Mining and exploration companies with projects in developing nations should take note that an amendment to the Corruption of Foreign Public Officials Act (CFPOA) has been approved by the Senate and is currently before the House of Commons. Bill S-14 is intended to address certain criticisms of the existing legislation, most notably from the Organisation for Economic Co-operation and Development (OECD), an international organization of 34 countries of which Canada is a member.

The CFPOA makes it a crime to bribe a foreign public official in order to obtain or retain an advantage in the course of business. To date, three companies have pleaded guilty and been convicted of offences under the CFPOA, the latter two resulting in fines of approximately $10 million each.

Bill S-14 proposes to make the following changes to the CFPOA:

• the offence of bribing a foreign public official will be expanded beyond business carried on “for a profit” to include activities not carried on for profit. As a result, the CFPOA will apply to charities and other not-for-profit organizations in addition to for-profit corporations;
• the maximum period of imprisonment for bribing a foreign public official will be increased from 5 years to 14 years;
• instead of requiring a “real and substantial connection” between Canada and the location where acts of bribery occur as is currently the case, the CFPOA will apply to acts of bribery anywhere in the world where such acts are conducted by Canadian citizens, permanent residents present in Canada, Canadian corporations or other entities created under the laws of Canada or a province;
• “facilitation payments” (generally, payments to a public official to expedite a routine governmental act that is part of the official’s duties, and not to obtain or retain business or any other undue advantage), which are currently permitted as an exception to the offence of bribing a foreign public official, will become illegal at a future date to be set by the Governor in Council;
• a new offence of manipulation or falsification of accounting records to conceal bribery has been created, which attracts a maximum sentence of 14 years in prison; and
• whereas currently many different categories of peace officers that exist in Canada are empowered to enforce the CFPOA, the Royal Canadian Mounted Police will be given exclusive jurisdiction to charge persons for offences under the CFPOA.

It is important for companies operating internationally, especially in developing nations, to have appropriate policies and procedures in place to ensure compliance with the CFPOA and other applicable anti-bribery legislation throughout the world. When entering into transactions with companies that also operate internationally, it is important to ensure appropriate due diligence is conducted and appropriate language is contained in contracts relating to the transaction to minimize the possibility that your corporation will attract liability through under the CFPOA and other applicable anti‑bribery legislation through its association with proposed business partners or other counterparties.

Dentons’ team of seasoned professionals throughout Canada, the US, Europe, Russia and the CIS, Africa, Asia Pacific and the Middle East represents corporate clients, boards of directors, board committees, hedge funds, partnerships and joint ventures, audit firms and individuals in connection with all aspects of anti-corruption compliance, enforcement and defense.

Please contact a member of our Global Anti-Corruption Group for more information.

Last week the Canadian Government introduced amendments to the Investment Canada Act (ICA) to implement its revised policy towards state-owned enterprises (SOEs) which it announced in December last year. At that time, while it approved the acquisition by Chinese SOE, CNOOC, of Canadian oil and gas company, Nexen, the Government announced its intention to prohibit acquisitions of control of Canadian oil sands businesses by SOEs except on an exceptional basis. It also stated that joint ventures and minority investments were welcome. In addition, the government indicated it would closely monitor SOE acquisitions in other sectors of the economy and would distinguish between SOE and non-SOE investments when setting the ICA review threshold. (See Focus on Foreign Investment Review, December 2012)

As expected, the proposed amendments would retain for SOEs the current review threshold which is based on the target Canadian business’ book value of assets ($344 million in 2013) while non-SOEs would be subject to a higher review threshold based on enterprise value (to be set at $600 million when implemented, rising to $800,000 in two years and then to $1 billion four years later). The result is that, relative to non-SOE investments, SOE investments will be more often subject to Ministerial approval on the basis of the “net benefit to Canada” test, enabling closer scrutiny of SOE investments in Canada.

What may be surprising about the proposed amendments is that they give the Government very broad latitude to ignore the general ICA rules in making a number of critical determinations that affect whether a proposed transaction is subject to review under the ICA. If reviewable, a transaction will be subject to a time-consuming process, potential delays to closing (and in rare cases, rejection) and almost always significant commitments to the Canadian Government on a broad range of issues. The uncertainty generated by the Government’s discretion under the amendments is exacerbated by the potentially very broad scope of the term “SOE”.

Potential for Increased Government Scrutiny of SOE Investments

The proposed amendments could significantly increase the number of SOE investments requiring Ministerial approval by permitting the responsible Minister (the Minister of Industry except where the target industry is cultural) to avoid the general ICA rules and presumptions:

• defining when an acquisition of control occurs. The ICA general rules establish presumptions regarding when control is acquired. For example, they state that the acquisition of less than one-third of the voting shares of a corporation or of less than a majority of the economic interests of a partnership is deemed not to be an acquisition of control. If there is no acquisition of control, there is no requirement for a “net benefit” review under the ICA. For an SOE, these rules need not be applied if the Minister concludes based on “any information and evidence” made available to him that the SOE will acquire control in fact.
• determining whether one entity is controlled by another. The ICA general rules set out rules and presumptions regarding when control exists. However, the proposed amendment would permit the Minister to go beyond those rules in assessing whether an SOE controls another entity in fact.
• whether an investor is Canadian or not. The ICA establishes rules to determine the Canadian status of an investor. Pursuant to the proposed amendment, an entity that would otherwise be considered Canadian-controlled may be judged to be an SOE if the Minister concludes that it is controlled in fact by an SOE.

All of the above decisions may be retroactive to April 29, 2013.

As noted above, the repercussions of bypassing the normal presumptions and rules on these points could be serious for an SOE investor. A decision by the Minister that the investor is controlled in fact, directly or indirectly, by a foreign state means that the transaction will be subject to a lower review threshold. In addition, a transaction that would not otherwise be subject to the ICA “net benefit” review and notification regime – such as a minority investment, including a 50% interest in a partnership or joint venture – because it did not constitute an acquisition of control, could be reviewed because of the Government’s determination that control in fact was acquired. As an assessment of “control in fact” can be relatively subjective and depend on a detailed analysis of the terms of the investment, it may be unclear, especially early on the deal process, whether the SOE investment is an acquisition of control in fact under the ICA and therefore potentially reviewable.

Uncertainty regarding the Scope of an SOE

The uncertainty described above may be exacerbated by the vague definition of an “SOE”. As contemplated in the Government’s statements on its new SOE policy in December last year, the definition of an SOE now includes not only the government of a foreign state or agency of such government and an entity that is controlled, directly or indirectly, by such a government, but also an entity that is influenced, directly or indirectly, by a foreign government. There is no guidance as to what constitutes “influence” which raises the spectre of foreign corporations being deemed to be SOEs because of the presence of foreign government representation on boards or because of senior management links to government officials (e.g., Huawei whose founder was a senior officer in China’s People’s Liberation Army) or to political parties (e.g., would the presence of party officials in key positions in major Chinese corporations make them “influenced” by a foreign government?).

Significantly, the definition of an SOE has also been expanded to capture individuals acting under the direction of a foreign government or under the direct or indirect influence of a foreign government.

As a result of the proposed amendments, private companies or individuals could be subject, at the Government’s discretion, to the lower SOE review threshold and to the potentially more stringent review process applicable to an SOE .

Longer Timelines for National Security

Finally, the proposed amendments would extend timelines for the national security review of transactions. There are numerous prescribed time periods in the review process and these are to be lengthened from five days to 30 days or as agreed to between the foreign investor and the Government.

Conclusion

The Government’s message in the proposed ICA amendments is clear but also muddied. What is clear is that the Government will be watching out for SOE investments and will scrutinize such transactions more closely. What is muddied is the reviewability of investments by SOE investors (especially minority investments) as well as the potential application of the lower SOE review threshold to investments by individuals and private companies that are not owned, directly or indirectly, by foreign governments, but somehow subject to foreign government influence. While investors may request a Ministerial opinion to clarify whether a given investment is subject to review, there is no requirement under the ICA for the Minister to provide such an opinion, unless the request relates to a determination about the Canadian status of the investor (and even this exception is to be limited under the proposed amendments to transactions in which the target Canadian business is in a cultural industry).

In short, as a result of the proposed amendments, SOEs and foreign investors that might possibly be viewed as SOEs may, depending on the type of investment planned, face a higher risk that their investments will require Ministerial approval in order to close compared to non-SOEs investing in Canada.

If you would like further information, please contact Sandy Walker at Dentons Canada LLP.

The new Québec mining tax regime was announced on May 6^th 2013, by the Minister of Finance, Nicolas Marceau, accompanied by the Minister of Natural Resources, Martine Ouellet.

The Québec Government has presented a new regime under which all mine operators in Québec will have to pay a minimum mining tax.

The mining corporation will be required to pay the greater of two amounts, either a minimum mining tax on ore extracted or a mining tax on annual profit for a fiscal year starting after December 31, 2013.

• The minimum royalty rate is set at 1% for the first $80 million of ore extracted and at 4% of the value of ore extracted in excess of $80 million, these rates being applied to the output value of the ore at the mine shaft head.
• The mining tax on profit will be calculated according to a progressive rate structure. The new tax rates to be applied will be 16%, 22% or 28% depending on profit margin, the Government having provided for three segments of profit margin (from 0% to 35%, from 35% to 50% and from 50% to 100%).

Minister Marceau also stressed the importance of jobs in Québec for processing activities, and therefore has added incentives in the new tax regime in an effort to increase processing in Québec.

Minister Ouellet spoke briefly about the future Mining Act and indicated that this new mining tax regime has been developed in order to be more transparent and in the context of more responsible development of mining resources.

The details relating to the newly announced mining tax regime may be found in the following documents which have been made available by the Government:

• In English

- Press Release: http://www.finances.gouv.qc.ca/documents/Communiques/en/COMEN_20130506.pdf

- Full document: http://www.finances.gouv.qc.ca/documents/autres/en/AUTEN_NewMiningTaxRegime.pdf

- Charts: http://www.finances.gouv.qc.ca/documents/autres/en/AUTENCharts_MiningTaxRegime.pdf

- Information bulletin: http://www.finances.gouv.qc.ca/documents/bulletins/en/BULEN_2013-4-a-b.pdf

• In French

- Communiqué de presse: http://www.finances.gouv.qc.ca/documents/Communiques/fr/COMFR_20130506.pdf

- Document complet: http://www.finances.gouv.qc.ca/documents/Autres/fr/AUTFR_NouveauRegimeImpotMinier.pdf

- Graphiques: http://www.finances.gouv.qc.ca/documents/Autres/fr/AUTFRGraph_RImpotMinier.pdf

- Bulletin d’information: http://www.finances.gouv.qc.ca/documents/bulletins/fr/BULFR_2013-4-f-b.pdf

This article was written by Ann Bigué and Dominique Quirk.

On March 28th, Québec Environment minister Yves-François Blanchet announced that the Bureau d’audiences publiques sur l’environnement (BAPE) will hold public hearings on the uranium sector in Québec. These hearings are scheduled for the Fall of 2013 and will focus on the environmental and social impacts of exploration and mining of uranium in Québec. The Minister also indicated that no authorization certificates for uranium exploration or mining projects in Québec will be issued until the BAPE’s independent study is completed and its report is issued.

The Minister stressed the importance for the Government to respect the principles relating to the protection of the social environment and the protection of Aboriginal peoples, their societies, their communities and their economy. Aboriginal organizations will therefore be invited to play a significant role in the consultation. The Minister indicated that the BAPE’s study will be conducted in collaboration with the review committees and advisory committees provided for in the James Bay and Northern Québec Agreement, the Northeastern Québec Agreement and the Environment Quality Act.

The Government’s press release is available here (in French only): http://www.mddefp.gouv.qc.ca/infuseur/communique.asp?no=2383

This article was written by Ann Bigué and Dominique Quirk.

On April 12, 2013, the TSX Venture Exchange (“TSX-V”) extended to August 31, 2013, temporary relief from certain pricing requirements related to private placement financings that were originally granted on August 17, 2012, and extended and modified on December 12, 2012.

The temporary relief measures (the “Relief Measures”) are:

(a) allowing a share/unit offering with an offering price below $0.05 (the “Offering Price Relief Measure”);

(b) allowing a debenture offering with a debenture conversion price below $0.10 (the “Conversion Price Relief Measure”);

(c) allowing offerings involving a warrant with an exercise price below $0.10 (the “Exercise Price Relief Measure”); and

(d) with respect to the Offering Price Relief Measure and the Conversion Price Relief Measure, up to $50,000 of the gross proceeds raised by an issuer in reliance upon these Relief Measures can be used for general working capital purposes and is not subject to the “Maintain/Preserve Existing Business” or “No Payments to Related Parties” conditions.

The TSX-V also added the following temporary relief measures that are also in effect until August 31, 2013:

(a) with respect to the Offering Price Relief Measure and the Conversion Price Relief Measure, the TSX-V is modifying the 75% arm’s length requirement to allow up to an aggregate of $200,000 to be raised from related parties of the issuer without any arm’s length component to the private placement being required;

(b) with respect to the Exercise Price Relief Measure, the TSX-V is removing the 75% arm’s length requirement; and

(c) the TSX-V is clarifying that Capital Pool Companies, including those listed on NEX, are not permitted to rely upon the Relief Measures.

Specifics of the requirements and conditions associated with the use of the Relief Measures are detailed in the Corporate Finance Bulletin and Notice to Issuers.

Dentons emerges from the merger of SNR Denton, Fraser Milner Casgrain LLP and Salans with 2,500 lawyers in 79 locations in 52 countries. For our mining clients this means improved access to the lawyers in many jurisdictions around the world including the financial centers of London and New York.

We plan to expand our mining blog to cover many new topics from around the world in the numerous matters that affect our clients and friends wherever their activities and operations currently exist or take them in the future.

Any questions, please call us.

Further to an earlier post, the Autorité des marchés financiers (“AMF”) has published a consultation paper (the “AMF Proposal”) inviting comments on an alternative approach to that contemplated by the Canadian Securities Administrators’ Proposed National Instrument 62-105 – Securities Holder Rights Plans.

The AMF states that the aim of the AMF Proposal is to restore the regulatory balance between bidders and target boards and update the policy framework of the current take-over bid regime to reflect the current legal and economic environment and market practices respecting unsolicited take-over bids.

The AMF Proposal introduces two significant changes to the current take-over bid regime that would:

1. replace National Policy 62-202 with a new policy on defensive tactics that would clearly recognize the fiduciary duty of directors to the corporation in responding to an unsolicited take-over bid and would redefine securities regulators’ intervention on the ground of public interest; and

2. require, as an irrevocable condition of any bid for all securities of a class, and for any partial bids, that more than 50% of the outstanding securities of the class held by persons other than the offeror and those acting in concert with it, be tendered and not withdrawn on the date the bid would otherwise expire.

The AMF believes that the implementation of these changes would have the following effects:

• it would give directors more latitude to exercise their fiduciary duty and consider all alternatives to maximize security holder value, without securities regulators’ intervention;
• it would create a revised framework for the regulation of all defensive tactics, not only rights plans;
• it would mitigate the coercion effects of the current take-over bid regime for all bids and not just those subject to rights plans;
• it would provide a direct regulatory solution to some gaps in the current take-over bid regime;
• it could minimize the ability of arbitrageurs to exert influence on the sale of take-over targets ; and
• it could encourage bidders to negotiate with boards and, as a result, possibly maximize security holder value.

The AMF Proposal can be found by clicking here.

The “British Columbia Environmental Assessment Office” (EAO) has entered into a Memorandum of Understanding (MOA) on the Substitution of Environmental Assessments with the Canadian Environmental Assessment Agency.

Under the memorandum, the EAO will conduct the environmental assessment for specific projects, including the procedural aspects of Aboriginal consultation. Federal departments will contribute their expertise. At the conclusion of the substituted environmental assessment, the respective federal and provincial ministers will reach separate decisions on the significance of the project’s environmental effects and the adequacy of Aboriginal consultation, based on the environmental assessment report prepared by the EAO.

The EAO has submitted requests to the Canadian Environmental Assessment Agency, CEAA to conduct substituted environmental assessments on behalf of the federal government for two proposed coal projects. The provincial environmental assessments will meet all federal and provincial requirements.

The MOU sets out an administrative framework for the use of the substitution provisions in the Canadian Environmental Assessment Act, 2012 (CEAA 2012).

The MOU outlines how information exchange will occur, describes the roles and responsibilities of the British Columbia Environmental Assessment Office EAO establishes the conduct of a substituted process leading to the respective environmental assessment decisions of federal and provincial ministers.

The CEAA commits to timelines in considering substitution requests from British Columbia.

A copy of the MOU can be found at here.

The Canadian Securities Administrators (CSA) published for comment proposed National Instrument 62-105 Security Holder Rights Plans, with the intention of establishing a comprehensive regulatory framework in respect of rights plans in Canada.

The proposed Instrument would provide a target company’s board and shareholders with greater discretion in the use of rights plans.

According to Bill Rice, Chair of the CSA and CEO of the Alberta Securities Commission, “the CSA believe that the proposed rule will modernize, harmonize and codify an appropriate regulatory approach to rights plans in Canada….barring exceptional circumstances, the decision to adopt and maintain a rights plan would be a matter for company boards and shareholders, not securities regulators.”

Specifically, the proposed framework allows a rights plan adopted by a board of directors to remain in place provided majority shareholder approval of the plan is obtained within 90 days after the rights plan is adopted or, if adopted after a takeover bid has been commenced, within 90 days after the date of the commencement of the takeover bid. To remain in effect, the rights plan would have to be approved at each annual meeting of the company following the initial shareholder approval. Any announced takeover bidder for the company, and joint actors of the bidder, would be excluded from the shareholder vote. Shareholders would also be able to terminate a rights plan at any time by majority vote at a shareholder meeting.

Under the current regime, securities regulators will usually cease trade a shareholder rights plan after a limited period of time once the plan has given the target board sufficient time to respond to a takeover bid.  The draft framework proposes that regulators not intervene to cease trade a rights plan that has complied with the proposed framework, which is a significant step in empowering the target board and shareholders in responding to a takeover bid.

The CSA comment period is open till June 12, 2013.

Following the announcement that a forum on mining royalties will be held on March 15^th, 2013 in Montréal, the Québec Ministries of Finance and Economy and of Natural Resources have made available, on March 8^th, a consultation document entitled “Le régime d’impôt minier du Québec”. This document includes information on the mining sector in Québec and on the operation of the current Québec mining tax regime.

The Québec Mining Association and the Québec Mineral Exploration Association as well as several mining companies, groups and experts will be invited to provide their opinion and suggestions on this question. The consultations will culminate in the forum on mining royalties which will be co-presided by Mr. Jacques Fortin (HEC Montréal) and Mr. Pierre Lasserre (UQAM-CIRANO).

The consultation document is available here (in French only): http://www.finances.gouv.qc.ca/documents/autres/fr/AUTFR_RegimeMinier.pdf

This article was written by Ann Bigué and Dominique Quirk.

The additional organizations listed below meet the definition of a “professional association” in NI 43‑101, and the membership designations listed meet the criteria in paragraph (e) of the definition of “qualified person” in NI 43‑101.

These associations and membership designations should be considered additions to the list of accepted foreign associations and membership designations in Appendix A of the Companion Policy.

On February 13, 2013, a notice was published in the Gazette officielle du Québec by the Minister of Natural Resources, Martine Ouellet, announcing amendments to the Regulation respecting mineral substances other than petroleum, natural gas and brine (the “Regulation”). All of these amendments pertain to the rules applicable to financial guarantee requirements for rehabilitation and restoration plans under Section 231 and following of the Quebec Mining Act.

The draft regulation amends the Regulation by increasing from 70% to 100% the financial guarantee required to ensure performance of the work required by the rehabilitation and restoration plan and by broadening the scope of the guarantee from being required only for the rehabilitation and restoration of accumulation areas (for mineral substances, overburden, concentrates and tailings), to being required for the rehabilitation and restoration of the entire mine site.

The payment schedule for the financial guarantee will also be amended for companies who are currently engaging in exploration work as well as for those engaging in mining operations or operating a concentration plant.

In the case of companies engaging in exploration work, under the current Regulation, the total guarantee must be submitted within 15 days after the rehabilitation plan is approved, if the exploration work is expected to last 1 year or less, or the financial guarantee can be submitted in annual payments if the exploration work is expected to last more than 1 year. The amendments now provide that every holder of mining rights who engages in exploration work must provide the financial guarantee to the Minister before the beginning of exploration work.

For operators engaging in mining operations in respect of tailings or mineral substances set out in the regulations, or operating a concentration plant, the current Regulation provides that their annual payments will be made according to rules set forth in a table. However, the amendments to the Regulation provide that the guarantee must now be submitted to the Minister in three payments, the first of which would represent 50% of the total guarantee and would be paid in the 90 days after approval of the rehabilitation plan is received. The subsequent payments of 25% each would be made on the anniversary date of approval.

The draft regulation also reviews certain forms of financial guarantee and requires the filing of a restoration plan for the movement of 1000 m³ or more of unconsolidated deposits.

The new amendments will also apply to operators who are currently engaging in mining operations or operating a concentration plant and whose restoration plan has been approved prior to the draft regulation coming into force. These operators will also have to provide the financial guarantee for the restoration of the mine site in three payments, the first payment being required at the latest one year after the draft regulation comes into force.

The draft regulation is set to come into force on February 28, 2013.

The current Regulation is available here:  http://www2.publicationsduquebec.gouv.qc.ca/documents/lr/M_13_1/M13_1R2_A.htm

The draft regulation is available here:http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=1&file=2462.pdf

This article was written by Ann Bigué and Dominique Quirk.

Québec Minister of Finance and Economy Nicolas Marceau and Québec Minister of Natural Resources Martine Ouellet announce that a forum on mining royalties will be held on March 15th, 2013 in Montréal, during which the mining industry and groups affected by this issue will be consulted.

This announcement made at the Strategic Forum on natural resources which was held in Montréal on February 8th, 2013, follows the commitments undertaken by the Parti Québécois during the last election campaign to raise mining royalties. The forum will enable the parties to agree on the “best way to get there”, said Minister Marceau.

In his speech announcing the forum on mining royalties, Minister Marceau indicated that the following principles are guiding the Québec Government: royalties must be increased, the extracted mineral must generate royalties in all cases, the most profitable projects must generate more royalties and transformation in Québec must be encouraged. He also indicated that the challenge is to find the balance between maximizing royalties, maximizing investments and maximizing employment in the mining sector.

A consultation document will be made available by March 1st and will be available on the Ministry websites. The document will include information on the mining sector, on the operation of the current Québec mining tax regime and on the total amount of royalties collected from mining companies in Québec.

The Québec Mining Association and the Québec Mineral Exploration Association as well as several mining companies, groups and experts will be invited to provide their opinion and suggestions on this question. These consultations will culminate in the forum on mining royalties which will be co-presided by Mr. Jacques Fortin (HEC Montréal) and Mr. Pierre Lasserre (UQAM-CIRANO).

Minister Marceau also indicated that the Québec Government will be able to announce the details of the new royalty regime in early spring.

The press release is available in French only: http://www.finances.gouv.qc.ca/documents/Communiques/fr/COMFR_20130208.pdf

Minister Marceau’s speech from the Strategic Forum on natural resources is available in French only: http://www.finances.gouv.qc.ca/documents/Communiques/fr/COMFR_Allocution20130208.pdf

This article was written by Ann Bigué and Dominique Quirk

The Canadian Coalition for Good Governance (“CCGG”) recently released its 2013 Executive Compensation Principles (the “2013 Principles”), replacing the previous version originally published in 2009. The original principles were designed to provide enhanced guidance to boards and to promote compensation decisions aligned with long-term company and shareholder success. According to the CCGG, the 2013 Principles offer an updated take on the principles set forth in the original report to reflect the continued evolution of both compensation practices and regulatory disclosure requirements.

According to the CCGG, the 2013 Principles focus on the concept of “pay for performance” and “the integration of risk management functions into executive compensation philosophy and structure”. The 2013 Principles are organized around six key principles:

1) A significant component of executive compensation should be “at risk” and based on performance.

2) “Performance” should be based on key business metrics that are aligned with corporate strategy.

3) Executives should build equity in the company to align their interests with those of shareholders.

4) A company may choose to offer pensions, benefits and severance and change-of control entitlements. When such perquisites are offered, the company should ensure that the benefit entitlements are not excessive.

5) Compensation structure should be simple and easily understood by management, the board and shareholders.

6) Boards and shareholders should actively engage with each other and consider each other’s perspective on executive compensation matters.

The CCGG notes that while Canadian disclosure obligations regarding executive compensation are limited to the “top five” executives at a company, boards should ensure that the above principles are used in determining company-wide compensation philosophy and structure.

As recently announced in a Corporate Finance Bulletin and Notice to Issuers (the “Bulletin”), the TSX Venture Exchange (“TSX-V”) has extended until April 30, 2013 three temporary measures (the “Relief Measures”) designed to provide relief to issuers from certain pricing requirements relating to private placement financings. The Relief Measures, originally implemented in August 2012, are as follows:

1) Allowing a share/unit offering with an offering price below $0.05.

2) Allowing a debenture offering with a debenture conversion price below $0.10.

3) Allowing offerings involving a warrant with an exercise price below $0.10.

In order to rely on the Relief Measures, an issuer must demonstrate that it is subject to immediate or imminent financial hardship and that it does not have the time or resources to undertake a share consolidation before closing the financing. In addition, the principal use of proceeds of the financing must be to maintain or preserve the existing business of the issuer and none of the proceeds may be used to compensate or satisfy obligations to related parties of the issuer.

The Bulletin includes an amendment to the originally-implemented Relief Measures by introducing the concept of an “Excluded Amount” with respect to financings with a share/unit offering price below $0.05 or a debenture conversion price below $0.10. The amended Relief Measures provide that up to $50,000 of the gross proceeds raised in a financing in reliance on the Relief Measures can be used for general working capital purposes and is not subject to the “Maintain/Preserve Existing Business” and “No Payments to Related Parties” conditions noted above.

Specifics of the requirements and conditions associated with use of the Relief Measures are detailed in the Bulletin.

On January 24, 2013, the BC Securities Commission issued a report (the “2012 Mining Report”) with respect to disclosure and interpretive issues under National Instrument 43 101, which is referenced as “the Mining Rule” in the report. Any questions or comments on the 2012 Mining Report can be submitted to Robert Holland or Ian McCartney of the B.C.S.C.

The report identifies a number of weaknesses in the disclosure of mining companies and provides a useful checklist for compliance measures in Appendix “A” which you can download by clicking ”Download PDF”, and a summary of the mining technical reviews disclosing the common compliance elves on the different disclosures which is also attached to this memo.

The report identifies the following common deficiencies encountered in reviewing technical reports including:

• Missing or altered statements in certificates and consents of the Qualified Persons;
• Not dated, signed, or addressed to the company;
• Non compliant disclaimers of responsibility or statements of reliance;
• Does not provide a summary of all material technical and scientific information for the entire property;
• Non compliant disclosure of historical estimates, exploration targets, or MRMR;
• Does not provide adequate or sufficiently transparent information on the key assumptions, parameters, and methodologies used in mineral resource estimates.

In addition, the report also references the CIM December 15, 2009 publication “Additional Guidance – Reasonable Prospects for Economic Extraction”.

The CIM statement emphasizes that the use of the words “reasonable prospects for economic extraction” in addressing mineral resources are:

• the responsibility of the Qualified Person;
• judgment based on the Qualified Person’s experience; and
• the methods used and assumptions made to determine if the project has “reasonable prospects” which must be presented explicitly in both public and technical reports.

Note that this clarification applies not only to measured and indicated resources, but also inferred reso 2012 Mining Report British Columbia Securities Commission urces and a copy is attached to this memo for reference.

To read Appendix A, click here.

Natasha Singh, articling student, assisted in the preparation of this article.

On January 24, 2013, the British Columbia Securities Commission (“BCSC”) released its 2012 Mining Report (the “Report”). The Report is the first of its kind for the BCSC and serves to strengthen the BCSC’s efforts to be Canada’s leading junior mining regulator. The Report provides an overview of the common pitfalls in mining disclosure and outlines areas where market participants could improve their disclosure.

The Report identifies and discusses the following common areas of deficiencies in mining issuers’ disclosure:

1. Technical Disclosure – The common downfalls in technical disclosure are (i) the failure to file current or fully compliant reports; (ii) the failure to include the required cautionary statements for preliminary economic assessments, historical estimates and exploration targets; (iii) disclosure of mineral resources and mineral reserves that do not fully comply with NI 43-101; (iv) misleading references to mining studies; and (v) the failure to name the qualified person.

2. Company Disclosure – In general, voluntary disclosure is less likely to comply with regulations when compared to required filings. For instance, an issuer’s website, investor relations materials and corporate presentations is less likely to comply with the BCSC’s rules and regulations when compared with required filings, such as technical reports and annual information form.

3. Technical Reports – The common problems in technical reports are (i) missing or altered statements in certificate or consents of qualified persons; (ii) prohibited disclaimers or statements of reliance on other experts; and (iii) non-compliant disclosure or mineral resources and mineral reserves, historical estimates, and exploration targets.

The BCSC is hoping that the Report will help issuers address the foregoing problems and in turn, avoid costly and time-consuming mining disclosure reviews. A copy of the Report can be found here.

On December 31, 2012, the recent amendments to the TSX Company Manual regarding director elections and majority voting became effective. Under the new rules, TSX-listed companies are required to:

• elect directors individually (not as a slate);
• hold annual elections for all directors; and
• promptly issue a news release providing detailed disclosure of the voting   results for the election of directors.

In addition, the new rules require TSX-listed companies to disclose annually in its management information circulars whether they have adopted a majority voting policy for directors for uncontested meetings. If a majority voting policy has not been adopted, the company is required to explain in its management information circular its practices for electing directors as well as the reasons why the company has not adopted a majority voting policy. The new majority voting rules are discussed in further detail in a prior post, which can be found here.

On December 17, 2012 the Toronto Stock Exchange (“TSX”) and TSX Venture Exchange (“TSXV” and together with the TSX the “Exchanges”) published a consultation paper on their respective listing requirements applicable to issuers with a significant connection to an emerging market jurisdiction (the “Paper”). The Paper follows the recent guide published by the Ontario Securities Commission: Staff Notice 51-720 – Issuer Guide for Companies Operating in Emerging Markets in which similar issues were identified and discussed. The principal purposes of the Paper are to: (a) present the potential risks associated with listing emerging market issuers (“EMIs”) that have been identified by the Exchanges; (b) provide preliminary guidance to issuers and their advisors with respect to listing considerations applicable to EMIs; and (c) solicit comments from market participants on matters related to listing EMIs, including possible new guidance or requirements that the Exchanges may implement.

READ FULL ARTICLE

On November 28, 2012, the British Columbia Securities Commission (BCSC) issued the reasons for the decision it had made following a hearing to consider an application made by Inmet Mining Corporation for certain relief in connection with its hostile take-over bid for Petaquilla Minerals Ltd. The hearing had concluded with an unsurprising order to the effect that Petaquilla’s shareholder rights plan would be cease traded on a specified date unless Petaquilla waived the plan as against Inmet’s bid. What was less predictable was that the BCSC also cease traded a proposed private placement note financing by Petaquilla, unless Inmet did not purchase any Petaquilla shares under its bid.

Read full article here.

Both Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co. (“GL”) released updates in November 2012 to their proxy voting recommendation guidelines for the 2013 shareholder meeting season. Below is a summary of the changes relevant to TSX and TSX-V listed companies.

Read full article here.

On December 6, 2012, the Canadian Securities Administrators (“CSA”) published CSA Staff Consultation Paper 91-301, requesting comments regarding the following Model Provincial Rules: Derivatives: Product Determination (the “Scope Rule”) and Trade Repositories and Derivatives Data Reporting (the “TR Rule” and collectively, the “Model Rules”). The Model Rules are intended to implement the G-20 commitments regarding the regulation of trading derivatives in Canada. In Ontario, the Model Rules will apply only to derivatives that are traded over-the-counter.

In general, the intention of the Model Rules is to impose specific regulatory requirements tailored to address the unique characteristics of derivative products and to bring Canada’s regulation of derivatives in line with international standards. More specifically, the Model Rules look to regulate how derivatives are marketed and traded, the sophistication of the counterparties, existing regulation in other areas (such as the regulation of financial institutions) and the risks they present to the derivatives and financial markets.

The Scope Rule intends to answer which contracts or instruments are to be regulated as “derivatives” and which are to be regulated as “securities” as the current definitions of both in securities legislation are expansive and sometimes overlapping. The TR Rule focuses on the operation and ongoing regulation of designated or recognized trade repositories and the reporting of derivative transaction dates by market participants. In the current draft, there exists an exemption for reporting requirements by small market participants for derivatives transactions in the physical commodity market that have a less than $500,000 aggregate notional value. The intention of the TR Rule, generally, is to improve transparency and the proposed rule will impact the regulation of both trade repositories and derivatives market participants.

The current draft of the Model Rules is based on existing provisions of Ontario securities law. Once the Model Rules have been updated to reflect the commentary, each jurisdiction will publish its own rules, explanatory guidelines and appendices.

Comments on the Model Rules are being accepted until February 4, 2013.

On November 29, 2012, the Canadian Securities Administrators (“CSA”) announced the adoption of regulatory changes and amendments (the “Notice”) to National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 – Continuous Disclosure Obligations. The amendments intend to improve the communications process between reporting issuers and shareholders. Specifically, the process by which reporting issuers send proxy-related materials to, and solicit proxies and voting instructions from, registered holders and beneficial owners of their securities.

The most significant features of the amendments are as follows:

• Providing reporting issuers with a new notice-and-access mechanism to send proxy-related materials to registered holders and beneficial owners of securities;

• Simplifying the process by which the beneficial owners are appointed as proxy holders in order to attend and vote at shareholder meetings; and

• Requiring reporting issuers to provide enhanced disclosure regarding the beneficial owner voting process.

The amendments will take effect on February 11, 2013. Certain other provisions apply as of February 15, 2013, while the notice-and-access provisions can only be used in respect of meetings occurring on or after March 1, 2013.

For more information, please refer to the Notice, which can be found here.

Introduction
Pursuant to recent amendments to the TSX Company Manual (the “Manual”), which will become effective on December 31, 2012, issuers listed on the Toronto Stock Exchange (the “TSX”) will be required to disclose whether they have adopted a “majority voting” policy in respect of director elections.

The TSX is currently seeking comments on a proposal for further amendments to the Manual, which would require TSX-listed issuers to elect directors by way of “majority voting” at uncontested meetings.

Majority Voting
Under Canadian corporate law, in the context of the election of directors, shareholders who vote by proxy have only two options: vote “for” or abstain from voting for each director nominee or slate of directors. Given that votes abstained do not count and that, in practice, most shareholders of Canadian public companies vote by proxy, a director nominee or slate of directors will generally need only one “for” vote to be elected. According to the Canadian Coalition for Good Governance (the “CCGG”), this system is not in the best interests of shareholders “as it does not permit [them] to vote against an underperforming director and allows an entrenched board to continue to be in charge of the company, even if they are opposed by a majority of the owners of the company”.

Under the proposed majority voting policy, votes abstained will be considered “against” votes and will be counted as part of the total votes cast. Consequently, a director who receives a majority of votes abstained is considered not to have received the support of the shareholders and would be required to tender his or her resignation. The CCGG notes that 61% of listed issuers on the S&P/TSX Composite Index have a majority voting policy.

Amendments
The main passage of the proposed amendments reads as follows:

“Listed issuers must have majority voting for the election of directors at uncontested [shareholder] meetings. In satisfaction of this requirement, a listed issuer may adopt a majority voting policy that requires a director that receives a majority of the total votes cast withheld from him or her to immediately tender his or her resignation to the board of directors, to be effective on acceptance by the board. The policy must also provide that the board shall consider the resignation and disclose by news release the board’s decision whether to accept that resignation and the reasons for its decision no later than 90 days after the date of the resignation.”

It should be noted that in order to avoid conflict with applicable corporate or securities law requirements, issuers will be able to adopt a non-binding majority voting policy (also called a “holdover rule”) in satisfaction of the amendments. Under such a policy, directors who receive a majority of votes abstained are still elected but resign at a later date so as to provide the board of directors with time to reconstitute and reorganize itself.

Rationale
The TSX asserts that the amendments will improve corporate governance standards by increasing the accountability of directors, enhancing dialogue between issuers, shareholders and stakeholders as well as improving transparency. Glass, Lewis & Co. and Institutional Shareholder Services, two important proxy advisory firms operating in Canada, have indicated that they generally support proposals calling for majority voting.

There are also negative aspects to majority voting. For example, more time and money may be spent on director elections through telephone solicitation, second mailings of proxy materials, etc. There is also a risk of “failed” elections (where one or more directors are not seated on the board), which can, however, be mitigated by a non-binding majority voting policy.

Comment Period
Please note that the comment period in respect of these amendments ends on November 5, 2012.

If you are interested in submitting comments, please feel free to contact a member of our National Securities | Corporate Finance Group or address them directly to the TSX following the instructions.

On November 1, 2012, new rules and changes to existing rules came into effect under the Mining Act in Ontario.

The Mining Act was originally enacted in the 19th century and has remained relatively unchanged since. Several key changes to the Mining Act were enacted in 2009 when the Mining Amendment Act, 2009 was passed.

The changes are geared towards exploration companies and focus on early consultation with Aboriginal communities. The changes have not been without controversy as many in the mining industry see the additional requirements under the Mining Amendment Act, 2009 as costly and time-consuming, and ultimately, as a hindrance to investment in Ontario.

The new rules are:

1. Anyone wishing to apply or renew a prospector’s license must complete the Mining Act Awareness Program.

2. Land may be withdrawn from prospecting or staking, or have its mining rights or surface rights withdrawn if it is a site of Aboriginal cultural significance.

3. An Exploration Plan must be submitted before certain early exploration activities are performed. Compliance with this requirement is voluntary from November 1, 2012 and mandatory from April 1, 2013.

4. An Exploration Permit must be obtained from the Ministry of Northern Development and Mines before certain early exploration activities are performed. Compliance with this requirement is voluntary from November 1, 2012 and mandatory from April 1, 2013.

Changes to existing rules regarding voluntary rehabilitation of existing mines, GPS georeferencing data on ground staked mining claims, assessment work credits, the amount of material that will be considered a bulk sample, and Aboriginal consultation on a mine closure plan have also come into effect.

For more details, please refer to the Ministry of Northern Development and Mines’ website, which can be found here.

 This article was prepared by David Hunter, Nalin Sahni and George McKibbon (McKibbon Wakefield Inc.)

The repeal and enactment of the Canadian Environmental Assessment Act (“CEAA”) and amendments to other federal legislation is the most significant change in federal environmental assessment (EA) since the legislation was enacted. The amendments are aimed at increasing investment in extractive industries by encouraging certainty, reducing regulatory duplication and reducing delays. The implications of these changes are vast and it is too early to determine their impacts on the mining industry.

This is the fourth article in our series on changes to the federal environmental assessment regime and what that means for mining in Ontario. Our first article provided a general overview while our second article addressed changes in CEAA related to Aboriginal consultation. Our third article discussed what the new Aboriginal consultation regime meant for mining in Ontario. In this article we discuss the Fisheries Act amendments, their implications for Aboriginal consultation and other matters relevant to miners taking into account further Fisheries Act revisions proposed in Bill C-45.

Prior to the recent amendments, the Fisheries Act was a powerful environmental and resource management tool of general application. It was applied with force to protected fish habitat across the country. The changes to the Fisheries Act enacted last year and the proposed revisions in Bill C-45 limit the focus from the protection of almost all fish habitat to only the protection of “fish that are part of a commercial, recreational or Aboriginal fishery, or to fish that support that fishery”. The Fisheries Act will apply less often and in more narrow circumstances. It is no longer a statute of general application across Canada but one that will apply only to a limited number of lakes and rivers in limited parts of Canada.

The transition to the new Fisheries Act will occur in two phases. The first amendments to the Fisheries Act were made this past summer. Some of these amendments are placeholders enabling Federal-Provincial negotiations on agreements and protocols and the drafting of new regulations and definitions critical to implementation.

For example, Bill C-38 included two amendments each to Sections 35 and 37 of the Fisheries Act. The first set of amendments that came into force this past summer, maintain the emphasis on protecting almost all fish habitat by expanding the prohibition from only “works and undertakings” that damage fish habitat to include all activities that damage fish habitat as well. The second set of revisions limits the application of the Fisheries Act to only commercial, recreational and aboriginal fisheries or fish that support these fisheries. The second set of revisions will come in to force on a date ordered by federal cabinet, presumably when Federal-Provincial negotiations for new agreements and protocols are complete.

While waiting for the changes from federal cabinet, does nothing change in the interim? No, the place holding amendments diminish the current administrative restrictions and override existing protocols on habitat protection by providing for greater administrative discretion. Staffing and administrative resource cuts underscore the effects of these changes. Even though federal cabined has not approved the second set of amendments, Fisheries and Oceans Canada is processing application as if the legislative changes were in force.

While many of the changes to the Fisheries Act were intended to facilitate mining development, they may not have their intended purpose, at least in the short term. Uncertainty as to the Fisheries Act’s application to mining projects may prevail for some time. Fisheries Act implementation has historically involved the participation of Provincial ministries and agencies to shape implementation agreements and develop an accepted scientific body of practice that defined the measures taken to ensure compliance with the habitat protection provisions.

The refocused Fisheries Act requires development of a new scientific body of practice to implement the more limited habitat protection focus. This will take time and much judgment and consultation will be required, particularly where Aboriginal fisheries are concerned. With staffing and budget reductions, especially among scientists, the resources needed to implement the changes effectively may not be there.

For mining projects, there may be three major impacts. Over larger areas, approvals may become quicker and less expensive to obtain. Projects with existing Fisheries Act approvals will be able to apply to have their permit requirements reduced in accordance with the new Act. However, for projects caught by the new approvals requirements, there may be additional uncertainty as the new science and body of practice are developed.

It may take years to implement the new Fisheries Act and re-establish the science and administrative practices needed for competent implementation. The withdrawal of federal protection for most fisheries could in theory be replaced by additional provincial oversight but this is unlikely to happen in Ontario given the budgetary problems and expected staffing reductions at the Ministry of Natural Resources. But the messaging is clear. The Fisheries Act won’t be the powerful decision-making tool it was in the past.

An Italian court has convicted seven scientists and experts of manslaughter for failing to adequately warn residents when an earthquake struck central Italy in 2009 killing more than 300 people. Each of the scientists and experts were sentenced to six years in prison.

This finding of guilt for failing to predict an earthquake is not only a scientific travesty but a legal travesty as well. How anyone can predict an earthquake in an area that is regularly subject to seismic activity is beyond any rational explanation. This conviction borders on astrology being recognized as a legitimate science and hopefully the matter will be appealed to a court where some understanding of the science of geology is applied and the convictions set aside.

It is imperative that the world’s community of geological scientists express their concern about this decision in no uncertain terms to the Italian government.

Ara Basmadjian, articling student, assisted in the preparation of this article.

On October 11, 2012, the Toronto Stock Exchange (“TSX”) issued a request for comments on proposed amendments (the “Amendments”) to the TSX Company Manual (the “Company Manual”) and the TSX Rule Book (the “TSX Rules”). The Amendments provide clarification to the process of appeal with respect to listing-related decisions. Furthermore, the Amendments offer consistency between the appeal rules under the Company Manual and those under the TSX Rules.

The Amendments, which will become effective upon approval by the Ontario Securities Commission (“OSC”), include the following:

(1) changes to the composition of the appeal panel. An appeal will be heard by at least one and up to three senior TSX executives;

(2) codification of the common practice of submitting written requests for appeals and written submissions;

(3) clarification of the decision making responsibilities that are delegated to listing managers;

(4) clarification of the timeline to appeal delisting decisions; and

(5) revision and clarification of the rules relating to the suspension and termination of participating organizations.

The TSX will publish the Amendments for a 30-day comment period. Written comments are accepted until November 12, 2012.

On October 4, 2012, the Toronto Stock Exchange (“TSX”) released a request for comments on proposed amendments to Part IV of the TSX Company Manual (the “Proposed Amendments”). The Proposed Amendments would require issuers listed on the TSX to have majority voting when electing directors at uncontested security holder meetings. As currently proposed, issuers may adopt a majority voting policy to comply with the requirement.

Under mandatory majority voting, security holders vote “for” or “against” each individual board nominee and only those directors who receive a majority of votes in their favour remain on the board. Typically, a majority voting policy provides that a director who receives a majority of “against” votes must immediately tender his/her resignation to the board of directors. The Proposed Amendments would require the board of directors to issue a news release disclosing: (i) the detailed results of the votes received for the election of each director; and, where applicable, (ii) whether a resignation was accepted and the board’s reasons for the decision.

As indicated by the Canadian Coalition for Good Governance, 39% of the listed issuers in the S&P/TSX Composite Index do not have majority voting. The TSX asserts that the Proposed Amendments will improve corporate governance standards, strengthening Canada’s international reputation.

Comments on the Proposed Amendments are being accepted until November 5, 2012. The TSX anticipates that the Proposed Amendments could become effective as of December 31, 2013.

On October 1, 2012, the TSX Venture Exchange (the “TSXV”) published a Notice to Issuers providing guidance in respect of procedures relating to stock symbol reservations. Effective October 1, 2012 (the “Effective Date”), issuers requesting a new stock symbol must provide the TSXV with a written request which identifies the issuer and provides up to three proposed symbols that the issuer wishes to use (ranked in order of priority). The proposed symbols must be composed of not more than three letters.

In the event that none of the requested symbols are available, the TSXV will provide the issuer with a list of available symbols which the issuer must choose from. If one or more of the requested symbols is available, the TSXV will reserve the highest priority symbol from the issuer’s choices for use by the issuer.

A symbol will be reserved for the issuer’s use for a period of 90 days. This reservation period may be extended for up to two additional 90 day periods provided that the issuer requests the extension in writing prior to the end of the then current 90 day reservation period. In the event that a reservation is not extended by the issuer, the reserved symbol will be released and may not be reserved by or for the same issuer for a period of 10 days.

• Symbols reserved as of October 1, 2012 which have been reserved for 270 days or more as of the Effective Date may be extended for no more than an additional 180 days from the Effective Date.
• Symbols reserved as of October 1, 2012 which have been reserved for less than 270 days as of the Effective Date may be extended for no more than an additional 270 days from the Effective Date.

The above procedures should be read in combination with section 1.1(c) of Policy 2.3 – Initial Listing Procedures and Parts 3 and 4 of Policy 5.8 – Issuer Names, Issuer Name Changes, Share Consolidations and Splits of the TSXV Corporate Finance Manual.

On October 4, 2012, the Toronto Stock Exchange (TSX) announced that it has received notice of approval from the Ontario Securities Commission (OSC) to proceed with amendments to the TSX Company Manual (Manual) that aim to strengthen requirements relating to corporate governance. Specifically, the TSX will amend Parts I and IV of the Manual which specify rules pertaining to how a listed issuer elects its board of directors (Amendments).

The revised rules, which will become effective on December 31, 2012, will include the following requirements:

(a) to elect directors annually;

(b) to elect directors individually, rather than as a slate;

(c) to publicly disclose the votes received for the election of each director;

(d) to disclose if they have adopted a majority voting policy for uncontested director elections, and to disclose reasons in the event of lacking such a policy; and

(e) to disclose to TSX if a director receives a majority of “withhold” votes, if they do not have a majority voting policy.

“Toronto Stock Exchange is committed to further enhancing domestic and global confidence in Canada’s capital markets,” said Kevan Cowan, President, TSX Markets and Group Head of Equities, TMX Group. “These changes bring additional transparency to the board selection process and help to strengthen our markets’ reputation while aligning our practices to other major international jurisdictions.”

All applicants for listing on TSX after December 31, 2012 and applicants with listing applications in progress will be expected to demonstrate that they are in compliance with the Amendments, and if not, to explain the plan and time frame in which they will comply. All TSX listed issuers and applicants are expected to be in compliance with the Amendments by December 31, 2013, and will otherwise be considered to be in breach of the Manual.

On September 28, 2012, the Toronto Stock Exchange (“TSX”) published a notice (the “Notice”) to provide guidance with respect to disclosure and other related requirements where a transaction is subject to security holder approval pursuant to the TSX Company Manual (the “Manual”). For security holders to make an informed decision whether to approve a transaction, listed issuers are required to disclose material terms of the transaction either in the circular that will be mailed to security holders or in the form of written consent. Under certain circumstances, certain disclosure is applicable to press releases disclosing the material terms of a transaction.

The guidance provided by the TSX generally applies to transactions involving the issuance of securities such as private placements and acquisitions, and also applies to transactions involving insiders or related parties of non-exempt issuers which do not involve the issuance of securities but which require security holder approval.

If the TSX requires security holder approval or exempts an issuer from security holder approval, listed issuers and their advisors must provide a draft of a circular to the TSX for review at least five business days in advance of finalization of the circular.

The disclosure should include certain terms, as applicable, details of which are outlined in the Notice. For more information, please refer to the Notice, which can be found here.

On July 29, 2011, the Canadian Securities Administrators (“CSA”) published for comment a proposed rule and rule amendments (collectively, the “Original Proposals”) proposing a new tailored regulatory regime for venture issuers. After reviewing the comments received and further consideration, the CSA is proposing various changes to the Original Proposals. Consequently, on September 13, 2012, the CSA republished the proposed rule and rule amendments for a second public comment period.

Consistent with the Original Proposals, the CSA is proposing the adoption of a single new national instrument, National Instrument 51-103 – Ongoing Governance and Disclosure Requirements for Venture Issuers (“NI 51-103″) that, for venture issuers, will mandate most of their substantive continuous disclosure and governance obligations.

NI 51-103 introduces a proposed new tailored regulatory regime for venture issuers that are intended to streamline venture issuer disclosure to reflect the needs and expectations of venture issuer investors. The regime also aims to make the disclosure requirements more suitable and more manageable for venture issuers at this stage of their development. NI 51-103 replaces the disclosure obligations set out for venture issuers in National Instrument 51-102 – Continuous Disclosure Obligations, National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, National Instrument 52-110 – Audit Committees, National Instrument 58-101 – Disclosure of Corporate Governance Practices and National Policy 58-201 – Corporate Governance Guidelines.

Further details can be found here.

The decision of the British Columbia Court of Appeal (BCCA) in William v. British Columbia issued June 27, 2012, is the most recent pronouncement on Aboriginal title. The decision goes to the heart of Aboriginal title and rights, and will have important implications for Aboriginal groups, government and project proponents who are undertaking development in areas where Aboriginal title is claimed.

To date, there have been few cases that have considered the scope of Aboriginal title. Claims to Aboriginal title generally arise where the Aboriginal group has not surrendered or ceded its interest in the relevant lands. This particular decision provides further clarification on specifically what constitutes “occupation” for the purpose of proving Aboriginal title.

To read the full article, please click here.

The Canadian Securities Administrators (“CSA”) published Staff Notice 43-307 Mining Technical Reports – Preliminary Economic Assessments, which is intended to clarify the definition of “preliminary economic assessment” (“PEA”) in National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 defines a PEA as “a study, other than a pre-feasibility study or feasibility study, which includes an economic analysis of the potential viability of mineral resources”. The terms pre-feasibility study (“PFS”) and feasibility study (“FS”) have the meanings ascribed by the CIM Definition Standards for Mineral Resources and Mineral Reserves, as amended. The CSA notes that certain issues have been identified in monitoring PEA disclosure since June 2011 when this definition was included in NI 43-101.

The Notice emphasizes to issuers that a PEA is to be kept separate and distinct from both PFS and FS, which indicate more comprehensive studies, and provides further guidance to issuers on other aspects of PEA preparation and disclosure to address the issues that have arisen. The CSA notes that the definition of PEA has two elements that distinguish it from other studies, namely that, by definition it cannot be a PFS or FS and it can only demonstrate the potential viability of mineral resources, not the technical or economic viability of a project. The Notice provides guidance to issuers regarding how to properly identify and disclose a PEA and avoid the staff challenging the study or taking the position that the issuer is treating the PEA as a PFS.

This article was prepared by David Hunter, Nalin Sahni and George McKibbon (McKibbon Wakefield Inc.)

Many of our mining clients do not appreciate the role of the Ministry of Natural Resources (“MNR”) and the regulation of Crown land through the Public Lands Act. While licenses for advanced prospecting and mine development are secured through the Mining Act, this is not the case with other critical infrastructure. Miners need to manage the requirements of the Public Lands Act that cover the approval of new access roads, electricity generation sites, transmission lines, and other infrastructure indispensible for developing mining operations on Crown land.

Common areas of governmental regulation that miners deal with such as securities, mining and environmental law have well worn rules contained in statutes, regulations or highly prescriptive guidance documents. This is not the case with the MNR and the Public Lands Act. The MNR relies far more on setting broad policy directions through guidance documents and on the discretion of staff in each field office than on prescriptive rules. There are also no appeal provisions under the Public Lands Act so there is no substantial body of legal decisions to help guide future decision-making. Understanding the MNR and the Public Lands Act is the key to obtaining approvals for mine infrastructure on Crown land. This will be especially true in the next few years with the MNR facing substantial staffing and budget cuts.

The MNR uses two main tools to determine what mining infrastructure is allowed in different locations:

1. the Crown Land Use Policy Atlas (the “Atlas”) and
2. the Guide to Crown Land Use Planning (the “Planning Guide”).

The Crown Land Use Policy Atlas
The Atlas sets our the land use designations, permitted uses, and Crown policies that apply to all Crown lands except for the northernmost 42% of Ontario which are governed by the Far North Act (See our July 2012 article on this issue).

The land use designations in the Atlas are divided into the following categories: Provincial Parks, Conservation Reserves, Provincial Wildlife Areas, Forest Reserves, Enhanced Management Areas, Wilderness Areas, and General Use Areas. As these names suggest, the designations represent the MNR’s various legislative and policy mandates. The exception here are General Use Areas that cover all lands not otherwise designated. Miners need to know and cope with the designation of any area where they may wish to develop infrastructure since this will dictate the uses permitted by MNR and any policies that may apply.

The Guide to Crown Land Use Planning
The Planning Guide describes how each of the different designations in the Atlas were developed and how the Atlas is to be applied in dealing with applications for access roads, transmission lines, and other infrastructure. All MNR polices must be consistent with both the Public Lands Act and the Atlas. This is particularly important since MNR staff often vigorously adhere to policies that do not have the force of law but that MNR staff view as binding.

In some circumstances there is an added complication. Regulations under the Public Lands Act require that the older MNR District Land Use Guidelines must be applied together with the Atlas in particular situations such as applications for road construction and servicing. These provisions can make it difficult for miners to know exactly what policy applies in their particular situation. These MNR practices reflect and are a continuation of past MNR policies.

Interaction with Other Legislation
In the real word where miners are applying for different approvals under different Ontario statutes, coordination between Ministries can be difficult. While there are administrative and policy mechanisms in place to enhance coordination between the Mining Act and the Public Lands Act regarding parks and conservation reserves, there is no explicit coordination for the development of access roads, transmission lines, and other mining infrastructure in areas other than the Far North. Further, unlike with municipal official plans, there is no requirement that the Altas conform to the Growth Plan for Northern Ontario. The Atlas is exempt from this requirement and does not interact in this respect with Ontario’s Planning Act.

The legislative and policy silos that exist between mining, economic development and the Public Lands Act will create difficulty for miners in obtaining the necessary approvals from each government ministry.

The FMC Mining Group will prepare a future article on how the Public Lands Act provides for the disposition, occupancy, and use of lands under various approvals such as road construction.

Shaira Nanji, articling student, assisted in the preparation of this article.

On August 22, 2012, the United States Securities and Exchange Commission passed a new rule regarding section 1504 of the Dodd-Frank Wall Street Financial Reform Act (the “Act”) which focuses on transparency of natural resource payments. Canadian mining companies that are listed or traded on U.S. exchanges should be aware of the new regulation. The purpose of the regulation is to enhance corporate and government accountability.

Section 1504 of the Act states that publicly traded issuers must annually disclose and report any payment or series of payments over $100,000 to governments related to the commercial development of oil, natural gas or minerals. Issuers must file a new form called Form SD, Specialized Disclosure, starting after September 30, 2013. The new regulation clarifies the types of taxes, fees, bonuses, and dividends that are required to be disclosed. The types of payments related to commercial development activities that need to be disclosed include:

• taxes;
• royalties;
• fees (including license fees);
• production entitlements;
• bonuses;
• dividends; and
• infrastructure improvements.

Shaira Nanji, articling student, assisted in the preparation of this article.

The Ontario Securities Commission (OSC) recently released its 2012 annual report (“Report”) which provides an update on the OSC’s intentions concerning potential reforms to the regulation of director elections. The Report discusses how to strengthen “shareholder democracy” and shareholder voting rights with regards to the uncontested director-elections process. The Report supports an earlier proposal made by the Toronto Stock Exchange (TSX) in September 2011 which suggested that:

• directors of listed issuers are elected individually and not by slate voting;

• listed issuers disclose the voting results from shareholders meetings (even if the vote was done by raising hands); and

• listed issuers disclose if they have a majority-voting policy when electing directors.

The TSX proposal also focuses on majority voting for director elections and includes a “comply or explain” disclosure-based regime. Since shareholder voting rights have a “significant impact on confidence in the capital markets,” the Report notes that these proposed initiatives will result in greater transparency and accountability of boards of directors. The OSC plans to work closely with the TSX to improve the director-elections process.

By: Alan J. Hutchison, special to The Northern Miner

Back in 2004 I attended an annual general meeting for a client that had acquired a gold-silver mine in Mexico. It was one of many Canadian juniors at the time who had managed to acquire small-scale mines with good expansion possibilities and, in a rising commodity price environment, had the potential to turn an explorer into a producer virtually overnight.

The board of this company was comprised of a number of experienced explorers, developers and operators. As sometimes occurs at AGMs of small companies (much to the chagrin of legal counsel worried about disclosure issues), responses to questions from shareholders quickly unfolded into a discussion on the overall state of the mining industry, commodity prices and favourable jurisdictions.

Everyone seemed bullish on Mexico as the place to be. The argument seemed to make a lot of sense, too: good mineral endowment, a local mining culture and a U.S. dollar denominated economy all make for an attractive mining jurisdiction.

Moreover, the influence of the North American Free Trade Agreement in opening up Mexico to foreign investment was firmly taking hold, and extending to structural legal and regulatory reforms for the administration of mineral tenure.

Over the next few years Mexico’s star shone brightly in the mining industry.

Fast-forward to 2012: while the above argument is still valid (indeed, Mexico’s recently planned move to an electronic mineral tenure system is evidence of its continued commitment to efficiency), Mexico’s reputation as a favourable jurisdiction is not as secure. Security concerns seem to overshadow everything else these days.

This is especially the case for junior exploration companies, who seem to have been more adversely affected than the producers. Exploration companies do not have as much established infrastructure in and around their projects, and typically have smaller numbers of people working in more remote areas with limited-access options — often the same remote areas favoured by the drug cartels for their operations.

Explorers are also less able to implement security measures due to the costs involved and the pressures in a bear market to spend money wisely and “in the ground,” to the maximum extent possible.

A number of mining companies have quietly exited from some of Mexico’s more troubled states, unwilling or unable to pay maintenance costs in the face of so much uncertainty, and unable to attract joint-venture partners to share costs and risks.

But many companies remain in Mexico, and overall investment in the mining industry in Mexico remains strong, particularly with producing mines and late-stage development projects.

Strategies can be employed to manage the current security challenges for companies, and the central theme of many of these strategies is having community and social-relation (CSR) programs.

None of this is particularly new or really novel to Mexico — CSR programs are the key to developing a social licence to operate in any jurisdiction. The types of programs being conducted in Mexico are common to many developing jurisdictions where security issues are prevalent in remote areas.

The real issue in Mexico is the speed at which security issues have arisen after so much economic, social and political progress over the past 25 years.

The two most common approaches are quite different. Many companies seek to engage local communities from the outset and to forge relationships through social programs, infrastructure development and providing meaningful employment. At the other end of the spectrum, other companies are attempting to carefully manage interaction with local communities, limiting contact to maintain a more formal relationship. Typically these companies require expatriate employees to remain in camp and not visit the local communities. The goal here is to tread lightly on local customs, while avoiding any misunderstandings, problems and feuds that can quickly escalate into wider actions against the company.

In many regions where the drug violence is on the verge of being out of control, it is difficult for any CSR initiatives to bear fruit. Maintaining a low profile in the community is really the only way to try to stay clear of the potential violence in those areas.

Producers are more likely to maintain a low-profile approach, since operating mines typically have more on-site security in place and greater infrastructure to support operations, without as much interaction with nearby communities.

There is also the reality of producers having extracted mineral products on site, which is a significant security issue. Many gold producers maintain absolute secrecy over when gold pours take place at the mine site.

Similarly, transportation schedules are also a closely guarded secret. Rail service is not as widespread in Mexico, so many mines in Mexico ship products by truck over remote, single access roads that are prone to robberies.

Some companies are resorting to building airstrips to fly precious-metal mineral production to ports, but that bears its own risks, in addition to the cost. In certain remote areas, aircraft are generally either government security forces or drug cartels carrying out illegal activities, so mining companies need to constantly identify themselves over radios to avoid being mistaken for one or the other.

Site visits by directors and executive officers also tend to be closely guarded secrets in remote areas, to reduce possible kidnapping and extortion risks. It is a common practice to ensure that all cheques and banking transactions require two signatures, to avoid instilling too much operational authority in one person.

The good news is that Mexicans seem to understand these challenges, and despite the setbacks, the mining industry in Mexico continues to roll forward with significant levels of investment.

The challenge will be what happens next if security problems continue over the long term.

The key to long-term success for any country’s mining industry is exploration. As the current generation of mines become depleted, it is essential to replace that production with new discoveries.

Overall, Mexico is relatively unexplored compared to other jurisdictions, but if exploration companies are unable to raise money for Mexican projects and efficiently explore their properties, there may be continued challenges ahead.

Shamarkay Hersi, articling student, assisted in the preparation of this article.

On August 23, 2012, the Ontario Securities Commission (“OSC”) released a request for comments on proposed amendments to Rule 13-502 and Companion Policy 13-502CP, which deals with the OSC’s fees model. The proposed amendments are aimed at adjusting the current fee structure under the Ontario Securities Act (the “OSA”) and the Commodity Futures Act so that the fees charged by the OSC are aligned more closely with the OSC’s actual costs.

With the proposed amendments, the OSC projects to increase revenues by 14.8% in 2013/2014.

The proposed amendments include, among others:

• the use of “reference fiscal year” (which is the last fiscal year ending before May 1, 2012) in determining participation fees, as opposed to the issuer’s last completed fiscal year under the current rules;

• an additional tier of participation fees for corporate finance – the first tier will be applicable to reporting issuers with capitalization under $10 million (which will be subject to an initial lower participation fee of $800), and a second tier will be applicable to reporting issuers with capitalization between $10 million and $25 million (which will initially remain subject to a $960 participation fee);

• an additional tier for capital markets participation fees – the first tier will be applicable to participants with under $250,000 of specified Ontario revenues (which will be subject to a $800 participation fee), and a second tier will be applicable to participants with revenues between $250,000 and $500,000 (which will remain subject to a $1,035 participation fee). Participation fees would be increased as shown in the proposed rule during the last two years of the three-year fee cycle. Participation fees for participants within higher tiers of revenue would increase by 7.9% annually throughout the three-year fee cycle;

• fees for late filling of prescribed forms – including new forms 13-502F7 (Specified regulated entities – Participation Fees) and 13-502F8 (Designated Rating Organizations – Participation Fee); and a separate annual maximum aggregate fee of $5000 per fiscal year of an issuer for all Forms 45-501F1 and 45-106F1 (Reports on Exempt Distributions).

In addition, the following fees are proposed to increase from $3,250 to $3,750:

o the fee for filing a preliminary or pro forma prospectus in Form 41-101F1;

o the fee for filing a preliminary short form prospectus in Form 44-101F1; and

o the base fee for the filing by an investment fund of a preliminary or pro forma prospectus in Form 41-101F2.

With these amendments, the OSC is seeking to, among other things, rebuild its reserve fund to a level that is consistent with other securities regulators (e.g., the British Columbia Securities Commission, and the Alberta Securities Commission).

Comments on the proposed amendments are being accepted until November 21, 2012.

For more details, please refer to the OSC’s request for comments, which can be found here.

Shamarkay Hersi, articling student, assisted in the preparation of this article.

On August 16, 2012, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 43-307 Mining Technical Reports – Preliminary Economic Assessments (the “Notice”). The Notice highlights a number of issues relating to the use and disclosure of a preliminary economic assessment (“PEA”), as defined in National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”):

1. Use of a PEA as proxy for a pre-feasibility study (“PFS”)

The CSA identifies three situations that give reasons for concern: (1) where an issuer represents that a PEA, or a component of it, is or will be done at the level of a pre-feasibility study (“PFS”); (2) where a PEA is represented to be a PFS but for the inclusion of inferred mineral resources; and (3) where a PEA is treated as a substitute or proxy for a PFS. These situations are problematic because while a PEA can only demonstrate the potential viability of mineral resources, a PFS or feasibility study (“FS”) is more comprehensive study and, therefore sufficient to demonstrate the technical and economic viability of a mineral project. Issuers who blur the boundary between a PEA and PFS run the risk of being challenged by the CSA as to whether the study meets the definition of a PEA. The CSA recommends that issuers do not:

• describe a study as a PEA unless it clearly falls into the definition of a PEA; or

• compare their PEA or any component of it to the standards of a PFS if the study includes inferred mineral resources.

The CSA may take the position that an issuer is treating the PEA as a PFS if the issuer:

• does not include a cautionary statement with equal prominence each time it discloses the economic analysis of the mineral resources;

• uses the PEA as a basis to justify going directly to a FS or a production decision;

• discloses mining or mineable mineral resources or uses the term “ore”, which is essentially treating mineral resources as mineral reserves; or

• otherwise states or implies that economic viability of the mineral resources has been demonstrated.

2. Preparing a PEA in conjunction with PFS or FS

The CSA indicates that issuers are preparing PEAs using inferred mineral resources concurrently with, as an add-on, or update to their PFS or FS. The CSA is concerned that this practice will indirectly allow issuers to include inferred mineral resources in their PFS, which contravenes NI 43-101 restriction on indirectly inferred mineral resources in an economic analysis. The CSA takes the position that a study is not a PEA if it includes an economic analysis of the potential viability of mineral resources and if the study is done concurrently with or as part of a PFS or FS. This is the case if the study:

• has the net effect of incorporating inferred mineral resources into the PFS or FS, even as a sensitivity analysis;

• updates, adds to, or modifies a PFS or FS to include more optimistic assumptions and parameters not supported by the original study; or

• is a PFS or FS in all respects, except name.

3. Technical Report Triggers: Disclosing economic outcomes for material mineral properties without support by a technical report

The CSA notes that issuers are disclosing results of potential economic outcomes for material mineral properties which are not supported by a technical report. Considering that investors may significantly rely on this information and make investment decisions based on it, this could trigger the requirement to file a technical report under NI 43-101. This is the case if the disclosure is:

• contained in the issuer’s corporate presentations, fact sheets, investor relations materials, or any statement on the issuer’s website; or

• posted or linked from third party documents, reports, articles, or otherwise adopted and disseminated by the issuer.

4. Misleading PEA results: Overly optimistic or highly aggressive assumptions & diverging methodologies

The CSA also points out as an issue of concern the use by issuers and qualified persons of overly optimistic or highly aggressive assumptions in the PEA, and the use of using methodologies that diverge significantly from industry best practices and standards. As the results of a PEA include, or are based on, forward looking information that is subject to National Instrument 51-102 Continuous Disclosure Obligations, an issuer must not disclose forward-looking information unless the issuer has a reasonable basis for doing so. In the case of overly optimistic or highly aggressive assumptions, the CSA may challenge the qualified person to explain or justify the assumptions, or failing that, ask them to revise the PEA to take a more conservative or reasonable approach.

5. PEA Disclosure that Includes By-products

The CSA notes that issuers are disclosing PEA results that include projected cash flows for by-product commodities that are not included in the mineral resource estimate. The CSA considers the inclusion in a PEA of such by-product commodities to be misleading and contrary to the definition of PEA because these commodities are not part of the mineral resource. The CSA cautions issuers not to include cash flow projections for any commodity or part of a commodity that has not been properly categorised as a measured, indicated, or inferred mineral resource.

6. Material deficiencies or errors

Finally, the Notice addresses the consequences associated with material deficiencies or errors in NI 43-101 required documents. Where the CSA identifies a deficiency or error, it will first request that the issuer correct it by restating and re-filling the document. If the issuer fails to comply with the request, the CSA may either:

• place the issuer on the reporting issuer default list;

• seek a commission order requiring the issuer to re-file the documents; or

• issue a cease trade order until the issuer corrects the deficiency.

If an issuer is considering a prospectus offering, the review of the prospectus filing could take more time if issues such as those noted above are present. Where there are material deficiencies, the CSA may recommend against issuing a receipt for the prospectus.

For more details, please refer to the Notice, which can be found here.

In a recent decision¹ the Supreme Court of British Columbia set aside and declared invalid an annual general meeting of shareholders and the resolutions passed at the meeting following a proxy fight between management and dissident shareholders. The Court found that management’s proxy solicitation firm had improperly executed proxies on behalf of shareholders based on instructions given by telephone to representatives of the proxy solicitation firm (the “TeleVote System”). The Court concluded that the TeleVote System failed to provide a contemporaneous, reliable and verifiable record of proxies and voting instructions with the result that the use of such a system was oppressive to shareholders.

Background

The Court’s decision arose in the context of a proxy fight between the incumbent slate of directors of Mosquito Consolidated Gold Mines Limited (“Mosquito”) and a dissident slate lead by two former directors of Mosquito. While in many cases the process goes sideways through illegal solicitation allegations, in this instance each side delivered information circulars to shareholders and engaged proxy solicitation firms to solicit proxies from shareholders.

Management’s proxy solicitation firms offered telephone and internet voting using a unique control number found on a shareholder’s proxy or voting information form. In addition, management’s firm used the TeleVote System. Under this system, a call centre was established in which representatives of management’s solicitation firm telephoned registered shareholders and non-objecting beneficial owners of shares to solicit their votes for the management slate. The call centre operators were permitted to accept verbal instructions from individuals and to execute proxies on their behalf.

At Mosquito’s shareholder meeting, the validity of the proxies obtained through the use of the TeleVote System was challenged by the dissident slate but the Chair of meeting ruled that the proxies were valid. The shareholder vote was in favour of the management slate, albeit by a narrow margin. Had the proxies obtained through the TeleVote System been excluded, the dissident slate would have been elected.

Oral Instructions by Telephone Not Standard Practice

A company controlled by one of the members of the dissident slate filed an application seeking a declaration that Mosquito’s annual general meeting was conducted in a manner that was oppressive to it as a shareholder of Mosquito, and orders nullifying the resolutions passed at the meeting and requiring a new shareholder meeting to be held.

In granting the application, the Court held that while Mosquito shareholders had a reasonable expectation that their proxies would be solicited by telephone, they did not reasonably expect that their proxies would be sought and votes cast at the same time. This process departed from the standard commercial practice of voting methods for shareholder meetings under securities instruments and the Securities Transfer Association of Canada Protocol. Moreover, the use of the TeleVote System was not disclosed in management’s information circular together with the other specified voting methods, including delivering a proxy by mail, hand or fax or appointing a different proxy holder by mail or through the internet.

Lack of Verification and Safeguards

While the Court noted that the use of telephone solicitation systems are a legitimate attempt to streamline shareholder proxy solicitations and the absence of guidelines does not automatically disqualify the use of such systems, it identified several problems with the use of the TeleVote System in the context of the battle for control of the board of directors of Mosquito. In particular, the Court criticized, amongst other deficiencies:

• the acceptance of oral instructions without an immediate link to a verifiable, written confirmation;
• the absence of a unique identifier to ensure the identity of the individual giving instructions;
• the failure by management to make prior disclosure of the use of the TeleVote System;
• the lack of sufficient safeguards to ensure that votes were taken in a manner that allows the shareholder to make his or her choices privately, on a fully informed basis and without undue pressure from a proxy solicitor; and
• the imbalance between the use of the TeleVote System by the management slate where the dissident slate used the traditional proxy solicitation process.

Ultimately, the Court concluded that the use of the TeleVote System constituted oppressive and unfairly prejudicial conduct and impaired the right of shareholders to a fair and transparent voting process

Conclusion

In the event an incumbent slate of directors finds itself in a proxy contest, the management slate must ensure that the proxy solicitation tactics used by its proxy solicitors are fully disclosed in management’s information circular and that such tactics will produce verifiable and reliable results. The failure to ensure that sufficient safeguards exist risks invalidating the election of directors and other shareholder business at an otherwise valid shareholder meeting.

¹International Energy and Mineral Resources Investment (Hong Kong) Company Limited v. Mosquito Consolidated Gold Mines Limited, 2012 BCSC 1191

With Quebec’s economic protectionism on the rise, leader Jean Charest has advised voters that, if re-elected, he would establish a $1-billion fund to assist Quebec companies to make foreign takeovers and would table a law allowing a board of directors to block a foreign takeover, even if shareholders support it.

According to Ralph Shay, partner and head of the Toronto Securities Group at Fraser Milner Casgrain LLP (FMC), allowing directors to evade the desire of shareholders does not align with the policy of securities commissions across Canada, as a board of directors is generally compelled to allow any takeover bid to be presented to shareholders, even if the board does not believe it is in the best interest of the company. “The securities commissions have a policy statement that says directors should not interfere with the right of shareholders to decide on a takeover bid,” he tells BNN. “The securities commissions don’t see it that way [that directors have the final say]…they feel that shareholders should have the right to decide when there is a takeover bid.”

Mr. Shay also said that this law, if it should become a reality, could negatively impact the share price of Quebec-based companies, because it would be less likely for shareholders to obtain a premium over the market price that normally comes with a takeover bid.

For more information, please read Business News Network’s article, Quebec election proposals felt across the country (August 14, 2012) or watch the broadcast interview on BNN’s Business Day (August 14, 2012).

In late July, the Investment Industry Regulatory Organization of Canada (“IIROC”) issued a proposed guidance (“Guidance”) in respect of certain trading practices deemed to be deceptive. The Guidance was drafted largely in response to the move, over the past number of years, towards automated order systems which promote high frequency trading, an activity which is currently estimated to constitute at least quarter, if not more, of trades on Canadian marketplaces. The Guidance lists a number of practices, including “spoofing”, “layering” and “quote stuffing” which are considered to be manipulative and deceptive trading practices under UMIR marketplace rules. IIROC is seeking comments on the Guidance and will accept feedback until October 15, 2012.

On August 3, 2012 the Investment Industry Regulatory Organization of Canada (“IIROC”) issued its strategic plan for 2012-2015 (“Plan”). IIROC has set out its seven core strategic goals for the next period, namely to (i) promote a culture of compliance; (ii) promote the protection of the investing public; (iii) deliver effective and expert regulation; (iv) strengthen the fairness, integrity and competitiveness of the Canadian capital markets; (v) act in an accountable, transparent and fair manner; (vi) be a cost-effective and efficient organization; and (vii) be an employer of choice.

Susan Wolburgh Jenah, IIROC’s President and Chief Executive Officer said “this Plan will guide IIROC’s efforts to strengthen investor protection and stakeholder confidence in the integrity, fairness and competitiveness of Canada’s capital markets in a rapidly evolving environment”.

The Plan follows IIROC’s first strategic plan which was developed in 2008 and served as a foundation for the priorities and operational strategy of the organization. The 2008 plan was updated for the 2008-2012 period following a comprehensive review. IIROC’s Annual Report will include an annual scorecard which will set out IIROC’s progress in achieving the goals articulated within the Plan.

On July 26, 2012, the Canadian Securities Administrators (the “CSA”) released a request for comment on proposed consequential amendments to a number of national instruments, policies and forms related to National Instrument 25-101, Designated Rating Organizations (“NI 25-101″).

As discussed in a previous post, NI 25-101 requires credit rating agencies or organizations to apply to become a “designated rating organization” (“DRO”) if they wish to have their credit ratings eligible for use in securities legislation. DROs are also required to comply with a set of rules concerning conflicts of interest, governance, conduct, compliance and required filings.

The proposed amendments, among other things, will replace the terms “approved rating” and “approved credit rating” in a number of instruments, policies and forms with “designated rating” and will include a rating provided by a DRO affiliate (as defined in NI 25-101). Further, the references to “approved rating organization” and “approved credit rating organization” will be replaced with the term “designated rating organization”.

The CSA is also requesting comments on a consequential amendment to Item 7.9 of Form 44-101F1, Short Form Prospectus which will clarify that the disclosure of an issuer’s relationship with a credit rating agency or organization is limited to the securities being distributed under a short form prospectus.

Comments are being accepted until October 24, 2012

On July 19, 2012, the Canadian Securities Administrators (the “CSA”) released CSA Staff Notice 51-337 – Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2012 (the “Notice “) which summarized the results of the CSA’s continuous disclosure review program (the “CDR Program”) for the fiscal year ended March 31, 2012. The Notice is intended to help issuers understand and comply with their obligations, summarize the results of the CDR Program for the fiscal year and provide examples of common deficiencies.

The CDR Program completed a total of 1,248 full or issue-oriented reviews. Issue-oriented reviews, which accounted for 64% of reviews conducted, involved a review of the financial statements and MD&As of select issuers. The issue-oriented review focused largely on whether issuers disclosed how the transition to International Financial Reporting Standards (“IFRS”) affected their financial position, financial performance and cash flow.

Select issuers were also subject to a full review which involves a review of many types of disclosure (e.g. the most recent annual financial statements and interim financial reports, technical disclosure, annual information forms and information circulars). The full review revealed a number of common deficiencies some of which included:

• Financial statement deficiencies (e.g. requirements for first-time adoption of IFRS (IFRS 1))
• MD&A deficiencies (e.g. use of boilerplate language under discussion of operations, liquidity and general provisions)
• Deficiencies in disclosure required by National Instrument 43-101, Standards of Disclosure for Mineral Projects (e.g. incomplete or inadequate disclosure of preliminary economic assessments, mineral resources and mineral reserves, non-compliant certificates and consents from qualified persons for technical reports)
• Deficiencies in disclosure required by Form 51-102F6, Statement of Executive Compensation (e.g. use of boilerplate language under item 2.1 (compensation discussion and analysis), failure to disclose the grant date fair value of share-based awards and option-based awards in the summary compensation table)

Overall, 56% of review outcomes required issuers to take action to improve disclosure (compared to 70% in 2011). The CDR Program will focus on the first annual IFRS Report for the fiscal year ended March 31, 2013.

Background
In 2004, the CDR Program was established by the CSA for the purpose of identifying material disclosure deficiencies that affect the reliability and accuracy of an issuer’s disclosure record. The CSA will work with issuers to resolve issues that are identified as a result of the review process. For more information about the CDR Program, please see CSA Staff Notice 51-312 – Harmonized Continuous Disclosure Review Program.

This article was prepared by Carole Turcotte and Michel Brunet of FMC LLP

Fraser Milner Casgrain LLP, KPMG LLP and its subsidiary SECOR Inc. have released today a study presenting an analytical framework for evaluating the different mining royalty regimes which are being used worldwide. The authors hope the study will provide a framework for informed debate regarding mining royalty regimes best adapted to Quebec’s economic and mining circumstances. The quest for such determination has been provoked by an important public debate that is currently ongoing in Quebec as a result of the recent launch of the Plan Nord.

The study analyzes four royalty schemes for a standard Quebec iron mine or gold mine: i) profit-based royalties, ii) ad valorem royalties, iii) West Australian style of royalties and iv) hybrid royalties. The study concludes that no scheme is universally superior to the others and that it must be adapted to the territory. Given the fact that Quebec’s mining sector is relatively marginal on an international scale (representing less than 1% of global production), and that Quebec has high production costs based on the fact that its variable climate, its mining deposits are generally less concentrated and that it is at a great distance from the emerging Asian market, the study focuses on the importance for Quebec to remain competitive.

A profit-based royalty, the current royalty regime in Quebec (at a rate of 16 %), adjusts to the profitability of the mining project. Thus, when prices are low and mines become marginal or not profitable, this regime does not compound the problem. This is particularly important in regions where production costs are higher. Avoiding a supplementary burden in such a situation can help mines pass through a depressed mining cycle, without having to stop production. When prices are high and profits are up, such a profit-based scheme gives governments a larger proportion of the extracted value. However, the royalty amounts collected by the government will experience greater fluctuations and there is a risk that they may be nil for some mines during certain years. The ad valorem royalty facilitates the collection of more constant royalty levels under various price variations. However, this royalty adds a significant cost burden to the mining companies when the prices are low and the mining projects are less profitable. This, in turn, adds a significant amount of risk to the project and reduces its net present value relative to the same project subject to a profit-based royalty. An ad valorem royalty imposes the payment of royalties even when profits are weak or non-existent. This could lead to the accelerated closure of mines when prices are low and the postponement of potential projects. Ad valorem royalties are much less complex to put in place and are more common in developing countries, where fiscal administration is not well established. The hybrid royalty and the West Australian style of royalty combine, to varying degrees, the advantages and disadvantages of the previous two schemes.

The study concludes that high mining royalties do not necessarily translate into revenues as future investment may be compromised. The study recommends a regime be calibrated to optimize the benefits for Quebecers in the development of mining potential with a view not only to government revenues, but to impacts on investor decisions and regional characteristics of the sector.

Importantly, the study notes Quebec’s other mining investment assets are the quality of the business environment (political, legal and fiscal), the availability of trained professionals and workforce, the quality of its geological database and the potential of a very large territory which has not yet been explored.

For further information please see the attached press release and study, or contact a member of the FMC mining team.

http://www.newswire.ca/en/story/1014421/an-analytical-framework-for-evaluating-mining-royalty-regimes

http://www.secorgroup.com/files/pdf2/SECOR-KPMG-FMC_Les-redevances_minieres_au_Quebec_Version_finale.pdf

The Canadian Securities Administrators (“CSA”) recently announced that following consultations with marketplaces, marketplace participants and service vendors, it is proceeding with the implementation of National Instrument 23-103 Electronic Trading and Direct Electronic Access to Market Places (the “Proposed Rule” or “NI 23-103”). The Proposed Rule establishes a regulatory framework for the oversight and management of potential risks associated with electronic trading in Canadian Market places, which, the CSA notes, is consistent with international approaches to regulating electronic trading.

NI 23-103 is designed to address the risks introduced by the speed and automation of electronic trading, and ensure that marketplaces and their participants are actively monitoring and addressing these risks. It will require, among other things, that participants in electronic trading implement and maintain certain controls, policies and procedures.

Subject to ministerial approval the policy will come into effect on March 1, 2013. Further information regarding the Proposed Rule can be found here on the OSC website.

On June 28, 2012, the Ontario Securities Commission (“OSC”) issued a notice to the effect that when OSC staff recommends that the Director refuse, amend, or suspend an individual either already registered or seeking registration under the Securities Act (Ontario) (the “Act”), or when OSC staff recommends imposing terms and conditions on an individual’s registration, the staff will send a letter providing written notice of its recommendation and brief reasons for it (the “Letter of Brief Reasons”) not only to the individual registrant but also to the registrant’s sponsoring firm. In the staff’s view, providing registered firms with the Letter of Brief Reasons will promote the accuracy and completeness of information provided in respect of individuals they sponsor.

On June 21, 2012, the Ontario Securities Commission (“OSC”) issued a notice to provide guidance to issuers, underwriters and their advisors in filing reports of exempt distribution in Ontario under National Instrument 45-106 Prospectus and Registration Exemptions (“NI 45-106”). Recommendations include, among others: (1) filing the report in the correct form (distributions in British Columbia must be reported to the British Columbia Securities Commission in Form 45-106F6), (2) properly identifying the correct prospectus exemption (noting that the exemptions provided by Sections 2.5 (Family, friends and business associates), 2.9 (Offering memorandum) and 5.2 (TSX Venture Exchange offering) of NI 45-106 are not available in Ontario), (3) complete disclosure of all commissions and finders’ fees (“Compensation” includes commissions, discounts or other fees or payments of a similar nature, but does not include payments for services incidental to the distribution (such as clerical, printing, legal or accounting services)), (4) ensuring consistency between the information required to be reported in item 7 of Form 45-106F1 (number of purchasers, jurisdiction of residence, price per security and total dollar value raised from purchasers in each jurisdiction) and the information required to be reported on Schedule 1 to Form 45-106F1 (name of the purchaser, number and type of securities, total purchase price, prospectus exemption relied on and the date of the distribution), and (5) ensuring that total number of purchasers in each jurisdiction (that is, the number of investors) and not to the number of securities each purchaser purchased is set out in Form 45-106F1.

An electronic version of Form 45-106F1 is available on the OSC’s website in addition to the paper form.

This article was prepared by David Hunter, Nalin Sahni and George McKibbon (McKibbon Wakefield Inc.)

The repeal and re-enactment of the Canadian Environmental Assessment Act (“CEAA”) and amendments to other federal environmental legislation amounts to the most significant change in federal environmental assessment (“EA”) since the legislation was first created decades ago. These amendments are clearly aimed at increasing investment in extractive industries by encouraging certainty, reducing regulatory duplication and shortening delays. The implications of these changes are vast and their full impact on the mining industry is not known.

This is the third article in our series on the changes to the federal environmental assessment regime and what that means for mining in Ontario. Our first article provided a general overview of the changes and our second article discussed changes in CEAA related to Aboriginal consultation. In this article, we discuss how the new CEAA will interact with several changes to Ontario mining legislation to create a new Aboriginal consultation regime in Ontario.

Since the amendment of the Constitution in 1982 to include recognition of Aboriginal and Treaty rights, Canadian governments have been engaged in a process of reforming laws and policies to recognize these new rights. To prevent conflicts with Aboriginal peoples, the 2007 Ipperwash inquiry identified the regulation and development of natural resources on Aboriginal lands as a key area of reform. Justice Linden concluded that the

management of natural resources must take into account the rights and interests of Aboriginal people more effectively. I believe there are ways of sharing and co-managing natural resources that are consistent with Aboriginal and treaty rights while serving the interests of first nations and the people of Ontario¹.

It is against this backdrop that Ontario has announced new changes to facilitate Aboriginal consultation for mining in Ontario. As described below, the new regulations proposed under Ontario’s Mining Act and the Far North Act amount to a new paradigm for mining and Aboriginal consultation in Ontario. We hope that the requirements for consultation in Ontario will also satisfy CEAA requirements but this is far from certain.

Changes to Ontario’s Mining Act and Regulations
The purpose clause of the Mining Act has been amended. Mineral resources must now be developed in a manner consistent with the recognition and affirmation of existing Treaty and Aboriginal rights including the duty to consult. This change in purpose has led to a new regulatory scheme that is expected to include detailed consultation requirements at each stage in the mine development process from early exploration to mine closure.

Under the proposed regulations, Aboriginal peoples must be notified when mining claims are recorded within their traditional use areas. Exploration plans are required for low impact activities (e.g. surveys that require a power generator) and exploration permits are required for moderate impact activities (e.g. drilling with equipment over 150 kg). For both exploration plans and permits, miners must notify / consult with Aboriginal peoples. Aboriginal peoples will have the ability to make their concerns and objections known at the start of the mining process. While this is likely to reduce conflicts, it could greatly lengthen the mine development process. Further, sites of Aboriginal cultural significance have been withdrawn from claim staking.

The proposed exploration planning and permitting requirements in the Mining Act are not expected to directly interact with the changes to CEAA, a since they operate at different stages in the mine development process. However, Aboriginal consultation requirements for mine production and closure plans could significantly overlap with the Aboriginal consultation requirements under the new CEAA. At present it is unclear if consultation under the Mining Act will count as consultation under the new CEAA regime or if additional consultations will be required. If these two requirements are not harmonized it could lengthen the environmental assessment and Aboriginal consultation process.

The New Far North Act
The Far North Act is essentially a land use planning statute for the northern-most 42% of Ontario. This huge area is home to 24,000 people, 90% of whom are Aboriginal. While half of the 450,000 km2 in the far north must be an interconnected protected area, one of the most important pieces of information for miners is that mines cannot be opened until community-based land use plans are developed for each region in the far north.

The land use planning process must be initiated by Aboriginal peoples in each area and the final plan must be approved by not only the Ontario government but each of the participating First Nation bands in the area. So far, only four land use plans have been developed in the far north and it could be a long-time before a significant portion of the far north is open to mining. The policies used to develop additional land use plans under the Far North Act will strongly influence whether these plans satisfy some or all of the EA and Aboriginal consultation requirements under the new CEAA.

South of the Far North Act area, Crown land use plans may be prepared under s. 12 of the Public Lands Act. Where approved plans exist, activities carried out in the planning area must be consistent with the approved plan. At present, Crown Land Use Planning Guidelines are for the most part silent on addressing mining or the concerns of Aboriginal peoples and do not assess impacts on Aboriginal peoples or the natural environment as required by CEAA.

A New Aboriginal Consultation Paradigm
Between the changes to CEAA, the new Mining Act purpose clause and regulations and the Far North Act, Aboriginal law is now firmly embedded in the mine development process from start to finish. There are now regulatory and Aboriginal consultation requirements for miners in Ontario starting with early exploration plans and ending with mine closure plans. Aboriginal participation and cooperation is now a core part of the CEAA environmental assessment process (see our second article). These changes, taken together, are beginning to operationalize the Aboriginal provisions of the Constitution and give some sense of what these rights mean in practice.

However, many questions remain unanswered. With all of these new Aboriginal consultation requirements at both the federal and provincial levels, it is unclear if there will be sufficient coordination (or harmonization) between the Ontario and the Federal government to make this Aboriginal consultation regime work in practice. Aboriginal consultation at the provincial level must be accepted to meet federal requirements and vice versa. Federal-provincial harmonization of environmental assessments (including Aboriginal consultation) was a key recommendation of the Drummond Report (see our March 2012 article) but it has not yet been implemented into practice.

At a minimum, coordination between federal and provincial governments should include:

• The sharing and acceptance of information between federal and provincial authorities (including Aboriginal consultation information);
• Allowing federal and provincial regulatory processes to run concurrently and
• Timely review by both levels of government.

Otherwise, the new Aboriginal consultation regime will create significant delays for miners and we suspect that governments may be forced to use the highly controversial cabinet override provisions contained in each of the these statues to ensure that projects are not cancelled because of endless delays.

___________________

¹  Linden, Sidney B. Report of the Ipperwash Inquiry. Toronto: Published by Ministry of the Attorney General, Queen’s Printer for Ontario, 2007 at Volume 2, page 44.

On November 10, 2011, CSA staff published CSA Staff Consultation Note 45-401 Review of Minimum Amount and Accredited Investor Exemptions (the consultation note). The consultation note provided information about the two exemptions under review and set out 31 consultation questions. The comment period closed on February 29, 2012.

On June 7, 2012 CSA staff published CSA Staff Notice 45-310 which updates market participants on the status of the consultation.

With respect to the Accredited Investor Exemption, some commenters supported retaining the accredited investor exemption and the definition of accredited investor in its current form while others suggested that the CSA could broaden the exemption to increase access to capital by businesses and opportunities to invest in the exempt market for more people.

With respect to the minimum amount exemption, many stated that the minimum amount is a flawed basis to measure investor sophistication or ability to withstand loss and operates to discourage diversification or appropriate investment strategies. Many recommended that the CSA repeal the exemption because of these concerns. Others recommended that the CSA keep the exemption at its current threshold despite these concerns. Their reasons for keeping the minimum amount exemption included: its usefulness as an alternative exemption when no other is available; its simplicity where investors are not willing to complete paperwork; and, the reasonable assumption that an investor would exercise care and caution before making such a large investment

Given the number of comments and the diversity of the feedback provided, the CSA indicated they would need further time to complete their review and consider the feedback. The CSA have indicated that they will finalize their review and publicly report on their conclusions later this year. A copy of the notice can be found here.

On June 8, 2012, the Toronto Stock Exchange (“TSX”) published a staff notice (the “Notice”) aimed at providing guidance to issuers and capital market participants on the use of block purchase exemptions and securities purchased in error under a normal course issuer bid (“NCIB”).

Subsection 629(l)(7) of the TSX Company Manual (the “Manual”) sets out what is commonly referred to as the “block purchase exemption”, which allows an issuer to make one purchase per calendar week which exceeds the daily repurchase restriction. In the Notice, TSX staff raise concerns about the practice by some dealers of bundling pre-existing blocks to sell into one purchase order under an NCIB. In the view of TSX staff, the combination of pre-existing blocks is considered inappropriate and inconsistent with the exception, as such practice allows an issuer to exceed the “one block per week” limitation. The Notice reminds issuers that the block purchase exception was created to allow an issuer to repurchase a large naturally-occurring block on the market, particularly in the case of illiquid securities.

The Notice also confirms that securities purchased in error under an NCIB which are taken into inventory by the buying broker firm may not be resold into an NCIB, as such trades would be considered to be pre-arranged trades, contrary to subsection 629(l)(2) of the Manual. The Notice suggests that one way for dealers to ensure that such securities are not resold into an NCIB is to temporarily cease purchases under an NCIB during resale of such securities.

On June 7, 2012, the Bolsa de Valores de Colombia (“BVC”), Toronto Stock Exchange (“TSX”), and TSX Venture Exchange (“TSX-V”) announced the execution of a Memorandum of Understanding (“MOU”) to promote cooperation among the securities markets in Colombia and Canada.

Under the MOU, the BVC, TSX and TSX-V will exchange certain information and undertake specific activities to facilitate the dual listing of companies in Colombia and Canada and assist one another in understanding the regime, process and rules for listing and trading securities in their respective jurisdictions.

Juan Pablo Cordoba, President of the BVC noted that the MOU “seeks to bring together Colombian and Canadian markets” while Ungad Chadda, Senior Vice President of the Toronto Stock Exchange remarked that “we are extremely pleased to add this MOU to our well-established commitment to the Latin American Region.”

As of April 30, 2012, five companies were dually listed on the TSX and the BVC. A total of 19 companies listed on the TSX and 43 companies listed on the TSX-V have operations in Colombia.

On June 7, 2012, the Ontario Securities Commission (the “OSC”) announced that it is broadening the scope of its exempt market review as a result of stakeholder feedback. The expanded review will consider whether the OSC should introduce new prospectus exemptions that may assist capital raising for business enterprises while protecting investors.

As discussed in a previous post, on November 10, 2011, the Canadian Securities Administrators published specific consultation questions with respect to its review of the $150,000 minimum amount and the accredited investor prospectus exemptions contained in National Instrument 45-106 – Prospectus and Registration Exemptions. As part of this consultation process, the OSC met with over 300 individuals and several interested stakeholder groups. Some stakeholders suggested that the OSC should consider prospectus exemptions based on a number of factors, such as the financial resources of a purchaser relative to the size of the investment and the availability of disclosure regarding the investment.

In addition to the introduction of new prospectus exemptions, the OSC will continue to assess whether the minimum amount and accredited investor prospectus exemptions are appropriate. The OSC will publish a second consultation note and seek further public feedback to determine whether new prospectus exemptions should be adopted, and if so, under what circumstances.

For more details, please see OSC Staff Notice 45-707.

 This article was prepared by David Hunter, Nalin Sahni and George McKibbon (McKibbon Wakefield Inc.)

The federal government has proposed a complete overhaul of federal environmental assessment in Canada as part of the federal budget. The repeal and re-enactment of the Canadian Environmental Assessment Act (“CEAA”) and amendments to other federal environmental legislation amounts to the most significant change in federal environmental assessment (“EA”) since the legislation was first created decades ago.

These amendments are clearly aimed at increasing investment in extractive industries by encouraging certainty, reducing regulatory duplication and shortening delays. The implications of these changes are vast and their full impact on the mining industry is not known. This is especially true in Ontario where miners will also have to deal with significant changes in aboriginal consultation under the Mining Act and the Far North Act as well as a new provincial Mining Class Environmental Assessment regime.

This is the second article in our series on the proposed changes to the federal environmental assessment regime and what that means for mining in Ontario. In our first article we provided a general overview of the changes. In this article we will discuss changes related to Aboriginal consultation. Future articles will deal with subjects including public participation, broad changes to the Fisheries Act, and harmonization with provincial environmental assessment processes.

While the proposed amendments to CEAA point to a reduced role for the federal government in assessing the environmental impacts from mines, the same cannot be said for Aboriginal consultation. The new CEAA strongly promotes Aboriginal involvement in the environmental assessment process through increased communication and co-operation and requires that environmental assessments address a range of effects on Aboriginal peoples.

Assessing Impacts on Aboriginal Peoples
CEAA continues to promote communication and cooperation with Aboriginal peoples as one of the enumerated purposes of environmental assessments. However, this purpose is given new force by an expanded list of environmental effects on Aboriginal peoples that must be taken into account.

The current CEAA requires the consideration of the impact of any change on “the current use of lands and resources for traditional purposes by Aboriginal Peoples.”¹  The proposed amendments to CEAA maintain this obligation but s. 5.1 also requires the consideration any effect in Canada on Aboriginal peoples’:

• health and socio-economic conditions;
• physical and cultural heritage; and
• structures of historical, archaeological, paleontological or architectural significance.

While each of these environmental effects is included in the current version of CEAA, assessment of their impact on Aboriginal peoples was not as explicitly required as under the proposed amendments. Community and Aboriginal traditional knowledge can also be taken into account in assessing environmental impacts. Unlike other classes of environmental effects, impacts on Aboriginal peoples are not limited to federal government land or jurisdiction. These broadly defined categories appear to apply to environmental effects throughout Canada and their precise definition will likely be the subject of litigation.

Interaction with Ontario Statutes
While these environmental effects on Aboriginal peoples must now be taken into account, a bigger question is how these requirements will interact with the new Ontario Aboriginal consultation regime. The Ministry of Northern Development and Mines is in the process of finalizing new regulations under the Mining Act that would require Aboriginal consultation for mining exploration and prospecting. The Far North Act also prohibits mining development in Ontario’s far north until community-based land use plans are developed. The content of many of these land use plans and whether they would satisfy some or all of the environmental assessment and Aboriginal consultation requirements under the new CEAA remains an open question.

Coordination between the federal and provincial governments is essential for the development of Mining in Ontario. At a minimum, this coordination (or harmonization) should include: the sharing and acceptance of information between federal and provincial authorities; allowing federal and provincial regulatory processes to run concurrently; and timely review by governments at both levels. The FMC Mining Group will prepare commentary entirely devoted to how the proposed amendments to CEAA interact with the new requirements in Ontario.

¹  Canadian Environmental Assessment Act, S.C. 1992, c.37 at s.2(1).

On July 1, 2012, changes to the Mineral Tenure Act Regulation will come into effect in British Columbia.

The good news is that many of the current registration fees will be eliminated including fees for registration of exploration and development work, registration of payment of cash in lieu of work, registration of portable assessment credits, amalgamations, reduction of cell claims and transfer of ownership.

The number of cells per claim that can be selected will be increased from 25 to 100 per acquisition. The fees, however, will increase for registration of mineral claims from $.0.40 per hectare to $1.75 and from $2.00 per hectare to $5.00 per hectare for placer claims.

In addition, the new assessment requirements will increase from the present $4.00 per hectare in each of the first three years and $8.00 per hectare thereafter to $5.00 per hectare for years one and two, $10.00 per hectare for years three and four, $15.00 per hectare for years five and six and $28.00 per hectare for each subsequent year.

The assessment work for placer claims will increase from $10.00 per hectare to $20.00 per hectare per year.

The result is that new assessment work being filed on claims will create, in effect, new anniversary dates such that new assessment filings will commence with the new process starting with the first year in which the new assessment would apply. As an example, if a claim is good until 2015 and new assessment work is filed in 2012, the assessment work for 2016 and 2017 would be $5.00 per hectare commencing in 2016.

Payments by cash in lieu will double for each of the time periods and the new minimum time frame for filing cash in lieu will be six months rather than the current one day.

Mineral lease rentals will also increase from $10.00 per hectare to $20.00 per hectare and placer lease rentals will increase from $5.00 per hectare to $20.00 per hectare.

It will also be possible to subdivide claims consisting in two or more cells. Any assessment work on such claims would be divided among the number of cells.

This article was written by Alan J. Hutchison

A recent Notice of Hearing issued by the British Columbia Securities Commission (“BCSC”) may require mineral exploration companies to re‐visit their continuous disclosure practices. On April 24, 2012 the BCSC issued a Notice of Hearing against four current and former directors of Canaco Resources Inc. (“Canaco”) alleging that they breached applicable securities laws in connection with the disclosure of drill results from Canaco’s Magambazi gold exploration project in Tanzania, as well as in connection with certain stock option grants around the same time. While none of these allegations have as yet been proven, certain facts have emerged from both the BCSC’s allegations and Canaco’s public response that merit discussion of common continuous disclosure practices by mineral exploration companies.

Background

In late November 2010 management of Canaco received assay results from eight holes from an ongoing drill program at Magambazi. The results were circulated to the directors and it appears that management and the board considered the assays to be good results. Canaco staged the announcement of the drill results over three news results over a two week period. The share price increased significantly following each news release, with one day increases of 10.9%,14.6% and 5.9%. The Company did not file a material change report following any of the news releases.

Between the time the management and board of Canaco became aware of the assay results and the date that the first news release was announced, the board of directors authorized the Company’s customary annual grant of stock options to directors, officers and consultants.

Following the increase in the share price following the release of the assay results, the TSX Venture Exchange required the Company to re‐price the stock options to the price of Canaco’s shares following the announcement of all of the assay results. It appears that Canaco and the option holders did this voluntarily and to the satisfaction of the TSXV, and the matter was resolved in March 2011.

The BCSC’s allegations are twofold: (1) that Canaco breached section 85 of the Securities Act (British Columbia) by failing to disclose all assay results immediately upon receipt, and (2) that the directors of Canaco acted inappropriately by granting stock options when in possession of material undisclosed information. The crux of Canaco’s defence is that the assay results were not material as the drill holes constituted infill drilling and simply confirmed the extent of mineralization previously demonstrated in earlier drilling. Canaco has sought expert opinions from third parties affirming this position, most notably from Micon International Ltd. Although not expressly stated in the BCSC’s Notice of Hearing, it is submitted that it is noteworthy that the Magambazi deposit did not have a resource estimate.

The intent of this article is not to question the facts or attempt to form a judgment on any of the matters set out in the BCSC’s Notice of Hearing. But even prior to a judgment being rendered, there are a number of lessons for exploration mining companies.

Timing of Announcements of Drilling Results

A frustrating reality for every mineral exploration company is that with the boom in mineral exploration over the past few years the turnaround time for assay results has lengthened considerably. What used to be a one or two week wait is now commonly eight weeks. Most companies prefer not to announce hole by hole results, as it can be more difficult to put results in proper context to properly disclose the geological ramifications for the project of the drill results. The result is that there is a considerable time lag between raising capital, expenditure on mineral exploration and announcement of results. The additional challenge for many companies is the reality that it is not easy to generate regular news flow necessary to keep shareholders engaged in the company’s story. Plus, the seemingly fickle attention span of the market compels companies to focus on key points and not to overwhelm the market with more information it can absorb. As a result, most companies do exactly what Canaco did in this situation – accumulate a cluster of assay results and then release them in stages over one or two weeks once the company can properly analyze the results and ensure that the company obtains the requisite internal and NI 43‐101 approvals for the news release. The BCSC’s allegations in this instance suggest that this practice is contrary to securities laws. It may be necessary for companies to announce the assay results immediately and then seek to provide analysis and context in a subsequent news release. Given the technical nature of the disclosure, presumably few companies would be interested in doing this voluntarily.

Hindsight is 20‐20

Continuous disclosure requirements imposed by Canadian securities laws and stock exchange rules require public companies to assess materiality for every change or development affecting the company. Usually materiality is assessed on a forward looking basis, namely as to whether the news or development would reasonably be likely to impact the value or market price of the company’s securities. This requires companies to assess not only the change or new development itself, but the asset or project to which it relates in the context of the company as a whole. What is material to one company is not necessarily material to another, so while general principles can be ascertained, management and directors must ultimately assess their companies on an individual basis.

It is apparent in the Canaco situation that the BCSC did not accept Canaco’s position that the assay results are not material. Certainly at first glance it appears that the market considered the assay results to be material, as all three news releases resulted in significant increases in Canaco’s share price. However, that does not preclude an argument that management, directors and consultants of Canaco considered the materiality of the assay results in good faith and determined prior to announcement that they were not material, even though the market reached a different conclusion.

Accepting Canaco’s defence at face value, the concerning aspect of this case is that in a regulatory proceeding materiality is often applied with the benefit of hindsight. As a result, public companies are reminded that it is better to err on the side of caution and adopt a conservative assessment of materiality. To draw on a couple of specific facts from the Canaco example, it is worth noting the following principles:

• Prior to the completion of a mineral resource estimate, which typically resets materiality for a mineral project, companies should consider that all drill results are material. Even if the geological knowledge of a project is not enhanced by a drill program, one should not consider such drill programs to be infill drilling per se until the stage of drilling to reduce spacing between drill holes to confirm or upgrade categories of mineral resources.

• Companies should avoid granting stock options or other share based compensation to insiders when in possession of undisclosed assay results. It is submitted that the grant of options prior to the dissemination of the news releases announcing the drill results was the principal factor that caused the BCSC to commence a proceeding in this case. Without that inciting factor it is doubtful that the Notice of Hearing would have proceeded. As Canaco notes in its defence, this may result in extremely narrow windows to grant stock options, and possibly several months after the customary timing for issuing options, but to do otherwise can result in regulatory problems.

Material Change Reports

Canadian securities laws require public companies to file material change reports within 10 days of the occurrence of a material change in its business or affairs. However, the material change report is probably the continuous disclosure requirement that is most inconsistently applied, especially by smaller issuers. It seems that companies either file material change reports for every news release in order to ensure compliance, or they hardly ever file material change reports at all. In almost every instance material change reports are given little attention or thought, but have become perfunctory compliance documents duplicating the company’s news release.

This is a good reminder that material change reports should not be overlooked as a continuous disclosure obligation. Applicable securities laws require public companies to assess the materiality of a particular occurrence or development to determine whether a material change report is required to be filed.

Multiple Layers of Securities Regulation

It is also worth noting that Canadian public companies have to deal with multiple layers of securities regulation. The provincial securities commissions, stock exchanges and self regulatory organizations (i.e. IIROC) all have a regulatory function that aims to preserve the integrity of the Canadian capital markets. While most of the time these organizations work together in an attempt to harmonize their rules and enforcement practices, that is not always the case. Over the past couple of years we have seen some noteworthy differences of opinion between securities commissions and the TSX. The facts here suggest that the TSXV questioned Canaco about the grant of stock options almost immediately following the announcement of the assay results. It appears that there was a significant dialogue between the TSXV and Canaco, which culminated in the re‐pricing of the stock options. There is no indication that the TSXV challenged the conduct of the directors of Canaco to the extent that the BCSC is doing now. This is a good reminder that securities regulators can take different perspectives on an investigation and can reach different views on what constitutes an appropriate resolution.

Contact Us

For further information, please contact a member of our National Mining Group.

On May 10, 2012, the Investment Industry Regulatory Organization of Canada (IIROC) released a request for comments on approaches to the establishment and operation of price and volume thresholds or volatility controls by each marketplace in Canada. IIROC has proposed the following two guiding principles: (i) that marketplace thresholds should operate to generally preclude the execution of orders at prices that would otherwise, on execution, require regulatory intervention by IIROC on the triggering of a single-stock circuit breaker or the application of IIROC’s policies and procedures for the variation and cancellation of trades; and (ii) that the volatility control mechanism used by a marketplace should have the least amount of impact on the market-wide operation of the price discovery and access to tradable liquidity.

The release is the first step in the public consultation process which may lead to IIROC making a formal proposal on the establishment of price and volume thresholds to be adopted by marketplaces. While the release discusses existing marketplace controls, IIROC specifically issued guidance or request for comments with respect to single-stock circuit breakers, regulatory intervention for the cancellation or variation of trades and market-wide circuit breakers. IIROC notes, however, that currently none of these mechanisms are triggered by the volume of an order, but instead are based on price impact.

Comments are being accepted until August 8, 2012.

This article was written by David Hunter, Nalin Sahni and George McKibbon (McKibbon Wakefield Inc.).

As part of the federal budget, the government has proposed a complete overhaul of federal environmental assessment in Canada. The repeal and re-enactment of the Canadian Environmental Assessment Act (“CEAA”) and amendments to other federal environmental legislation amounts to the most significant change in federal environmental assessment (“EA”) since the legislation was first created decades ago.

These amendments are clearly aimed increasing investment in extractive industries by encouraging certainty, reducing regulatory duplication and shortening delays. The implications of these changes are vast and their full impact on the mining industry, particularly in Ontario, will not be known for years to come.

Over the next few weeks, the FMC Mining Group will analyze and comment on the proposed amendments and their impact on environmental assessments related to mining in Ontario. These commentaries will of course take into consideration the recent changes to Ontario’s Mining Act, Far North Act and Aboriginal consultation requirements.

Though complex, the amendments will have three major impacts:

1. Federal EAs will be more limited in scope and will apply to fewer projects.
2. More discretion for the Minister of the Environment and Cabinet in the EA process.
3. Huge transfer of EA responsibilities to the provinces.

In this first article, we provide a general overview of the proposed amendments relevant to miners. Future articles, will discuss particular subjects in detail including public participation, Aboriginal consultation, broad changes to the Fisheries Act, and harmonization with provincial environmental assessment processes.

Projects Requiring an Environmental Assessment

The former list of federal actions that trigger a formal environmental assessment (usually a permit) has been eliminated. EAs are only required if the project is designated by regulation. This change should make it much clearer which projects require an environmental assessment. However, this may also be a basis of future risk since any subsequent government could amend the list of projects requiring an EA without seeking Parliamentary approval.

Activities that are “incidental” to designated projects (possibly road access, transmission lines, air strips, etc.) must also be covered by the EA. Since what is “incidental” to a project is not defined by CEAA, this may become the subject of much debate in the future.

Who Conducts the Environmental Assessment?

If mining projects are included in the list of projects designated as requiring a federal EA, conducting the EA will be the responsibility of the Canadian Environmental Assessment Agency or a review panel established by the Minister of the Environment (the “Minister”). The exception here would be uranium mining projects. The Canadian Nuclear Safety Commission will continue to have lead responsibility for environmental assessment of uranium mines.

Types of Environmental Assessments and Timelines

The CEAA amendments will eliminate the concept of comprehensive study reports. There will now be only two levels of federal environmental assessment – “standard EA’s” (similar to current screening level studies) and EA’s performed by review panels. Standard EAs must be completed within 365 days, and review panels must complete their assessment within 24 months of receiving a complete environmental impact report from the proponent. Note that these times lines are not fixed but can be extended up to 3 months at the discretion of the Minister or indefinitely by Cabinet.

Public participation in a review panel hearing will be limited to those “directly affected” or who have relevant expertise. Non-governmental organizations seeking to intervene in EAs may find it difficult to obtain standing to participate in review panel proceedings. This could substantially shorten EA timelines.

Harmonization with Provincial Environmental Assessments

The new CEAA is trying to move towards a “one project, one review” system. The federal EA process for standard EAs can be replaced by a provincial EA if the Minister is of the opinion that the provincial environmental assessment act would be an “appropriate substitute” and the province requests the substitution. Panel reviews cannot be substituted by a provincial process but the new CEAA continues to allow for a joint federal-provincial panel review.

The provincial EA process does not have to match the rigor of the federal assessment though, at a minimum, the same factors must be considered. The Minister can also approve the substitution of a provincial EA after a provincial EA has been completed. It would appear that all current federal-provincial harmonization agreements will have to be rewritten from scratch. Given that these agreements have typically taken years to negotiate, achieving a true a “one project, one review” system may take a considerable period of time. Eventually, however, these changes could remove unnecessary duplication in EAs.

Scope of Environmental Assessments

The purpose of CEAA has been significantly altered. Formerly, the purpose was to ensure that projects did not have significant adverse environmental effects that could not be justified. This purpose has been reduced such that projects should not have significant adverse environmental effects only upon the components of the environment within federal jurisdiction. This could generate debate and uncertainty in the process as to the types of effects covered by federal EAs.

Further, only enumerated environmental effects need to be taken into account. Cabinet alone can add or remove a component of the natural environmental that must be assessed. Coupled with the changes to the Fisheries Act to focus on the protection of commercial, recreational and Aboriginal fisheries, this means that many mining projects may no longer require federal EAs and may be primarily governed by provincial EA processes. The definition of what constitutes a commercial, recreation or Aboriginal fishery should also be expected to be the subject of future debate.

While the scope and purpose of federal assessments has generally been narrowed, the assessment of environmental effects on Aboriginal peoples has been given increased focus. These amendments may be especially significant when combined with the proposed amendments to Ontario’s Mining Act regulations and the new requirements under the Far North Act. FMC will prepare a commentary devoted entirely to this subject.

On April 30, 2012, the Canadian Securities Administrators (the “CSA”) announced the official designation of DBRS Limited, Fitch, Inc., Moody’s Canada Inc. and Standard & Poor’s Rating Services (Canada) as Designated Rating Organizations (“DROs”) under National Instrument NI 25-101 Designated Rating Organizations (“NI 25-101”).

NI 25-101, which came into force on April 20, 2012, established a regulatory framework for the oversight of credit rating organizations by permitting them to apply for DRO status. The CSA designation orders make each of the DROs subject to regulation under applicable Canadian securities laws.

On May 10, 2010, the Canadian Securities Administrators (except Ontario) (the “CSA”) announced the adoption of Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (the “OTC Rule”). The OTC Rule establishes certain disclosure obligations for issuers with securities quoted on the U.S. OTC market if those issuers are found to have a significant connection to Canada. According to the CSA, the rule discourages the manufacture and sale in a Canadian jurisdiction of U.S. OTC quoted shell companies that can be used for abusive purposes.

Under the OTC Rule, certain Canadian continuous disclosure requirements would apply to OTC issuers if the issuer falls into one or more of the following categories: (i) the issuer’s business has been directed or administered in or from Canada; (ii) promotional activities have been carried on in or form Canada; or (iii) the issuer distributed a security to a person resident in Canada before obtaining a ticker symbol, and that security becomes an OTC-quoted security.

An OTC issuer subject to this rule would be required to comply with the continuous disclosure obligations applicable to venture issuers. In addition, OTC issuers subject to the rule will be required to file annual information forms.

The OTC Rule will come into effect on July 31, 2012.

On April 26, 2012, the Canadian Securities Administrators (“CSA”) published two staff notices addressing disclosure requirements related to the prospectus exemptions found under National Instrument 45-106 – Prospectus and Registration Exemptions (“NI 45-106”). The notices are aimed at improving compliance by issuers, underwriters and their advisors and assisting market participants in avoiding deficiencies in their NI 45-106-related filings.

In CSA Staff Notice 45-308 – Guidance for Preparing and Filing Reports of Exempt Distribution, the CSA provides guidance relating to reports of exempt distribution filed in accordance with Form 45-106F1. Specifically, the notice highlights a number of issues observed by the CSA and clarifies requirements in respect of such topics as filing deadlines, filing fees, improper reliance on unavailable exemptions, failure to include a complete list of purchasers and failure to disclose all commissions and finder’s fees.

In Multilateral CSA Staff Notice 45-309 – Guidance for Preparing and Filing an Offering Memorandum, the CSA addresses compliance with the rules relating to offering memoranda (“OM”). The CSA highlights that issuers must ensure that an OM is in the correct form, does not contain any misrepresentations and provides sufficient information to enable a prospective purchaser to make an informed investment decision. Issues identified by the CSA include the failure to update the OM when distributions are ongoing, using an incorrect form of update and inadequately disclosing the issuer’s business. While the OM exemption is not available in Ontario, the guidance in Staff Notice 45-309 applies to Ontario-based issuers distributing securities in other jurisdictions under the OM exemption.

Each Notice confirms that responsibility for compliance with NI 45-106 rests with the issuer, that the use of a prospectus exemption under NI 45-106 is subject to regulatory oversight and monitoring and that identified non-compliance may result in corrective action where appropriate.

On March 20, 2012, TMX Group announced its support for, and cooperation with, OSC’s review of emerging market (“EM”) issuers. In addition, the Toronto Stock Exchange and TSX Venture Exchange initiated parallel consultations with various market participants, issuers and other market stakeholders over the last number of months. Based on this review and consultation, TMX Group prepared and is expected to provide additional guidance to EM issuers, to complement existing rules and working practices. Such guidance may be subject to further regulatory consultation and review by securities commissions.

Kevan Cowan, President, TSX Markets and Group Head of Equities, TMX, said:

“While provincial securities regulators are the primary authority overseeing reporting issuers, TMX Group takes its responsibility and public interest mandate very seriously. With the growth of emerging market economies, issuers and investors from these markets are expected to increasingly seek opportunity in Canada and other developed economies around the world. The work currently being conducted by TMX Group is part of our ongoing efforts to enhance the quality and integrity of Canada’s capital markets, a key competitive advantage both for us and for Canada.”

On March 20, 2012 the Ontario Securities Commission (“OSC” or the “Commission”) released a staff notice summarizing the findings of the Commission’s review of emerging market (“EM”) issuers. With the growing importance of EM issuers to the Ontario economy, OSC’s review was prompted by recent concerns involving certain high profile EM issuers. In summary, the review articulated four main areas of concern:

 (1) Concerns regarding issuer governance and related disclosure: OSC’s review yielded recommendations for improved corporate governance practices and better disclosure regarding corporate structure and risk factors. The OSC also recommended that EM issuers maintain appropriate books and records in Canada, and consider both minimum local language competency and Canadian director residency;

(2) Concerns regarding the audit function for an EM issuer’s annual financial statements: The Commission’s recommendations included, among others, facilitating access to audit working papers of Ontario reporting issuers, and examining whether suitability standards for auditors should be developed;

(3) Concerns regarding adequacy of the due diligence process conducted by underwriters in offerings of securities by EM issuers: OSC review recommended that a transparent set of requirements and best practices for the conduct of due diligence by underwriters be established; and

(4) Concerns regarding the exchange listing process. The Commission’s review recommended that exchanges review their current listing and approval requirements with a view to determine whether more stringent listing requirements would be appropriate for EM issuers.

CSA issues prospectus disclosure guidance for issuers with short-term liquidity concerns or raising insufficient proceeds

On March 2, 2012, the Canadian Securities Administrators (CSA) issued a notice setting out the CSA’s approach regarding disclosure of the financial condition of an issuer and the sufficiency of proceeds in the context of a prospectus offering.

The notice is intended for issuers that have filed a prospectus and either (i) it appears that the prospectus inadequately discloses the issuer’s financial condition and going concern risk or (ii) there is adequate disclosure about the issuer’s financial condition, but it appears that the proceeds from the proposed offering may be insufficient to accomplish the stated purpose of the offering. In these circumstances, a receipt for a prospectus may not be issued.

The CSA identified five areas in which the staff may raise comments where it identifies concerns in respect to an issuer’s financial condition and/or sufficiency of proceeds: (i) missing information regarding offering amount and pricing, (ii) offering structure, (iii) use of proceeds disclosure, (iv) risk factors disclosure and (v) representations to support ability to continue operations. For each of these areas, the notice identifies disclosure that will likely be required before the issuer receives a receipt for a final prospectus. However, for issuers with real short-term liquidity concerns, it is possible that a receipt may not be issued, regardless of disclosure.

The notice does not set out a specific test to determine under what circumstances the proceeds will be considered insufficient or when an issuer will be deemed to not have sufficient funds to continue as a going concern. As a practical matter, it would appear that the determination as to the sufficiency of proceeds to achieve the purposes identified in the prospectus will often be clear. In respect of issuer with liquidity concerns, the notice provides general guidance based on the type of issuer in question:

• Exploration stage issuer:  Sufficient to reach completion of next phase of a project
• Development stage issuer:  Sufficient to achieve the issuer’s next significant milestone
• Research & Development issuer:  Sufficient to achieve progress on the development of a key product
• Issuer with active operations:  Ability to continue operations for the short term

A copy of the notice is available here.

On March 7, 2012, the Ontario Securities Commission, the Quebec’s Authorité des Marches Financiers and the British Columbia Securities Commission entered into a Supervisory Memorandum of Understanding (Supervisory MOU) with the European Security Markets Authority (ESMA) concerning the regulatory cooperation in the supervision of credit rating agencies that operate in both the European Union and Canada. The Supervisory MOU is subject to the approval of the Minister of Finance and if approved, it will become effective April 20, 2012.

Since 2006, the Government has been working to streamline the review process for major economic projects so that projects proceed in a timely fashion while protecting the environment. For example, in 2010 the Government amended the Canadian Environmental Assessment Act to allow assessments to start sooner and reduce duplication, and created participant funding programs to ensure meaningful public engagement in the review process.

These steps have made a difference, but more needs to be done. Currently, companies undertaking major economic projects must navigate a complex maze of regulatory requirements and processes. Approval processes can be long and unpredictable. Delays and red tape often plague projects with few environmental risks. Under the current system, thousands of smaller projects with little or no risk to the environment are caught up in the federal environmental review process. The types of small projects that can be needlessly subjected to lengthy reviews include construction of a new pumping house for the expansion of a maple syrup plant, and the replacement of an existing culvert under a causeway. By forcing these thousands of low-risk projects to go through the review process, the current system draws resources away from projects that have the greatest impact on the environment. This approach is not economically sound or environmentally beneficial.

Read Full Article

On February 29, 2012, the Ontario Securities Commission (“OSC”) released a Strategic Plan detailing how the OSC intends to “stay ahead of the evolving, complex and dynamic environment of today’s global capital markets.”

The OSC Strategic Plan includes six key initiatives, as follows: (i) expanding the OSC’s research and analytic capability to be able to respond to and keep pace with market developments and investor concerns and to support policy-making by creating a dedicated Research and Analysis Group; (ii) engaging investors more effectively by creating an Office of the Investor to strengthen the OSC’s focus on investor engagement; (iii) improving internal policy coordination and priority setting by establishing an internal Policy Coordination Committee; (iv) aligning all operations and programs with defined OSC goals and priorities and developing and reporting on key performance indicators; (v) improving risk identification and management by establishing an Emerging Risk; and (vi) delivering excellence in the execution of operations.

A copy of the OSC’s Strategic Plan can be found here.

Effective February 29, 2012, the TSX Venture Exchange (“TSXV”) has amended Policies 1.1 and 3.2 for the purposes of addressing certain inconsistencies with applicable securities laws and enhancing the clarity of existing policy requirements.

Of particular interest are the changes to the definition of “Exchange Hold Period” to more properly reflect the circumstances in which a TSXV hold period and the corresponding TSXV legend are applicable to a security. The amendments to Policy 3.2 also clarify that if the securities are issued into a direct registration or book-entry system (such as CDS) or the purchaser of the securities does not otherwise receive a physical certificate representing the securities, the Issuer must ensure that the purchaser receives a written notice containing the applicable TSXV legend. The amendments also clarify the applicable “Exchange Hold Period” in respect of securities which are convertible, exercisable or exchangeable into shares listed on the TSXV.

This article was written by Mark Evans and Michael Beeforth.

Introduction

The Ontario Divisional Court’s recent decision in Deeb v IIROC, 2012 ONSC 1014 (CanLII) will be of interest to securities law practitioners with clients operating in Ontario, as it speaks to the ability (or inability) of respondents to circumvent the disciplinary process of the Investment Industry Regulatory Organisation of Canada (IIROC) by means of an application for judicial review. Deeb confirms that, in line with previous decisions, IIROC derives its authority from the contractual relationships with its members and not from statute, and that when an individual or firm contractually submits to IIROC’s jurisdiction, it is bound by that commitment and will be unable to bypass IIROC’s disciplinary procedures by proceeding directly to the civil courts.

Background

IIROC is a self-regulatory organisation that regulates investment dealers in Canada. IIROC is recognised as a self-regulatory organisation by the Ontario Securities Commission (OSC) pursuant to the Ontario Securities Act (RSO 1990, c S.5), which allows persons or companies affected by a direction, decision, order or ruling made by IIROC to apply to the OSC for a hearing and review of the relevant direction, decision, order or ruling. Despite being recognised by the OSC, IIROC is an independent body and receives its funding from its members.

Hampton Securities Limited is a dealer member of IIROC. Peter Michael Deeb, the president and chief executive officer of Hampton, is registered as an ‘approved person’ with IIROC. Both agreed to be bound by IIROC’s rules and bylaws and submitted to IIROC’s jurisdiction. Specifically, in its April 2008 membership application, Hampton stated that it “submits to the jurisdiction of IIROC”, and that it “agrees that IIROC is entitled to exercise such jurisdiction over the applicant and its approved persons with respect to any matter, facts, actions or circumstances existing or arising prior to, as at, or after the date” on which it became a member.

In late 2009 IIROC commenced an investigation into both Deeb and Hampton on the basis of three anonymous complaint letters received by IIROC, which were shown but not produced to them. The investigation led to a business conduct review of Hampton in 2010, which resulted in a business conduct report describing three matters relating to Hampton’s conduct.

Subsequent to the release of the business conduct report, on September 1 2011 IIROC issued a notice of hearing pursuant to its rules naming Deeb as a respondent in a disciplinary hearing. An alert concerning the notice of hearing was posted on the IIROC’s website and distributed to its members. Hampton and Deeb alleged that they experienced several deleterious consequences as a result, including loss of business to Hampton, loss of Hampton’s staff and the inability of Deeb to open a bank account.

On November 3 2011 the applicants commenced an application in the Ontario Divisional Court under the Judicial Review Procedure Act (RSO 1990, c J.1), seeking an order quashing IIROC’s notice of hearing and compelling it to retract its business conduct report, produce the three anonymous complaint letters and set aside the close supervision by IIROC to which Deeb had previously consented. IIROC subsequently moved to quash the application for judicial review.

Decision to quash application for judicial review

The test on a motion to quash an application for judicial review in Ontario is whether it is plain and obvious that the application cannot succeed or, alternatively, that it is beyond doubt that the application will fail. On its motion, IIROC submitted that the application should be quashed for two reasons:

• There was no jurisdiction for the court to hear the application under the Judicial Review Procedure Act; and

• The application was premature as the applicants had proceeded directly to the divisional court without pursuing relief before an IIROC hearing panel.

In granting IIROC’s motion and quashing the application, Justice Pepall held that IIROC had met the plain and obvious test on both issues.

Lack of jurisdiction

Section 2(1) of the Judicial Review Procedure Act provides that an application for judicial review may request any relief that the applicant would be entitled to in any:

• proceedings by way of application for an order in the nature of mandamus, prohibition or certiorari; or

• proceedings by way of an action for a declaration or for an injunction, or both, in relation to the exercise, refusal to exercise or proposed or purported exercise of a statutory power.

The plain language of the act indicates that the judicial review jurisdiction under the second category is limited to exercises of ‘statutory power’, while case law has established that the jurisdiction under the first category is limited to exercises of ‘state power’.

In accepting IIROC’s submission that its disciplinary jurisdiction over the applicants flowed from the contractual commitments made by its members, the court held that IIROC was not created by and derived no authority from statute, and that it did not exercise any state power other than narrow delegated powers that were not engaged in the current case. Accordingly, disciplinary investigations or steps initiated by IIROC were properly overseen by IIROC and were not the subject of judicial review under the act.

The court also rejected the applicants’ argument that IIROC derived its regulatory authority from the OSC’s recognition order, referring to the Ontario Court of Appeal’s decision in Taub v Investment Dealers Association of Canada, 2009 ONCA 628 (CanLII), which specifically confirmed that “[IIROC’s] duties are not determined by statute and… recognition by the OSC does not transform [IIROC] into a government actor”.

Prematurity

The court agreed with IIROC’s second submission, holding that in the event that its decision concerning jurisdiction was incorrect, the application was nonetheless premature as there were ongoing proceedings before a properly constituted IIROC hearing panel. The hearing panel was properly the decision maker of first instance in the context of IIROC’s disciplinary proceedings and should decide the merits of any requests made by parties to those proceedings. Finally, the court held that there were no exceptional or extraordinary circumstances that justified the exercise of its discretion to permit the application to be heard despite the ongoing IIROC proceedings.

Comment

The divisional court’s decision in Deeb follows the Ontario Court of Appeal’s ruling in Taub that IIROC’s jurisdiction over its members is grounded in contract and not in either statute or in IIROC’s recognition as a self-regulatory organisation by the province’s securities commission. Accordingly, one should expect that the courts in Ontario will continue to respect IIROC’s jurisdiction in regards to disciplinary proceedings over its members (and former members) and, absent extraordinary circumstances, will not intervene in such proceedings at the preliminary stages through applications for judicial review.

This article was written by David Hunter, Nalin Sahni, and environmental planner George McKibbon of McKibbon Wakefield Inc.

Economist Don Drummond recently released a sweeping report (the “Drummond Report”) on rethinking Provincial governance and Ontario’s economy. Miners should take note: the Drummond Report calls for increased mining taxes and user fees and “a new paradigm for environmental and natural resource programs,” licensing, and services that could both hinder and simplify mining development and operations.

Transformation is an important theme in our continuing series on streamlining the current mine development system. In our last article, we discussed the Draft Class Environmental Assessment for Mining and how the licensing system could be improved (See February 9th posting). Today, we discuss the changes that miners should expect from the Drummond Report, if implemented.

Increased Mining Taxes and User Fees

The Drummond Report recommends that Ontario: scrap the resource tax credit, review the mining tax system to ensure Ontario is appropriately compensated, and charge mines for any water used. Business taxes in Ontario have been significantly reduced and tax credits and reduced mining taxes are no longer necessary to encourage investment. Charging for water withdrawals could raise significant revenue and would encourage water conservation. However, the increased costs from these taxes and fees on the mining industry could be substantial. The Drummond Report also recommends that Ontario consider additional mining taxes dedicated for Aboriginal development if mining companies do not fund Aboriginal peoples’ economic participation in the “Ring of Fire”.

Government Should Recover the Full Cost of Resource Licensing

The Drummond Report recommends that the Ministry of the Environment (the “MOE”) and the Ministry of Natural Resources (the “MNR”) raise fees to fully recover the review and administration costs of environmental, land use, and resource licensing. While this is not likely to be problem for the MOE, it isn’t clear if this can be accomplished for approvals under MNR’s Public Lands Act (the “PLA”) for mine related infrastructure approvals such as roads and transmission lines.

Risk-Based Environmental and Natural Resource Approvals

While the MOE is already moving to a risk-based approvals system, MNR’s approvals continue to be based on policies developed under the PLA. Unlike environmental permitting or municipal land use decision-making, there isn’t a wide body of experience for establishing risk-based policies or approvals under the PLA. Acting on this recommendation will be challenging for MNR.

One Project, One Environmental Assessment

The Drummond Report recommends that there should be only one environmental assessment per project with no duplication between the Federal and Provincial governments. As with current renewable energy approvals, environmental assessments should facilitate development by addressing the other approvals mines require such as roads and transmission lines. A consolidated environmental assessment process could create a win-win for miners and environmentalists by trading minimum environmental standards for mines (good for enviros) for an expedited process that lets mining companies get all the permits they need fast (good for miners). Though not mentioned in the Drummond Report, the Municipal Class Environmental Assessment used for municipal infrastructure could also serve as a useful model that provides for the integration of Planning Act and Environmental Assessment Act approvals provided consistent notice and analytical processes are followed.

In our February 9th posting, we discussed how a “one-stop-shop” approach for mining projects could significantly speed project development while increasing environmental protection but would require significant coordination between government ministries. The challenge for the MNR will be to establish objective, science based principles for issuing approvals.

Increased Used Polluter-Pay Principle for Contaminated Sites

The Drummond Report recommends that Ontario expand the financial assurance system to ensure the funds provided in advance are sufficient to pay for any cleanup required. This could lead to proponents of advanced exploration and mining projects being forced to provide larger sums up front in the form of a bond or letter of credit.

While the polluter-pay principle is enshrined in Ontario law, in practice the Parties that contaminate land or fail to property close mines often go out of business or become insolvent and the government is left to pay for the clean up. The MOE and the Ministry of Northern Development and Mines often require companies to provide financial assurance though the amount required is often insufficient to pay for the full cleanup cost. While the financial assurance system can be improved, it is unlikely to cover all cleanup costs since it is impossible to determine how much a cleanup will cost in advance. The Drummond Report also recommends that Ontario follow the approach of the U.S. Superfund and tax mining and other industries to create a pool of money to cover any unfunded clean up costs.

Conclusion

If fully implemented the Drummond Report could create several new taxes and user fees for mining companies. While creating a “one-stop-shop” for approvals and environmental assessments will require significant coordination between Ontario Ministries, it could greatly speed the mine development process. While we hope this occurs, it should not be expected. We will keep you apprised of the implementation of the Drummond Report’s recommendations in future articles.

Note: The Drummond Report fails mention that oil and chemical tax that paid for the U.S. Superfund has been removed by the U.S. Congress. The Superfund is now paid out of general revenues and is no longer an example of a government recovering cleanup costs from industry as stated by the Drummond Report.

On February 3, 2012, the TSX announced the adoption of amendments to Parts I, IV and VI as well as Appendix H of the TSX Company Manual (the “Amendments”). As discussed in a previous post, the Amendments introduce a Due Bill initiative which will help “improve the accuracy and timeliness of the valuation reporting of clients’ holdings when securities undergo certain material corporate events”.

The TSX did not receive any comments in response to its Request for Comments issued on December 22, 2011 and has not made any changes since that publication. The Ontario Securities Commission has approved the Amendments.

Although the Amendments became effective on February 3, 2012, Due Bills will not be used by the TSX until the Due Bill process is implemented by CDS. A public notice will be issued at that time.

Earlier this month, the Ontario Securities Commission, Quebec Autorité des marchés financiers, the Alberta Securities Commission and the British Columbia Securities Commission entered into a Memorandum of Understanding with the Australian Securities and Investments Commission (ASIC).

The MOU provides for consultation, cooperation and information-sharing in the day-to-day supervision of regulated entities in both jurisdictions. In that regard, it complements previous agreements with the ASIC relating to enforcement.

In particular, the MOU provides a framework for information sharing in a number of areas including:

• the initial application by a regulated entity for registration that is registered in the other jurisdiction;
• ongoing supervision and oversight of cross-border regulated entities; and
• regulatory or supervisory actions or approvals that may impact the operations of the entity in the other jurisdiction.

The MOU also provides that “where practicable and reasonable” the securities commissions will give advance notice (or as soon as possible thereafter) of:

• regulatory changes that may have a significant impact on the operations, activities, or reputation of a cross-border regulated entity;
• material events such as changes in the ownership, operating environment, operations, financial resources, management, or systems and control of a cross-border regulated entity that could adversely and directly affect that cross-border regulated entity; and
• enforcement or regulatory actions or sanctions.

In addition, the MOU provides a framework for cross-border examinations of regulated entities located in the other authority’s jurisdiction.  The securities commissions will work collaboratively to facilitate on-site visits, may conduct joint investigations, and will share relevant examination reports or compliance reviews.

In Ontario, the MOU is subject to the approval of the Minister of Finance. If approval is granted, the MOU will take effect in Ontario on April 17, 2012.

David Hunter, Senior Counsel at FMC, will be reprising his role as lecturer in environmental law at Shanghai’s East China University of Politics and Law in May 2012. This course is part of the law and economics program at the Graduate School and will be co-taught with Professor Jinhau Cheng. David also lectured at the university in September 2011.

This article was written by Sandy Walker and Patrick Robert.

Beef producers, financial institutions, energy and resource companies, educators, researchers, uranium producers, canola growers, mining investors and pandas…

Question: What do they all have in common?

Answer: Each of them may benefit from Canadian Prime Minister Harper’s recent visit to China.

In the view of some seasoned China-watchers, the Prime Minister’s trip may be remembered as the most important visit by a Canadian prime minister in a decade for the sheer volume and depth of bilateral commitments and agreements achieved, including 23 agreements between Canadian and Chinese companies generating a reported $3 billion (not to mention China’s agreement to loan two giant pandas to Canada).

Though the U.S. continues to be Canada’s number one trading partner, China is its second most important by far and is anticipated to become even more so as China is expected to become the world’s largest economy by 2020. Canadian investment in China is at a record high, having increased by 38 percent over 2009 levels.

The four day visit by the Prime Minister included meetings with the highest level of Chinese Government officials: President Hu Jintao, Chairman of the Standing Committee of the National People’s Congress Wu Bangguo, and Premier Wen Jiabao. The Prime Minister’s entourage included business leaders from companies such as Bell, TELUS, Cameco and Bombardier and the Prime Minister attended and addressed the 5th Canada-China Business Forum put on by the Canada-China Business Council (CCBC). (See photograph of Michel Brunet, FMC’s Chair, and Peter Harder, President of the CCBC and FMC Senior Policy Advisor, Government Relations with Prime Minister Harper.)

Probably the signal accomplishment was the conclusion of substantive negotiations on the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA), an accord that has been in the works for the past 18 years and is expected to be among the strongest such agreements China has signed with foreign countries. Although the accord must still undergo internal approval processes in the two countries (including being presented to Parliament in Canada), the safeguards it provides for Canadian investors in China are significant. For example, the agreement provides Canadian investors with recourse against public policy actions by the Chinese government that are detrimental to their investments. As a result, investors would, to some degree, be shielded from unpredictable and arbitrary actions that may impede Canadian investment in China.

A second accomplishment is an agreement permitting Canadian uranium producers to export nuclear fuels and advanced nuclear technologies to China, the world’s largest energy consumer. This supplements the Agreement between the Government of Canada and the Government of the People’s Republic of China for Co-operation in the Peaceful Uses of Nuclear Energy of 1994. The Canadian Canada’s nuclear energy industry is significant, generating approximately $6.6 billion in annual revenue and $1.2 billion in exports each year. This agreement will level the playing field for Canadian uranium producers vis-à-vis other countries such as Australia and Kazakhstan which already benefit from such agreements.

The visit also generated the renewal or establishment of a raft of memoranda of understanding in a number of areas, including energy, fisheries, food inspection, natural resources and education. There will also be increased technical cooperation between Canadian and Chinese experts in research, technology and innovation.

The Canadian Government also regards developing increased trade in energy as crucial as Asian markets are both strategic significant and geographically accessible. In fact, the Prime Minister repeatedly stressed the importance of diversification of energy exports – away from reliance on the United States in view of the continued controversy dogging completion of the Keystone XL Pipeline project – and growth in the Asia Pacific region.

Both Prime Minister Harper and Premier Wen referred to the joint feasibility study underway to examine the potential of a free trade agreement. This study will report to both governments in the spring and could lead to the launching of free trade negotiations – which would undoubtedly be a long and challenging process. Any such negotiations would parallel multilateral talks under the Trans-Pacific Partnership which Canada is seeking to join and in which China has not yet indicated a willingness to participate.

Canada’s embrace of an Asian orientation will not occur without some detractors. For example, a free trade agreement would likely threaten Canadian agricultural supply management schemes.

Nevertheless, Harper’s achievements in China on this trip may well be viewed in the coming years as building the foundation for a new and wider bridge between Canada and China. Of course only time will tell if the promise of this visit materializes into concrete channels for trade and investment flows.

This article highlights significant developments in foreign investment review in Canada over the past year.

Post Potash Anxiety Lifts in 2012?

In the immediate aftermath of the Canadian Government’s rejection of BHP Billiton’s bid for Potash Corporation of Saskatchewan, foreign investors questioned whether there would be a sea-change in Canada’s previous openness to foreign investment. While the failed bid by the LSE for the TMX removed the possibility of another potential rejection, foreign investors, including SOEs, have not been dissuaded from investing in Canada. Despite this, a run at Canadian icons such as Research In Motion could again thrust into the public arena questions of foreign ownership of “national champions” or in “strategic” sectors. As a result, potential acquirors of such targets will need to develop strategies at an early stage to address government and public relations in order to pre-empt, or at least mitigate, any public backlash.

Chinese SOE Investments Approved

The Canadian Government approved a number of state-owned investments in 2011, including Sinopec’s proposed acquisition of Daylight Energy, a Canadian oil and gas company, and CNOOC’s acquisition of oil sands company, OPTI Canada. CNOOC acquired OPTI’s 35 percent working interest in Long Lake and three other project areas located in the Athabasca region of northeastern Alberta. Both investments would have been subject to the Government’s guidelines on state-owned investors which consider the SOE’s corporate governance and commercial orientation in assessing whether the transaction would be of “net benefit” to Canada.

Enforcement of Investment Canada Undertakings

In 2010 the Canadian Government sued US Steel for alleged non-compliance with its employment and production undertakings. This represented the first time an investor has been taken to court over a failure to comply with undertakings. In December 2011 US Steel settled the dispute with the Canadian Government, committing to make additional capital investments in its Canadian facilities and to operate certain Canadian plants until 2015.

The US Steel case underscores both that the Canadian Government will enforce undertakings in appropriate circumstances (although variations are still possible) and that when formulating 3 or 5 year commitments in relation to an acquisition, foreign investors must carefully consider their ability to meet such undertakings in light of the vagaries of economic conditions. Investors should also proactively manage public and government relations when compliance with undertakings proves difficult.

Review of Investment Canada Act

After its rejection of BHP Billiton’s bid for Potash Corporation of Saskatchewan, the Canadian Government indicated its openness to review the Investment Canada Act. In the winter of 2011, the Parliamentary Standing Committee on Industry, Science and Technology invited foreign investment experts to speak about their views on the statute and the review process. However, there has been no public indication since the Government majority win in the May 2011 federal election that the Government intends to resume scrutiny of the foreign investment review process.

Review Threshold Increases

It is expected that the threshold for review for WTO investors will be $330 million for the year 2012. The official threshold will be published in the Canada Gazette in early 2012. However, what may be of greater interest to foreign investors is whether the Canadian Government finally implements regulations bringing into force amendments made to the Investment Canada Act three years ago. These amendments would raise the review threshold to $600 million in the target’s “enterprise value” for the two years following implementation, to $800 million in the subsequent two years and to $1 billion thereafter (indexed to inflation), thereby reducing the number of investments that are subject to review.

This article was written by David Hunter, Nalin Sahni, and environmental planner George McKibbon of McKibbon Wakefield Inc.

The Ministry of Northern Development and Mines (“MNDM”) has released the revised Draft Class Environmental Assessment for Mining (the “Mining Class EA”) for public comment until February 21, 2012*. The Mining Class EA replaces two declaration orders on discretionary land tenure decision-making and mine rehabilitation**. While the main purpose behind the Mining Class EA is to reduce the environmental impact of mining, those that hoped this document would help resolve competing land use issues and facilitate mining exploration and development may be disappointed. 

Rather than reducing uncertainty by creating a clear set of workable rules to balance environmental protection and mining development, MNDM has left all major components of the Mining Class EA up to their discretion. Over the next few months we will release a series of articles on whether increased government discretion will advance both environmental protection and mining development, but in the meantime we wanted to discuss Mining Class EA and the basic issues of concern.

The Mining Class EA sets up a system to assess and mitigate the environmental and social impacts of mining projects that are “predictable and manageable”. The Mining Class EA only covers mine rehabilitation activities or actions that require MNDM discretion such as granting: some mining and surface rights, title to Crown lands for mining, or permission for the removal of bulk ore samples for testing. The Mining Class EA does not cover non-discretionary decisions such as prospecting, staking and the granting of mining claims and leases. It is unclear if prospecting, staking and exploration will still be exempt from the Mining Class EA when MNDM issues new regulations on Aboriginal consultation and mining exploration licensing later in 2012 (See our Jan. 12 post).

Since the Mining Class EA is limited only to MNDM discretionary decisions, the environmental assessment may not incorporate all circumstances that exist on the ground. MNDM staff may be tempted to exercise their discretion to broaden their review and look at decisions made under other legislation. This could create an additional risk for miners by bringing in land tenure decisions made under the Public Lands Act or the Planning Act (for organized municipalities) in to the environmental assessment process.

Projects covered by the Mining Class EA are categorized from A to D with environmental effects ranging from none (Category A) to significant (Category D). With larger potential environmental impacts comes a more onerous process with greater consultation requirements and the creation of a detailed Environmental Study Report.

Projects that have high enough impacts that are not “predictable and manageable” cannot be covered under the Mining Class EA. These projects are subject to the more stringent and time-consuming individual environmental assessment under the Environmental Assessment Act (Category E) and any person can request that a project be “bumped-up” from a Mining Class EA to an individual assessment.

The problem with this “predictable and manageable” standard is that mining is inherently unpredictable. Miners won’t know the environmental impact of the tailings or the value of their ore in the ground until they dig it up. It is unclear how MNDM will use their discretion to interpret this “predictable and manageable” standard but given the difference between the shorter Mining Class EA process and the potential large delays with an individual assessment there is the potential for lawsuits on this issue in the near future.

The Mining Class EA represents a real missed opportunity to create a win-win for both environmentalists and miners. This could have been accomplished by limiting government discretion, streamlining the mining development process, and by coordinating the planning and land tenure requirements between the Mining, Public Lands and Planning Acts. A more robust Mining Class EA would trade minimum environmental standards for mines (good for enviros) for an expedited process that lets mining companies get all the permits they need fast (good for miners). Instead, the Mining Class EA creates a new cumbersome process for miners that fails to address the other permits needed for basic mining infrastructure under the Planning Act, the Public Lands Act and the Far North Act.

While creating a “one-stop-shop” for miners would require better communication between MNDM, the Ministry of Natural Resources and others, it would greatly facilitate the mining development process. In the next few months, we will release a series of articles on the current mine development process and how the Ontario government could streamline the system.

*A Class Environmental Assessment for Activities of the Ministry of Northern Development and Mines under the Mining Act – Draft, January 23, 2012. Available at: http://www.mndm.gov.on.ca/mines/mineral_development_and_lands_branch/ea/default_e.asp.

**See Declaration Orders MNDM-3 for Discretionary Mining Land Grants and MNDM-4 for Abandoned Mine Hazard Rehabilitation.

Effective January 27, 2012, the United States Securities and Exchange Commission (“SEC”) has adopted new rules outlining how publicly traded mining companies must disclose in their quarterly and annual reports the mine safety information required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The new rule is applicable to foreign private issuers and to Canadian issuers reporting under the US-Canadian multijurisdictional disclosure system. The disclosure, however, only applies in respect of mines located in the United States.

The information required by the new SEC rules, which is required to be disclosed on a mine-by-mine basis, includes:

• Significant and substantial violations of mandatory health or safety standards under the Federal Mine Safety and Health Act of 1977 (“Mine Act”) for which the operator received a citation from the Mine Safety and Health Administration (“MSHA”).
• Information regarding citations and orders for unwarrantable failure of the mine operator to comply with the Mine Act.
• Imminent danger orders issued under the Mine Act.
• The dollar value of proposed assessments from the MSHA.
• Notices from the MSHA of a pattern of violations or potential to have a pattern of violations under the Mine Act.
• Pending legal actions before the Federal Mine Safety and Health Review Commission.
• Mining-related fatalities.

Additional information can be found here. For a copy of the new SEC rule please visit http://www.sec.gov/rules/final/2011/33-9286.pdf

On January 27, 2012, the Investment Industry Regulatory Organization of Canada (IIROC) issued Notice 12-0029, providing guidance in connection with the processes that must be followed to obtain exemption from, or an interpretation of, a provision of the Universal Market Integrity Rules (UMIR). IIROC guidelines state that such requests may be sought by electronic means, through email, and by telephone. A request must generally be accompanied by certain contextual information, including facts giving rise to same. IIROC staff will follow up with a written ruling in cases where an exemption request has been allowed or denied. The notice also provides guidance as to circumstances under which IIROC may grant an exemption with respect to requests that a dealer be able to act as principal or agent in respect of an “off-marketplace” trade. Generally, the granting of such exemptions depends on whether the execution of the trade on a marketplace would be disruptive of a fair and orderly market or impractical.

Effective October 3, 2011, the British Columbia Securities Commission adopted a new form for reports of exempt distribution, Form 45-106F6 British Columbia Report of Exempt Distribution. An issuer distributing securities in British Columbia under certain prospectus exemptions is required to use the new Form 45-106F6 for distributions occurring on or after October 3, 2011. On December 9, 2011, the Commission ordered, under BC Instrument BCI 45-533 Exemptions from Form 45-106F6 requirements, that certain issuers and underwriters are exempt from Form 45-106F6 requirements. Certain of these exemptions allow certain issuers and underwriters to file the old Form 45-106F1 Report of Exempt Distribution, while others relieve issuers and underwriters from the insider information requirements in item 4 of Form 45-106F6.

Exemptions in BCI 45-533 include:

• investment funds;
• non-reporting issuers, provided that the distribution is made only to permitted clients;
• foreign public issuers, subsidiaries of foreign public issuers and subsidiaries of reporting issuers; and
• non-reporting issuers (re: certain insider information, provided they complete the table in item 4 of Form 45-106F6 for each director, executive officer, control person and promoter of the issuer).

Some of the above exemptions are also available to underwriters distributing securities of non-reporting issuers. Issuers or underwriters wanting to rely on any such exemptions must ensure that they comply with the specific terms and conditions set out in the particular exemption.

This is the last post in my series dealing with suggestions for the corporate secretary when drafting board minutes. In this post, I deal with process issues relating to the protection of board minutes from unnecessary production.

For my post with an overview of all of the suggestions, click Writing Board Minutes for Peace of Mind. For my posts dealing with the first four issues in detail, click The “Front Page of the Newspaper” Test, Keep the Purposes Front and Centre, Draft to Minimize Unnecessary Production, and Draft to Protect Privilege and Confidentiality.

Circulation of Minutes

There are a number of process issues that can undermine a corporation’s attempt to protect corporate minutes from production. An obvious process issue is how broadly the minutes are circulated. If board minutes are widely circulated or routinely made available to third parties, then it should not be surprising if a court concludes that there is no confidentiality to protect, notwithstanding how many assertions of confidentiality and privilege are contained in the board minutes.

Confidentiality Designations

Another obvious but over-looked process issue arises because directors typically receive a significant amount of briefing material prior to a board meeting, which will later be appended to the board minutes. This material may include documents that are confidential or privileged. If the material is subject to third-party confidentiality obligations, consideration should be given to marking that material as “subject to confidentiality obligations.” If the material is privileged, the documents should be marked so that the claim for privilege is evident on the face of the document.

In-House Counsel as Corporate Secretary

A more complicated issue arises with the cross-appointment of in-house corporate counsel to the corporate secretary role. This is frequently the case, particularly in smaller organizations. However, this raises complications. For example, when in-house corporate counsel takes notes at the board meeting, it is not evident that these notes being taken in the role of a lawyer whom the board has asked to participate in or to monitor the meeting for the purpose of giving legal advice and, therefore, the notes are privileged. More likely, these notes are the notes of an officer of the corporation whose responsibility includes ensuring that minutes of the meeting are prepared and, therefore, without a claim to privilege.

It is prudent for in-house counsel to maintain two sets of notes when attending board meetings. Notes that are being taken as corporate secretary for the purpose, for example, of preparing or vetting the minutes, should be taken separately from those prepared for the purpose of following up on items as corporate counsel or as preparation for giving legal advice.

Draft Minutes and Notes

Another process issue concerns whether to retain draft minutes, the source notes from which the minutes are prepared, and notes prepared by directors. Very few of us are excellent note-takers.  A notation may reflect a private thought or capture only half of the thought.  The notes may simply be our way of paying attention and not meant to record accurately what occurred.  If available for production, these documents may be cast doubt on the accuracy, integrity and completeness of the board minutes.

Although routine destruction is a possibility, the corporation and its officers and directors must be careful not to engage in spoliation (the intentional destruction of evidence). Documents that are relevant to a litigious matter should be preserved as soon as litigation is reasonably anticipated. This may be before any demand is made or any claim is asserted.

There is no avoiding the reality that the destruction of notes and drafts is a sensitive topic and fraught with danger.  Even if innocently done, the destruction of notes and drafts can simply look bad.  A more practical approach is to avoid creating unnecessary notes and drafts in the first place.

The corporate secretary can avoid multiple drafts and source notes by using a template that prompts the corporate secretary to take notes that contain the appropriate details for the minutes (but without a blow-by-blow of the meeting).  This will require less revision to put into an appropriate form of minute of the meeting. There is also less chance of something being omitted innocently in the final minute due to editing that an adversary might seize on as evidence of manipulation of the board minute.

When dealing with a particularly sensitive matter, board members might be reminded that if they take notes, they should take care to prepare accurate and complete notes.  If the practice in such circumstances if for the minutes to be prepared and circulated shortly after the meeting for an initial review (and then inserted in the board packages at a later date for approval), directors may find it unnecessary to take personal notes since they will have the opportunity to conduct a review while the matter is fresh in their minds.  The contemporaneous preparation and review of the minutes can only serve to enhance their reliability.

Conclusion

There is no glamour in preparing board minutes and they are often put on the “back burner.” Apart from the statutory requirement in almost all Canadian jurisdictions to keep these records, board minutes are a critical piece of documentary evidence when there is a challenge to the conduct of directors. Careful preparation of board minutes is worth the effort. Moreover, with some care, the preparation of board minutes may also subsequently assist a litigator in persuading a court that the board minute or a portion of the board minute should be protected from disclosure either to the adversary or to the public in general.

The Ontario Securities Commission (OSC) today published information regarding the OSC’s authority to impose monetary sanctions and an update on how the collection of those sanctions has proceeded.

The OSC has the authority to impose a range of sanctions on individuals and companies for violations of securities law or conduct that is contrary to the public interest in Ontario. Sanctions are imposed either at the conclusion of a contested proceeding or as part of a settlement reached between the respondent and OSC staff and approved by the OSC.

The purpose of the Commission’s sanction powers is to deter future wrongdoing in the capital markets. One of the OSC’s powers is to impose monetary sanctions for breaches of Ontario securities law and the OSC has exercised this authority since 2005. Monetary sanctions include administrative penalties and disgorgement orders. In imposing administrative penalties, the OSC may order a person or company found to have breached securities law to pay up to $1 million for each failure to comply.

Further details may be found here.

This article was written by David Hunter and Nalin Sahni.

In December 2011, the Ministry of Northern Development and Mines (“MNDM”) issued a Request for Proposals (“RFP”) for the delivery of new Aboriginal education program on mineral exploration and development.

It would be expected that this education program would cover the important new Mining Act regulations on Aboriginal consultation and the licensing of exploration activities that are scheduled to come in to force in 2012 (see Jan. 12th post regarding the Wahgoshig First Nation decision). These regulations are necessary to establish the foundation for mining development and to hopefully avoid conflicts between Aboriginal communities and mining companies as occurred between the Wahgoshig First Nation and Solid Gold Resource Corp. The regulations must help clarify the relationship between the Mining Act and Far North Act that prohibits mining activities in Ontario’s far north until community plans are developed.

However, the content of the workshops appears to be more of an introduction to the mining industry in Ontario with topics such as “Minerals in Your Life.” This seems to be a missed opportunity to solicit Aboriginal views on the adequacy of the new prospecting and exploration regulations. Given the timelines, another more substantive consultation is not likely to occur until the regulations are in force.

The United States Securities and Exchange Commission (“SEC”) has recently adopted amendments to the accredited investor standards in the rules under the Securities Act of 1933 (“U.S. Securities Act”) in order to conform to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Effective February 27, 2012, the definition of “accredited investor” in the rules under the U.S. Securities Act will exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of US$1 million.

The accredited investor exemption in Canada may also be subject to amendment in the near future. As discussed in a previous post, the Canadian Securities Administrators (“CSA”) are in the process of reviewing certain prospectus exemptions, including the accredited investor exemption and the $150,000 minimum amount exemption. In connection with the CSA’s review, the Ontario Securities Commission (“OSC”) has announced three upcoming roundtable discussions to obtain input from investors, issuers, registrants and professional advisors as to whether any changes to the prospectus exemptions may be appropriate. The roundtable discussions will take place on February 2, February 8 and February 13, 2012.

The Ontario Securities Commission (“OSC”) is currently considering two significant policy initiatives affecting mergers & acquisition transactions in Canada. As discussed in a previous post, the first initiative relates to a possible standalone rule in respect of poison pills. The second policy initiative discussed in the recent OSC panel discussion held at the Toronto Board of Trade would amend the existing rules governing related party transactions in order to address current “process defects” in conflict management and to provide additional protections for minority shareholders.

Under the draft proposal, an issuer contemplating a related party transaction would be required to establish a special committee of independent directors, which committee would be required to negotiate or supervise the negotiation of the transaction terms and evaluate the fairness of the transaction. The special committee would be required to either (i) recommend that the board support and that shareholders vote in favour of the transaction, or (ii) deem the transaction to be fair to shareholders notwithstanding that the special committee does not make a recommendation in favour of the transaction. The determination by the special committee would be supported by full disclosure regarding the committee’s procedure and reasoning. The new regime would also lower the transaction value triggering a shareholder vote from the current threshold of 25% of market capitalization of the issuer to 10% of market capitalization of the issuer.

According to Mr. Naizam Kanji, Deputy Director of Corporate Finance at the OSC, the proposal could also include a clarification and broadening of the scope of the definition of related party transactions.

This is the fifth post in my series dealing with suggestions for the corporate secretary when drafting board minutes.  In this post, I discuss suggestions for drafting to protect privilege and confidentiality.  To access my first post containing an overview of all of the suggestions, click Writing Board Minutes for Peace of Mind.  For my posts dealing with the first three issues in detail, click The “Front Page of the Newspaper” Test, Keep the Purposes Front and Centre and Draft to Minimize Unnecessary Production.

Drafting to Assist the Litigator
Even though the corporate secretary should presume that minutes of board meetings may be produced in litigation, the corporate secretary can take steps to assist the company’s litigator in defending against production on the basis of privilege or confidentiality. The argument for protection against disclosure will be more persuasive if the minutes appear on their face to be privileged or confidential, since a judge may inspect the minutes before making a ruling.

Therefore, the most important of step is to ensure that the minutes contain the elements that satisfy the legal test for privilege or confidentiality. To do that, the corporate secretary should be familiar with and watchful for three types of privilege when preparing board minutes: (a) solicitor-client privilege; (b) litigation privilege; and (c) common law privilege.

Solicitor-Client Privilege
Solicitor-client privilege applies to confidential communications between a lawyer and his or her client for the purpose of seeking lawful legal advice. 

When external counsel attend a board meeting it is usually obvious that the advice given by external counsel is subject to solicitor-client privilege. However, the role of in-house corporate counsel at board meetings presents complications. It may not be obvious whether corporate counsel is providing legal advice or business advice, particularly if in-house counsel attends regularly in more than one capacity. For example, corporate counsel may report on an environmental compliance issue. It may not be obvious whether in-house counsel gave the report as part of legal advice or as the compliance officer of the corporation.

To enhance the likelihood that solicitor-client privilege will be recognized and maintained, consideration should be given to identifying in the minutes that the board “received confidential legal advice” from the lawyer (whether external counsel or in-house corporate counsel).

Another complication may arise because other persons are in attendance when the advice is being given, such as financial advisors or other invited guests.  It has been said that confidentiality is the sine qua non of solicitor-client privilege. With some exceptions (discussed below), the attendance of third parties may destroy a claim that the advice given was confidential.

If there are observers or other participants at the board meeting, those persons should be requested to absent themselves for the portion of the meeting dealing with the legal advice.  The board minutes should reflect that those persons were not in attendance during that portion of the meeting.

From time to time, the presence of observers or participants, such as financial advisors, may be necessary because they are part of the “team” dealing with the issue on which legal advice is being given. Courts in Ontario, at least, accept that privilege may not be lost in these circumstances.  It is prudent to get legal advice to see if the criteria for protecting privilege will be met.  As a general rule, if privilege is available, the board minutes should reflect the role of those third parties and why the board requested that those persons remain in attendance during the receipt and discussion of legal advice.

Litigation Privilege
Another important type of privilege is litigation privilege. Litigation privilege is a zone of privacy in which a litigant may prepare its case “without adversarial interference and without premature disclosure.” Every litigant (whether represented by a lawyer or not) is entitled to litigation privilege. Unlike solicitor-client privilege, litigation privilege covers non-confidential communications with third parties and documents of a non-communicative nature (such as draft argument and research). Litigation privilege will only attach to those documents and communications whose dominant purpose is to respond to actual or apprehended litigation.

The applicability of litigation privilege is usually clear once litigation has been commenced.  However, in the run-up to litigation, it is prudent to note that the board was considering an isuse that was apprehended to be litigious.  Be aware, however, that once litigation is contemplated, there are document preservation responsibilities for the corporation.

If litigation privilege is available, the minutes should reflect that the dominant purpose of the agenda item is to receive a confidential report from management regarding potential or actual litigation and for the directors to discuss and to prepare for or to respond to the litigation. If third parties are present, the purpose of their attendance should be noted. For example, financial or other advisers may be present to assist the directors with evaluating or preparing a response to the real or apprehended litigation.

Common Law Privilege
Common law privilege is a residual category of privilege from disclosure. It is available on a case-by-case basis after the court considers the following criteria:

(a) The communications originate in a confidence that they will not be disclosed.

(b) This confidence is essential to the full and satisfactory maintenance of the relationship between the parties.

(c) The relationship is one, which in the opinion of the community, ought to be sedulously fostered.

(d) The injury to the relationship by the disclosure of the communications is greater than the benefit gained in the litigation process.

Common law privilege may be available when the board is conducting an investigation, such as, for example, in response to a whistle-blower complaint.

The court exercises significant discretion when deciding whether common law privilege is available. Legal advice should be sought when dealing with matters such as an internal investigation arising out of a whistle-blower complaint or other matters that might attract common law privilege so that the corporate secretary has guidance on how to manage these types of activities.

The guidelines with respect to confidentiality and third-party participation discussed above in connection with solicitor-client and litigation privilege apply equally to common law privilege.  In addition, it would be prudent for the minutes to reflect the board’s consideration of the importance of confidentiality to the matter being addressed and the board’s concerns with respect to any breach of confidentiality. For example, if a third-party investigator is reporting to the board on an investigation, the board should consider (and the minutes should reflect) the importance of confidentiality to the integrity of the investigation and the harm that could occur to the organization and the investigation if confidentiality is not maintained, such as, for example, employees may be less willing to speak with the investigator about the potential misconduct of a colleague or supervisor if confidentiality is not assured.

Confidentiality or Sealing Orders
Another litigation issue that corporate secretaries should consider is the potential availability of a confidentiality order or a sealing order in the event that the minutes are required to be produced. In general, a confidentiality order restricts the persons with whom documents and information are to be shared and applies only to the parties and any specific third parties who are involved in the litigation process (such as experts). A confidentiality order will often contain a protocol requiring a standard form confidentiality agreement, restricting onward sharing of information, and requiring the destruction of the information when it is no longer necessary to be kept by the third party. A sealing order prevents records in the court file from becoming public. In Ontario, subsection 137(2) of the Courts of Justice Act provides the authority for a sealing order. Subsection 137(2) provides that the court “may order that any document filed in a civil proceeding before it be treated as confidential, sealed and not form part of the public record.” The trend has been for courts to restrict the availability of these orders, given the importance of the openness of judicial proceedings.

However, in many business-to-business contracts, organizations will require confidentiality agreements as an essential term of the relationship. These terms are so frequently required that they have become part of the boilerplate of most commercial agreements. At any given time, an organization may have in its possession, power and control, significant amounts of information received from contracting parties to whom the organization owes duties of confidence. Conversely, the organization may have placed significant confidential information into the hands of third parties who are restricted from using that confidential information for non-approved purposes so long as the information is not in the public domain. If the information is disclosed during discovery, it will be at risk of public disclosure in a court proceeding.

The Supreme Court of Canada has suggested that this type of obligation is one that might qualify as an “important commercial interest” worthy of protection by court order.  Again, this is an area in which the corporate secretary should get legal advice in advance of the board meeting.

As a general rule, board minutes should expressly identify that matters presented to the board or discussed by the directors are subject to third-party confidentiality obligations. If the matters being discussed are not subject to third-party confidentiality obligations but are of significant commercial interest, reference to the fact that what is discussed is material non-public information or a trade secret or a potential patent issue should be recorded in the minutes. If observers or participants are present, they should be reminded of their confidentiality obligations and this reminder should be recorded in the minutes.

This article was written by David Hunter and Nalin Sahni.

The Wahgoshig First Nation (“WFN”) in Northern Ontario has obtained an injunction to temporarily stop Solid Gold Resources Corp. (“Solid Gold”), a junior mining company, from drilling on their First Nation Treaty lands. In a decision released last week (2011 ONSC 7708 (CanLII)), Justice Brown of the Ontario Superior Court halted all exploration activities for at least 120 days after finding that Solid Gold had repeatedly failed to respond to consultation requests from both WFN and the Ontario Government.

While this decision should not come as a surprise to knowledgeable observers, it is important for three reasons:

1. It confirms that as yet there is no Aboriginal veto over mining exploration activities;
2. It highlights problems with the Crown’s practice of delegating the consultation to proponents and
3. It reiterates that the “free entry” mining system in Ontario is limited by Aboriginal consultation.

Companies that are not mindful of Aboriginal concerns will see their business plans delayed or cancelled.

To review the entire article, please click here.

In a recent panel discussion at the Toronto Board of Trade, Naizam Kanji, Deputy Director of Corporate Finance at the Ontario Securities Commission (the “OSC”) stated that the OSC is currently considering the implementation of a standalone rule in respect of poison pills.

Currently, poison pills are reviewed on a case by case basis, an approach which Mr. Kanji described as “problematic”. Under the new regime, poison pills would be removed from the current defensive tactics policy (NP 62-202) and companies would be permitted to use poison pills to block unsolicited bids provided that the poison pills were approved by shareholders at the most recent annual general meeting or in the face of an unsolicited bid. The new regime would allow poison pills to remain unchallenged provided that the necessary shareholder approval had been obtained and shareholders would be permitted to remove poison pills on a vote in favour of doing so.

On December 23, 2011, the Ontario Securities Commission (the “OSC”) announced that the Minister of Finance approved the Memorandum of Understanding (the “MOU”) between the OSC and the United States Financial Industry Regulatory Authority, Inc. (“FINRA”) pursuant to section 143.10 of the Securities Act (Ontario). As discussed in a previous post, the MOU is intended to facilitate the exchange of information between the OSC and FINRA on firms and individuals that are under their common supervision, with a focus on enforcement-related matters.

The MOU came into effect in Ontario on December 13, 2011.

This is the fourth post in a series on drafting board minutes.  In my first post, I outlined a number suggestions for the corporate secretary charged with drafting board minutes. In the second post, I discussed the “Front of the Newspaper” Test. In the third post, I discussed ”Keeping the Purposes Front and Centre.”  In particular, I commented on the importance of board minutes in litigation in that post.   In this post, I expand on the issue of board minutes in litigation by discussing how the corporate secretary might assist litigation counsel in limiting production of board minutes.

Discovery and Confidentiality

The discovery process during litigation is a major intrusion on (1) a corporation’s ability to protect the confidentiality of its data (and that of other individuals or entities with which it has contracted) and (2) the corporation’s ability to ensure orderly disclosure to the market in accordance with good business judgment and with securities laws.

For example, only one part of a board minute for a meeting may be relevant to litigation. However, very often the whole the board minute must be produced. As a result, sensitive or embarrassing information on unrelated matters may end up disclosed even though they are irrelevant to the issues in the litigation.

For example, minutes of a mining company might, for example, contain references to confidential information regarding labour relations, cost estimates, drilling results, community, aboriginal and governmental negotiations, reports on permitting, and discussions with potential suitors. In addition, board minutes may refer to confidential information obtained from another company under a confidentiality agreement. 

Much of the foregoing information may be irrelevant to the actual issues involved in the litigation.  It may also be be misleading without the context of other documents, prior board minutes or subsequent board minutes. The company may rely on a deemed undertaking of the other party not to use the information for any purpose other than the litigation.  However, there will be no restriction on the other party (short of court order or mutual consent) from filing the document as an exhibit in the legal proceedings.  If that should occur, the board minute will be available for anyone to review.

One of the problems for the corporate secretary is that courts in Canada have not universally accepted the ability of a litigant to ”redact” a document for relevance.  The process of obliterating a document to omit privilege parts (redacting) is well-accepted.  However, the same process of obliterating sensitive but irrelevant material has not become sufficiently accepted that the corporate secretary can rely on the availability of that practice when drafting board minutes.

Form of Board Minutes

The good news for the corporate secretary of a Canadian company is that there is significant legislative latitude with respect to the form of board minutes.  This allows for some creativity in severing minutes to minimize production of irrelevant information when dealing with sensitive issues.

The Canada Business Corporations Act, for example, provides that minutes, like all corporate records, may be maintained “in a bound or loose-leaf form or in a photographic film form, or may be entered or recorded by any system of mechanical or electronic data processing or any other information storage device that is capable of reproducing any required information in intelligible written form within a reasonable time” (s. 22(1)). Apart from that broad requirement, the corporation is free to determine the structure and form of its board minutes.

The Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Newfoundland, Yukon, Northwest Territories, and Nunavut provisions are either identical or substantially the same. Nova Scotia limits the form of board minutes to bound or loose-leaf documents. Legislation in Prince Edward Island provides no guidance on the form of the minutes although reference to the books of the company suggests a printed form. The Québec Business Corporations Act requires that the “corporation must be able to reproduce, in intelligible form and within a reasonable time” the information contained in the records it is required to maintain under the statute (s. 37).

Accordingly, there is some latitude for corporate secretaries to devise record-keeping practices to ensure that sensitive, non-routine deliberations are recorded in separate stand-alone documents. One way to accomplish this is to call two or more meetings of the board to be held sequentially. This practice will be too cumbersome to be manageable as a general corporate governance practice. However, it might be considered when dealing with one or more highly sensitive matters. One meeting can deal with routine or non-sensitive items and then adjourned. Sensitive items may be dealt with sequentially in separate meetings called to order to deal with those specific items.  In this way, the meetings are stand-alone meetings with their own separate minutes. Only the minutes dealing with the relevant meeting should be produced in the litigation.

Another possibility is to draft minutes in such a way that there are main minutes and supplementary minutes. The main minutes would state that the next item on the agenda was, for example, a report on drilling results and a notation that confidential minutes for that portion of the meeting are kept separately in supplementary minutes. If corporate secretaries adopt a numbering system for corporate minutes, this should not create any difficulty in the organization of the board minute book. The downside to this approach is that a court could conclude that the separate minutes have been incorporated by reference and must be produced. However, referring to the confidentiality rationale for the separate minutes and the irrelevance of the separate minutes to the issues in the proceeding may assist the corporation in resisting production of irrelevant material.

These are not the only possibilities. Depending on the nature of the company’s business and the typical format of its board meetings, there may be other effective means of drafting to limit production.

The Toronto Stock Exchange has published proposed changes to Parts I, IV and VI of the TSX Company Manual (the “Manual”), and in Appendix H of the Manual (the “Amendments”). The Amendments are being published for a 30-day comment period. Comments should be in writing and delivered by January 23, 2012 to the TSX. The Amendments are to primarily put a Due Bill Tracking System into practice for TSX listed companies.

A Due Bill process is being introduced in Canada to help improve the accuracy and timeliness of the valuation reporting of clients’ holdings when securities undergo certain material corporate events. Due Bills are entitlements which attach to listed securities undergoing certain material corporate events. Due Bills attach to such securities between the second trading day prior to the record date and payment date, for trading purposes, to allow listed securities to carry their appropriate value until the entitlement has been paid. Further details are available at the TSX website.

Issuers will begin filing their first IFRS-compliant annual financial statements in the first quarter of 2012. In order to help with the transition, the OSC released a list of key elements required under the new regime, along with helpful tips on making the reporting transition.

The list includes tips in regards to deadlines, required disclosure and changes in accounting policies.

On December 22, 2011, the Supreme Court of Canada released a ruling on the proposed federal Securities Act, and by extension, the formation of a national securities regime. The ruling comes after the Government of Canada has sought an advisory opinion from the Court as to whether the proposed federal Securities Act falls within the legislative authority of the Parliament of Canada. The Supreme Court ruled that the proposed Act as presently drafted is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867.

Further to its Notice of Proposed Changes of October 14, 2011, the TSX and the TMX have proposed the implementation of a “Cancel on Disconnect” functionality to allow for the automated cancellation of orders in the event of involuntary loss of connectivity between the TMX and the client site. According to the TSX and TMX, this functionality, which will be available for all gateway sessions connecting to TSX, TSXV and TMX Select, will assist traders in mitigating risks associated with having open orders exposed in their books that cannot be managed when there is an involuntary loss of connectivity.

The TSX and TMX received no comments on its October 14, 2011 proposal and have announced that they are expected to publish a notice indicating the intended implementation date of the proposed functionality.

On December 8, 2011, the United States Securities and Exchange Commission (the “SEC”) announced a new policy to the effect that, subject to certain exceptions discussed below, foreign private will no longer be able to submit initial registration statements to the SEC on a confidential basis.

Under the prior policy, foreign private issuers had the ability to submit registration statements (and amendments) to the SEC on a non-public basis in connection with their first time registration, permitting the SEC to review and comment on disclosure, and the issuer to respond to the SEC’s comments before making a public filing through the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

As of December 8, 2011, the SEC will review initial registration statements submitted by foreign private issuers on a confidential basis only if the foreign private issuer is either:

• a foreign government registering its securities;

• listed or concurrently listing on a non-U.S. securities exchange;

• being privatized by a foreign government; or

• a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction.

The SEC will continue to assess use of this procedure and will make changes in the future.

In my first post in this series on board minutes, I set out five suggestions for the corporate secretary charged with drafting board minutes.  In a previous post, I discussed the first suggestion in more detail–the “Front of the Newspaper” Test.  In this post, I discuss the purposes of board minutes and then set out some suggestions for keeping those purposes in the foreground when drafting these important corporate records.

The Purposes

The primary purpose of board minutes is to function as a corporate record of the deliberations, decisions and resolutions of the directors. However, board minutes are not simply of relevance to the archivist or corporate counsel conducting a minute book review. From a litigation perspective, a board minute is documentary evidence of whether and how the directors fulfilled their duties to (1) manage or supervise the management of the business and affairs of the corporation, (2) act in the best interests of the corporation, and (3) exercise due care. As one judge has said, directors wishing to defend themselves against allegations of a breach of duty ought to be prepared to document their deliberations or conclusions. If directors do not do so sufficiently and accurately, they must accept that adverse inferences may be drawn against them.

Canadian courts are predisposed to be deferential to business decisions of directors. The so-called “business judgment rule” operates to shield the decisions of directors from microscopic examination with the benefit of perfect hindsight. However, the decisions of directors are still examined. In order for directors to claim the benefit of the business judgment rule, they should be able to demonstrate that their decisions have been made honestly, prudently, in good faith and on reasonable grounds.

Board minutes are a crucial contemporary record of the board’s decision-making process. If drafted appropriately, board minutes can be powerful documentary evidence that a decision was made prudently and on reasonable grounds and in the context of a sound process. Accordingly, board minutes should provide compelling documentary evidence to support the application of the business judgment rule. The minutes should demonstrate that:

• The directors exercised their judgment in an informed and independent fashion.
• The directors engaged in a process of analysis of the situation.
• The directors acted with reasonable grounds to believe the decisions was in the best interests of the company.

How the Purposes affect the Content

Appropriately drafted board minutes will keep front and centre the purposes of (1) being an accurate and reliable corporate record and (2) establishing the prerequisites to the “business judgment rule”. To do this, board minutes should set out clearly the problem on which the board was deliberating, the range of options that the board concluded were reasonably available, the advice obtained from financial and legal advisors appropriately retained and consulted in the circumstances, information obtained from management, and consideration of any conflicts of interest.

Narrative detail is important in minutes to provide context for the directors’ decisions. However, this does not mean creating a verbatim transcript of what the directors discussed. The narrative detail should be a high-level summary of the matters discussed, with a focus on recording the board’s process, including such elements as the length of time, extent of consultations and information received by the directors during and prior to the board meeting. It is not sufficient to record that the board “had a detailed and lengthy discussion of the issues involved”. These types of minutes do nothing to facilitate record-keeping or to establish objective evidence of the board’s prudence and diligence.

Instead, board minutes with appropriate detail will provide a reader (who was not in attendance and who is unfamiliar with the activities of the board) with the following information:

• The origin of any important issues before the board, if that is not be clear from the minutes of previous meetings.
• The substance of the matters discussed with respect to those issues and a summary of any discussions that occurred informally between meetings.
• Any questions asked of management, external consultants, advisors and experts, and the responses given by them.
• The concerns raised by board members and the responses to those concerns.
• The factors taken into account in arriving at the decision made by the board.
• The specific decision made by the board and the text of any resolution.
• Formalities with respect to the decision or resolution, such as who moved a motion and whether the vote was unanimous.
• Any conditions, limitations or qualifications made with respect to the decision or to the power given to management to implement the decision.
• Whether and when management was expected to report to the board with respect to the implementation of the decision.
• The approximate length of time spent discussing the matter.

It is unnecessary in most cases for the minutes to address which director asked a particular question or had a particular concern. Ultimately, the board makes a decision as a body. If a director wishes to dissent from a decision, that dissent should be recorded. If the dissenting director requests it, a concise basis for the dissent may be entered into the minutes.

In the next post in this series, I will examine drafting suggestions to avoid unnecessary production in litigation.

In its November 2011 Issuer Update Newsletter (the “Newsletter”), the Toronto Stock Exchange (the “Exchange”) provides guidance to issuers regarding the news release process and approvals for material and non-material news releases, as outlined in the timely disclosure policy found in sections 406 to 423.4 of the TSX Company Manual.

Specifically, the Exchange clarifies that issuers must send a copy of all news releases to the Investment Industry Regulatory Organization of Canada – Market Surveillance (“IIROC”) via SecureFile or by fax, regardless of whether the news release contains material information or non-material information. However, the need to obtain pre-approval of the issuer’s news release from IIROC depends on both whether the news release contains material information and on the intended time of dissemination of the news release. The following chart, reproduced from the Newsletter, sets out the various disclosure requirements:

The Exchange will provide guidance regarding the slightly different disclosure requirements applicable to TSX Venture Exchange issuers in its next Issuer Update.

On December 8, 2011, the Ontario Securities Commission (the “Commission”) issued a Notice of Approval (the “Notice”) recognizing each of Alpha Trading Systems Limited Partnership (“Alpha LP”) and Alpha Exchange Inc. (“Alpha Exchange”, and together with Alpha LP, “Alpha”) as an exchange. Alpha currently operates as an alternative trading system, facilitating the trading of equity securities listed on the Toronto Stock Exchange and the TSX Venture Exchange through a transparent, continuous matching platform.

The Notice references an application by the Maple Group Acquisition Corporation (“Maple”) for recognition as an exchange in connection with its proposal to acquire TMX Group Inc. and create an integrated group of businesses that provide trading, clearing, settlement and depository services (which proposal is summarized in an earlier post). Following the proposed acquisition of TMX Group Inc., Maple intends to acquire Alpha LP and Alpha Trading Systems Inc. and maintain multiple trading platforms.

The recognition of each of Alpha LP and Alpha Exchange as an exchange is effective as at the later of February 1, 2012 and the date on which the operations of Alpha ATS Limited Partnership have been legally transferred to Alpha Exchange. The Commission will publish a notice confirming the effective date.

The British Columbia Court of Appeal (the “Court”) has ruled that the British Columbia Securities Commission (the “BCSC”) has the jurisdiction to adjudicate enforcement proceedings against a person who trades on the TSX Venture Exchange (the “Exchange”) regardless of their location. This decision provides an appellate level court precedent upholding a broad approach to the jurisdictional scope of the BCSC’s enforcement activities and could have wide ranging impacts on extraterritorial securities regulatory enforcement actions in Canada.

READ FULL ARTICLE

On October 31, 2011, various amendments to Form 51-102F6 – Statement of Executive Compensation (“Form 51-102F6”) applying to financial years ending on or after October 31, 2011, came into force. The amendments are intended to improve the information issuers provide investors relating to key risks, governance and compensation matters.

This article highlights three of the material amendments to the compensation discussion and analysis disclosure required by Form 51-102F6.

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On October 21, 2011, the Ontario Securities Commission (“OSC”) published OSC Staff Notice 15-704 (the “Notice”) requesting comments on proposed enforcement initiatives aimed at resolving enforcement matters more efficiently and effectively. Such initiatives include, among other things, a new program for explicit No-Enforcement Action Agreements with respect to market participants who self-report and remediate immediately, a new No-Contest Settlement Program wherein a cooperating market participant may resolve their enforcement matter without admitting facts or non-compliance, a clarified process for self-reporting which would ensure that all parties are informed on how best to self-report and the remedial options available to those who do self-report, and the establishment of a system for enhanced disclosure of credit granted for cooperation.

The Notice summarizes, among other things, each of the planned enforcement initiatives, discusses the need for an incentive based process that will encourage self-reporting among market participants, highlights the concern of concurrent civil litigation among persons and companies contacted during an investigation for documents and testimony, and provides further information about the comment process.

The comment period is open until December 20, 2011.

In an earlier post, I summarized five suggestions for writing board minutes for peace of mind. In this post, I will discuss one of those suggestions in greater detail: Using the “Front Page of the Newspaper Test”. But first, let’s set the legal scene.

The Legal Scene

The Canada Business Corporations Act (“CBCA”) and, with one exception, all other business corporation statutes in Canada, prescribe that corporations maintain board minutes as part of the corporation’s records.

Maintaining minutes of board meetings would be prudent even if they were not statutorily required. Failing to accurately record the board’s deliberations in appropriate detail may lead to adverse inferences regarding whether directors have fulfilled their duties. Nevertheless, there is a natural tension between providing sufficient detail to avoid any adverse inference being drawn against the directors and a lingering apprehension that an innocuous record might, with hindsight, be twisted out of context in litigation.

The “Front Page of the Newspaper” Test

It goes without saying that board minutes must be accurate. However, in considering the level of detail, the format of the minutes and the words chosen to describe the business of the meeting, the corporate secretary should consider how the board minutes would look on the front-page of the newspaper.

The primary audience of board minutes is normally the directors, subsequent directors appointed to the board, and third parties conducting minute book reviews in connection with major transactions.

In the ordinary course, shareholders and creditors do not have an automatic right to inspect board minutes. Neither the CBCA nor any other Canadian business corporation statute requires a company to provide access to board minutes to shareholders, creditors or non-officer or non-director stakeholders. British Columbia is perhaps unique in that the British Columbia Business Corporations Act provides that the articles of the corporation might allow shareholders or other persons a right of access to board minutes.

However, from a litigation perspective, the primary audience will be the adversary in the litigation and, most importantly, the trier of fact in any judicial or arbitral proceeding. If litigation is commenced, board minutes are difficult to protect from disclosure if the minutes contain information that is relevant to the dispute. Canadian courts, particularly in Ontario, may be reluctant to accede to claims of confidentiality. It is well-entrenched in Ontario, for example, that corporate minutes do not enjoy any special protection in litigation from production and discovery. Moreover, and perhaps most problematic, some judges have ruled that redaction (deletion) of portions of documents, including minutes, for relevance is not permitted. This may mean that the whole of the board minute must be produced even if only a portion of it is relevant to the dispute.

Even outside of the litigation context, there are situations where board minutes may become producible. For example, board minutes might become producible under a personal information access request under privacy legislation to the extent that the board minute contains information about the requester.

In future posts, I will discuss how, in very limited cases, it may be possible to protect privileged or highly confidential commercial information and strategies to limit what is produced.

However, in many cases it may be very difficult to protect the minutes from public disclosure. If entered into the court record, they will be there for every competitor or interested person to read and to copy. Therefore, the “front page of the newspaper” test is the most prudent starting point when drafting and editing board minutes.

Should Canada do better to become a leader of innovation in electronic communication with security holders, including the delivery of documents, given the apparent Canadian propensity to spend our time online?

According to a March 2011 Globe & Mail report, Canadians spend more time online than the residents of any other country.  It seems Canadians don’t just spend more time, Canadians spend almost double the average. 

Earlier this month, the Canadian Securities Administrators announced changes to National Policy 11-201, Delivery of Documents by Electronic Means.  The comment period yielded only eight submissions, suggesting, perhaps, that there is no great urgency to making electronic delivery the standard.

The changes to NP 11-201 are meant to alert market participants to e-commerce legislation and other laws that may affect the electronic delivery of documents, to simply the guidance regarding security holder consents, and to reduce technology-related references.  NP 11-201 applies to “prospectuses, financial statements, trade confirmations, account statements and proxy-related materials that are delivered by securities industry participants or those acting on their behalf, such as transfer agents.” 

NP 11-201 continues to provide that (subject to any other laws), electronic delivery will satisfy delivery requirements in securities legislation if each of the following are met:

 1. The recipient of the document receives notice that the document has been, or will be, delivered electronically.

 2. The recipient of the document has easy access to the document.

 3. The document that is received by the recipient is the same as the document delivered by the deliverer (that is, the document is reasonably secure from being tampered with during delivery).

 4. The deliverer of the document has evidence that the document has been delivered.

NP 11-201 cautions that if any one of these components is absent, the effectiveness of the delivery may be uncertain.

NP 11-201 also cautions that electronic commerce legislation may require the consent of a recipient to electronic delivery.  NP 11-201 also states that without express consent, it may be more difficult to demonstrate that the intended recipient had notice of, and access to, the document, and that the intended recipient actually received the document.  However, in simplifying guidance on consent requirements, the sample express consent form has been eliminated from NP 11-201.  This consent form had been identified by the Securities Transfer Association of Canada (STAC) as a barrier to increasing demand for electronic delivery.   

Given the consequences of a finding that documents required to be delivered under securities laws and regulations were not properly delivered, it is unlikely that we will see a great rush to electronic delivery with these changes to NP 11-201.  In addition, any concerted effort to move to electronic delivery must comply with Canada’s Anti-Spam Legislation (CASL), which is likely to come into force next year.

Five years has passed since the Task Force to Modernize Securities Legislation in Canada published commissioned research study by Professor Dimity Kingsford Smith regarding Importing the e-World into Canadian Securities Regulation.  Canada has not progressed very far in terms of developing electronic delivery as a standard method of delivery.  The question is why?

As STAC points out, the complexities of obtaining consent is part of the explanation.  This has been partially remedied by NP 11-201 .  The issue of establishing delivery is also part of the explanation.  The revision to NP 11-201 has clarified the issuer’s responsibilities to have internal processes showing that delivery was attempted.  However, NP 11-201 also requires that the issuer must attempt other delivery methods (presumably mail) if the issuer receives a delivery failure notification, notwithstanding consent to delivery by electronic means. 

Another issue might simply be that demand is not there for electronic documents delivered in currently available formats.  We must be cautious of drawing inferences but broad statistical evidence from Statistics Canada surveys suggests that the percentage of at-home internet users who report conducting investment research online has remained relatively stagnant from 2005 to 2009 with less than 1/3 reporting that they engaged in that activity.  Online bill paying, by contrast, grew throughout that period. 

The current inflexibility with respect to the form of the electronic version of documents might contribute to low take up of electronic delivery.  NP 11-201 permits flexibility in technical format.  However, electronic documents must essentially follow the prescribed forms for paper documents.  One of the great advantages of electronic documents is the ability to layer information so that the user can review information on a graduated basis.  If participants are limited essentially to an electronic version of a massive printed document, this curbs innovation as well as ease of use.

Of course, any move to electronic delivery as a standard must ensure that investors have access (and timely access) to equivalent information.  There are, after all, significant regional differences in home internet usage rates.  Home internet usage by residents of British Columbia was reported to be 16 percentage points higher than in New Brunswick according to an October 2011 Financial Post article.

The Canadian Securities Administrators have published for comment significant proposed changes to their rules and policies governing the pre-marketing and marketing of prospectus offerings, other than mutual fund offerings. The changes, if enacted, would loosen some of the current restrictions that limit the marketing activities of investment dealers involved in public offerings and clarify the positions of the regulators in certain areas.

A summary of the main proposals is set out below. Reference should be made to this link for further details:

http://www.osc.gov.on.ca/en/SecuritiesLaw_rule_20111125_41-101_rfc-pro-amd-pre-marketing.htm

“Testing of the Waters” Pre-marketing Exemption for IPO Issuers

Investment dealers would be allowed to communicate with “permitted institutional investors” to determine interest in a potential initial public offering, subject to certain conditions related to confidentiality and record keeping. The definition of a “permitted institutional investor” would include a number of the types of institutional investors that are “accredited investors” for purposes of prospectus exemptions under Canadian securities laws. The new accommodation would not be available for issuers that are already public companies in a foreign jurisdiction.

Bought Deal Exemption Changes and Clarifications

An issuer and underwriter would be permitted to amend their bought deal agreement to increase the size of the offering under certain conditions. The increase would be limited to a specified percentage of the original size of the offering, but that percentage has not been determined by the regulators yet. The preliminary prospectus would still have to be filed and receipted within four business days of the original agreement, and the enlarged offering would have to be at the same price as the original offering. It is also proposed that additional underwriters would be allowed to join the bought deal syndicate under specified conditions and that the pre-marketing exemption for bought deals would not be available if the bought deal agreement contained a market-out clause.

Additional Guidance on When a Distribution Commences

It is proposed that additional guidance will be provided as to when the securities regulators consider a distribution of securities to have commenced, triggering the marketing restrictions. In particular, the current policy’s concept of discussions of “sufficient specificity” between an underwriter and an issuer would be expanded upon with examples.

Term Sheet for Bought Deals Before Filing of Preliminary Prospectus

Investment dealers would be permitted to provide a term sheet to permitted institutional investors between the time of the announcement of a bought deal and time of the filing of the preliminary prospectus if the term sheet contained only information that was in the bought deal press release or the issuer’s continuous disclosure record, and certain other conditions were met. The term sheet would have to be filed with the securities regulators before its use but would not be made public on SEDAR until the preliminary prospectus was receipted.

Term Sheet During Waiting Period

Investment dealers would be permitted to provide a term sheet to prospective purchasers during the period between the issuance of the preliminary and final prospectus receipts (the “waiting period”) to provide for a greater range of marketing communications. This term sheet would be required to contain only information that was also in the preliminary prospectus, and there would be additional conditions to its use. The term sheet would have to be filed on SEDAR before its use.

Green Sheets

Investment dealers would continue to be permitted to provide traditional green sheets to their registered representatives during the waiting period, but green sheets distributed to the public would be considered “term sheets” and would be subject to the prescribed conditions to the use of term sheets.

Road Shows

Specific requirements would be prescribed for road shows held during the waiting period. All information in a road show would have to be contained in the preliminary prospectus, except for comparables (information that compares the issuer to other issuers) in the case of a road show confined to permitted institutional investors. Written materials distributed to prospective purchasers at a road show would be subject to the same rules that would apply to term sheets, except for comparables in the case of a road show confined to permitted institutional investors. Among other things, this would mean that the materials would have to be filed on SEDAR before they were distributed.

Marketing after the Final Prospectus Receipt

Term sheets and road shows following the issuance of a receipt for the final prospectus would be subject to requirements similar to those that applied during the waiting period.

The Canadian Securities Administrators will accept comments on the proposals until February 23, 2012.

Board meeting minutes are statutorily required by nearly all business corporation statutes in Canada. More importantly, maintaining board minutes is prudent. Failing to accurately record the board’s deliberations with appropriate detail may lead to adverse inferences regarding whether directors have fulfilled their duties. Nevertheless, there is a natural tension between providing sufficient detail to avoid any adverse inference being drawn against the directors and a lingering apprehension that an innocuous record might, with hindsight, be twisted out of context in litigation. And, of course, drafting well-written and well-structured board minutes is time consuming!

Here are five litigation-driven suggestions that the corporate secretary may wish to consider when preparing minutes. In upcoming posts, I’ll dive deeper into each of these suggestions.

1. Use the “Front Page of the Newspaper” Test. There is no substitute for writing board minutes with a critical eye. As I’ll discuss in upcoming posts, the corporate secretary should not assume that the minutes will remain confidential if litigation ensues. Assume that the minutes will be read by an adversary and could be accessible to the public generally. This seems obvious but is often forgotten.

2. Keep the Purposes Front and Centre. Board minutes are a key record of the deliberations, decisions and resolutions of the directors. But more than that, they are documentary evidence of whether the directors have acted honestly, prudently and in good faith. Board minutes should demonstrate that the directors acted in the best interests of the company, made an informed decision in an independent fashion, had reasonable grounds for the decision, and conducted a reasonable analysis of the situation.

3. Draft to Minimize Unnecessary Production. Even though only one part of a minute of a meeting may be relevant in litigation, there is a good chance that the entirety of the board minute will be produced as a “document”. As I’ll discuss in upcoming posts, the flexibility provided by the business corporation statutes means that there are a number of strategies the corporate secretary can take to ensure that sensitive deliberations are recorded in separate documents.

4. Draft to Protect Privilege and Confidentiality. Well-drafted board minutes can assist litigators in seeking to protect portions of minutes from disclosure on the basis of privilege or confidentiality. It is important that the minutes reflect the criteria necessary for privilege or confidentiality. The corporate secretary should be aware of the test for solicitor-client privilege, litigation privilege, common law privilege and sealing orders for confidential information (each of which will be discussed in upcoming posts) and reflect those elements in the minutes.

5. Be Alert to Process Issues. Process issues can undermine the corporation’s attempt to protect board minutes. The cross-appointment of in-house counsel to the office of corporate secretary may result in the notes of counsel not being considered privileged. Retaining source notes or directors taking personal notes may result in alternative records of the meeting that can be used to challenge the accuracy, integrity and completeness of the board minutes. As discussed in our article, routine destruction is a possibility but the corporation and its directors must be careful to avoid spoliation of evidence if litigation is anticipated.

The Ontario Securities Commission (OSC) and the U.S. Financial Industry Regulatory Authority (FINRA) entered into a Memorandum of Understanding (MOU) earlier this month. FINRA is the largest regulator of securities firms doing business in the U.S. The MOU is intended to facilitate the OSC and FINRA exchanging information on firms and individuals that are under their common supervision. The MOU is subject to approval by the Ontario Minister of Finance.

In the past, Canadian recipients of FINRA inquiries into trading activities sometimes declined to provide information on the basis that FINRA was not empowered to collect this information in Canada. The MOU provides for unsolicited and solicited information sharing. Under the terms of the MOU, the OSC and FINRA may share unsolicited information that they believe would be helpful to the other authority in their regulatory activities. In addition, the OSC and FINRA will endeavour to provide full assistance to each other in obtaining information that may be maintained by or available to them through their regulatory activities (including in their regulatory supervision of other authorities). Requests for assistance will be assessed on a case-by-case basis.

The type of information shared between these authorities may include “trading activities, the registration and licensing information of supervised individuals or bodies, their disciplinary history, and with respect to supervisory examination and inspections, the substance of inspection reports (any and all issues identified and addressed during such examinations or inspections, actions (and action plans) taken in response to issues identified, and all outstanding issues), information on the transactions (name of client buy side/sell side, name of intermediary, and reason for operation),” and any other information mutually agreed upon by FINRA and the OSC.

Two important exceptions to information sharing are: (a) where a criminal proceeding relating to the same facts against the same persons has already been commenced in the jurisdiction from which the request is made; and (b) the same persons have already been the subject of final punitive sanctions (unless the requesting authority can demonstrate that the relief or sanctions sought would not be of the same nature or duplicative of those imposed by the other requested authority).

On November 10, 2011, the Canadian Securities Administrators (the “CSA”) announced that they are reviewing the $150,000 minimum amount prospectus exemption and the accredited investor prospectus exemption.

The review has been initiated as a result of the global financial crisis and recent international regulatory developments. The CSA is engaging in the consultation to identify any issues that stakeholders may have about the use of the exemptions and to obtain information that will assist in deciding whether changes to the exemptions are necessary or appropriate.

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Mushkegowuk Grand Council Chief Stan Louttit stated, at a Mining Ready Conference on October 26, 2011, that mining companies must go beyond consultation and obtain consent before work can proceed on the James Bay Treaty lands.

The James Bay Treaty – Treaty Number 9 was negotiated in 1905 and 1906. The Adhesions were negotiated in 1929 and 1930. The Treaty and the Adhesions were notable because they were negotiated and signed by the Province of Ontario and the Federal Government . The Treaty and the Adhesions cover those lands from the height of land – north of Thunder Bay to the Artic and from James Bay to the Manitoba border. Historically the Province of Ontario has absolutely controlled and regulated mining and forestry in this area. Subject to recent Supreme Court decisions both the federal and provincial governments are required to consult with First Nations before issuing any permits e.g. under the Mining Act for exploration and advanced activities. There have been numerous altercations and Court appearances of these matters – usually driven by the duty to consult. Another set of concerns will emerge driven by Nishnawbe Aski Nation and the Tribal Councils. Essentially the First Nations have begun to assert that the Treaty Number 9 and the Adhesions were not properly signed.

It should be expected that the First Nations will seek to ” re negotiate ” the Treaty and assert that there should be limited if any government regulation in the James Bay Treaty area and that there must be prior approval from the First Nations before provincial approvals, if any.

http://www.thesudburystar.com/ArticleDisplay.aspx?archive=true&e=3348600

http://www.timminspress.com/ArticleDisplay.aspx?archive=true&e=3347769

Yesterday the TMX Group confirmed that, as of September 30, TSX and TSXV together had more new listings in 2011 than any other exchange group in the world. To September 30, 2011, the TSX and TSXV saw 318 new listings, including 32 graduates from TSXV to TSX. This makes a “three-peat” for the TMX as they have led the world in new listings for three consecutive years.

The TMX Group ranked ahead of second place Shenzhen Stock Exchange, with 201 new listings, and Deutsche Börse at third, with 176 new listings.

We are pleased to pass along our congratulations to the TSX and TSXV and to our newly listed clients!

For the full story please see http://exchange.tmx.com/2011/11/08/leading-the-world-in-new-listings/

As part of the Government of Canada’s plan to regulate carbon emissions, sector by sector, the Government of Canada recently released the Draft Reduction of Carbon Dioxide Emissions from Coal‐Fired Generation of Electricity Regulations (the “Draft Regulations”). In summary, the Draft Regulations aim to phase out the use of coal‐fired generation units, unless such units are associated with carbon capture storage systems (“CCS”) that enable such generation units to meet the intensity limits set by the Draft Regulations. This raises issues for domestic coal producers that supply coal‐fired electrical energy generation units.

The Draft Regulations
The Draft Regulations apply to coal‐fired electricity generation units that have been characterized as either (i) old, (ii) new, or (iii) existing:
• “Old unit” means a unit that has reached the end of its useful life but continues to produce electricity. Generally speaking, end of useful life is defined as the later of 45 years from the commission date or the end of their power purchase agreement applying to that unit.
• “New unit” means a unit, other than an old unit, whose commissioning date is on or after July 1, 2015.
• “Existing unit” means a unit that is not an old unit (so has not reached the end of its useful life) and is not a new unit (so had a commissioning date before July 1, 2015).

To read the complete article click here.

As part of this proposed national instrument, I note that a resulting amendment is being proposed to National Instrument 43 101 (“NI 43 101”) with respect to a filing of a short form prospectus.

As you are no doubt aware, the recent changes to NI 43 101 allowed for filing of the short form prospectus without a current report being filed so long as the report was subsequently filed within a specified period of time.  The proposal under NI 51 103 to amend this provision only for venture issuers imposes a difficult situation in that venture issuers would be forced to comply with this provision whereas an issuer on the TSX would not.

One of the intentions of the amendment to NI 43 101 was to allow short form prospectuses, which are done often on a very short timeline, to take place in order that an issuer can take advantage of a financing which might not be available if it were forced to file a technical report where there had been a material change to a material property prior to a receipt being issued.

It seems that this proposed provision would take away that advantage to an issuer in the event that it were to file a short form prospectus and the proposed amendment to NI 43 101 would hardly be conducive to assisting issuers to raise capital. This is likely to result in lost opportunities for junior issuers to raise capital particularly when it is difficult enough to do in the current capital markets for such issues.

To view complete proposal click here.

On October 7, 2011, the Ontario Securities Commission (“OSC”) published a Notice and Request for Comment (the “Notice”) on the Application by Maple Group Acquisition Corporation (“Maple”), a consortium of Canadian investment dealers, pension funds and other institutional investors, to acquire TMX Group Inc., Alpha Trading Systems Limited Partnership, Alpha Trading Systems Inc., the Canadian Depository for Securities Limited and, indirectly, CDS Clearing and Depository Services Inc. Maple is proposing to create an integrated group of businesses that provide trading, clearing, settlement and depository services for a broad array of financial instruments. The Alberta and B.C. Securities Commissions have also published a Joint Notice and Request for Comment seeking input on the Application.

The Notice summarizes the Maple proposal, highlights key issues that may arise from the proposed acquisition and provides information about the comment process.

The comment period is open until November 7, 2011. The OSC intends to hold a policy hearing in December 2011 to give members of the public who have submitted written comments an opportunity to clarify or expand on their written submissions.

On September 13, 2011, the securities regulators in Alberta, Ontario, Québec, Nova Scotia, New Brunswick and the Northwest Territories published Multilateral Staff Notice 51-336 (the “Notice”) identifying concerns regarding issuers who use mass advertising through various media, including television, social media, internet, radio and print.

Specifically, the Notice highlights a practice, primarily by junior issuers, of using brief television advertisements that highlight positive aspects of the issuer’s business or its prospects and the issuer’s stock symbol (or in the case of unlisted issuers, contact information for investment enquiries). The Notice sets out the view of securities regulators that mass advertisements for the purpose of promoting interest in an issuer’s securities may be contrary to securities legislation and/or be misleading to investors, as well as the concern that such advertisements do not reflect positively on the Canadian capital markets.

The Notice confirms that securities regulators will continue to monitor advertisements by issuers and may take regulatory action where appropriate.

On September 28, 2011, the Canadian Securities Administrators (“CSA”) published Staff Notice 31-329 (the “Notice”) issuing orders from several CSA members to provide relief from certain provisions in respect of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”).

Since NI 31-103 came into force, the CSA received applications for exemptive relief of certain provisions of NI 31-103. The Notice outlines orders issued or extended by certain CSA members related to the following:

• the requirement to register when trading in short-term debt instruments;
• the restrictions on the registration exemptions for international dealers and international advisers in sections 8.18 [international dealer] and 8.26 [international adviser] of NI 31-103; and
• the requirement in section 14.2(1) of NI 31-103 to provide relationship disclosure information.

The Notice summarizes the orders and related staff positions that have been issued by CSA members in connection with NI 31-103. The Notice also outlines the staff positions of certain CSA members who did not issue similar orders in connection with the above noted provisions of NI 31-103.

On September 29, 2011, the Canadian Securities Administrators published Staff Notice 41-306 (the “Notice”) in response to inquiries about the financial information that must be included in a prospectus during the time of an issuer’s transition to IFRS. The purpose of the Notice is to outline the requirements with respect to Q1 IFRS transition information – being the opening statement of financial position as at the date of transition to IFRS, including IFRS 1 reconciliations for the date of transition to the most recent annual period.

The Notice provides insight on the differences between the financial disclosure requirements for Q1 IFRS transition information in an initial public offering (“IPO”) prospectus as opposed to a short form or non-IPO long form prospectus.

Specifically, the Notice confirms that Q1 IFRS transition information is required to be included in all IPO prospectuses but not in short form prospectuses or non-IPO long form prospectuses. As such, an issuer filing an IPO prospectus with Q2 or Q3 interim financials is still required to include either Q1 IFRS transition information or the entire Q1 IFRS financial report. The Notice also discusses accounting principles for financial statements in prospectuses filed in the first year after transition.

The Canadian Securities Administrators (“CSA”) published, on July 15, 2011, proposed amendments to NI 41 101, General Prospectus Requirements and Companion Policy 41 101CP to NI 41 101 together with other miscellaneous amendments to related instruments. The 90 day comment period expires October 15, 2011.

One of the proposals is to further extend the requirement to file a non issuer “submission to the jurisdiction, and appointment of an agent for service” form to all foreign experts including qualified persons. It should be noted that these persons are already liable under the CSA statutory liability regime for misrepresentations in the prospectus that are derived from the report, opinion or statement.

The proposed amendments to submit to the jurisdiction would also apply to all foreign directors of an issuer.

To read the complete article click here.

On October 5th, 2011, the Australian Securities Exchange (“ASX”) issued a consultation paper in respect of requirements for public reporting of exploration information, Mineral Resources, Ore Reserves and production targets for listed mining companies. The review seeks to enhance the quality of, and confidence in, reported information and promote thorough, balanced and consistent disclosure. The ASX is seeking comments by January 27, 2012.

The resource industry continues to be a significant factor on the ASX and in the Australian marketplace with

• approximately 45% of the number of listed ASX companies being involved in mining and oil and gas,
• a market capitalization of $365 billion and $78 billion, in the mining and oil and gas sectors respectively, as at August 31, 2011, and
• more than 400 new junior resource company floats during the past 5 years.

The British Columbia Securities Commission (the “BCSC”) has adopted amendments (the “Amendments”) to National Instrument 45-106 – Prospectus and Registration Exemption (NI 45-106), which will take effect on October 3, 2011. Among the implemented changes, the Amendments will introduce the following:

• Form 45-106F6 British Columbia Report of Exempt Distribution (the “New BC Form”). The New BC Form will replace the existing form, Form 45-106F1 Report of Exempt Distribution (“Form 45-106F1”);
• amendments to National Instrument 45-106 Prospectus and Registration Exemptions (the rule amendments);
• amendments to Companion Policy 45-106CP (the policy amendments); and
• consequential amendments to BC Companion Policy 13-502CP Electronic filing of reports of exempt distribution.

The BC Form will distinguish British Columbia from other Canadian jurisdictions, which will continue to use Form 45-106F1, thereby requiring an issuer or underwriter to file a separate form in British Columbia for exempt distributions that take place in British Columbia and one or more other jurisdictions of Canada.

However, pursuant to two concurrent orders from the BCSC published on September 23, 2011, certain exemptions to the Amendments have been adopted including:

• an exemption from the New BC Form for investment funds and foreign issuers; and
• an exemption for use of information by representatives of the media.

A copy of the New BC Form is available on the BCSC website.

Copies of the two BCSC orders referenced above are available on the BCSC website:

45-533 Exemption from Form 45-106F6 requirements for investment funds and foreign public issuers

45-532 Exemption for use of information by representatives of the media

Effective September 9, 2011, the TSX Venture Exchange (“TSXV”) has implemented a new Form 2A Personal Information Form (the “New PIF”) and Form 2C1 Declaration (the “New Declaration”) which, subject to a transition period, will replace the existing Form 2A (the “Old PIF”) and Form 2C1 (the “Old Declaration”). The New PIF and New Declaration have been harmonized with the Toronto Stock Exchange’s (“TSX”) new form of Personal Information Form (TSX Form 4) and Declaration (TSX Form 4B), which are also being implemented effective September 9, 2011.

The TSXV will continue to accept the Old PIF and Old Declaration from filers until December 31, 2011.

The New PIF and New Declaration are available on the TSXV’s website.

The Canadian Securities Administrators (CSA) have adopted amendments to Form 51-102F6 – Statement of Executive Compensation which will apply in respect of financial years ending on or after October 31, 2011. The amendments come largely as a result of CSA Staff’s targeted compliance review of executive compensation disclosure and recent international developments in the area of executive compensation. The amendments range from drafting changes to clarify existing disclosure requirements to new substantive requirements. The substantive amendments to Form 51-102F6 include:

• requiring a company that relies on the exemption from disclosing performance goals or similar conditions in its Compensation Discussion and Analysis (CD&A) on the basis that disclosure would “seriously prejudice the interests of the company” to explicitly state that it is relying on the exemption and explain why disclosing the relevant performance goals or similar conditions would seriously prejudice the company’s interests;
• requiring companies to disclose whether the board of directors has considered the implications of the risks associated with the company’s compensation policies and practices;
• requiring companies to disclose whether any named executive officer (NEO) or director is permitted to purchase financial instruments that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the NEO or director;
• requiring increased disclosure of information about compensation advisors retained by the company, including a description of the advisor’s mandate, any other work performed for the company and a breakdown of all fees paid to compensation advisors for each service provided; and
• requiring companies to disclose the methodology used to calculate grant date fair value of all equity-based awards, including key assumptions and estimates used for each calculation and why the company chose that methodology, regardless of whether there are any differences with the accounting fair value.

On September 19, 2011, the UK Takeover Panel implemented significant amendments to the UK Takeover Code. While the amendments sought to give increased power to the boards of target companies, some commentators have criticized the new rules for making UK M&A less appealing.

Key changes to the Code include:

• requiring a target company to name a potential bidder with whom it is in talks or from which a takeover approach has been received by making a “possible offer” announcement;
• the imposition of a shortened “put up or shut up” timetable which requires the announcement of a fully financed firm offer (or a statement that no offer will be made) by a potential bidder within 28 days from the “possible offer” announcement identifying that bidder; and
• the banning of common deal protection measures, including break fees.

The new amendments to the Code contrast starkly with the Canadian takeover market, in which confidentiality is commonly maintained until the announcement of a definitive business combination agreement and deal protection measures are utilized in almost all negotiated transactions.

The full text of the Code can be found on the UK Takeover Panel’s website.