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.

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 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.

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.

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 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 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.

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.

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.

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 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 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.

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.

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 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 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.

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.

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.

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 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.

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.

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.