DOING SOME DIGGING – Time to Re-jig NI 43-101

There are rare, pivotal events that change the way we see or do things ever after. One of these was the March 1997...
There are rare, pivotal events that change the way we see or do things ever after. One of these was the March 1997 fall to his death from a helicopter of geologist Michael de Guzman in Indonesia, accelerating the unraveling of the Bre-X gold-salting scam. The investigations that followed made investors, company personnel and journalists realize that we should be far more skeptical of stated results, and far more cautious and prudent in our investments. Exploration companies have been required to jump through a lot more hoops since then, in order to be listed as public companies.

For Canadian-listed companies, the new regulations are encompassed in National Instrument 43-101 standards of disclosure for mineral projects, which has been in effect since February 2001. The main requirements of 43-101 are three-fold: there are certain standards for all public disclosures about a mineral projects, based on information from a "qualified person" (QP); mineral resources and reserves must adhere to the definitions set out by the CIM; and the disclosures must be supported by a written technical report certified by the QP. A lot of the onus, then, lies with the QP, and there are many Canadian geologists, newly-registered in one of the provinces, who are making their living preparing qualifying reports for Canadian-listed junior and senior mining companies.

But NI 43-101 is not operating as intended, which led the Canadian Securities Regulators (CSA) to propose some amendments last September, to reflect changes in the mining industry, correct errors in the existing rules, to provide exemptions such as for foreign issuers, and to make it more user-friendly. In a February 22 presentation to the Toronto-based Women's Mining Network, Barbara J. Hendrickson, a lawyer with Baker & McKenzie LLP, summarized and commented on the proposals.

She said there are three main proposed changes.

The first affects companies with ROYALTY INTERESTS in a property. The CSA proposes that the definition of a "mineral project" should include "a royalty, net profits interest or similar interest". This means that a public company with a royalty in a property would have to make disclosures on the property, just as though it had a direct interest in the property. The rub is that it may be difficult for the royalty holder to get enough information from the owners to complete a technical report. The CSA suggests the royalty holder should contract with the operating company to obtain the information. One comment from the floor of the meeting was that you can't ask companies to divulge information that they don't own; they have no way of verifying it.

The second main proposal is for an EXEMPTION FOR FOREIGN ISSUERS from complying with 43-101. A "foreign" company would be incorporated outside Canada, with shares trading mainly in New York, London, Johannesburg, or on Nasdaq or the Australian Stock Exchange. It would be in compliance with securities regulations in the applicable countries, and less than 10% of its shares would be owned by Canadian residents. A response during the presentation was that it is a huge problem finding out the residence of most shareholders at any given time, so it might be very difficult to judge which companies could be considered "foreign".

The third issue is the INDEPENDENCE REQUIREMENT FOR QUALIFIED PERSONS. The existing regulations require the QP to be independent, but the proposed change is a much broader definition of relationships that could disqualify a QP from being independent. The proposal suggests that a QP is not independent who "has, or expects any agreement, arrangement, understanding, employment or other relationship with, or any interest in, any person or company, the mineral project, the property, or any adjacent property, that a reasonable person would consider an influence on the qualified person's judgment." One problem, for starters, is that surely the QP is employed by the company to be the QP and write the report. Isn't that a relationship that could influence judgment?

These are only proposals, so far. You can voice your response to them. The Ontario Securities Commission and the CSA are hosting a seminar on the proposals on Friday March 4 at the Ontario Club in Toronto. A registration form for the seminar is available at For more information about her presentation, you can reach Barbara Hendrickson at or by phone at 416-865-2323.


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