Modernization of Property Disclosures for Mining Registrants: A Small Entity Compliance Guide
Dec. 4, 2018
On October 31, 2018, the Securities and Exchange Commission (“SEC” or “Commission”) adopted amendments to modernize the property disclosure requirements for mining registrants, and related guidance, which are currently set forth in Item 102 of Regulation S-K under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) 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, as embodied by the Committee for Reserves International Reporting Standards (“CRIRSCO”).
Consolidation of the Mining Property Disclosure Requirements and Compliance Date
The amendments consolidate the Commission’s mining property disclosure requirements by relocating them to a new subpart of Regulation S-K (Subpart 1300). Registrants must comply with the new rules for the first fiscal year beginning on or after January 1, 2021. Registrants may voluntarily comply with the new rules prior to the compliance date, subject to the Commission’s completion of necessary EDGAR reprogramming changes. Industry Guide 7 will remain effective until all registrants are required to comply with the rules, at which time Industry Guide 7 will be rescinded.
Who Must Comply with the New Rules
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. For purposes of Subpart 1300, the term “material” has the same meaning as under Securities Act Rule 405 or Exchange Act Rule 12b-2. When determining whether its mining operations are material, a registrant must:
- 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; and
- 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.
Overview of Disclosure Required
Under the new rules, a registrant with material mining operations must disclose specified information in its Securities Act and Exchange Act filings concerning mineral resources, in addition to mineral reserves, which have been determined on one or more of its properties. Previously, under Industry Guide 7, a registrant could disclose non-reserve estimates, such as mineral resources, only in limited circumstances. The rules 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. For summary disclosure, a registrant with two or more properties must provide investors with an overview of its properties and mining operations. For individual property disclosure, a registrant must disclose specified aspects of its material mining properties that are substantially similar to the disclosure called for under Industry Guide 7. Much of the required disclosure may be presented in either narrative or tabular format.
The new rules also require a registrant to disclose exploration results and related exploration activity if such results and activity are material to investors. The new rules provide that, when determining whether exploration results and related exploration activity are material, a registrant should consider all relevant facts and circumstances, such as the importance of the exploration results in assessing the value of a material property or in deciding whether to develop the property, and the particular stage of the property. The rules further permit the disclosure of exploration targets in Commission filings if accompanied by certain specified cautionary and explanatory statements.
The “Qualified Person” Requirement
The new rules require a registrant’s disclosure of exploration results, mineral resources, or mineral reserves in Commission filings to be based on and accurately reflect information and supporting documentation prepared by a mining expert--the “qualified person.” The rules define a “qualified person” to mean an individual who is:
- a mineral industry professional with at least five years of relevant experience in the type of mineralization and type of deposit under consideration and in the specific type of activity that person is undertaking on behalf of the registrant; and
- an eligible member or licensee in good standing of a recognized professional organization at the time the technical report is prepared.
The “qualified person” requirement is aimed at furthering the protection of investors by helping to foster proper risk assessment and disclosure, which is key to an investor’s understanding of each stage of a mining project.
The Technical Report Summary Requirement
The new rules require a registrant to obtain a dated and signed technical report summary from the qualified person or persons, which identifies and summarizes the information reviewed and conclusions reached by each qualified person about the registrant’s mineral resources or mineral reserves determined to be on each material property. A registrant must file the technical report summary as an exhibit to the relevant Commission filing when disclosing mineral reserves or mineral resources for the first time or when there is a material change in the mineral reserves or mineral resources from the last technical report summary filed for the property. The technical report summary filing requirement will not only help ensure that the registrant’s disclosure in the Commission filing is accurate and reliable, but also will enhance investor understanding of a registrant’s material mining properties.
The rules permit, but do not require, a registrant to file a technical report summary to support its disclosure of exploration results.
Disclosure Regarding Mineral Resources
The rules require a registrant with material mining operations to classify its mineral resources into inferred, indicated, and measured mineral resources, in order of increasing confidence based on the level of underlying geological evidence. The rules define each class of mineral resources. This classification requirement is consistent with the classification scheme under the CRIRSCO standards.
Under the new rules, the technical report summary required to support the determination and disclosure of mineral resources is the “initial assessment.” The initial assessment must be prepared by a qualified person and must include, at a minimum, an appropriate qualitative assessment of reasonably assumed technical and economic factors, together with any other relevant operational factors, that are necessary to demonstrate at the time of reporting that there are reasonable prospects for economic extraction. The qualified person must include in the initial assessment a cut-off grade estimation based on assumed unit costs for surface or underground operations and estimated mineral prices. The rules provide that, when estimating mineral prices, the qualified person must use a price for each commodity that provides a reasonable basis for establishing the prospects of economic extraction for mineral resources. The qualified person must disclose the price used, which may be either a historical price or one based on forward-looking pricing forecasts, and explain, with particularity, the reasons for using the selected price, including the material assumptions underlying the selection.
The rules permit, but do not require, a qualified person to include a cash flow analysis in an initial assessment to demonstrate economic potential of a mining project. If a qualified person provides a cash flow analysis in the initial assessment, he or she may include inferred mineral resources in the cash flow analysis as long as the qualified person provides certain cautionary and explanatory statements.
Disclosure Regarding Mineral Reserves
The new rules adopt the CRIRSCO framework of applying modifying factors to indicated or measured mineral resources in order to convert them to mineral reserves. The adopted framework requires a registrant’s disclosure of mineral reserves to be based on a qualified person’s detailed evaluation of the modifying factors as applied to indicated or measured mineral resources, which would demonstrate the economic viability of the mining property or project.
Under the new rules, the technical report summary required to support the determination and disclosure of mineral reserves in Commission filings may be either a pre-feasibility study or a final feasibility study. In contrast, under Industry Guide 7, the practice of Commission staff has been to request a final feasibility study to support the disclosure of mineral reserves. The new rules permit the use of a pre-feasibility study even in high risk situations.
For either a pre-feasibility study or final feasibility study, the rules require the study to include an economic analysis that supports the property’s economic viability as assessed by a detailed discounted cash flow analysis. Similar to the pricing requirement for the initial assessment of mineral resources, for either type of feasibility study, a qualified person must use a price for each commodity that provides a reasonable basis for establishing that the project is economically viable. The rules require the qualified person to disclose the price used, which may be either a historical price or one based on forward-looking pricing forecasts, and explain, with particularity, his or her reasons for using the selected price, including the material assumptions underlying the selection.
A Qualified Person’s Potential Liability under Section 11 of the Securities Act
The new rules provide that a qualified person will not be subject to expert liability under Section 11 of the Securities Act for certain aspects of specified modifying factors outside the expertise of the qualified person that are based on information provided by the registrant and are discussed in the technical report summary or other parts of the registration statement. Those aspects of modifying factors consist of:
- macroeconomic trends, data, and assumptions, and interest rates;
- marketing information and plans within the control of the registrant;
- legal matters outside the expertise of the qualified person, such as statutory and regulatory interpretations affecting the mine plan;
- environmental matters outside the expertise of the qualified person;
- accommodations the registrant commits or plans to provide to local individuals or groups in connection with its mine plans; and
- governmental factors outside the expertise of the qualified person.
The rules require a qualified person, in a separately captioned section of the technical report summary, to identify the categories of information provided by the registrant and the particular portions of the technical report summary that were prepared in reliance on such information, and the extent of that reliance. The qualified person must also disclose why he or she considers it reasonable to rely upon the registrant for any of the identified information.
In addition, the rules provide that a third-party firm, which employs a qualified person, may sign the technical report summary and provide the written consent required for an expert under the Securities Act, without naming the individual qualified person. If the qualified person is an employee of the registrant, however, he or she must provide the written consent on an individual basis.
The adopting release for the new rules can be found on the Commission’s website at https://www.sec.gov/rules/final/2018/33-10570.pdf.
Regulation S-K can be accessed through the "Corporation Finance" section of the SEC's website athttps://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
The SEC's disclosure forms can be accessed on the Commission's website athttps://www.sec.gov/about/forms/secforms.htm.
Contacting the SEC
The SEC’s Division of Corporation Finance is happy to assist with questions regarding these rules. You can contact the Division for this purpose at (202) 551-3500 or online at https://www.sec.gov/forms/corp_fin_interpretive.
Questions on other SEC regulatory matters concerning small companies may be directed to the SEC’s Office of Small Business Policy in the Division of Corporation Finance at (202) 551-3460 or email@example.com.
 This guide was prepared by the staff of the SEC as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.
 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.
 The rules define a “mineral resource” to mean a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. The term “material of economic interest” includes mineralization, including dumps and tailings, mineral brines, and other resources extracted on or within the earth’s crust. It does not include oil and gas resources as defined in Regulation S-X, gases (e.g., helium and carbon dioxide), geothermal fields, and water.
 The rules define a “mineral reserve” to mean an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.
 The rules define “exploration results” to mean data and information generated by mineral exploration programs (i.e., programs consisting of sampling, drilling, trenching, analytical testing, assaying, and other similar activities undertaken to locate, investigate, define or delineate a mineral prospect or mineral deposit) that are not part of a disclosure of mineral resources or reserves.
 The rules define an “exploration target” to mean a statement or estimate of the exploration potential of a mineral deposit in a defined geological setting where the statement or estimate, quoted as a range of tonnage and a range of grade (or quality), relates to mineralization for which there has been insufficient exploration to estimate a mineral resource.
 The rules define an “initial assessment” to mean a preliminary technical and economic study of the economic potential of all or parts of mineralization to support the disclosure of mineral resources.
 The rules define “cut-off grade” to mean the grade (i.e., the concentration of metal or mineral in rock) that determines the destination of the material during mining. For purposes of establishing “prospects of economic extraction,” the cut-off grade is the grade that distinguishes material deemed to have no economic value (it will not be mined in underground mining or if mined in surface mining, its destination will be the waste dump) from material deemed to have economic value (its ultimate destination during mining will be a processing facility).
 The rules define “modifying factors” to mean the factors that a qualified person must apply to indicated and measured mineral resources and then evaluate in order to establish the economic viability of mineral reserves. A qualified person must apply and evaluate modifying factors to convert measured and indicated mineral resources to proven and probable mineral reserves. These factors include, but are not restricted to: mining; processing; metallurgical; infrastructure; economic; marketing; legal; environmental compliance; plans, negotiations, or agreements with local individuals or groups; and governmental factors. The number, type and specific characteristics of the modifying factors applied will necessarily be a function of and depend upon the mineral, mine, property, or project.