In the past five years, there have been important new securities laws passed in Canada regarding the disclosure of “forward-looking information” (FLI). Recently, the Canadian Securities Administrators (CSA) took the opportunity to include new general guidance on disclosing FLI on mineral projects in the proposed changes to the Companion Policy 43-101CP to National Instrument 43-101 Standards of Disclosure for Mineral Projects. The guidance points out that another National Instrument in Canada, NI 51-102 Continuous Disclosure Obligations, contains specific requirements for disclosing FLI on mineral projects. FLI from a mining study would include forecasts of mine production rates, the amount of metals or minerals to be produced or recovered, and the resulting cash flows. These types of information are an essential component of preliminary assessments, preliminary feasibility and feasibility studies on undeveloped deposits, and life-of-mine plans for developed or operating mines.
Meeting disclosure requirements: Forward-looking information on mineral projects
Reasonable basis for FLI
Section 4A.2 of NI 51-102 requires companies to have a reasonable basis for their FLI. This would include the assumptions used and the study supporting FLI. In the case of mineral projects, assumptions would include: metal or commodity price and currency exchange rates; capital and operating costs; mining method and dilution; process method and recoveries; mine production rates; and the time frame for permitting and constructing a mine. A reasonable basis for metal price assumptions used in a mining study, for example, is to use industry consensus price, as determined by averaging the long-term metal price forecasts published by investment banks and mining analysts.
Section 4A.3 of NI 51-102 requires companies to present the FLI in a way that investors readily identify it as such. CSA Staff Notice 51-330 provides guidance that general or generic statements are not considered effective in meeting this requirement. The Staff Notice provides the following examples of commonly used, but ineffective statements:
“This document may contain forward-looking statements. Forward-looking statements are often, but not always, identified by words such as 'believes,' 'may,' 'likely,' 'plans' or similar words.”
“All statements, other than statements of historical fact, that address activities, events, or developments that Company X expects or anticipates will or may occur in the future are forward-looking statements.”
Statements identifying FLI involving a mineral project would be more effective if the statements are specific in the content that is forward-looking, for example, the information in a table containing mine production forecasts and expected cash flows from preliminary feasibility or feasibility studies.
Disclosing material factors, assumptions and risks
Section 4A.3 also requires companies to state the material factors or assumptions used to develop FLI, and identify material risk factors that could cause actual results to differ materially from the FLI presented. The uncertainty regarding the assumptions used in mining studies should reduce as a project progresses. For example, the collection of geotechnical data should reduce the risks associated with the geomechanical assumptions used for the mine design, in the same manner that metallurgical testwork improves the confidence (reduces the risk) in the process design and metallurgical recovery assumptions. Some assumptions are not project-specific, such as currency exchange rate or commodity price assumptions. The CSA has provided guidance that the risk factors should not be so “boiler plate” in nature so that FLI could apply to any type of business. Companies are not expected to anticipate and discuss everything that could conceivably cause the results to differ, and the risks identified should be specific to the FLI in the particular disclosure document. As well, the type of risks should change as the mining project progresses. Increasing amounts of test work, engineering design and discussions with permitting authorities and impacted communities should reduce risk in more advanced projects, and FLI statements should reflect such risk changes.
Carve-outs for the mining industry
Part 4B of NI 51-102 limits the time period that future-oriented financial information (FOFI) can be reasonably estimated, and provide guidance that this time period should generally not go beyond the end of the company’s next fiscal year. Fortunately, the CSA recognized that it is accepted practice in the mining industry to project cash flows over a life-of-mine, which can, and frequently does, exceed a decade or more. A carve-out to this time limitation is provided in NI 51-102 for disclosure subject to NI 43-101.
Section 5.2 of NI 51-102 requires companies to provide an update of previously disclosed material FLI in their management’s discussion and analysis. The update must discuss events and circumstances that could cause actual results to differ materially and discuss the expected differences. Many inputs to preliminary assessment, preliminary feasibility and feasibility studies on mining projects can be expected to be become out of date soon after the study is completed. The CSA recognized that it would be particularly onerous for a mining company to review the mining studies on material mineral projects each quarter for material differences. Therefore, the carve-out to this requirement was provided for FLI subject to NI 43-101.
Shelf life of FLI in technical reports
In spite of the above carve-outs in NI 51-102 for FLI subject to NI 43-101, mining companies should assess whether FLI statements have become stale-dated. In the proposed changes to the Companion Policy 43-101CP of NI 43-101, the CSA included the following guidance:
“Economic analyses in technical reports are based on commodity prices, costs, sales, revenue, and other assumptions and projections that can change significantly over short periods of time. As a result, economic information in a technical report can quickly become outdated. Continued reference to outdated technical reports or economic projections without appropriate context and cautionary language could result in misleading disclosure.”
Civil liability for misrepresentations in FLI
Most provinces and territories in Canada have passed, or are considering passing, changes to their Securities Act that provide civil liability for misrepresentations in FLI. The same legislation provides a defence against that civil liability by offering a safe harbour for FLI disclosure. To take advantage of this defence, a company must include certain disclosure in close proximity to the FLI. In general, the required information for the safe harbour is the same information required by Part 4A of NI 51-102. However, mining company management should discuss with their legal counsel how to meet the disclosure requirements in their particular circumstances.
Greg Gosson is technical director, geology and geostatistics, mining and metals consulting, for AMEC Americas Limited.