# Modernization of Property Disclosures for Mining Registrants > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2018-26337 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** December 26, 2018 - **Citation:** 83 FR 66344 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 230, 239, and 249 [Release Nos. 33-10570; 34-84509; File No. S7-10-16] RIN 3235-AL81 Modernization of Property Disclosures for Mining Registrants AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting amendments to modernize 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 amendments 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 amendments also will more closely align the Commission's disclosure requirements and policies for mining properties with current industry and global regulatory practices and standards. In addition, we are rescinding Industry Guide 7 and relocating the Commission's mining property disclosure requirements to a new subpart of Regulation S-K. DATES: Effective date: The final rule amendments are effective February 25, 2019, except for the amendments to 17 CFR 229.801(g) and 229.802(g), which will be effective on January 1, 2021. Compliance date: Registrants engaged in mining operations must comply with the final rule amendments for the first fiscal year beginning on or after January 1, 2021. Industry Guide 7 will remain effective until all registrants are required to comply with the final rules, at which time Industry Guide 7 will be rescinded. FOR FURTHER INFORMATION CONTACT: Elliot Staffin, Special Counsel, in the Division of Corporation Finance, at (202) 551-3430, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are amending 17 CFR 229.102 (“Item 102 of Regulation S-K”) under the Securities Act of 1933 (“Securities Act”) 1 and the Securities Exchange Act of 1934 (“Exchange Act”), 2 adding new exhibit (96) to 17 CFR 229.601(b) (“Item 601 of Regulation S-K”), adding new 17 CFR part 229, subpart 229.1300 (“subpart 1300 of Regulation S-K”), amending 17 CFR 230.436 under the Securities Act, amending Form 1-A, 3 amending Form 20-F, 4 and rescinding 17 CFR 229.801(g) and 229.802(g) under the Securities Act and Exchange Act. 1 15 U.S.C. 77a et seq. 2 15 U.S.C. 78a et seq. 3 17 CFR 239.90. 4 17 CFR 249.220f. Table of Contents I. Introduction A. Summary of, and Commenters' Principal Concerns Regarding, the Commission's Proposed Revisions to the Current Mining Property Disclosure Regime B. Summary of Principal Changes to the Final Rules II. Final Mining Property Disclosure Rules A. Consolidation of the Mining Disclosure Requirements 1. Rule Proposal 2. Comments on the Rule Proposal 3. Final Rules B. Overview of the Standard for Mining-Related Disclosure 1. The Threshold Materiality Standard 2. Treatment of Vertically-Integrated Companies 3. Treatment of Multiple Property Ownership 4. Treatment of Royalty Companies and Other Companies Holding Economic Interests in Mining Properties 5. 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 1. Rule Proposal 2. Comments on the Rule Proposal 3. Final Rules E. Treatment of Mineral Resources 1. The Mineral Resource Disclosure Requirement 2. Definition of Mineral Resource 3. Classification of Mineral Resources 4. The Initial Assessment Requirement 5. 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 I. Transition Period and Compliance Date III. Other Matters IV. Economic Analysis A. Baseline 1. Affected Parties 2. Current Regulatory Framework and Market Practices B. Analysis of Potential Economic Effects 1. Broad Economic Effects of the Final Rules and Impact on Efficiency, Competition, and Capital Formation 2. Consolidation of the Mining Disclosure Requirements 3. The Standard for Mining-Related Disclosure 4. Qualified Person and Responsibility for Disclosure 5. Treatment of Exploration Results 6. Treatment of Mineral Resources 7. Treatment of Mineral Reserves 8. Specific Disclosure Requirements 9. Conforming Changes to Certain Forms Not Subject to Regulation S-K 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 VI. Final Regulatory Flexibility Act Analysis A. Need for, and Objectives of, the Final Rules B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Final Rules D. Reporting, Recordkeeping, and Other Compliance Requirements E. Duplicative, Overlapping or Conflicting Federal Rules F. Agency Action To Minimize Effect on Small Entities VII. Statutory Authority I. Introduction On June 16, 2016, the Commission proposed revisions to its disclosure requirements and related guidance under the Securities Act and Exchange Act for properties owned or operated by mining companies to provide investors with a more comprehensive understanding of a registrant's mining properties to help them make more informed investment decisions. 5 The Commission also proposed to modernize its disclosure requirements and policies for mining properties by more closely aligning them with current industry and global regulatory practices and standards. 6 The Commission's disclosure requirements are currently found in Item 102 of Regulation S-K, and the related guidance appears in Industry Guide 7. 7 5 See Modernization of Property Disclosures for Mining Registrants, Securities Act Release No. 33-10098 (June 16, 2016) [81 FR 41651] (“Proposing Release”). 6 We proposed to modernize our disclosure requirements for mining properties following a request by some industry participants to revise Guide 7. See Petition for Rulemaking from Society for Mining, Metallurgy and Exploration, Inc. to Elizabeth M. Murphy, Secretary, U.S. Securities & Exchange Commission (Oct. 1, 2012), (“SME Petition for Rulemaking”), http://www.sec.gov/rules/petitions/2012/petn4-654.pdf. In accordance with 17 CFR 201.192 (Rule 192 of the Commission's Rules of Practice), the Secretary of the Commission will notify the petitioners of the action taken by the Commission following the publication of this release in the Federal Register . 7 See U.S. Sec. & Exch. Comm'n. Industry Guide 7: Description of Property By Issuers Engaged or to Be Engaged in Significant Mining Operations (“Guide 7”). We received over 60 comment letters on the proposed revisions 8 primarily from participants in, or representatives of, the mining industry, including mining companies, 9 mining standards groups, 10 mining consulting groups, 11 professional and trade associations, 12 law firms, 13 mining royalty companies, 14 and individual geologists and mining engineers. 15 We also received comments from several groups expressing various environmental or sustainability concerns in connection with the mining industry. 16 8 See Comments on Proposed Rule: Modernization of Property Disclosures for Mining Registrants , U.S. Sec. & Exch. Comm'n, https://www.sec.gov/comments/s7-10-16/s71016.htm. 9 See, e.g., letters from Alliance Resource Partners, L.P. (Sept. 23, 2016) (“Alliance”); AngloGold Ashanti Limited (Aug. 22, 2016) (“AngloGold”); BHP Billiton (Sept. 23, 2016) (“BHP”); Cloud Peak Energy Inc. (Sept. 22, 2016) (“Cloud Peak”); Coeur Mining, Inc. (Aug. 19, 2016) (“Coeur”); Energy Fuels Inc. (Sept. 29, 2016) (“Energy Fuels”); Freeport-McMoRan Inc. (Sept. 23, 2016) (“FCX”); Gold Resource Corporation (Aug. 26, 2016) (“Gold Resource”); Newmont Mining Corporation (Sept. 26, 2016) (“Newmont”); Northern Dynasty Minerals Ltd. (Aug. 15, 2016) (“Northern Dynasty”); Randgold Resources Ltd. (Sept. 26, 2016) (“Randgold”); Rio Tinto plc (Sept. 26, 2016) (“Rio Tinto”); Ur-Energy Inc. (Sept. 26, 2016) (“Ur-Energy”); and Vale S.A. (Aug. 26, 2016) (“Vale”). 10 See, e.g., letters from Australasian Institute of Mining and Metallurgy (Sept. 26, 2016) (“AusIMM”); Canadian Institute of Mining, Metallurgy and Petroleum (Aug. 26, 2016) (“CIM”); Comissao Brasileira de Recursos e Reservas (Sept. 5, 2016) (“CBRR”); Committee for Mineral Reserves International Reporting Standards (Sept. 23, 2016) (“CRIRSCO”); Joint Ore Reserves Committee of Australasia (Sept. 26, 2016) (“JORC”); SAMCODES Standards Committee (Sept. 22, 2016) (“SAMCODES 1”) and (Sept. 26, 2016) (“SAMCODES 2”); and Society for Mining, Metallurgy and Exploration, Inc. (Aug. 4, 2016) (“SME 1”) and Aug. 25, 2016) (“SME 2”). 11 See, e.g., letters from Amec Foster Wheeler (Sept. 26, 2016) (“Amec”); CPM Group (Aug. 24, 2016) (“CPM”); Golder Associates, Inc. (Sept. 26, 2016) (“Golder”); and SRK Consulting (U.S.), Inc. (Aug. 19, 2016) (“SRK 1”) and Sept. 26, 2016 (“SRK 2”). 12 See, e.g., letters from American Institute of Professional Geologists (Aug. 22, 2016) (“AIPG”); Mining and Metallurgical Society of America (Sept. 26, 2016) (“MMSA”); and National Mining Association (Sept. 23, 2016) (“NMA 1”) and Sept. 29, 2017 (“NMA 2 and SME 3”). The latter letter from NMA was co-signed by SME and was submitted at the meeting between representatives of the National Mining Association and Ur-Energy and staff of the Commission's Division of Corporation Finance on October 10, 2017. That letter is available at: https://www.sec.gov/comments/s7-10-16/s71016-2633677-161226.pdf. See also letters from National Society of Professional Engineers (Aug. 16, 2016) (“NSPE”); National Stone, Sand & Gravel Association (Sept. 26, 2016) (“NSSGA 1”) and (Apr. 28, 2017) (“NSSGA 2”); Prospectors & Developers Association of Canada (Oct. 12, 2016) (“PDAC”); and U.S. Chamber of Commerce (Sept. 26, 2016) (“Chamber”). 13 See, e.g., letters from Andrews Kurth Kenyon LLP (Sept. 26, 2016) (“Andrews Kurth”); Cleary Gottlieb Steen & Hamilton LLP (Sept. 30, 2016) (“Cleary Gottlieb”); Crowell & Moring LLP (Sept. 16, 2016) (“Crowell and Moring”); Davis Polk & Wardwell LLP (Sept. 26, 2016) (“Davis Polk”); Dorsey & Whitney LLP (Sept. 26, 2016) (“Dorsey & Whitney”); Shearman & Sterling LLP (Sept. 26, 2016) (“Shearman & Sterling”); Sullivan & Cromwell LLP (Aug. 15, 2016) (“Sullivan & Cromwell”); Troutman Sanders LLP (Sept. 26, 2016) (“Troutman Sanders”); and Vinson & Elkins LLP (Sept. 26, 2016) (“Vinson & Elkins”). 14 See, e.g., letters from Natural Resource Partners L.P. (Sept. 26, 2016) (“NRP”); and Royal Gold, Inc. (Sept. 26, 2016) (“Royal Gold”). 15 See, e.g., letters from Ted Eggleston, Ph.D. (Aug. 19, 2016) (“Eggleston”); Douglas H. Graves, P.E. (Sept. 21, 2016) (“Graves”); Keith Laskowski (Aug. 26, 2016) (“Laskowski”); Michael Moats (Aug. 31, 2016) (“Moats”); Dr. Pierre Mousset-Jones (June 20, 2016) (“Mousset-Jones”); and Dana Willis, P.G. (Aug. 4, 2016) (“Willis”). 16 See, e.g., letters from Carbon Tracker Initiative (Aug. 26, 2016) (“Carbon Tracker”); Center for Science in Public Participation (Sept. 22, 2016) (“CSP 2 ”); Columbia Water Center (Sept. 26, 2016) (“Columbia Water”); Earthworks (and 21 other environmental advocates) (Sept. 26, 2016) (“Earthworks et al.” ); Montana Trout Unlimited (Sept. 25, 2016) (“Montana Trout”); and Sustainability Accounting Standards Board (Aug. 26, 2016) (“SASB”). Most commenters supported modernizing the Commission's property disclosure requirements for mining registrants by more closely aligning them with current industry and global regulatory practices and standards, 17 as embodied by the Committee for Reserves International Reporting Standards (“CRIRSCO”). 18 Numerous industry commenters, 19 however, expressed concern that the proposed rules deviated, in certain respects, from the CRIRSCO standards 20 or the various international, CRIRSCO-based disclosure codes. 17 See, e.g., letters from Andrews Kurth, AngloGold, AusIMM, CIM, CSP 2 , Cleary Gottlieb, Coeur, Columbia Water, CBRR, CRIRSCO, Davis Polk, Dorsey & Whitney, Earthworks et al., Golder, Graves, JORC, MMSA, Montana Trout, Newmont, PDAC, Randgold, Rio Tinto, SME 1, Chamber, Ur-Energy, Vale, and Willis. 18 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)), Brazil (Brazilian Commission for Mineral Resources and Reserves (CBRR)), Canada (Canadian Institute of Mining Metallurgy and Petroleum (CIM)), Chile (Minera Comision), Europe (Pan-European Reserves and Resources Reporting Committee (PERC)), Indonesia (the KCMI Joint Committee (KOMPERS)), Kazakhstan (Kazakhstan Association for Public Reporting on Exploration Results, Mineral Resources and Mineral Reserves (KAZRC)), 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 website is located at: http://www.crirsco.com. 19 See, e.g., letters from Amec, AIPG, Andrews Kurth, AngloGold, AusIMM, BHP, Chamber , CIM, Cleary & Gottlieb, Coeur, CRIRSCO, Davis Polk, Dorsey & Whitney, Eggleston, Energy Fuels, FCX, Gold Resource, Golder, Graves, JORC, Newmont, NMA 1, NMA 2 and SME 3, Northern Dynasty, NSSGA 1 and 2, PDAC, Randgold, Rio Tinto, SAMCODES 1 and 2, Shearman & Sterling, SME 1, SRK 1, Ur-Energy, Vale, and Willis. 20 The CRIRSCO standards are found in its International Reporting Template. See, e.g., Committee for Mineral Reserves International Reporting Standards, CRIRSCO International Reporting Template, cl. 18 (2013), http://www.crirsco.com/templates/international_reporting_template_november_2013.pdf. As explained below, in a number of instances, we have revised the proposed requirements in line with commenters' suggestions to be more consistent with the CRIRSCO standards and improve the comparability of mining property disclosures, which should help decrease, relative to the proposed rules, the expected compliance costs and burden of the final rules and enhance investor understanding of registrants' mining operations. In other instances, we have not changed the proposed requirements because we believe that those requirements are necessary to protect investors. Overall, we believe that the final rules reflect an appropriate consideration of the extent to which the final rules promote efficiency, competition, and capital formation in addition to the protection of investors. 21 The final rules will modernize the Commission's mining property disclosure regime by amending or removing requirements that may have placed U.S. mining registrants at a competitive disadvantage 22 and by adding other requirements that will help investors make more informed investment decisions about those registrants. 21 See Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)]. See also infra Section IV. 22 See, e.g., infra Section II.E.1.iii (discussing the treatment of mineral resources). A. Summary of, and Commenters' Principal Concerns Regarding, the Commission's Proposed Revisions to the Current Mining Property Disclosure Regime In light of global developments in the mining industry's disclosure standards and industry participants' concerns, we proposed to align the Commission's disclosure rules for properties owned or operated by mining companies with the CRIRSCO-based codes in several respects. For example, we proposed to 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. We proposed to use the CRIRSCO standards' classification scheme regarding mineral resources and reserves, and proposed substantially similar definitions of many of the technical terms used under the CRIRSCO-based codes, such as the definition of the various categories of mineral resources and mineral reserves, qualified person, pre-feasibility study, and feasibility study. We also proposed to permit the qualified person to use the results of either a pre-feasibility study or a final feasibility study to support a determination of reserves in most situations. Further, we proposed to establish a single set of rules for mining property disclosure by rescinding Guide 7, replacing it with a new subpart of Regulation S-K, and amending Item 102 of Regulation S-K to refer to the new subpart. The proposed mining property disclosure rules would require a registrant with material mining operations to provide both summary disclosure concerning its properties in the aggregate as well as more detailed disclosure about individually material properties. While most commenters supported the Commission's goal of modernizing its mining property disclosure requirements in light of global standards, numerous commenters expressed concern that the proposed rules deviated from the CRIRSCO standards in several respects. Their principal concerns included that: • Requiring both mineral resource and reserve estimates to be based on a price, which may not exceed the average price for the preceding 24 months, except when a contract has defined the price, would diverge from global industry practice, which permits the qualified person to use any reasonable and justifiable price, and which is typically a price based on forward-looking pricing forecasts; • The proposed summary and individual property disclosure requirements are overly prescriptive, burdensome to meet, and do not account for the diversity of operations within the mining industry; • Prohibiting the use of inferred resources in a quantitative assessment of resources would be inconsistent with the CRIRSCO standards, and in particular Canadian mining disclosure requirements, which permit the inclusion of inferred resources to demonstrate the potential economic viability of a deposit; • Requiring the use of a feasibility study, rather than a pre-feasibility study, to support a determination of reserves in high risk situations would run counter to the CRIRSCO-based codes, which leave the decision of what type of technical report is required to support the determination of reserves, including in high risk situations, to the discretion and judgment of the competent or qualified person; • The proposed prohibition against disclaimers would be contrary to the CRIRSCO-based codes, and in particular the Canadian requirements, which permit disclaimers in certain circumstances; • Prohibiting the use of historical estimates would be contrary to the Canadian and Australian approaches, which allow such use, and might preclude the consummation of some mergers, acquisitions or business combinations because there would not be enough time to verify an estimate provided by the target company; • Requiring all applicable mining property disclosure from a royalty, streaming, or other similar company would be burdensome for such companies because they generally have no rights beyond receiving royalties and lack access to the technical data and other information available to the owner or operator, and which is necessary to comply with the mining property disclosure requirements; and • The proposed rules could compel a registrant to disclose its exploration results before they become material to investors, which would run counter to the CRIRSCO-based codes. Many commenters maintained that, unless the Commission revised the proposed rules, their adoption would result in mining registrants incurring an unnecessarily heavy compliance burden, increase the costs of compliance for mining registrants that also report in CRIRSCO-based jurisdictions, and result in inconsistent disclosure that could cause investor confusion and diminish comparability. Some commenters also maintained that, if adopted, the proposed rules would continue to place U.S. registrants at a significant competitive disadvantage and leave in place significant barriers to entry for foreign mining companies that would otherwise list or raise capital in the United States. We have carefully considered all of the comments received on the proposed rules. As discussed below, the final rules reflect changes from the rule proposal that were made in response to many of these comments. B. Summary of Principal Changes to the Final Rules The final rules include several revisions to more closely align the Commission's mining property disclosure requirements with the CRIRSCO standards and thereby help decrease, relative to the proposed rules, the compliance burden and costs for the many registrants that are subject to one or more of the CRIRSCO-based codes while still providing important investor protections. For example, the final rules: • Require a qualified person to use a price for each commodity that provides a reasonable basis for establishing the prospects of economic extraction when assessing mineral resources, and that provides a reasonable basis for establishing that the project is economically viable when determining mineral reserves, which may be a historical or forward-looking price, as long as the qualified person discloses and explains, with particularity, his or her reasons for using the selected price, including the material assumptions underlying the selection; • Eliminate the proposed quantitative presumptions regarding when a registrant's mining operations, and when a change in previously reported estimates of mineral resources or mineral reserves, are deemed to be material; • Eliminate the proposed summary disclosure provision requiring specific items of information in tabular format about a registrant's top 20 properties and, instead, adopt a more principles-based approach by requiring the registrant to provide investors with an overview of its properties and mining operations; • Reduce the number of summary and individual property disclosure provisions requiring tables from seven, as proposed, to two, and permit other required disclosure to be in either narrative or tabular format; • Permit, but not require, a registrant to file a technical report summary to support its disclosure of exploration results; • Provide that a qualified person will not be subject to expert liability under Section 11 of the Securities Act for findings and conclusions regarding certain aspects of specified modifying factors discussed in the technical report summary or other parts of the registration statement that the qualified person has indicated are based on information provided by the registrant; • Permit a qualified person to determine mineral resources and reserves at any specific point of reference, which must be disclosed in the technical report summary, rather than at three points of reference; • Exclude geothermal energy from the definition of mineral resource; • Require a qualified person to apply relevant technical and economic factors likely to influence the prospect of economic extraction, rather than all modifying factors, when determining mineral resources; • Permit a qualified person in the technical report summary to disclose mineral resources as including mineral reserves as long as he or she also discloses mineral resources as excluding mineral reserves; 23 23 However, as proposed, the final rules prohibit a registrant from including mineral reserves when disclosing mineral resource estimates in a prospectus or other Commission filing. • Permit a qualified person to include inferred resources in an economic analysis that the qualified person opts to include in an initial assessment as long as certain conditions are met; • Define mineral reserve to include diluting materials and allowances for losses that may occur when the material is mined or extracted; • Permit a qualified person to conduct either a pre-feasibility or final feasibility study to support a determination of mineral reserves even in high risk situations; • Permit the use of historical estimates of mineral resources or reserves in Commission filings pertaining to mergers, acquisitions, or business combinations if the registrant is unable to update the estimate prior to the completion of the relevant transaction, provided that the registrant discloses the source and date of the estimate, and does not treat the estimate as a current estimate; and • Permit a registrant holding a royalty or similar interest to omit any information required under the summary and individual property disclosure provisions to which it lacks access and which it cannot obtain without incurring an unreasonable burden or expense. We also are clarifying our position on a few issues raised by commenters that were not fully addressed in the Proposing Release. For example: • Multiple qualified persons may prepare a technical report summary if certain conditions are met; • If a qualified person is employed by a third-party firm, that firm may sign the technical report summary and provide the written consent required for an expert under the Securities Act; • A registrant's disclosure of information regarding its exploration activity and exploration results is voluntary until such information becomes material to investors; and • A registrant and its qualified person may disclose exploration targets in Commission filings if accompanied by certain specified cautionary and explanatory statements. In addition, we are adopting a two-year transition period so that a registrant will not have to comply with the new rules until its first fiscal year beginning on or after January 1, 2021, although a registrant may voluntarily comply with the new rules prior to the compliance date, subject to the Commission's completion of necessary EDGAR reprogramming changes. II. Final Mining Property Disclosure Rules A. Consolidation of the Mining Disclosure Requirements 1. Rule Proposal The combination of the overlapping structure of the current disclosure regime for mining registrants (in Item 102 of Regulation S-K and Industry Guide 7) 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. 24 To help address this uncertainty, we proposed to rescind Guide 7 and create new subpart 1300 of Regulation S-K that would govern disclosure for registrants with mining operations. In addition, we proposed to amend Item 102 of Regulation S-K to replace the instruction that directed issuers 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 subpart 1300 of Regulation S-K. We also proposed to provide the same instruction on Form 20-F 25 and Form 1-A. 26 24 See Proposing Release, supra note 5, at Section II.A. 25 Foreign private issuers use Form 20-F to file their Exchange Act registration statements and annual reports, and also refer to Form 20-F when filing their Securities Act registration statements on Forms F-1 and F-4. See 17 CFR 249.220f. 26 Form 1-A is the offering statement used by issuers that are eligible to engage in securities offerings under Regulation A. See 17 CFR 230.251-230.263. 2. Comments on the Rule Proposal Many commenters stated that they supported the Commission's proposal to rescind Guide 7 and replace it with a single set of disclosure standards as long as those standards are consistent with the CRIRSCO standards. 27 Several commenters also reiterated that the Commission's current disclosure regime for mining properties has caused uncertainty for mining registrants. 28 Two commenters, however, urged the Commission to withdraw its proposal and, instead, make more modest revisions to Guide 7 out of concern that the proposed rules were overly prescriptive and deviated from the CRIRSCO standards in several key respects. 29 27 See letters from AIPG, Amec, AngloGold, BHP, CBRR, Coeur, Eggleston, Golder, MMSA, Midas Gold Corp. (June 23, 2016) (“Midas”), Randgold, Rio Tinto, SAMCODES 1 and 2, Ur-Energy, Vale and Willis. 28 See letters from Amec, BHP, Crowell & Moring, Eggleston, Golder, Midas, Rio Tinto and SRK 1. 29 See letter from NMA 2 and SME 3. Regarding the content of the new mining property disclosure rules, some commenters recommended that the Commission specifically incorporate the CRIRSCO template by reference. 30 Other commenters requested that the Commission adopt Canada's legal instrument, NI-43-101, establishing mining property disclosure requirements, or recognize the use of Canada's Form 43-101F as the basis for a mining registrant's technical reports. 31 A few commenters stated that the Commission's mining property disclosure rules should follow Australia's JORC or South Africa's SAMCODES on the grounds that Canada's NI 43-101 is too prescriptive. 32 30 See, e.g., letters from AIPG and Rio Tinto. 31 See, e.g., letters from AIPG, Coeur, Gold Resource, Graves, SME 1, SRK 1, and Willis. 32 See, e.g., letters from JORC, Randgold, and SAMCODES 2. 3. Final Rules We are adopting final rules that will rescind Guide 7, as proposed, and codify the Commission's mining property disclosure requirements in new subpart 1300 of Regulation S-K. 33 We are also amending Item 102 of Regulation S-K, as proposed, to state that registrants engaged in mining operations must refer to and, if required, provide the disclosure under subpart 1300 of Regulation S-K 34 in addition to any non-mining property disclosure required by Item 102. 35 Having one source for mining disclosure obligations should facilitate mining registrants' compliance with their disclosure requirements by reducing the complexity resulting from the existing disclosure structure. Moreover, consolidating the mining property disclosure requirements into Regulation S-K should eliminate the uncertainty noted by several commenters concerning the Commission's current mining property disclosure regime. 36 33 17 CFR 229.1300 through 229.1305. Subpart 1300 will apply to registration statements under the Securities Act and the Exchange Act as well as to annual reports under the Exchange Act. 34 Instruction 3 to Item 102 of Regulation S-K [17 CFR 229.102]. We are similarly amending Form 20-F and Form 1-A to provide the same instruction and reference to Regulation S-K subpart 1300. See infra Section II.H. 35 Registrants that have material non-mining operations will continue to provide non-mining property disclosures under Item 102 of Regulation S-K. 36 See supra note 28. For this reason, we continue to believe that codification of our mining property disclosure requirements is a better approach than revising Guide 7, as suggested by two commenters. See letter from NMA 2 and SME 3. Moreover, we note that the final rules are less prescriptive and conform more closely to CRIRSCO standards than the proposed rules. Many commenters supported our proposal to consolidate the Commission's mining property disclosure requirements under a single set of rules as long as the final rules align with the CRIRSCO standards. 37 As discussed throughout this release, the final rules include revisions that will substantially more closely align the Commission's mining property disclosure requirements with the CRIRSCO standards as compared to the proposed rules. 38 The final rules also emphasize transparency, materiality, and competence—the three governing principles of the CRIRSCO standards. 39 We therefore believe that the final rules are responsive to commenters' overarching concern that the Commission's mining property disclosure requirements be substantially more consistent with current industry standards. 37 See supra note 27. 38 Some commenters noted that, although the proposed rules differed from the CRIRSCO standards in certain respects, they did generally align with the CRIRSCO standards in several other respects. S ee, e.g., letter from AusIMM (“Most of the CRIRSCO Standard definitions have been incorporated in the release as they were in the 2014 SME Guide”). 39 See CRIRSCO International Reporting Template, supra note 20, at cl. 3 (“The main principles governing the operation and application of the Template are transparency, materiality and competence. Transparency requires that the reader of a Public Report is provided with sufficient information, the presentation of which is clear and unambiguous, so as to understand the report and not to be misled. Materiality requires that a Public Report contains all the relevant information which investors and their professional advisers would reasonably require, and reasonably expect to find in a Public Report, for the purpose of making a reasoned and balanced judgement regarding the Exploration Results, Mineral Resources or Mineral Reserves being reported. Competence requires that the Public Report be based on work that is the responsibility of suitably qualified and experienced persons who are subject to an enforceable professional code of ethics and rules of conduct”). We do not believe it would be appropriate, however, to incorporate by reference or otherwise adopt in its entirety on a going forward basis the CRIRSCO international template, Canada's NI 43-101, or another specific CRIRSCO-based code or guide, as requested by some commenters. Granting such a request would effectively bind the Commission's rules both to current and future iterations and interpretations of the CRIRSCO standards, codes or guides, over which the Commission would have little to no control or influence. It also would ignore the need to adopt mining property disclosure rules that are consistent with the unique purposes and characteristics of the U.S. federal securities laws. 40 40 See, e.g., consideration of the qualified person as an expert under Section 11 of the Securities Act in Section II.C.1. below. B. Overview of the Standard for Mining-Related Disclosure 1. The Threshold Materiality Standard i. Rule Proposal Item 102 of Regulation S-K currently requires registrants to disclose information about 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. However, 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. 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. However, although both Item 102 and Guide 7 refer to “significant” mining operations, the staff historically has advised registrants to apply a materiality standard in determining what disclosures to provide, and has used 10% of a registrant's total assets as the benchmark for determining the materiality of a registrant's mining operations. In order to clarify the mining property disclosure standard, we proposed that a registrant would be required to provide the disclosure under new subpart 1300 of Regulation S-K if its mining operations are material to its business or financial condition. 41 The Commission also proposed specific steps a registrant would have to take when determining the materiality of its mining operations. 42 41 As proposed, the term “material” would have the same meaning as under 17 CFR 230.405 [Securities Act Rule 405] and 17 CFR 240.12b-2 [Exchange Act Rule 12b-2]. 42 See Proposing Release, supra note 5, at Section II.B.1. The Commission further proposed that a registrant's mining operations are presumed to be material if its mining assets constitute 10% or more of its total assets. The proposed rules also instructed, however, that if a registrant's mining assets fall below the 10% total assets threshold, it would need to consider if there are other factors, quantitative or qualitative, which would render its mining operations material. 43 43 See id. ii. Comments on the Rule Proposal Many commenters supported the Commission's proposal to require disclosure if a registrant determines that its mining operations are material to its business or financial condition. 44 Some commenters supported the proposed provision that a registrant's mining operations are presumed to be material if they consist of 10% or more of its total assets, but only if the provision is a presumption and not a bright line test, and not exclusive of other factors. 45 44 See, e.g., letters from AngloGold, CBRR, CIM, Eggleston, Midas, Rio Tinto, SRK 1 and Vale. 45 See, e.g., letters from CBRR, Midas, and SRK 1. Some commenters supported using a quantitative measure for determining the materiality of a registrant's mining operations for purposes of the proposed rules, but recommended that the Commission adopt the U.S. GAAP thresholds for segment reporting under Accounting Standards Codification (“ASC”) 280, 46 rather than the proposed 10% asset metric. 47 Those commenters preferred this particular U.S. GAAP approach because of their concern that large companies may not meet the proposed 10% asset test or because, in their view, the U.S. GAAP approach is more suitable and equitable. 48 46 Accounting Standards Code (“ASC”) 280 requires an enterprise to report separately information concerning an operating segment if any of the following quantitative thresholds are met: (i) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments; (ii) the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of either the combined reported profit of all operating segments that did not report a loss, or the combined reported loss of all operating segments that did report a loss; or (iii) its assets are 10% or more of the combined assets of all operating segments. Under ASC 280, information about operating segments that do not meet any of the quantitative thresholds may also be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to readers of the financial statements. See ASC 280-10-50-12. 47 See letters from Alliance, SAMCODES 1 and SME 1; see also letter from JORC (stating that materiality should be determined under GAAP without specifying the particular GAAP provision) and letter from SRK 1 (stating that the actual and projected expenditures, revenues and income as well as the amount of capital raised or planned to be raised have a direct impact on materiality, and that if any of those amounts comprise 10% or more of a registrant's value, they should be considered material). 48 See letters from JORC, SAMCODES 1, and SME 1. Other commenters recommended that the Commission avoid a specific materiality test and instead adopt the approach taken in Canada's Companion Policy 43-101CP. 49 That approach requires an issuer to “determine materiality in the context of the issuer's overall business and financial condition taking into account qualitative and quantitative factors, assessed in respect of the issuer as a whole.” 50 Another commenter 51 opposed “special materiality tests (such as 10% of total assets)” and advocated instead using the standards for materiality established by the U.S. Supreme Court in TSC v. Northway 52 and Basic v. Levinson. 53 49 See letters from CIM, Eggleston, and Vale. 50 National Instrument Companion Policy 43-101CP, pt. General Guidance (4), https://www.bcsc.bc.ca/Securities_Law/Policies/Policy4/PDF/43-101CP__CP___February_25__2016/. That document then lists several factors that are likely to support the conclusion that a property is material. See id. at (5). 51 See letter from Chamber. 52 426 U.S. 438 (1976). 53 485 U.S. 224 (1988). Several commenters specifically addressed the Commission's proposal to require the aggregation of all mining properties, regardless of size or type of commodity produced, when assessing the materiality of a registrant's mining operations. 54 A number of commenters generally supported this proposal, with one noting that aggregation of the mining properties represents the actual composition of the registrant's value, 55 and two others concurring so long as the aggregation correlated to the segment disclosure mandated under the accounting framework. 56 Two commenters supported the aggregation of assets based on shared infrastructure and product integration, but only if the assets are in the same geographic region, 57 with one also asserting that very different commodities, such as coal and metalliferous metals, should not be aggregated. 58 Another commenter, however, opposed the aggregation of assets because “it does not allow investors to determine the significance of a property, or understand that asset.” 59 54 See letters from Alliance, Amec, AngloGold, CBRR, Eggleston, Midas, Rio Tinto, and SRK 1. 55 See letter from SRK 1; see also letter from CBRR. 56 See letters from Alliance and AngloGold. Another commenter stated that no commodity should be excluded, but suggested that only commodities from material properties should be included in technical reports although “[n]on-material mines could be aggregated for annual disclosures.” Letter from Eggleston. 57 See letter from Rio Tinto; see also letter from Amec (opposing the aggregation of assets in different countries, and recommending that the Commission follow the guidance in the Canadian Companion Policy 43-101CP, which states that a property includes multiple claims that are contiguous or in such close proximity that any underlying mineral deposits would likely be developed using common infrastructure). 58 See letter from Amec. 59 Letter from Midas. Several commenters addressed the Commission's proposal, as part of the materiality determination, to require a registrant to include for each property all related activities from exploration through extraction to the first point of material external sale, including processing, transportation and warehousing. 60 One commenter supported this proposal because it is required by Canada's NI43-101, is the benchmark for mineral project reporting, and provides investors with the information they need to understand the project. 61 Another commenter generally supported using the first point of material external sale as the appropriate cut-off because this is generally where a mining company loses control of the product. 62 60 See, e.g., letters from Amec, CBRR, Earthworks, Eggleston, Midas and SRK. 61 Letter from Midas. 62 Letter from SRK 1. This commenter recommended that, “for companies that have significant downstream processing, there should be a requirement to calculate the materiality based on the point in the supply chain where that raw material would be purchased if the company did not own the mining assets.” Id. Another commenter stated that exploration through the first point of external sale is appropriate, but noted that not all properties will include all activities. See letter from Eggleston. See also letter from CBRR (stating that “comprehensive, end-to-end reporting can assist the investors with the relevant information in order to understand mineral projects for exploration and development stage issuers” but, for production stage registrants, “the materiality criteria should be applied and exploration results are not necessarily relevant”). Another commenter, however, did not support the first point of material external sale as the appropriate cut-off because it believed that a registrant's materiality determination should account for costs associated with mine reclamation on the grounds that reclamation constitutes one of the greatest environmental and social liabilities mining registrants should disclose to investors. 63 63 See letter from Earthworks. Two other commenters stressed the importance of considering environmental and sustainability factors in the materiality determination. See letters from CSP 2 and Montana Trout. iii. Final Rules We are adopting the proposed provision that a registrant must provide the disclosure specified in subpart 1300 of Regulation S-K if its mining operations are material to its business or financial condition. 64 We are also adopting the provision, as proposed, that for purposes of subpart 1300, the term material has the same meaning as under Securities Act Rule 405 or Exchange Act Rule 12b-2. 65 Commenters generally supported basing the Commission's mining property disclosure threshold on whether a registrant's mining operations are material to its business or financial condition. 66 Establishing materiality as the threshold for disclosure is consistent with the CRIRSCO standards, which lists materiality as one of the three governing principles underlying those standards. 67 Moreover, by providing that materiality is to be determined pursuant to Securities Act Rule 405 and Exchange Act Rule 12b-2, we are clarifying that, although, as described below, a registrant must consider certain factors when determining the materiality of its mining operations, the ultimate governing considerations in this regard are the general principles reflected in those rules. 68 64 17 CFR 229.1301(b) [Item 1301(b) of Regulation S-K]. 65 Id; see also supra note 41 and accompanying text. Pursuant to Securities Act Rule 405 and Exchange Act Rule 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 v. 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. 66 See, e.g., letters from AngloGold, CBRR, SRK 1, and Rio Tinto. 67 See CRIRSCO's International Reporting Template, supra note 20, at cl. 3. 68 See supra note 65. In a change from the proposed rules, and as suggested by one commenter, 69 we are not including an instruction to the materiality provision stating that a registrant's mining operations are presumed to be material if they consist of 10% or more of its total assets. Even as a presumption, we are concerned that such an instruction could become a de facto threshold. We also believe that an assessment that takes into consideration all relevant facts and circumstances will lead to better materiality determinations. For similar reasons, we are not adopting a quantitative measure of materiality based on the reportable segment disclosure thresholds in U.S. GAAP. Rather than referring to a specific U.S. GAAP provision, we believe it is appropriate to rely on a more principles-based approach to the materiality provision. 69 See letter from Chamber. Consistent with comments received, 70 we are adopting the proposed provision that, when determining whether its mining operations are material, a registrant must: 70 See supra note 44 and accompanying text. • 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 the stage of the mining property, and size or type of commodity produced, including coal, metalliferous minerals, industrial materials, and mineral brines; 71 and 71 As explained in Section II.E.1., below, we are removing geothermal energy from the scope of these rules, and have therefore eliminated geothermal energy from the list of commodities required to be aggregated. • Include, for each property, as applicable, all related activities from exploration through extraction to the first point of material external sale, including processing, transportation, and warehousing. 72 72 See 17 CFR 229.1301(c) [Item 1301(c) of Regulation S-K]. Although some commenters sought to exclude certain commodities or properties in the aggregation process, 73 we continue to believe, and agree with those commenters who asserted, that the aggregation of all mining properties, regardless of the mined commodity, is necessary to gauge accurately the materiality of a registrant's mining operations. 74 For example, the exclusion from the aggregation process of properties that a registrant believes are not individually material 75 would overlook and improperly remove from the scope of the mining property disclosure rules a registrant that owns two or more properties, neither of which is individually material, but which, when considered in the aggregate and in the context of the registrant's overall business, constitute material mining operations. Therefore, the final rules require such a registrant to provide summary disclosure of its overall mining operations, 76 although it will not be subject to the more extensive disclosure requirements for individual material properties. 73 See, e.g., letters from Amec and Eggleston. 74 See, e.g., letters from CBRR and SRK 1. 75 See letter from Eggleston. 76 See infra Section II.G.1; see also 17 CFR 229.1301(d) [Item 1301(d) of Regulation S-K]. Most commenters who addressed the issue supported requiring, as part of the materiality determination, the inclusion for each property of all related activities from exploration through extraction to the first point of material external sale, including processing, transportation, and warehousing. 77 Such inclusion is consistent with the “end-to-end reporting” required under the CRIRSCO-based codes. 78 In this regard, we are not adopting the suggestion of one commenter to specify reclamation of the mine as the end point to be considered in the materiality provision. Mine reclamation and closure plans are important considerations that must be addressed by the qualified person, under the CRIRSCO-based codes. However, those plans are usually prepared as part of the assessment of technical and economic factors relevant to the reasonable prospects of economic extraction when determining mineral resources, or when applying all applicable modifying factors to resources for the purpose of assessing the economic viability of a project when determining mineral reserves. Also, mine reclamation costs are included in capital and operating costs during feasibility studies to estimate mineral reserves. The final rules follow this approach 79 and therefore do not specifically include reclamation as the end point in the materiality determination. However, we believe that mining properties that are at the reclamation stage are still considered mining properties and should be included in evaluations of the materiality of mining operations. 77 See supra notes 61-62 and accompanying text. 78 See, e.g., letter from Midas. 79 See 17 CFR 229.601(b)(96)(iii)(B)( 17 ) [Item 601(b)(96)(iii)(B)( 17 ) of Regulation S-K], which requires the qualified person to describe the factors pertaining to environmental compliance, permitting, and local individuals or groups, which are related to the project, including “[m]ine closure plans, including remediation and reclamation plans, and the associated costs.” 17 CFR 229.601(b)(96)(iii)(B)( 17 )( v ). Similar to a proposed instruction to the materiality provision, we are adopting a provision stating that the term “mining operations” includes 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; • 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; or • Has, or it is probable that it will have, an associated royalty or similar right. 80 80 17 CFR 229.1301(a) [Item 1301(a) of Regulation S-K]. Commenters did not object to including within the definition operations on mining properties that a registrant owns or operates pursuant to a lease or other similar agreement. Moreover, although several commenters objected to the scope of the proposed disclosure required of royalty or other similar right holders, only a few commenters recommended their complete exclusion from the proposed rules. 81 81 See infra Section II.B.4. 2. Treatment of Vertically-Integrated Companies i. Rule Proposal As noted in the Proposing Release, some companies have material mining operations that are secondary to or in support of their main non-mining business. 82 For example, a metal manufacturer may operate iron ore or coal mines to supply raw material for its primary business. Yet neither Guide 7 nor Item 102 addresses whether or when a vertically-integrated manufacturer 83 is required to provide mining disclosure. 82 See Proposing Release, supra note 5, at Section II.B.1.i. 83 A vertically-integrated manufacturer is a company that owns part of its supply chain. In this context, it refers to a registrant that has mining operations to supply raw material to its manufacturing business. In order to clarify the treatment of vertically-integrated manufacturers, the Commission explained that proposed new subpart 1300 of Regulation S-K would apply to all registrants with mining operations, including vertically-integrated manufacturers. Specifically, a mining operation owned by a registrant to support its primary business could be material and require disclosure. The fact that the registrant's primary business operation is something other than minerals extraction would not be determinative of whether disclosure would be required under the proposed subpart. 84 84 See Proposing Release, supra note 5, at Section II.B.1.i. ii. Comments on the Rule Proposal Most commenters that addressed the issue supported the Commission's proposal to require vertically-integrated companies, such as manufacturers, to provide the disclosure under proposed subpart 1300 of Regulation S-K. 85 One commenter agreed that the proposed rules should apply to a vertically-integrated company if its mine is material, but disagreed that the mine's providing a competitive advantage should be a criterion for disclosure. 86 85 See letters from Amec, AngloGold, CBRR, Midas, Rio Tinto, and SRK 1. AngloGold stated that “[i]f the mining component of a vertically-integrated company is material to its operations, such as a secure source of supply, perceived cost advantage etc., then the same disclosures as mining companies should be required in order to provide a complete set of information to enable an investor to determine an investment decision.” 86 See letter from Eggleston. iii. Final Rules As proposed, and consistent with comments received, 87 new subpart 1300 of Regulation S-K will apply to all registrants with material mining operations, including vertically-integrated manufacturers. Like a company whose primary business is mining, such a vertically-integrated company will be required to assess relevant quantitative and qualitative factors to determine if its mining operations are material. For example, the bauxite mining operations of an aluminum manufacturer, whose primary business is manufacturing, not mining, could require disclosure if its bauxite mining operations are material, even though they are not the registrant's primary operations, or the primary source of the registrant's revenues. Factors to be considered in such a materiality determination could include if the manufacturer derives a competitive advantage from, or substantially relies upon, its ability to source that particular mineral from its mining operations. 87 See supra note 85 and accompanying text. Requiring disclosure of mining operations by vertically-integrated manufacturers is consistent with the disclosure currently provided in Commission filings and should not significantly alter existing disclosure practices. In addition, this treatment of vertically-integrated companies is consistent with the CRIRSCO-based codes, which require disclosure for material mining properties and do not provide exemptions for vertically-integrated companies. 3. Treatment of Multiple Property Ownership i. Rule Proposal As noted in the Proposing Release, it is common for registrants to own multiple mining properties. 88 In some instances, a registrant will have multiple properties that all involve exploration, development, or extraction of the same mineral. In other situations, the registrant's operations will primarily involve exploration, development, or extraction of one mineral from several properties, but the registrant also will own one or more ancillary properties where it explores, develops, or extracts small amounts (relative to the predominant mineral) of a different mineral. 88 See Proposing Release, supra note 5, at Section II.B.1.ii. The primary focus of the current rules and guidance is on individually significant or material properties. Neither Item 102 nor Guide 7 provides guidance concerning when or what disclosure is required when a registrant owns multiple or ancillary mining properties. To clarify the disclosure that is required in these circumstances, we proposed that a registrant with multiple properties would be required to consider all of its mining properties in the aggregate, as noted above, 89 as well as individually, regardless of size or commodity produced, when assessing whether it must provide the mining disclosure required by new subpart 1300 of Regulation S-K. 90 We also proposed that a registrant with multiple properties, none of which is individually material, but which in the aggregate constitute material mining operations, would have to provide summary disclosure concerning its combined mining activities rather than provide disclosure for individual properties. 91 We further proposed that, to the extent that an individual property is material to its operations, a registrant would be required to provide detailed disclosure about that property. As proposed, such individual property disclosure would be in addition to the required summary disclosure if the registrant owns two or more individual properties. 92 Finally, we explained that, under the proposed rules, a registrant could be required to provide disclosure for a particular property, depending on the facts and circumstances, even if ancillary to the registrant's predominant commodity. 93 89 See id. at Section II.B.1.i. 90 See id. at Section II.B.1.ii. 91 See id. at Section II.G.1. 92 See id. at Section II.G.2. 93 See id. at Section II.B.1.ii. ii. Comments on the Rule Proposal As discussed above, commenters generally supported requiring a registrant to consider all of its mining properties in the aggregate as well as individually, regardless of size or commodity produced, when assessing whether its mining properties are material, although some of the commenters stated that there should be limits on such aggregation. 94 Commenters similarly generally supported the proposal to require summary disclosure of their properties in the aggregate, 95 although some commenters conditioned their support consistent with their conditional support of the proposed disclosure threshold based on materiality. 96 The commenters that opposed the proposed summary disclosure requirements did so largely because they viewed those requirements as being “out of line with current industry standards.” 97 94 See supra notes 56-58 and accompanying text. 95 See, e.g., letter from CBRR; see also letter from Vale (stating that because under the CRIRSCO standards, a public report should contain “all the relevant information which investors and their professional advisers would reasonably require, and reasonably expect to find in a public report . . . it is appropriate to require any registrant with economic interests in multiple mining properties, none of which may be individually material, to provide summary disclosure of its mining operations,” but also stating that qualified persons should be allowed “to use their judgment to determine the best presentation of summary disclosure, including whether to aggregate interrelated mining operations or to group mines and plants by geographic region or commodity”). 96 See, e.g., letters from Alliance and AngloGold (conditioning support of the proposed approach regarding multiple properties as long as that approach aligns with a materiality determination based on financial segment disclosure); see also letter from Rio Tinto (similarly conditioning support as long as aggregation of properties do not cross national or regional boundaries). 97 See, e.g., letter from SRK 1; see also letter from Midas (stating that “[o]nly material properties should require disclosure, and then in a comprehensive technical report as in NI 43-101”). iii. Final Rules We are adopting the proposed treatment of multiple property ownership. 98 In the event that none of a registrant's mining properties is individually material, it will need to provide only summary disclosure. If the registrant has individually material mining properties, it must provide more detailed disclosure concerning those properties in addition to summary disclosure. 99 If a registrant has only one mining property, following a determination that its mining operations are material, the registrant will be required to provide only the individual property disclosure. 100 98 17 CFR 229.1301(d), which references 17 CFR 229.1303 [Item 1303 of Regulation S-K]. The latter provision sets forth the specific requirements for summary disclosure. 99 17 CFR 229.1301(d), which references 17 CFR 229.1304 [Item 1304 of Regulation S-K]. The latter provision provides the specific disclosure requirements for individually material properties. 100 17 CFR 229.1303(a)(2) [Item 1303(a)(2) of Regulation S-K]. We also are adopting the proposed treatment of ancillary properties, which, depending on the facts and circumstances, could give rise to disclosure obligations. For example, a property on which a registrant explores, develops or extracts a relatively small amount of a particular mineral, compared to its predominant mineral, could be material based upon the amount of actual and projected expenditures on the property as compared to its expenditures on other properties. 101 101 Commenters did not oppose the proposed treatment of ancillary properties. In response to the concern expressed by some commenters that the proposed summary disclosure requirements were too prescriptive, 102 and as discussed in greater detail below, 103 we have significantly revised the proposed summary disclosure requirements to make them less prescriptive. For example, instead of the proposed requirement to provide specific items of information concerning a registrant's top 20 properties (by asset value) in tabular format, the final rules take a more principles-based approach and require the registrant to provide an overview of its mining properties and operations in either narrative or tabular format. 104 When presenting the overview, the registrant should include the amount and type of disclosure concerning its mining properties that is material to an investor's understanding of the registrant's properties and mining operations in the aggregate. 105 102 See, e.g., letter from Vale; see also letter from Amec. 103 See infra Section II.G.1. 104 17 CFR 229.1303(b)(2) [Item 1303(b)(2) of Regulation S-K]. 105 17 CFR 1303(b)(2)(iii) [Item 1303(b)(2)(iii) of Regulation S-K]. As discussed in greater detail below, 106 we also have made the disclosure requirements for individually material properties less prescriptive and aligned them more closely with the CRIRSCO standards. For example, among several other revisions, we have: 106 See infra Section II.G.2. • reduced the number of required tables from five to two; 107 • replaced the proposed requirement to present mineral resource and reserve disclosure at three separate points of reference with the requirement to present the disclosure at one specific point of reference selected by the qualified person; 108 and • replaced the requirement to present mineral reserve disclosure as net of diluting materials and allowances for losses that may occur when the mineral resource is mined or extracted with the requirement to disclose reserves as including such diluting materials and allowances for losses. 109 107 17 CFR 229.1304(d)(1) [Item 1304(d)(1) of Regulation S-K], which requires a summary of all mineral resources or reserves as of the end of the most recently completed fiscal year presented in two separate tables (one for resources, the other for reserves). 108 See id. 109 See the definition of mineral reserve in 17 CFR 229.1300 [Item 1300 of Regulation S-K]. In light of these revisions, we believe the final rules concerning summary and individual property disclosure will provide clear and consistent standards for registrants to apply in determining the scope of their disclosure obligations without unduly burdening registrants. We also believe that the final rules will help ensure that investors receive all material information about registrants' mining operations and associated risks. 4. Treatment of Royalty Companies and Other Companies Holding Economic Interests in Mining Properties i. Rule Proposal As noted in the Proposing Release, 110 some registrants are royalty companies, which are companies that do not own or operate a property, but rather own the right to receive payments, called a royalty right, from the owner or operator of a property. 111 In addition, some registrants hold other economic interests, similar to royalty rights, also without owning or operating a property. 112 Because neither Item 102 nor Guide 7 addresses whether royalty or similar companies must provide disclosure about the mining operations and properties underlying their economic interest, the staff has provided comments in the filing review process to help guide registrants in determining whether and how such companies should provide mining disclosure. 110 See Proposing Release, supra note 5, at Section II.B.1.iii. 111 A royalty, in this context, is typically a payment to the royalty right holder from the property owner or operator in return for: (i) Providing upfront capital; (ii) paying part of amount due landowners or mineral right holders; or (iii) converting a participating interest in a joint venture into a royalty right. Such payment is most often based on a percentage of the minerals, revenues, or profits generated from the property. 112 Examples include the right to purchase all or a portion of minerals from a mine under a metal purchase agreement (a “stream” agreement) or a working interest in the underlying property. Consistent with prior staff comments, we proposed to require a royalty company or other registrant holding a similar economic interest to provide all applicable mining disclosure if the underlying mining operations that generate the royalty or other payment are material to the royalty or similar company's operations as a whole. As proposed, and similar to a producing mining company (that owns or operates properties), a royalty or similar company would have to assess both quantitative and qualitative factors to determine whether the underlying mining operations are material. 113 Upon an affirmative materiality determination, the proposed rules would require a royalty or similar company to provide disclosure only for those underlying properties, or portions of underlying properties, that generate the registrant's royalties or similar payments, and only for the reserves and production that generated its payments in the reporting period. 114 113 See Proposing Release, supra note 5, at Section II.B.1.iii. 114 See id. The proposed rules would require a royalty or similar company to describe the material properties that generate its royalties or similar payments and file a technical report summary for each such property. As proposed, such a registrant would not be required to submit a separate technical report summary about a property covered by a current technical report summary filed by the producing mining registrant. In that situation, the royalty or similar company could incorporate by reference 115 the producing registrant's previously filed technical report summary. 116 115 See 17 CFR 230.411, 17 CFR 240.12b-32, which permit any document filed with the Commission under any act administered by the Commission to be incorporated by reference as an exhibit to a statement or report filed with the Commission by the same or any other person, and require that the registrant clearly identify in the reference the document from which the material is taken. 116 See Proposing Release, supra note 5, at Section II.B.1.iii. We based this approach to royalty and other similar companies on our belief that investors in royalty and other similar companies need information about the material mining properties that generate the payments to the registrant, including mineral reserves and production, to be able to assess the amounts, soundness, and sustainability of future payments. We also recognized, however, that because a royalty or other similar company may not have access to information about portions of the mining property that do not contribute to the registrant's revenue stream, it should not be required to disclose information concerning the non-contributing portions. 117 117 See id. ii. Comments on the Rule Proposal Many commenters generally supported the Commission's proposal to require a royalty company, or a company holding a similar economic interest in another company's mining operations, to provide all applicable mining disclosure if the underlying mining operations are material to its operations as a whole. 118 For example, one commenter stated that, in principle, a royalty company should be required to provide disclosures similar to those provided by the underlying mining company, but noted that such a requirement could give rise to difficulties when the royalty company is a registrant with the Commission but the underlying mining company is not, and when the property that is the subject of the royalty arrangement is not material to the underlying mining company, but the royalty stream is material to the royalty company. 119 In those circumstances, the required disclosure may not be readily available to the royalty company. 120 118 See letters from Amec, AngloGold, CBRR, Davis Polk, Dorsey & Whitney, Eggleston, Midas, MMSA, Newmont, Rio Tinto, and SAMCODES 2. 119 See letter from AngloGold. 120 See id. Another commenter noted that the Commission's proposed disclosure for royalty companies is consistent with current guidance as it would only be required with respect to portions of the underlying mining properties that contribute to the royalty company's revenue stream. 121 Like the previous commenter, this commenter stated that the ability of royalty companies to comply with the proposed disclosure obligations, even as circumscribed, may be limited by their inability to access the requisite information and supporting documentation by the underlying mining company's qualified person. Moreover, even if the royalty company has access to appropriate supporting documentation, this commenter stated that the operating mining company's qualified person may be unwilling to consent to its use by the royalty company for liability reasons. Accordingly, this commenter recommended that the Commission clarify that the disclosure obligations of a royalty company are limited to information that is known or reasonably available to it. 122 121 See letter from Davis Polk. 122 Id. Two other commenters made a similar recommendation. See letters from Dorsey & Whitney and Newmont. Another commenter urged the Commission to adopt special rules for royalty companies that would recognize their potential inability to provide detailed disclosure regarding the underlying property. This commenter stated that, at a minimum, a royalty company should be able to rely on information provided by the operator while disclaiming liability for that information. See letter from MMSA. Regarding the proposed provision requiring a royalty company to file a technical report summary if the owner or operator of the underlying mining operations has not done so, one commenter supported applying the proposed rules to royalty companies, but recommended that the Commission provide a limited exemption similar to the exemption under Canada's NI 43-101. 123 Two other commenters stated that a royalty company should be required to file summaries of current technical reports by an operating company but only for material properties. 124 Those commenters also indicated that a royalty company may not have access to all of the information required to complete a technical report at the level of detail required by the owner of the underlying mine. Therefore, one of the commenters recommended that the Commission allow such a royalty company to prepare an abbreviated report 125 while the other commenter recommended that the royalty company be permitted to reference the operating company's technical reports. 126 123 See letter from Amec. Canada's NI 43-101 exempts a royalty company from having to file a technical report if: The owner or operator of the underlying mine is a reporting issuer in a Canadian jurisdiction or is a producing issuer whose securities trade on a specified exchange and that discloses mineral resources and reserves under an acceptable foreign code; the owner or operator has disclosed the scientific and technical information that is material to the royalty company; and the royalty company identifies in its disclosure document the source of the scientific and technical information. See Canada's National Instrument (“NI”) 43-101 (“Standards of Disclosure for Mineral Projects”), NI 43-101 (2011) 34 OSCB 7043 pt. 9.2 (Can.), http://web.cim.org/standards/documents/Block484_Doc111.pdf. Canada's NI 43-101 also exempts a royalty company from having to file a technical report or from complying with disclosure items requiring data verification, inspection of documents, or personal inspection of the property if the royalty company has requested but has not received access to the necessary data from the owner or operator and is not able to obtain the necessary information from the public domain. See id. at pt. 9.2(2). But see letter from SME 2 (stating that neither the Canadian approach nor the Commission's incorporation by reference proposal is workable because of “the U.S securities law liability regime and the litigation environment in the U.S.”). 124 See letters from Eggleston and Rio Tinto. 125 See letter from Eggleston. 126 See letter from Rio Tinto. Numerous other commenters opposed the Commission's proposal to require a royalty company to provide all applicable mining disclosure if the underlying mining operations are material to the royalty company. 127 Most of these commenters stated that because royalty holders generally have no executive or operational interest or other participation in the mineral properties to which the royalties relate, they typically have no access to the underlying mining operations or to the extensive technical data and other information available to the operator. 128 According to one of those commenters, because, typically, the information a royalty holder is entitled to receive is limited to mill production, marketing, and sales data that is used to confirm the calculation of royalty payments, a royalty company generally lacks sufficient information to prepare a current technical report summary. 129 That commenter further objected to the proposed provision that would allow a royalty company to incorporate by reference a technical report summary previously filed by the owner or operator of the underlying property because it would impose potential Securities Act or Exchange Act liability on the royalty company for a third party's technical or other information regarding which the royalty company lacked responsibility or the ability to review or verify. According to the commenter, in order for a royalty company to verify a technical report summary or provide a technical report summary of its own, the royalty company would need to acquire extensive information and access rights from the owner or operator of a mineral property, which the commenter believed the owner or operator would not be willing to provide due to the proprietary nature of much of the information. Moreover, even if the owner or operator were willing to provide the information, the royalty company would be required to re-negotiate its royalty agreement, which would disadvantage a U.S. royalty company compared to its foreign competitors. 127 See letters from AIPG, Alliance, Crowell & Moring, Laskowski, NRP, Royal Gold, SME 2, SRK 2, and Vinson & Elkins. 128 See, e.g., letters from Crowell & Moring, NRP, Royal Gold, SME 2, and Vinson & Elkins. 129 See letter from SME 2; see also letter from NRP (“along with royalty payments, the company receives only monthly production reports and “certain other limited economic and mining information that enables NRP to evaluate its royalty business and make periodic reports to its common unitholders”). iii. Final Rules We continue to believe that investors in royalty, streaming, and other registrants holding a similar economic interest in mining operations need information about the material mining properties that generate the payments to the registrant, including mineral reserves and production, to be able to assess the amounts, soundness, and sustainability of future payments. For the royalty or similar company and its investors, the mining property underlying the royalty or similar payments is the primary or only source of revenues and cash flow. As such, we believe that royalty companies and other companies holding similar economic interests should provide similar disclosure as provided by registrants conducting the underlying mining operations. Accordingly, the final rules will require a royalty or other similar company to provide applicable mining disclosure if the mining operations that generate the royalty or other payment are material to the royalty or similar company's operations as a whole, subject to that information being known or reasonably available to the registrant. 130 Thus, a royalty or similar company will have to assess both quantitative and qualitative factors to determine whether the underlying mining operations are material. 131 Also as proposed, upon an affirmative materiality determination, the final rules will require a royalty or similar company to provide summary disclosure 132 and the disclosure required for individually material properties, 133 but only for those underlying properties, or portions of underlying properties, that generate the registrant's royalties or similar payments, and only for the reserves and production that generated its payments in the reporting period. 134 130 17 CFR 229.1301(a)(3) [Item 1301(a)(3) of Regulation S-K]. 131 17 CFR 1301(c)(1) [Item 1301(c)(1) of Regulation S-K]. As we noted in the Proposing Release, because a registrant with royalty or other similar economic interests does not own or operate the producing property, revenues are often a more relevant benchmark than assets for determining materiality. See Proposing Release, supra note 5, at Section II.B.1.iii. 132 17 CFR 229.1303(a)(1)(iii) [Item 1303(a)(1)(iii) of Regulation S-K]. 133 17 CFR 229.1304(a)(1)(iii) [Item 1304(a)(1)(iii) of Regulation S-K]. 134 17 CFR 229.1303(b)(2)(iv) [Item 1303(b)(2)(iv) of Regulation S-K] and 17 CFR 229.1304(d)(3) [Item 1304(d)(3) of Regulation S-K]. In addition, as proposed, the final rules will also require the royalty or similar company to file a technical report summary for each material underlying property as an exhibit to the Commission filing. 135 However, as proposed, the final rules will not require a royalty or similar company to submit a separate technical report summary about a property that is covered by a current technical report summary filed by the producing mining registrant. In that event, the royalty or similar company should refer to the producing registrant's previously filed technical report summary in its filing with the Commission. 136 The purpose of this provision is to inform an investor or other interested party as to where to find detailed information about the underlying property. In a change from the proposed rules, such a reference will not be deemed to incorporate into the royalty company's or other similar company's filing the technical report summary previously filed by the mining registrant, absent an express statement that the company intends to incorporate it by reference. 137 We agree with commenters that it would not be appropriate to impose potential liability under the Securities Act or Exchange Act on a royalty company through the company's incorporation by reference of a third party owner's technical report summary if the royalty company has not been able to review and verify the information contained in the summary because of its lack of access to such information under its existing royalty agreement. 138 135 17 CFR 229.1302(b)(2) [Item 1302(b)(2) of Regulation S-K]. 136 17 CFR 229.1302(b)(3)(i) [Item 1302(b)(3)(i) of Regulation S-K]. 137 Id. 138 See, e.g., letter from SME 2. As mentioned by many commenters, 139 we are cognizant that a royalty or similar company may lack, and may have difficulty obtaining, access to the information and supporting documentation required to comply with the Commission's disclosure requirements concerning the underlying mining properties. We therefore emphasize that what is true generally for our public company disclosure requirements applies to a royalty company's disclosure obligations regarding the underlying mining properties as well. Specifically, the required information concerning the underlying mining properties need be given only insofar as it is known or reasonably available to the registrant. 140 In order to underscore this basic tenet, in a change from the proposed rules, the final rules provide that a registrant that has a royalty, streaming, or other similar right, but which lacks access to any of the information about the underlying properties specified in either the summary disclosure provision (Item 1303 of Regulation S-K) or the individual property provision (Item 1304 of Regulation S-K) may omit such information, provided that the registrant: 139 See supra note 128 and accompanying text. 140 This is consistent with 17 CFR 230.409 [Securities Act Rule 409] and 17 CFR 240.12b-21 [Exchange Act Rule 12b-21], the general rules governing the situation when required information is unknown or not reasonably available. • Specifies the information to which it lacks access; • Explains that it does not have access to the required information because: ○ Obtaining the information would result in an unreasonable effort or expense; or ○ It requested the information from a person possessing knowledge of the information, who is not affiliated with the royalty company or similar registrant, and who denied the request; and • Provides all required information that it does possess or which it can acquire without unreasonable effort or expense. 141 141 17 CFR 229.1303(a)(3) [Item 1303(a)(3) of Regulation S-K] and 17 CFR 229.1304(a)(2) [Item 1304(a)(2) of Regulation S-K]. The final rules further provide that a royalty company or similar registrant is not required to file a technical report summary for an underlying property if the registrant lacks access to the technical report summary because of substantially similar reasons. 142 For example, if the underlying property holder is private, and denies access to relevant information about the property, under the final rules, the royalty company will not be obligated to prepare a technical report summary. Overall, we believe that the adopted treatment of royalty and other similar companies will provide investors with information relevant to assessing investments in those companies without unduly burdening registrants. 142 17 CFR 229.1302(b)(3)(ii) [Item 1302(b)(3)(ii) of Regulation S-K] (conditioning omission of the technical report summary on a lack of access because obtaining the information would result in an unreasonable burden or expense; or because the registrant requested the technical report summary from the owner, operator, or other person possessing the technical report summary, who is not affiliated with the registrant, and who denied the request). 5. Definitions of Exploration, Development and Production Stage i. Rule Proposal As noted in the Proposing Release, 143 Guide 7 defines the stages used to describe mining operations as “exploration stage,” 144 “development stage,” 145 and “production stage,” 146 but applies these definitions to the registrant as a whole and not on a property-by-property basis. As such, Guide 7 does not provide guidance as to when and how the definitions of exploration, development, and production stage apply to registrants that own properties in different stages. To address this ambiguity and to help ensure that investors receive disclosure that accurately reflects a registrant's operational status, we proposed to revise the Guide 7 definitions so that they apply to individual properties, as follows: 143 See Proposing Release, supra note 5, at Section II.B.2. 144 As defined by Guide 7, exploration stage “includes all issuers engaged in the search for mineral deposits (reserves) which are not in either the development or production stage.” Guide 7, supra note 7, ¶ (a)(4)(i). 145 As defined by Guide 7, development stage “includes all issuers engaged in the preparation of a determined commercially minable deposit (reserves) for its extraction which are not in the production stage.” Guide 7, supra note 7, ¶ (a)(4)(ii). 146 As defined by Guide 7, production stage “includes all registrants engaged in the exploitation of a mineral deposit (reserve).” Guide 7, supra note 7, ¶ (a)(4)(iii). • An “exploration stage property” is a property that has no mineral reserves disclosed; • A “development stage property” is a property that has mineral reserves disclosed, but with no material extraction; and • A “production stage property” is a property with material extraction of mineral reserves. 147 147 See Proposing Release, supra note 5, at Section II.B.2. We also proposed to revise the Guide 7 definitions as they apply to issuers to recognize that issuers may have properties in differing stages, as follows: • An “exploration stage issuer” is one that has no material property with mineral reserves; • A “development stage issuer” is one that is engaged in the preparation of mineral reserves for extraction on at least one material property; and • A “production stage issuer” is one that is engaged in material extraction of mineral reserves on at least one material property. 148 148 See id. We further proposed to specify that a registrant that does not have reserves on any of its properties, even if it has mineral resources or exploration results, or even if it is engaged in extraction without first disclosing mineral reserves, cannot characterize itself as a development or production stage company. 149 Finally, we proposed to require a company to identify an individual property with no mineral reserves as an exploration stage property, even if it has other properties in development or production. 150 149 As we noted in the Proposing Release, there are registrants that start development or production without first disclosing mineral reserves. Such practices increase the business' risks due to the absence of the detailed technical and economic analysis required to disclose reserves, thus increasing the degree of uncertainty surrounding the quantities and quality of the mineral to be extracted. See Proposing Release, supra note 5, at 29, n. 65. 150 See Proposing Release, supra note 5, at Section II.B.2. ii. Comments on the Rule Proposal Commenters expressed varying degrees of support for the Commission's proposed definitions of exploration, development and production stage as applied, respectively, to properties and issuers. 151 One commenter stated that both sets of definitions would be operable for the company and supported the proposed restriction on the use of the terms “development and production stage companies.” 152 151 See, e.g., letters from Alliance, AngloGold, CBRR, Midas, Rio Tinto, SME 1, and SRK 1. 152 See letter from AngloGold (supporting that a registrant lacking mineral reserves on any of its properties, even if it has mineral resources or exploration results, or even if it is engaged in extraction without first disclosing mineral reserves, cannot characterize itself as a development or production stage company). Another commenter supported the proposed definitions of exploration stage and development stage properties, but stated that the definition of production stage property should be revised to include “current” or “on-going” as opposed to past production. 153 This commenter further recommended that the Commission define a development stage issuer as one having at least one development stage property comprising more than 10% of the issuer's assets, and a production stage issuer as having at least one producing mine comprising more than 10% of the issuer's assets. 154 153 See letter from Midas. 154 See id. While a third commenter generally found the two sets of definitions to be adequate, it stated that at least one material property should be enough to justify the production stage if it represents more than 50% of the registrant's asset value. 155 This commenter also believed that if a registrant has disclosed mineral resources, it should be able to characterize itself as a development stage company. 156 155 Letter from CBRR. 156 See id. One commenter supported the proposed definitions of exploration, development, and production stage issuers because they are substantially similar to the Guide 7 definitions. 157 The commenter suggested that the proposed definitions as applied to issuers should be used for accounting purposes only ( i.e., for the purposes of financial statement characterization), but did not think the proposed definitions would be useful as applied to properties. 158 In contrast, a different commenter supported having a set of definitions of exploration, development, and production stage applied to properties, but opposed having a corresponding set of definitions applied to issuers. 159 157 See letter from SME 1. 158 Id. 159 See letter from SRK 1 (stating that “[t]echnical disclosure should be dictated by property stage and materiality” and “[a] company's production status should not impact disclosure as there are many mining companies with immaterial small scale production or reserves that would classify them as production stage or development stage, but most of their value is in an exploration stage project”). Two other commenters opposed the proposed definitions. 160 One believed that both sets of definitions were too prescriptive for the mining industry and stated that because many mining operations have portions that are in the exploration, development, and production stages, it will be extremely difficult to attach a single label to a property. 161 In addition, that commenter did not believe it would be useful to define an issuer based on the characteristics of all of its mining properties, and further noted that a registrant is not required to characterize itself as being a particular type of issuer under the Canadian rules. 162 The other commenter asserted that the proposed sets of definitions were unnecessary, would add complexity and confusion, and be of limited value to issuers and investors. 163 A third commenter strongly opposed the definition of production stage because it depends on whether the company has mineral reserves and not on whether it is in production. 164 160 See letters from Amec and Eggleston. 161 See letter from Amec. 162 See id. 163 See letter from Eggleston. 164 See letter from Energy Fuels. This commenter did not address the proposed definitions of exploration stage and development stage. The commenter described itself as the second largest uranium producer in the United States, but said that it does not currently own, and never has owned, any mineral reserves as defined by Guide 7. Most of its production at its largest facility has come from inferred mineral resources. The commenter stated that not being able to refer to itself as a production stage company is potentially misleading to investors. iii. Final Rules We are adopting the definitions of “exploration stage property,” “development stage property,” “production stage property,” “exploration stage issuer,” “development stage issuer,” and “production stage issuer,” as proposed. 165 Similar to a proposed instruction, we are also adopting a provision stating that a registrant must identify an individual property with no mineral reserves as an exploration stage property, even if it has other properties in development or production. The provision further states that a registrant that does not have reserves on any of its properties, even if it has mineral resources or exploration results, or even if it is engaged in extraction without first disclosing mineral reserves, cannot characterize itself as a development or production stage company. 166 165 Definitions of specified terms used in subpart 1300 are located in 17 CFR 229.1300. 166 17 CFR 229.1304(c)(1) [Item 1304(c)(1) of Regulation S-K]. We believe that these adopted definitions and related provision will resolve the ambiguities in the Guide 7 definitions. Under the definitions, a registrant will be able to characterize its properties separately, but will be limited in when and how it can characterize its operational stage. Specifically, a registrant will not be able to characterize itself as a development stage issuer unless it is engaged in the preparation of mineral reserves for extraction on at least one material property. We believe this will benefit investors by providing them with clearer, more accurate and consistent disclosure about the type of company and level of risk involved. In particular, prohibiting a registrant without any mineral reserves from characterizing itself as a production or development stage issuer will help eliminate the possibility that such a registrant, by definition a company in a higher risk operational stage, will incorrectly characterize itself as being in a lower risk stage, thereby potentially misleading or confusing investors. We do not believe it would be appropriate to adopt definitions of development stage issuer and production stage issuer that are based on a specific quantitative measure ( i.e., the development stage or production stage property must comprise more than 10% of the issuer's assets). 167 We believe the less prescriptive approach of the final rules, which bases those definitions on the principle of materiality, is more consistent with the adopted disclosure threshold of materiality, which requires the consideration of both quantitative and qualitative factors, and is therefore preferable to a bright-line test. For the same reasons, we do not believe it would be appropriate to adopt a definition of a production stage issuer specifying that one material property will suffice provided that it represents more than 50% of the registrant´s asset value. 168 167 See letter from Midas. 168 See letter from CBRR. We also do not believe it would be appropriate to define a production stage issuer as an issuer that is in production even if it has no mineral reserves, 169 or to define a development stage issuer as a company that has disclosed mineral resources, but not reserves. 170 We are concerned that such an approach would diminish the real difference in risk between a mining project for which only resources have been disclosed, and a more advanced project involving the affirmative determination of reserves, which could lead to investor confusion. Moreover, as a commenter noted, when applied to properties, such an approach would run counter to the definitions of “development stage” and “production stage” that are widely accepted in the industry. 171 169 See letter from Energy Fuels. 170 See letter from CBRR. 171 See letter from SRK 1. C. Qualified Person and Responsibility for Disclosure 1. The “Qualified Person” Requirement i. Rule Proposal We proposed that every disclosure of mineral resources, mineral reserves, and material exploration results reported in a registrant's filed registration statements and reports must be based on, and accurately reflect information and supporting documentation prepared by, a “qualified person,” 172 as defined by the proposed rules. 173 We proposed the qualified person 174 requirement to align the Commission's mining property disclosure rules with the CRIRSCO standards and to remedy a perceived gap in the current reporting regime. 172 See Proposing Release, supra note 5, at Section II.C.1. The proposed provision specified that the qualified person requirement would apply to the disclosure required by the proposed summary disclosure provision (Item 1303) and the proposed individual property disclosure provision (Item 1304). 173 See infra Section II.C.2. for a discussion of the proposed definition of qualified person. 174 While we referred to the qualified person in the singular throughout the Proposing Release, we noted that it is common for a registrant to have more than one qualified person prepare a technical report for a mining property or project. We also noted that, as proposed, the registrant's responsibilities regarding the qualified person would apply to each qualified person so engaged. See Proposing Release, supra note 5, at 33, n. 74. All of the CRIRSCO-based codes require any public report 175 about a company's exploration results, mineral resources, and mineral reserves to be based on and fairly reflect information and supporting documentation prepared by a “competent” or “qualified person.” 176 The purpose of this requirement is to ensure that a registrant's public declaration of exploration results, mineral resources, and mineral reserves is supported by the findings of a mineral industry professional having the relevant level of expertise. 177 In contrast, neither Guide 7 nor Item 102 requires a registrant's disclosure of mineral reserves to be based on the findings of an appropriately experienced professional. 178 While an author of a study or technical report that forms the basis of mineral reserves disclosure in a Securities Act registration statement must consent to the use of its name as an expert, 179 there is no requirement to use an expert for reserves disclosure and, if one is used, there are no substantive requirements for that expertise. 175 As used in the CRIRSCO-based codes, “public report” includes all communication by a company to investors on exploration results, mineral resources, and mineral reserves. For example, Australia's JORC Code defines public s report as: “. . . reports prepared for the purpose of informing investors or potential investors and their advisers on Exploration Results, Mineral Resources or Ore Reserves. They include, but are not limited to, annual and quarterly company reports, press releases, information memoranda, technical papers, website postings and public presentations.” Joint Ore Reserves Committee, the JORC Code, pt. 6 (2012), http://www.jorc.org/docs/JORC_code_2012.pdf. 176 See, e.g., CRIRSCO International Reporting Template, supra note 20, cl. 8; Canada's NI 43-101, supra note 123, at pt. 2.1; JORC Code, supra note 175, at pt. 9. 177 The competent or qualified person requirement supports the “competence” principle, one of the three governing principles that underlie the CRIRSCO standards. See supra note 39. All of the CRIRSCO-based codes define competence to mean that technical work should be done by a professional with requisite expertise. See, e.g., CRIRSCO International Reporting Template, supra note 20, at cl. 3; JORC Code, supra note 175, at pt. 9; s ee also Society for Mining, Metallurgy & Exploration, SME Guide for Reporting Exploration Results, Mineral Resources and Mineral Reserves, pt. 3 (July 2017) (“SME Guide”), https://www.smenet.org/SME/media/Publications-Resources/SMEGuideReporting_082017.pdf. > 178 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, supra note 7, at ¶ (b)(5)(ii). In addition, if a registrant supplementally provides a copy of a technical report to 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, supra note 7, at ¶ (c)(2). 179 See 17 CFR 230.436 [Securities Act Rule 436]; see also 17 CFR 229.601(b)(23)(i) [Item 601(b)(23)(i) of Regulation S-K]. In connection with the qualified person requirement, we proposed that the registrant must: • Be responsible for determining that the person meets the qualifications specified under the proposed subpart's definition of “qualified person” and that the disclosure in the filing accurately reflects the information provided by the qualified person; • Obtain a dated and signed technical report summary from the qualified person, which identifies and summarizes for each material property the information reviewed and conclusions reached by the qualified person about the registrant's exploration results, mineral resources or mineral reserves; • File the technical report summary with respect to every material mining property as an exhibit to the relevant registration statement or other Commission filing when the registrant is disclosing for the first time mineral reserves, mineral resources, or material exploration results or when there is a material change in the mineral reserves, mineral resources, or exploration results from the last technical report filed for the property; • Prior to filing the technical report summary as part of a registration statement or report, obtain the written consent of the qualified person to the use of the qualified person's name or any quotation from, or summarization of the technical report summary; • Identify the qualified person who prepared the technical report summary in the filed registration statement or report; and • State whether the qualified person is an employee of the registrant, and if the qualified person is not an employee of the registrant: ○ Name the qualified person's employer; ○ Disclose whether the qualified person or the qualified person's employer is an affiliate of the registrant or another entity that has an ownership, royalty or other interest in the property that is the subject of the technical report summary; and ○ If the qualified person or the qualified person's employer is an affiliate, disclose the nature of the affiliation. 180 180 See Proposing Release, supra note 5, at Section II.C.1. In the Proposing Release, we explained that if the filing that requires the technical report summary is a Securities Act registration statement, the qualified person would be deemed an “expert” who must provide his or her written consent as an exhibit to the filing pursuant to Securities Act Rule 436. 181 In such situations, the qualified person would be subject to liability as an expert for any untrue statement or omission of a material fact contained in the technical report summary under Section 11 of the Securities Act. 182 181 See id. A registrant would also have to file the written consent as an exhibit to an Exchange Act registration statement or report when the Exchange Act filing is automatically incorporated into a previously filed Securities Act registration statement. 182 15 U.S.C. 77k(a)(4). ii. Comments on the Rule Proposal Numerous commenters supported the Commission's proposal that every disclosure of mineral resources, mineral reserves and material exploration results reported in a registrant's filed registration statements and reports must be based on, and accurately reflect information and supporting documentation prepared by, a “qualified person.” 183 One commenter stated that investors would benefit from the qualified person requirement because it would provide the appropriate level of assurance and disclosure about both a registrant's operations and developing opportunities. 184 Other commenters maintained that the qualified person requirement would mitigate the risks associated with including disclosure about a registrant's mineral resource and exploration results in Commission filings. 185 Some commenters explained that the qualified person requirement would result in more accurate and reliable reports, foster proper risk level identification, and ensure that all aspects of industry standards are being assessed and implemented, which would assist investors in understanding each stage of a project. 186 Other commenters emphasized that adoption of the qualified person requirement would be a significant step in aligning the Commission's rules with the CRIRSCO standards and global industry practice. 187 183 See letters from AIPG, Amec, AngloGold, BHP, CBRR, Columbia Water, Earthworks, Eggleston, FCX, Gold Resource, Golder, Midas, Mousset-Jones, Newmont, NSPE, Northern Dynasty, Rio Tinto, SAMCODES 1, SME 1, SRK 1, Ur-Energy, Vale, and Willis. 184 See letter from Rio Tinto. 185 See, e.g., letters from AngloGold, BP, and Gold Resource. 186 See, e.g., letters from CBRR, Eggleston, Midas, SRK 1, and Willis. 187 See, e.g., letters from AIPG and SME 1. Many commenters also supported the Commission's proposal to make the registrant responsible for determining that the qualified person meets the qualifications specified under the new subpart's definition of “qualified person.” 188 One commenter stated that the registrant, through its board of directors, is ultimately responsible for the information disclosed by it and attributed to the qualified person. 189 A second commenter indicated that, in the case of a qualified person employed by a registrant, the registrant is in the best position to evaluate the qualified person's credentials and determine if he or she meets the requisite qualifications. 190 Other commenters stated that the responsibility for determining who is a qualified person should be a joint decision by the registrant and the named qualified person since the qualified person is responsible for preparing the technical report and knows what type of information he or she is qualified to provide an opinion on. 191 One commenter opposed imposing the responsibility for verifying the qualifications of the qualified person on the registrant because such verification would be based on personal information not readily available to the public. 192 188 See letters from AngloGold, CBRR, Eggleston, Gold Resource, Golder, MMSA, Rio Tinto, SME 1, and Vale. 189 See letter from AngloGold. 190 See letter from Vale. 191 See letters from Amec, Eggleston, and Rio Tinto. 192 See l etter from SRK 1. Many commenters supported the Commission's proposal to require a registrant to obtain a technical report summary for each material property from the qualified person, which identifies and summarizes the information reviewed and conclusions reached by the qualified person about the registrant's exploration results, mineral resources, or mineral reserves, before the registrant can disclose those results, resources, or reserves in Commission filings. 193 Two commenters noted that the technical report summary proposal is a requirement under all CRIRSCO codes, 194 with one maintaining that the requirement would not be a significant burden for issuers because many mining companies, including U.S. registrants that are cross-listed, are already required in CRIRSCO-based jurisdictions to prepare technical reports either for public filing or for internal use. 195 Another commenter stated that the technical report summary requirement ensures that facts, forward-looking statements and cautionary language considered to be material by the qualified persons involved are fully disclosed and in full context. 196 A fourth commenter indicated that technical reports have proven to be a useful method of providing transparency to the mining industry and have enhanced the confidence of investors. 197 193 See letters from AngloGold, CBRR, CSP 2 , Coeur, Eggleston, Gold Resource, Golder, Northern Dynasty, Rio Tinto, SME 1, Vale, and Willis. 194 See letters from Rio Tinto and SRK 1. 195 See letter from SRK 1. 196 See letter from Golder. 197 See letter from Eggleston. Some commenters recommended that our disclosure framework follow the format of Canada's NI 43-101F1 so that technical report summaries under the Commission's rules would be interchangeable with those filed under the Canadian reporting regime. 198 For similar reasons, some commenters stated that the technical report summary should follow the CRIRSCO Table 1 format of the registrant's home listing jurisdiction. 199 198 See letters from Coeur, Gold Resource, SME 1, and Willis. 199 See, e.g., letters from AngloGold and Rio Tinto. Several commenters expressly supported the filing of a summarized technical report rather than an unabridged report. 200 One commenter, however, recommended requiring the filing of both the summarized technical report and the full technical report 201 while another commenter stated that an unabridged technical report should be required when a project advances to the development stage. 202 200 See letters from CSP 2 , Eggleston, Gold Resource, Golder, and SRK 1. On a related point, four commenters stated that the name “technical report summary” was confusing as it suggested that there existed an unabridged technical report. See letters from Coeur, Eggleston, Northern Dynasty, and SME 1. 201 See letter from Columbia Water. 202 Letter from CSP 2 . Many commenters supported the Commission's proposal to require the filing of a technical report summary for a material property when the registrant first discloses mineral resources, mineral reserves, or material exploration results, or when there is a material change in the previously disclosed resources, reserves and exploration results. 203 Commenters stated that a requirement imposing more frequent filing would be unduly burdensome and costly. 204 203 See letters from AngloGold, CBRR, CSP 2 , Eggleston, Golder, Midas, Northern Dynasty, Rio Tinto, SRK 1, and Vale. 204 See, e.g., letters from AngloGold, Golder, Midas, and SRK 1. Some commenters stated that the proposed requirement to file a technical report summary for material properties would be a significant burden for smaller companies. 205 A few of these commenters suggested that the Commission could alleviate this burden by: Conforming the technical report summary to Table 1 of the CRIRSCO International Reporting Template; 206 not requiring the filing of the technical report summary more frequently than under the CRIRSCO-based codes; 207 not requiring the disclosure of exploration results; or minimizing the required use of an independent qualified person. 208 One commenter also stated that the Commission could reduce the compliance burden by allowing all Canadian registrants, and not just those that file under the MJDS, to report under Canada's NI 43-101, and by considering a similar accommodation for foreign issuers that report under the other CRIRSCO-based codes. 209 205 See, e.g., letters from AngloGold, Eggleston, and Gold Resource. 206 See letter from AngloGold. 207 See letters from AngloGold and Midas. 208 See letter from Gold Resource. 209 See letter from Northern Dynasty. Some commenters opposed a requirement to file a technical report summary as an exhibit to a Commission filing because they believed it would be burdensome for registrants that are not subject to similar requirements in other jurisdictions. 210 Other commenters opposed the technical report summary filing requirement because it would compel the disclosure of information that is proprietary and competitively sensitive. 211 210 See letters from Alliance, Chamber, Davis Polk, and FCX. Davis Polk and the Chamber believed that, because only Canada and Australia impose a similar requirement, the proposed technical report summary requirement would “result in an incremental reporting burden in the United States relative to most other jurisdictions.” 211 See letters from Alliance and FCX. Several commenters supported the Commission's proposal to have each qualified person date and sign the technical report summary prepared by him or her. 212 According to the commenters, this requirement would help establish the document's legitimacy 213 as well as a reference date for the report. 214 One commenter noted that the proposed requirement to have a qualified person date and sign the technical report summary is a requirement under all of the CRIRSCO-based codes. 215 212 See, e.g., letters from AngloGold, CSP 2 , Eggleston, Golder, and SRK 1. 213 See letter from SRK 1. 214 See letters from Golder and SRK 1. Golder indicated that the dating requirement would protect the qualified person by establishing the effective or cutoff dates of data and observations used and alleviate other timing-related issues. 215 See letter from Rio Tinto. In addition, many commenters supported the Commission's proposal to require a registrant to obtain the written consent of each qualified person who prepared a technical report summary to the use of the qualified person's name or any quotation from, or summarization of the technical report summary in the registration statement or report. 216 One commenter indicated that the written consent requirement “is very important to ensure that a QP's descriptions, summaries, results, conclusions and recommendations are construed accurately and appropriately by a registrant” and “also provides the QP with an additional opportunity to access the quality control and quality assurance of a registrant's disclosure as they pertain to the QP.” 217 216 See letters from AngloGold, Eggleston, Midas, Newmont, Northern Dynasty, Rio Tinto, SRK 1, Vale, and Willis. 217 Letter from SRK 1. In connection with the proposed written consent requirement, some commenters noted that registrants frequently hire multiple qualified persons for a particular mining project. 218 Those commenters recommended that the final rules clarify that multiple qualified persons may prepare a technical report summary and, in such a situation, a registrant must have each qualified person identify the particular parts of the technical report summary for which he or she is responsible, date and sign each part, and provide his or her written consent for the use of his or her name and reference to those parts of the technical report summary prepared by each qualified person. 219 218 See letters from Coeur, Eggleston, Energy Fuels, Golder, MMSA, SME 1, Ur-Energy, Vale, and Willis; see also letter from Newmont (recommending the use by the qualified person of a “sub-certifications control process accompanied by disclosure of the areas and personnel relied upon”). 219 See, e.g., letters from Coeur, MMSA, and SME 1. Some commenters opposed the proposed requirement to have the qualified person sign the technical report summary on an individual basis. 220 These commenters objected on the grounds that liability concerns are more pronounced in the United States and such a requirement would place a qualified person in a position similar to an executive or financial officer of the registrant. 220 See letters from Andrews Kurth, Gold Resource, and NMA 1. Numerous other commenters maintained that the Commission should not subject qualified persons to expert liability under Section 11 of the Securities Act. 221 Those commenters opposed such expert liability on the grounds that: Ultimate responsibility for a public report concerning a registrant's exploration results, mineral resources, or mineral reserves rests with the registrant, acting through its board of directors; 222 the proposed requirements for qualified persons, such as membership in a professional organization that requires compliance with standards of competence and ethics, and the written consent provisions, would provide adequate safeguards to ensure the reliability of supporting documentation by a qualified person; 223 the Section 11 liability regime is unique and would impose significant costs on individuals that are not yet subject to it; 224 imposing Section 11 liability on qualified persons would likely have a chilling effect on the willingness of individuals to serve in that role and thereby increase the cost of hiring a qualified person, and could deter registrants from hiring qualified persons; 225 and the naming of individual professionals in Commission filings is not required with respect to accounting, auditing, and legal matters or in the determination of oil and gas reserves and, in any event, is not important to the protection of investors. 226 221 See letters from AusIMM, Chamber, Cleary & Gottlieb, Cloud Peak, Davis Polk, FCX, JORC, MMSA, NSSGA, SAMCODES 1, Shearman & Sterling, Sullivan & Cromwell, and Ur-Energy. 222 See, e.g., letters from AusIMM, FCX, JORC, SAMCODES 1, and Shearman & Sterling. 223 See letters from Davis Polk, Shearman & Sterling, and Sullivan & Cromwell. 224 See id.; see also letter from Andrews Kurth. 225 See letters from Andrews Kurth, Chamber, Davis Polk, FCX, MMSA, NSSGA, Shearman & Sterling, and Ur-Energy. 226 See letter from FCX. Some commenters that expressed concerns about Section 11 liability requested that the Commission explore alternatives to the individual signing requirement, such as permitting the firm employing the qualified person to sign the technical report summary, which would be consistent with the Commission's treatment of auditors and its treatment of engine [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2018-26337. Public record. Not legal advice.