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.
Please join us on Tuesday, November 26th as we discuss:
- Did the TSX Raise the Bar for a Mining Listing? – Jessica Yee
- The 2014 AGM Season – A Look Ahead – Michael Stephens
- What Not to Say: Avoiding Liability in 43-101 Reporting – Brian Abraham
This session is complimentary but seating is limited. Please RSVP by November 21st, 2013.3
7:30 AM – Registration and breakfast
8:00 AM – Presentations
9:15 AM – Conclusion
Date and Location:
November 26, 2013
07:30 AM – 09:15 AM PDT
Terminal City Club Metropolitan Room
837 West Hastings St.
Vancouver, British Columbia
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.
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.
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.
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.
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.
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.
Please note that the comment period in respect of these amendments ends on November 5, 2012.
FMC Partner Ralph Shay speaks to Business News Network about policy of securities commissions in response to Jean Charest’s controversial proposal
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).
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.
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.
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).
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.
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.
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.
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:
- Federal EAs will be more limited in scope and will apply to fewer projects.
- More discretion for the Minister of the Environment and Cabinet in the EA process.
- 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
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.