would benefit registrants and investors by promoting uniformity in mining disclosure standards. For those mining registrants that are dual-listed and already subject to the CRIRSCO-based requirements, such alignment should help to reduce any potential additional costs caused by the proposed requirement to disclose indicated and measured mineral resources. In addition, some registrants, even if not currently subject to the CRIRSCO-based requirements, nonetheless apply substantially similar definitions of indicated and measured mineral resources as part of the process of determining mineral reserves.

163

As explained in note 128,

supra,

the best practice in mining engineering is to determine mineral resources, prior to engineering and economic evaluation, to determine if any or all of those resources can be classified as mineral reserves. The predominant approach in the mining engineering literature is that mineral resource classification should be based on the estimator's judgment of the uncertainty in estimates due to the geologic uncertainty.

See, e.g.,

JORC pt. 24 and SAMREC pt. 26. This is consistent with our proposed definitions of mineral resource classifications.

As noted above, geologic uncertainty directly affects the uncertainty associated with production quantities per period and related cash flows. As such, we believe that in addition to disclosure of resource estimates, it is appropriate to require disclosure of the level of geologic uncertainty associated with different classes of mineral resources. Specifically, we propose to require that the qualified person, as part of the initial assessment,

164

quantify and disclose the uncertainty associated with the production estimates derived from such resources. A qualified person would be permitted to develop mineral resource estimates using any generally accepted method, including geostatistics, simulation or inverse distance. Regardless of the method used to develop resource estimates, however, the qualified person would be required to estimate and disclose, in the prescribed format, the uncertainty associated with each class of mineral resource.

165

The appropriate methods for quantifying and disclosing this uncertainty will, as discussed below, depend upon the specific classification of the resource.

164

We propose to define “initial assessment” as a preliminary technical and economic study of the economic potential of all or parts of mineralization to support the disclosure of mineral resources. An initial assessment is different from a pre-feasibility study in that a pre-feasibility study is used to determine whether all or part of a mineral resource can be converted into a mineral reserve. We discuss the proposed requirement that the qualified person must conduct at least an initial assessment in order to determine resources in section II.E.3,

infra.

165

See

Instruction 3 to proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K.

Specifically, for indicated and measured mineral resources, the qualified person would be required to provide the confidence limits of relative accuracy,

166

at a specific confidence level, of the preliminarily estimated production quantities per period from the resource.

167

Using this approach, the geologic uncertainty associated with indicated and measured mineral resources is stated by keeping any two of the three relevant variables (confidence limits of relative accuracy, confidence level, and production periods) constant while varying the third. For example, the risk could be stated as ±15% at 90% confidence for monthly, quarterly or annual production estimates, or ±10% or ±15% at 90% confidence for annual production estimates.

166

The term “confidence limits of relative accuracy” refers to the values on both sides of zero (the average relative accuracy for unbiased mineral resource estimates) that show, for a specified probability (the confidence level), the range in which the relative accuracy lies. For example, if a report says the confidence limits of relative accuracy for a mineral resource is ±10% at 90% confidence for annual production quantities, it means there is a nine out of ten chance that the actual annual production quantities will be between 90% and 110% of the planned quantities.

167

In this regard, the mining engineering literature makes clear that specifying the confidence limits of relative accuracy, at a specific confidence level, of production quantities per period is the best way to quantify uncertainty associated with resources.

See, e.g.,

E.H. Isaaks, and R.M. Srivastava,

An Introduction to Applied Geostatistics

489-513 (1990); and M.E. Rossi, and C.V. Deutsch,

Mineral Resource Estimation

209-222 (2014).

See generally

P.R. Stephenson,

Mineral Resource Classification. How the Viability of Your Project May Hang On a Qualified Person's Judgment

(2011); and P. Stoker and C. Moorhead,

Confidence in Resource Estimates—Beyond Classification

(2009).

We are proposing

168

that qualified persons report the level of uncertainty for indicated and measured mineral resources using this approach with the condition that the stated production period must be monthly, quarterly or annually.

169

This approach for reporting the level of uncertainty is consistent with what many have suggested in the mining engineering literature to be best practice.

170

We are not, however, proposing any restrictions on the acceptable confidence limits of relative accuracy or confidence level required to disclose indicated or measured mineral resources. In that regard, we recognize that the natural variability of geologic characteristics is different for different deposits.

168

See

Instruction 3 to proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K.

169

In this regard, we are of the view that the terms “mine planning” and “detailed mine planning,” as used in the definitions of indicated and measured mineral resources, must incorporate mine plans that include, respectively, production periods of one year and production periods of less than one year. We are not, however, proposing to require the qualified person to disclose the exact production quantity per period that is the basis for the uncertainty disclosure because we recognize that such quantities are preliminary at this stage and only reflect the qualified person's judgment of the scale (or size) of the likely mining project.

170

See, e.g.,

Rossi & Deutsch,

supra,

note 167 at 209-222; and Stephenson,

supra,

note 167 at 6-8.

When estimating the geologic uncertainty associated with indicated and measured mineral resources, the qualified person would be required to consider the limitations of the data, assumptions, and models used to determine the resource estimates.

171

If the qualified person uses numerical estimates of uncertainty

172

obtained

from geostatistical (

e.g.,

kriging) or other numerical methods (

e.g.,

conditional simulation) when determining the required estimates of confidence in mineral resources, he or she should consider all the risk factors, including those risk factors external to such numerical estimation, that will need to be addressed to prevent the uncertainty disclosure from being materially misleading. Specifically, the qualified person should consider those risk factors (

e.g.

reliability of drilling, sampling, or assaying techniques, and validity of modeling assumptions such as assumptions about geologic structures and domains) that may raise the level of uncertainty associated with the mineral resource estimate above the level of uncertainty derived solely from the numerical estimation process. This is because the numerical estimates of uncertainty from geostatistics or simulation do not account for risk factors associated with the input such as, but not limited to, drilling or sampling methods, laboratory assaying methods, outlier treatment, assumptions made during modeling of domains and geologic controls, compositing (averaging grades over similar sampling volumes or lengths) and establishing upper limits of grades. Consequently, such numerical estimates may underestimate the uncertainty associated with the mineral resources. Thus, the qualified person would need to take into account the impacts of these risk factors and make whatever adjustments are necessary so that the estimates of confidence limits disclosed are materially complete and accurate. This could be done, if appropriate, by either expanding the confidence limits or decreasing the confidence level.

171

See

Instruction 4 to proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K.

172

Although the confidence limits of relative accuracy are expressed in a numeric format, the proposed rules do not require that a registrant derive such limits mathematically. We note in this regard that the CRIRSCO-based codes also

anticipate that it is not always possible to estimate mathematically the confidence limits associated with a resource estimate.

See, e.g.,

JORC Code pt. 25, which states “Where a statement of the relative accuracy and confidence level is not possible, a qualitative discussion of the uncertainties should be provided in its place.” Also, several authors have suggested alternative approaches for estimating uncertainty when mathematical estimates of confidence limits are not possible in the mining engineering literature.

See generally,

Stephenson,

supra,

note 167, and D.V. Snowden,

Practical Interpretation of Mineral Resource and Ore Reserve Classification Guidelines

(2001).

For example, if a qualified person uses geostatistics or simulation to estimate the uncertainty associated with a particular mineral resource as “±15% relative accuracy at 90% confidence level for annual production quantities,” then he or she, after determining that the risks associated with external risk factors are negligible, may report the numerically derived estimate without adjusting for any external risks. On the other hand, if the qualified person first determines that the risk factors external to the calculation are not negligible, then he or she would have to adjust the confidence limits to be wider than ±15% or use a confidence level less than 90% to account for the risk factors external to the calculation. In such case, the specific confidence limits (

e.g.,

±25%) or confidence level (

e.g.

80%) that would be appropriate depends on the nature and significance of the risk factors external to the calculation of confidence limits obtained using numerical methods (

e.g.,

kriging or conditional simulation).

We believe, therefore, that the qualified person should be required to justify, in the technical report summary, the final estimates of confidence limits he or she uses after adjusting for the external risk factors.

173

Specifically, whether the qualified person uses numerical estimates of uncertainty (obtained from geostatistics/simulation) or non-numerical (qualitative) methods, he or she would be required to support the description of this uncertainty with a list of all factors considered and explain how those factors contributed to the final conclusion about the level of risk (confidence limits) underlying the resource classification included in the technical report summary.

173

See

Instructions 4 and 5 to proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K.

As noted above, a qualified person could use a method such as the inverse distance method to estimate mineral resources, determining that all the regions of the deposit that were estimated by means of drill holes with spacing of less than a certain distance are measured mineral resources.

174

If the qualified person can conclude, based on his or her experience in similar deposits with similar facts and circumstances, that annual production estimates generated from these resources will deviate ±15%, nine out of ten times, he or she could then disclose his or her confidence in the measured mineral resources of “±15% relative accuracy at 90% confidence level for annual production quantities.”

175

174

For example, a qualified person using inverse distance could conclude that the portion of the resource that is estimated by drill holes 1,300 ft. apart is measured mineral resources.

175

See

note 172,

supra.

Unlike the proposed rules, the CRIRSCO-based codes do not require the qualified person to disclose numerical estimates of the uncertainty associated with the different classes of mineral resources. Instead, those codes only require the qualified person to report fully the assumptions and factors considered in classifying mineral resources.

176

The CRIRSCO-based codes do, however, encourage qualified persons (in some instances) to disclose the level of uncertainty surrounding estimates where possible.

177

We believe that this optional approach could lead to disparities in mineral resource classification and confusion for investors. Accordingly, we are proposing to require the disclosure of numerical estimates of uncertainty, as we believe it would promote transparency and comparability among registrants about mineral resource classification.

176

See, e.g.,

JORC Code at 30, where the checklist provided for mineral resource classification requires the qualified person to provide “the basis for the classification of the Mineral Resources into varying confidence categories [and] whether appropriate account has been taken of all relevant factors (

i.e.

relative confidence in tonnage/grade estimations, reliability of input data, confidence in continuity of geology and metal values, quality, quantity and distribution of the data).” See also CIM's Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines 19 (2003), which states that “[t]he criteria used for classification should be described in sufficient detail so that the classification is reproducible by others.” We are also proposing to require the qualified person to discuss these assumptions in the technical report summary (

see

proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K) and to require the discussion of these assumptions for first time disclosure of mineral resources or material changes to mineral resource disclosure in SEC filings (

see

proposed Item 1304(b)(9) of Regulation S-K).

177

See e.g.,

JORC Code pt. 25, which states “Competent Persons are encouraged, where appropriate, to discuss the relative accuracy and confidence level of the Mineral Resource estimates with consideration of at least sampling, analytical and estimation errors. The statement should specify whether it relates to global or local estimates, and, if local, state the relevant tonnage. Where a statement of the relative accuracy and confidence level is not possible, a qualitative discussion of the uncertainties should be provided in its place.”

The disparity in practice in this area and the implications for investors have been discussed by many authors in the mining engineering literature.

178

In particular, the disparity in determining the boundary between inferred and indicated mineral resources could significantly affect a qualified person's conclusion on whether a project is economically viable or not, since inferred mineral resources cannot be used in economic analysis. We believe investors would benefit from greater transparency and more reliable disclosure of the risk associated with each class of resources by requiring what is now only recommended as best practice by the CRIRSCO-based codes.

178

See generally

P.R. Stephenson,

Mineral Resource Classification. How the Viability of Your Project May Hang On a Qualified Person's Judgment

(2011); and P. Stoker and C. Moorhead,

Confidence in Resource Estimates—Beyond Classification

(2009).

Finally, as regards inferred mineral resources, we believe that they have

such a low level of confidence that it would be inappropriate for a qualified person to use them in production estimates for a period equal to or shorter than a year. Differences between actual and estimated production for such periods would have such high standard deviations that they would not provide an appropriate basis for investment decisions.

179

We are, therefore, proposing to require qualified persons to state the minimum percentage of inferred mineral resources they believe will be converted to indicated and measured mineral resources with further exploration.

180

179

Possible sources of uncertainty that affect the reporting of inferred resources may include sampling or drilling methods, data processing and handling, geologic modeling and estimation.

180

See

Instruction 3 to proposed Item 601(b)(96)(iv)(B)(13) of Regulation S-K. Uncertainty estimates for inferred mineral resources must be stated in the form “the qualified person expects at least z% of inferred mineral resources to convert to indicated or measured mineral resources with further exploration and analysis.”

Request for Comment

54. Should we require a registrant to classify its mineral resources into inferred, indicated and measured mineral resources, as proposed? Why or why not? If not, what classifications would be preferable and why?

55. Should we define “inferred mineral resource” as proposed? Why or why not? Should we require the disclosure of inferred mineral resources although quantity and grade or quality with respect to those mineral resources can be estimated only on the basis of limited geological evidence and sampling, as proposed? Should we require a qualified person to describe the level of risk associated with an inferred mineral resource based on the minimum percentage that he or she estimates would convert to indicated or measured mineral resources with further exploration, as proposed? Should we permit rather than require a registrant to disclose inferred mineral resources because of the high level of geologic uncertainty associated with that class of mineral resource? Should we prohibit the disclosure of inferred mineral resources for that reason?

56. Should we prohibit the use of inferred mineral resources to make a determination about the economic viability of extraction, and preclude the conversion of an inferred mineral resource into a mineral reserve, as proposed? Would these proposed prohibitions be sufficient to mitigate the added uncertainty that could result from the requirement to disclose inferred mineral resources? Are there circumstances that would justify a qualified person's use of inferred mineral resources to make a determination about the economic viability of extraction, or that would allow the conversion of an inferred mineral resource into a mineral reserve? Should we permit the use of inferred mineral resources to make a determination about the economic viability of extraction as long as the qualified person and registrant disclose the high level of risk associated with such mineral resources? If so, what would be the potential effects on registrants and investors?

57. Should the definition of “inferred mineral resource” provide that such mineral resource has the lowest level of geological confidence of all mineral resources, which prevents the application of the modifying factors in a manner useful

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.