Deanna Wolfe Member Name
Senior Resource Geologist
Mathew Oommen Member Name
Associate, Senior Mining Practice Leader
This article was originally published in Mining Engineering magazine.
If your company is listed on a U.S. stock exchange and mining is a material part of your business, then the new U.S. Securities and Exchange Commission (SEC) property disclosure regulations, S-K 1300, will impact you. The SEC’s modernization of reporting exploration results, mineral resources and mineral reserves focuses on aligning its requirements with international reporting standards and follows an in-depth consultation process with industry stakeholders that was initiated more than four years ago. The regulations, consistent with the principles of the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), come into effect for your business’ first fiscal year on or after Jan. 1, 2021. S-K 1300 creates a more robust, consistent and transparent framework for disclosing exploration results, mineral resources and mineral reserves, with the aim of protecting and informing investors.
Summary of S-K 1300
S-K 1300 allows registrants to paint a complete picture of their mineral assets and include mineral resources and/ or exploration results. Previously, registrants reported mineral reserves under Industry Guide 7 (IG7) following internal processes that were typically varied and individualized by commodity, company, mine or project. Some registrants disclosed mineral reserves by separating them between assigned and unassigned reserves to distinguish between properties that were active versus future opportunities. Other registrants did not report future tonnages due to the inability to disclose exploration results and mineral resources under IG7. The new regulations will remove such inconsistencies and provide clarity for both registrants and investors.
Mineral resources must be based upon an initial assessment, while mineral reserves are required to be supported by a preliminary feasibility study (PFS) or feasibility study. Technical studies must evaluate all relevant factors, which include site infrastructure, mine design and planning, processing, environmental compliance and permitting, capital and operating costs. The accuracy of cost estimates and contingencies must be disclosed when developing the economic analysis as required for the disclosure of mineral reserves. In identifying these relevant factors, the regulators appear to have relied significantly on the SME Guide for Reporting Exploration Results, Mineral Resources and Mineral Reserves (2017).
Under S-K 1300, disclosures of mineral resource and mineral reserve estimates for the primary discipline areas must be based upon technical studies completed by Qualified Persons (QPs) who fulfill the competency requirements as required under the regulation.
The new regulation requires mineral resource and mineral reserve estimates for a registrant’s mineral properties to be disclosed in a tabular form. The estimates disclosed must be as of the end of each registrant’s fiscal year, based on a stated commodity price and reflect relevant factors related to geological, technical, regulatory and economic uncertainty. For the commodity price, the regulation stipulates, “the registrant must use a reasonable and justifiable price for each commodity, which it must disclose, together with the time frame and point of reference used.”
As well, the results of the technical studies for each material property must be summarized in a Technical Report Summary (TRS) in a form prescribed in S-K 1300. Each TRS must be appended to annual report filings (Form 10 K) together with the signed consent of QPs who prepared the TRS, agreeing to the disclosure of their names and work.
Golder has been advising several multinational mining companies on issues and implications relating to the new regulations. These companies are evaluating how to adapt their disclosure procedures from IG7 to S-K 1300. They have initiated reviews of their existing disclosures of Mineral Reserves to assess if they comply with S-K 1300 and to determine if additional work is required to comply with the new regulations.
A systematic review of each property is undertaken by Golder, in consultation with its clients, for compliance with disclosure requirements for a TRS and the need for supporting documentation in the form of a PFS or Initial Assessment as outlined in S-K 1300. This work includes an assessment of geological drill hole databases and models, mineral resource and reserve estimation techniques, basis and application of modifying factors and preparing life-of-mine plans and discounted cash flows that are the basis for the disclosure of mineral reserve estimates.
The primary gap observed with many clients is the lack of formal determination of in situ mineral resources, which was not required under IG7. The delineation of mineral resources is a necessary precursor to the determination of mineral reserves. Only measured and indicated mineral resources may be converted to proven and probable mineral reserves with the application of modifying factors, a life-of-mine plan, and other supporting technical and economic analysis to at least a PFS level. Future areas that were previously categorized as mineral reserves under IG7, may now have to be restated as Mineral Resources where an economic analysis of the mine plan has not been completed to a PFS level.
Additionally, some companies have properties that do not have enough drilling or technical studies completed to support a PFS and may need to reclassify mineral reserves as mineral resources. Missing information for a particular property may include a cutoff grade, life-of-mine plan, metallurgical recovery, adequate beneficiation plant design, hydrogeological and geotechnical studies or tailings-management plans. In these cases, companies need to decide to either increase the technical knowledge to a PFS level or downgrade currently stated mineral reserves on the property, or portions of the property, to mineral resources or exploration results.
Clients are also reviewing their portfolio to determine which properties are “material” and require an individual property disclosure and TRS as well as a summary disclosure. This discussion is one that companies are having with their legal and financial teams to better understand the implications of disclosing material information to their investors and how reclassifying tonnages may be perceived as a risk or competitive disadvantage to peers disclosing mineral resources and mineral reserves in other jurisdictions.
In summary, meeting the S-K 1300 reporting requirements will require additional effort from companies who have been reporting under IG7 guidelines. This is driven by new requirements for technical studies needed to support the disclosure of exploration results, mineral resources and mineral reserves as well as the material information that needs to be compiled, summarized and disclosed for material properties. Careful consideration of the current state of data and analysis for each property, as well as a portfolio review, should be conducted to determine the materiality of properties in order to prioritize efforts in advance of the compliance deadline. It will likely take three to four months for the registrant’s team to prepare a TRS and compile the underlying supporting technical studies for a given property. The time needed will depend on the current status of documentation and processes followed by the registrant.
If you have not yet started preparing for S-K 1300, now is the time. As you develop your approach for compliance, there will be much to consider and prepare along the way. The result of these efforts will be improved transparency for investors and consistency between company disclosures, ultimately delivering a more robust public report.