Avoiding Deal Killers - Understanding Technical Report Triggers Under NI 43-101
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Avoiding Deal Killers - Understanding Technical Report Triggers Under NI 43-101

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Avoiding Deal Killers - Understanding Technical Report Triggers Under NI 43-101 Avoiding Deal Killers - Understanding Technical Report Triggers Under NI 43-101 Presentation Transcript

  • Avoiding Deal Killers – Understanding Technical Report Triggers Under NI 43-101 Presentation by Alan Hutchison May 15, 2014 Dentons Canada LLP
  • Introduction May 15, 2014 Dentons Canada LLP Document reference # 8249379 2 • NI 43-101 compliance issues are key for financings and M&A transactions • In the current financing and M&A environment, deals cannot risk regulatory delays • Due to the time and cost involved in preparing a technical report it is important to understand what does and does not trigger a technical report under NI 43-101
  • Subject Matter of Technical Report May 15, 2014 Dentons Canada LLP Document reference # 8249379 3 • Report must support scientific and technical information set out in specific disclosure documents • Only relates to mineral projects that are material to the issuer • If a report is triggered, it must contain a summary of all scientific and technical information in respect of the mineral project
  • What is a Material Property? May 15, 2014 Dentons Canada LLP Document reference # 8249379 4 • Determined in the context of the issuer’s overall business taking into account qualitative and quantitative factors • Regulators expect companies to have at least one material property
  • What is a Material Property? (cont’d) May 15, 2014 Dentons Canada LLP Document reference # 8249379 5 • NI 43-101 guidance on what constitutes a material property: • prominence of a property in the issuer’s disclosure record • characterization of exploration or production results a property in the issuer’s disclosure record as significant • significance of mineral expenditures incurred on a property compared to an issuer’s other properties • proceeds of a significant financing are to be primarily applied to a property • stage of development – advanced stage properties generally more likely to be material than early stage properties • nature of interest in a property
  • Report Triggers for Financings May 15, 2014 Dentons Canada LLP Document reference # 8249379 6 • Technical report must be filed to support scientific and technical information in the following offering documents: • preliminary prospectus (other than a short form prospectus) • offering memorandum (as defined by NI 45-106 and excluding an offering memorandum delivered solely to accredited investors) • rights offering circular • TSX-V short form offering document • Timing – prior to the filing of the foregoing documents
  • Short Form Prospectus Financings May 15, 2014 Dentons Canada LLP Document reference # 8249379 7 • Technical report must be filed to support scientific and technical information in a preliminary short form prospectus that discloses for the first time: (i) mineral resources, mineral reserves or the results of a preliminary economic assessment (“PEA”) on the property that constitute a material change in relation to the issuer; or (ii) a change in mineral resources, mineral reserves or the results of a PEA from the most recently filed technical report if the change constitutes a material change in relation to the issuer • Important to review other disclosure documents that will be incorporated by reference into a short form prospectus • Timing – prior to the filing of the preliminary short form prospectus
  • M&A Transactions May 15, 2014 Dentons Canada LLP Document reference # 8249379 8 • Technical report must be filed to support scientific and technical information in the following M&A documents: • information circular concerning a direct or indirect acquisition of a mineral property where the issuer or resulting issuer issues securities as consideration • a valuation required to be prepared and filed under securities legislation (i.e., related party transactions, insider bids under MI 61-101) • a takeover bid circular that discloses mineral resources, mineral reserves or the results of a preliminary economic assessment if securities of the offeror are being offered in exchange on the bid • Timing – prior to the filing of the foregoing documents
  • Continuous Disclosure May 15, 2014 Dentons Canada LLP Document reference # 8249379 9 • Technical report must be filed to support scientific and technical information in the following continuous disclosure documents: • annual information form • any written disclosure (e.g., news release, management presentation, website) that discloses for the first time: (i) mineral resources, mineral reserves or the results of a preliminary economic assessment (“PEA”) on the property that constitute a material change in relation to the issuer; or (ii) a change in mineral resources, mineral reserves or the results of a PEA from the most recently filed technical report if the change constitutes a material change in relation to the issuer
  • Material Change May 15, 2014 Dentons Canada LLP Document reference # 8249379 10 • Defined in Section 1(1) of the Securities Act (British Columbia): “a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of a security of the issuer” • Decision of the BCSC in August 2013 regarding Canaco Resources Inc. and certain directors provided guidance on determining what constitutes a material change
  • Lessons from the Canaco Decision May 15, 2014 Dentons Canada LLP Document reference # 8249379 11 • The test is objective – determination is based on “an objective assessment of the facts that were available to the issuer’s board at the time the decision to disclose, or not, is being made” • “What happens to the price afterwards is not relevant” – no re-assessment with the benefit of hindsight • In the course of pre-resource estimate exploration results there may never be a point in time where a material change occurs, but cumulative results disclosed over time may in aggregate establish a complete picture
  • Lessons from the Canaco Decision (cont’d) May 15, 2014 Dentons Canada LLP Document reference # 8249379 12 • Questions to consider: • what is current investor perception of our business and prospects now? • would this information reasonably be expected to change that perception? • if so, would the information reasonably be expected to change the perception to an extent sufficient to significantly affect market price?
  • Case Study 1 – Production Decision May 15, 2014 Dentons Canada LLP Document reference # 8249379 13 Facts: Company announces that has made a production decision on a property without a concurrent feasibility study or resource / reserve / economic assessment. Report Required: No. Considerations: - see section 4.2(6) of NI 43-101 CP – no report trigger to support a production decision - to avoid triggering a report on other triggers, include prominent cautionary language in disclosure and avoid making inferences about the property that equate the property with characteristics that would trigger a report
  • Case Study 2 – Material Change in Inputs May 15, 2014 Dentons Canada LLP Document reference # 8249379 14 Facts: Company has a PEA filed in 2012. Little new work has been done in past two years. With equity markets coming back it proposes to file a short form prospectus for a bought deal. Commodity prices have slipped since the date of the PEA and capital costs have not been updated. Report required: Likely not. Considerations: - ensure that previous PEA included sensitivity analysis to capture present conditions - be careful with disclosure around the previous PEA in marketing materials - if additional work had been done and disclosed (i.e., refining PEA, completing PFS component studies) a new report may be required
  • Case Study 3 – Continued Advancement of Project May 15, 2014 Dentons Canada LLP Document reference # 8249379 15 Facts: Company has a PEA stage property. Due to significant capital costs in previous PEA filed in 2011 the project has stalled. Company has focused on improving size and quality of resources to get more market support for capital costs. New resource estimate upgrades resource quality and increases metal content by 10%. Company looking to do an all share takeover of another company with another property in the same vicinity that could add additional upside. Report required: ??
  • Case Study 3 – Continued Advancement of Project (cont’d) May 15, 2014 Dentons Canada LLP Document reference # 8249379 16 Considerations: - increase in resource requires further assessment. Note that NI 43-101 expressly covers changes to tonnage or metal content, but post-Canaco we expect more deference to management assessment by regulators - review shelf life of 2011 PEA – economic analysis in advanced studies (PEA, PFS, FS) may become dated. If only the resource will change clarifying language will be required for the 2011 economic analysis based on the old resource - with a takeover bid circular it is necessary to review the resulting issuer, so consider ramifications of acquisition target and disclosure about post-closing intentions
  • Case Study 4 – Project with Historical Resources May 15, 2014 Dentons Canada LLP Document reference # 8249379 17 Facts: Company owns a property that is the subject of a historical resource estimate. The company has never completed a current resource but has focused on permitting and development work, which has been publicly disclosed. The company announces plans to complete a financing to add to the historical resource and to pursue stated production scenarios. Report required: Yes. Considerations: - NI 43-101 permits disclosure of historical resource estimates with specific cautionary language. Anything beyond that (i.e., treating historical resources as current, or using historical resources as the basis for a production decision) triggers the requirement for a new report to support such disclosure - Consider disclosing ranges for potential quantity and grade as an alternative (permitted by s.2.3(2) of NI 43-101)
  • Questions? May 15, 2014 Dentons Canada LLP Document reference # 8249379 18 Alan Hutchison Partner Dentons Canada LLP alan.hutchison@dentons.com 604-443-7119
  • May 15, 2014 Dentons Canada LLP Document reference # 8249379 19 • The preceding presentation contains examples of the kinds of issues companies dealing with Mining Law could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.