Effective May 9, 2016, the Canadian Securities Administrators will implement new take-over bid rules that will introduce significant changes to bid mechanics, including lengthier minimum deposit periods. For a description of the changes, see here.
Rush to conflict: Hurried transaction fails after British Columbia court finds conflicts of interest
A recent court decision led to the failure of an attempted acquisition of an exploration company by a listed issuer, in part due to conflicts of interest. We analyze the decision, and provide commentary on the law and practice of managing conflicts, in this Dentons Insight.
This summary was co-authored by Daniel McElroy, Knowledge Management Lawyer in Dentons’ Vancouver office.
Mining exploration activities in Canada have attracted widespread interest over the past few decades and is today considered by most as a sector in its own right. Flow-through shares financings have helped raise significant capital for mining companies.
However, when evaluating the suitability of a flow-through financing, an operating corporation must also assess the discounted value of the tax deductions and tax incentives it is intending to forgo. Discounting their value allows the corporation to better appraise their current worth and more accurately evaluate the premium it must obtain to make flow-through financing economically advantageous. See our Dentons Insight.
As noted in the September 1, 2015 posting below, recent rule changes have required senior Canadian public companies to disclose their policies and record on the appointment of women as directors and executive officers. Our recent Insight summarizes the initial results of and response to these new disclosure rules, and indicates what further changes may lie ahead. See our Dentons Insight.
Changes to Canadian securities rules are set to make rights offerings quicker and more cost-effective. Capital-starved resource companies may well be among the main beneficiaries. See our Dentons Insight.
What does the new “Comply or Explain” diversity policy imposed by the Canadian Securities Administrators mean for the mining industry?
Since December 31, 2014, the Canadian securities administrators, other than those of British Columbia, Alberta and Prince Edward Island, require non-venture issuers to disclose their diversity policies as well as information on the representation of women on their boards and executive officer positions. When the non-venture issuers do not have a diversity policy or women representation, they will have to explain why. Carole Turcotte will examine the regulatory requirements as well as the advantages and disadvantages associated with diversity.
Carole Turcotte, Partner, Dentons Canada SENCRL
On October 7 and 8, 2015, the Québec Mineral Exploration Association (QMEA) is hosting Xplor, a major event in Québec that brings together stakeholders in the mineral sector. This year, in addition to high-level presentations and workshops, the Association is introducing The Xplor Investors’ Rendez-vous, an exclusive activity between exploration companies and investors. To register for the event, please visit: AEMQ XPLOR 2015
We hope you will be able to attend.
October 7, 2015
AEMQ XPLOR 2015
Quebec Mining Exploration Convention
2:25 p.m. – 2:50 p.m. ET
Place Bonaventure, Montréal
In interpreting an exploration option agreement, a recent court of appeal decision recognized the inherent challenges faced by junior exploration companies, in both good times and bad. See our Dentons Insight to learn more: Caveat Optionor: Canadian court strikes a blow for mineral exploration companies
Mining issuers have their qualified persons (“QPs”) and occasionally legal counsel review technical disclosure, including news releases and technical reports, to ensure they comply with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). Some mining issuers might not realize that information found on their websites and other presentations, including investor relations materials, is captured by the definition of “written disclosure” in NI 43-101 and disclosure requirements apply. Common areas of non-compliant disclosure on mining issuers’ websites include investor presentations, fact sheets, media articles, failure to update material information and links to third party content.
Staff Notice 43-309
On April 9, 2015, the Canadian Securities Administrators published CSA Staff Notice 43-309 Review of Website Investor Presentations (“Staff Notice 43-309”), which highlighted findings from a review of investor presentations on mining issuers’ websites, conducted by staff of the British Columbia Securities Commission, the Ontario Securities Commission, and the Autorité des marchés financiers (collectively, the “Regulators”). This review also included a review of mining issuers’ forward looking information (“FLI”) against the requirements of Part 4A of National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”).
Of the 130 mining issuers reviewed, the Regulators sent letters to 49 mining issuers requiring them to amend their investor presentations and correct the non-compliant disclosure, resulting in outcomes from mining issuers confirming future compliance with the requirements, to issuing a corrective news release, to filing or refiling a technical report. The majority of the corrective news releases and technical report filings or refilings resulted from non-compliant disclosure of economic studies, preliminary economic assessments (“PEAs”), mineral resources, mineral reserves, exploration targets, historical estimates, or overly promotional language.
Practical Tips to Avoid Trouble
The take away for mining issuers is to ensure all written disclosure on their website complies with NI 43 101. Fortunately, Staff Notice 43-309 included the following practical advice to assist mining issuers in designing investor presentations and websites that meet their disclosure obligations:
A. Areas where there is a high level of non-compliance
1. Naming the QP: An issuer must include the name of the QP and their relationship to the issuer for all documents containing scientific or technical disclosure, including websites and investor relations materials. All technical information must either be approved by a qualified person or based upon information prepared by or under the supervision of a qualified person. In the latter case, an issuer must ensure that the technical information is consistent with the information provided by the QP. An issuer should consider having the QP review disclosure that summarizes or restates a technical report or technical advice or opinion to ensure that the disclosure is accurate.
2. PEA cautionary statements: Disclosure of the results of a PEA must provide appropriate cautionary statements to ensure the public understands the limitations of the results of the PEA. The following cautionary language, stated with equal prominence, must be included in disclosure of a PEA that includes inferred mineral resources:
“The preliminary economic assessment is preliminary in nature, it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized.”
3. Mineral resources and mineral reserves:
a. Caution that mineral resources are not mineral reserves: The disclosure of results of an economic analysis of mineral resources must include an equally prominent statement that “mineral resources that are not mineral reserves do not have demonstrated economic viability”.
b. Inclusion or exclusion of mineral reserves in mineral resources: When reporting both mineral resources and mineral reserves, an issuer must include a clear statement whether mineral resources include or exclude mineral reserves. While practices on this matter vary, the CIM Estimation Best Practice Committee from 2003 recommends that mineral resources should be reported separately and exclusive of mineral reserves.
4. Exploration targets: If an issuer discloses an exploration target, both the potential quantity and grade of the exploration target must be expressed as ranges and be accompanied by an equally prominent statement that “the potential quantity and grade is conceptual in nature, there has been insufficient exploration to define a mineral resource” and that “it is uncertain if further exploration will result in the target being delineated as a mineral resource”.
5. Historical estimates: Each time an issuer discloses historical estimates, the issuer must include information about the source, date, reliability, key assumptions and other factors, and the following, equally prominent statements: “a qualified person has not done sufficient work to classify the historical estimate as current mineral resources or mineral reserves” and “the issuer is not treating the historical estimate as current mineral resources or mineral reserves”.
B. Areas for Additional Improvement
1. Taxes in economic studies: Financial results and the cash flow model for an “advanced property” (which includes results of a PEA, pre-feasibility or feasibility study) must include assumptions that have an economic impact such as taxes, royalties, and other government levies. In respect of such tax matters relevant to a technical report, we note that a QP may rely on a report, opinion or statement of another expert who is not a QP, or on information provided by the issuer, and may include a limited disclaimer of responsibility, provided the QP discloses: (i) the source of the information relied upon, including the date, title, and author of any report, opinion, or statement; (ii) the extent of reliance; and (iii) the portions of the technical report to which the disclaimer applies.
2. Metal price assumptions: When reporting mineral resources and mineral reserves, an issuer must ensure the assumed metal or commodity price, and the cut-off grade, are clearly stated, as well as the effective date of the reported estimate. For investor presentations, this information could be provided in an appendix.
3. Technical report triggers: An issuer must ensure that PEA disclosure on its website is supported by an existing technical report. Disclosing economic projections in investor presentations, fact sheets, posted or linked third party reports, or any statements on the issuer’s website may trigger the filing of a technical report to support the disclosure. Such PEA disclosure can include forecast mine production rates that might contain capital costs to develop and sustain the mining operation, operating costs, and projected cash flows.
4. FLI compliance: An issuer should ensure that FLI disclosure in investor presentations provides the material factors and assumptions used to develop the FLI. Examples of FLI include metal price assumptions, cash flow forecasts, projected capital and operating costs, metal or mineral recoveries, mine life and production rates, and other assumptions used in preliminary economic assessments, pre-feasibility studies, and feasibility studies.
5. Overly promotional terms and potentially misleading information. An issuer should avoid terms and statements that may be overly promotional or misleading. Terms which may be used inappropriately in certain circumstances include, “world-class”, “spectacular and exceptional results”, “production ready”, “ore” in relation to mineral resources, and “management estimates”.
6. Ability to rely on previous disclosure: An issuer must include in any written disclosure the following information, but may be able to comply with these requirements by including a reference to the title and date of a document previously filed on SEDAR that contains this information:
a. Exploration information about quality assurance/quality control and naming the laboratory.
b. Data verification – data verification is the process of confirming that the data underlying the written disclosure has been properly generated, was accurately transcribed, and is suitable for the purpose that the data is used.
c. Information about the nature and context of drilling results such as true width and higher grade intersections. In some cases, investor presentations may be able to include representative drill sections or other figures showing mineralized intervals to assist in providing the necessary information.
d. Metal price assumptions. However, if the assumed metal or commodity price is significantly below or above current prices, an issuer should clearly state the key assumptions to ensure the disclosure is not misleading.
Ultimately, if an issuer is in doubt about whether disclosure on its website or in its investor presentations complies with NI 43 101, the issuer can have a QP or legal counsel review the applicable disclosure.
 We also recommend that an issuer’s website does not include links to third party content, such as analysts’ reports. National Policy 51-201 Disclosure Standards (“NP 51-201”) provides that if an issuer elects to post to its website or otherwise publish the names of analysts who cover the issuer and/or their recommendations, the names and/or recommendations of all analysts who cover the issuer should be similarly posted or published. This applies whether the analysts’ coverage of the issuer is positive or negative. NP 51-201 also provides that an issuer that redistributes an analyst’s report risks being seen as endorsing that report. This may trigger a requirement for the issuer to file a technical report, depending on the content of the analyst’s report.
On Sunday March 1, 2015, the Honourable Joe Oliver, Federal Minister of Finance addressed the Prospectors & Developers Association of Canada (“PDAC”) at the annual PDAC Convention in Toronto and announced certain proposals aimed at bolstering Canada’s junior mining industry. First, the Government has announced that it intends to extend the 15% Mineral Exploration Tax Credit (“METC”) for flow-through share investors for an additional year. The METC was scheduled to expire on March 31, 2015. The METC was first introduced in 2000 as a temporary measure which expired in 2003. Since 2003, the Department of Finance has extended the METC annually, one year at a time.
The Government has also modified its previous position with respect to the types of expenses that will qualify as Canadian exploration expenses (“CEE”). Expenses which qualify for CEE treatment are 100% deductible in the year they are incurred. Additionally, certain types of CEE may be renounced to investors pursuant to flow-through share agreements which enable junior mining companies to raise capital and fund exploration programs. In a letter to PDAC dated September 19, 2007, the Canada Revenue Agency (“CRA”) provided certain guidelines in determining whether certain expenses incurred at the exploration stage qualified as CEE. In that 2007 letter, the CRA took the position that environmental assessments and community consultations undertaken to meet a legal requirement to obtain a permit would not be eligible for CEE treatment as these costs are not incurred for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada.
In his speech, Minister Oliver announced the government’s intention to modify the definition of CEE contained in the Income Tax Act (Canada) to provide that effective March 1, 2015, the costs associated with undertaking environmental studies and community consultations as a pre-condition to obtaining a licence or permit to explore will qualify as CEE.
These proposed tax measures are welcome particularly since many mining companies are facing challenges in securing capital.
Only going to one mining investment show? Make it this one. PDAC International Convention, Trade Show & Investors Exchange is the world’s leading Convention for people, companies and organizations in, or connected with, mineral exploration.
The four-day annual Convention held in Toronto, Canada, has grown in size, stature and influence since it began in 1932 and today is the event of choice for the world’s mineral industry. In addition to meeting over 1,000 exhibitors, 25,122 attendees from over 100 countries, it allows you the opportunity to attend technical sessions, short courses as well as social and networking events.
For more information on PDAC, or to register, please visit the PDAC website.
Dentons Sponsored Events:
Your place ore mine?
Join Dentons for our annual cocktail reception during PDAC.
Come catch up with fellow stakeholders in the mining industry over an enjoyable evening of Hors d’oeuvre, drinks and networking.
We look forward to seeing you!
Date & Time
March 2, 2015
4:00 PM – 7:00 PM
InterContinental Toronto Centre
225 Front Street West
(Connected to the Metro Toronto Convention Centre)
Dentons is proud to support the Women in Mining – International Networking Reception
Take advantage of a global networking opportunity at the 8th annual Women in Mining International Reception hosted by Women in Mining Canada, designed to bring together industry leaders, academia, employers, students and job seekers from around the world. Here, you can connect with the people and personalities who comprise this dynamic industry and celebrate the global contributions that women have made to this vibrant industry – this reception is full of the energy that will fuel your PDAC experience. Afternoon appetizers and refreshments will be served.
Visit Women in Mining (WIM) Canada on the Trade Show floor at Booth 913, pre-and post-reception.
Become a member, learn how to become involved through volunteering or participating on committees, catch up with old friends and grow your network.
WIM Canada is a national not-for-profit organization formed in 2009 and focused on advancing the interests of women in the minerals exploration and mining sector.
For more details please contact: firstname.lastname@example.org
Date & Time
March 3, 2015
3:00 PM – 5:00 PM
Metro Toronto Convention Centre
Room 105, North Building
For more information on Dentons’ involvement at PDAC or to attend an event, please contact Kylie Panciuk.
Important Changes to Offerings to Existing Security Holders and Rights Offerings and their Impact on the Mining Sector in Canada
Two important developments were announced today that affect how Canadian reporting issuers can raise capital from their existing security holders:
- The Ontario Securities Commission (“OSC”) announced the introduction of a new prospectus exemption for offerings to existing security holders, similar to what is offered in other Canadian jurisdictions (the “New Exemption”).
- The Canadian Securities Administrators (“CSA”) published for comment a proposal to make significant changes to the regime governing rights offerings (the “Proposed Changes”).
What is a rights offering?
A rights offering is an offering of securities to an issuer’s existing security holders to buy new securities at a specified price. In Canada, this activity requires the issuer to provide a prospectus or establish that it has an exemption from the prospectus requirements.
What is the existing regime in Canada for rights offerings?
In Canada, rights offering can either be carried out under a prospectus or under a rights offering circular. In either case, a review of the offering document by the relevant securities commission(s) has been required. Rights offerings must also be left open for participation by existing shareholders for a period of at least 21 days. Research by the CSA indicates that the average length of time to complete a rights offering is 85 days. This has discouraged some issuers from pursuing rights offerings.
What changes have been made?
The New Exemption will be available in Ontario to permit offerings to existing security holders. It includes investment limits (of $15,000 per purchaser, unless suitability advice is obtained) and securities issued will have a four-month hold period.
At the same time, the CSA has proposed a new streamlined process for more traditional rights offerings. An important feature of both the new exemption and the CSA proposal is that offerings can proceed without securities regulatory review, although stock exchange approvals will continue to be required.
How will this affect the mining sector?
According to the TMX Group, there are more mining companies listed on the TSX and the TSX-V than on the exchange(s) of any other jurisdiction in the world. In the current investing climate, reporting issuers in the mining sector must deal with higher-than-normal volatility in commodity prices which can often be accompanied by large movements in share prices. This creates a need for speed and efficiency in fundraising when financing is required. The current rights offering rules require a review by securities regulators and this can be a lengthy process, acting as a deterrent to reporting issuers wishing to utilize rights offerings as a means of raising capital.
In a recent example, Paladin Energy Ltd. (“Paladin”, a uranium miner cross-listed in Canada and Australia) announced a $138 million rights offering on November 25, 2014. However, given the regulatory requirements in Canada, Paladin’s management decided to exclude its Canadian shareholders. Australian rules allow Paladin to announce and complete the rights offering on an extremely tight timetable, protecting the company from market volatility and reducing risk. A Paladin spokesman said, “The advantage to the issuer in being able to quickly complete an offering of this sort is significant”. In this case, the reporting issuer loses because it is leaving potential investor money “on the table”, while shareholders in Canada could be faced with dilution of more than 70%.
The New Exemption, along with the Proposed Changes, create a streamlined process that decreases the time, effort, and expense required to issue a rights offering, making it a more attractive financing option for reporting issuers in the mining sector. To learn about the specific contents of the New Exemption and the Proposed Changes please see our Dentons Insight: Important changes to offerings to existing security holders and rights offerings in Canada published on November 28th.
Please join Dentons’ Mining Group at the Terminal City Club on Tuesday, November 18, 2014, as we discuss the following topics:
- “Tax pitfalls and planning for the mining sector,” presented by Anne Calverley, Partner (Dentons Calgary); and Lori Mathison, Managing Partner (Dentons Vancouver)
- “M&A in the trough–practical tips for the urrent market environment,” presented by Alan Hutchison, Partner; and Daniel Katzin, Associate (Dentons Vancouver)
Accreditation: Each presentation is approved for 30 minutes of CPD credit with the Law Society of British Columbia for a total of one hour.
This session is complimentary but seating is limited. Please RSVP by November 10, 2014, by clicking on the blue arrow.
Date and time
November 18, 2014
Terminal City Club Metropolitan Room
837 West Hastings Street
RSVP to Kelly Tsang, Specialist, Marketing and Events at email@example.com.
Please let me know if you have any questions. Thanks!
The Northern Plan will focus on the integrated and coherent development of the area covered by the Northern Plan which includes all of Québec located north of the 49th degree of north latitude and north of the St. Lawrence River and the Gulf of St. Lawrence. There are several mining exploration projects and major mining projects at various stages of development in the north, some of which require significant access to infrastructures. The Government of Quebec intends to take steps to facilitate the implementation of mining and other projects in the area. With confirmation by the Government of Québec of its intention to relaunch the Northern Plan by introducing Bill 11, An Act respecting the Société du Plan Nord, on September 30, 2014, the implementation of the Northern Plan continues. Bill 11 reiterates the majority of the elements included in the former Bill 27, An Act respecting the Société du Plan Nord, introduced in 2011, which was examined by a parliamentary committee. However, Bill 11 contains new elements and incorporates differences when compared to the previous version as outlined in Relaunching the Northern Plan: Introduction of the Bill to establish the Société du Plan Nord. Mr. Couillard’s government seems determined to proceed with the implementation of all mechanisms required for the orderly deployment of the Northern Plan while the mining sector and international business community continue to demonstrate interest in this major plan.
Dentons is proud to be a Silver Sponsor of Mining & Investment Latin America Summit, the largest mining and investment event in Latin America.
Mining & Investment Latin America Summit is the only event that focuses on mining investment and efficiency strategies in Latin America, bringing together mining companies; companies with mining assets in Latin America; local, regional and international investors and financial service providers.
Please join us on Day 1 at 9:40 a.m. for a government and mining company panel discussion regarding optimizing the relationship between both parties to ensure long term growth and development. The distinguished panelists include Dr. Beatriz Uribe, President of Mineros; Patricia Fortier, Ambassador, Embassy of Canada, Peru; and Brian Abraham, Partner, Mining, Dentons Canada LLP.
Dentons Canada mining partner Jaime McVicar will also attend the Summit.
Brian and Jaime look forward to getting together with you for two days of business matching, knowledge sharing and deal-making.
For the first time in Canada, an individual has been sentenced to jail time for bribing a foreign public official. The three-year penitentiary sentence was handed down by the Ontario Court of Justice under the Corruption of Foreign Public Officials Act, SC 1998, c 34 (the “CFPOA”).
The imposition of a jail sentence constitutes a major milestone in Canada’s drive towards tackling bribery in international business ventures, and should serve as a stark reminder to all Canadian companies active internationally of the critical importance of having in place a strong anti-corruption compliance program.
In 2013, Nazir Karigar (“Mr. Karigar”) was convicted of breaching section 3(1) of the CFPO for conspiring with employees and associates of Cryptometrics Canada Limited to bribe officials of Air India, a state-owned Indian airline, and an Indian Cabinet Minister in order to secure a business contract. On May 23, 2014, Mr. Karigar was sentenced to a three-year term of imprisonment.
Following recent amendments to the CFPOA, the maximum sentence for the offence committed under the CFPOA is now 14 years. However, at the time Mr. Karigar committed the CFPOA offence, the maximum sentence was only five years. The sentence was therefore towards the higher end of the applicable range.
The Court found that the aggravating factors in sentencing included: (i) the sophisticated nature of the bribery scheme; (ii) attempts at concealment by the creation of a fake competitive bid to create an illusion of a competitive bidding process; (iii) Mr. Karigar’s “sense of entitlement” which led to him openly tell a Canadian trade commissioner of the bribes; and (iv) Mr. Karigar’s deep personal involvement in the scheme.
The mitigating factors included: (i) Mr. Karigar’s cooperation in the prosecution, which avoided a lengthy trial; (ii) his prior clean criminal record; and, perhaps most interestingly, (iii) that the bribery scheme was a “complete failure”. At first blush, the success or failure of a bribery scheme might seem an odd factor to take into account when fixing a sentence; however, the Court noted that because of the failure of the scheme, the harm caused was relatively limited.
The Court’s closing remarks left no room for doubt about the serious nature of CFPOA violations:
“[a]ny person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.
Canadian Courts are clearly prepared to play their part in delivering the message that Canada is serious about the enforcement of its anti-corruption laws. For Canadian companies doing business abroad the warning is clear – they must take business ethics seriously and ensure they have clear policies and vigorous compliance programs in place.
2nd Coaltrans West Coast, Four Seasons Hotel, Vancouver, Canada, 7-8 May 2014
Dentons is proud to be a Silver Sponsor in support of trade between North America’s coal producers and Asia’s buyers at the 2nd Coaltrans West Coast conference in Vancouver.
Coaltrans will harness its international network of contacts to bring together regional coal producers and service providers with existing and potential coal buyers and investors.
Please join us on Day 1 during Session 2 for a presentation by Leanne Krawchuk on Options for Balancing the Deal Risks in Your Coal Supply Agreements beginning at 10:50 am. Visit members of the Dentons Canada mining team, Leanne Krawchuk, Wei Shao and Carrie Schroeder at the Dentons booth during the exhibition.
We look forward to getting together with you for two days of business matching, knowledge sharing and deal-making!
Please join us on Thursday, May 15th as we discuss:
Dealing with First Nations – IBAs and other relationship building tools
Mai Rempel, Counsel
Avoiding Deal Killers – Understanding Technical Report Triggers Under NI 43-101
Alan Hutchison, Partner
7:30 a.m. Registration and breakfast
8:00 a.m. Presentations
9:15 a.m. Conclusion
Terminal City Club
837 West Hastings Street
RSVP to Kelly Tsang, Specialist, Marketing and Events at firstname.lastname@example.org.
This session is complimentary but seating is limited. Please RSVP by May 9, 2014.