On August 16, 2012, the Canadian Securities Administrators (“CSA“) published CSA Staff Notice 43-307, Mining Technical Reports – Preliminary Economic Assessments (“43-307“), whose purpose is to clarify issues regarding the use and disclosure of a Preliminary Economic Assessment (“PEA“). The economic analysis by way of a PEA is generally the first signal to the public that a mineral project has potential viability, and the market views PEA results as important information.
National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) defines a PEA as a study, other than a pre-feasibility study (PFS) or feasibility study (FS), which includes an economic analysis of the potential viability of mineral resources. When preparing technical reports under revised Form 43-101F1 Technical Report, Items 16 to 22 provide a framework for reporting on a PEA, PFS, or FS. Although these studies generally analyse and assess the same geological, engineering, and economic factors, the level of detail, precision, and confidence in the outcomes is significantly different.
The CSA’s position is that a PEA is a conceptual study of the potential viability of mineral resources. In this context, section 3.4(e) of NI 43-101 requires specific cautionary language indicating that the economic viability of the mineral resources has not been demonstrated. This cautionary language is in addition to the cautionary statement for inferred mineral resources required by section 2.3(3)(a). Any disclosure that implies that the PEA has demonstrated economic or technical viability would be contrary to NI 43-101 and the definition of PEA.
The CSA also takes the position that an issuer could trigger the requirement to file a technical report, under section 4.2(1)(j) of NI 43-101, to support disclosure of the results of a PEA 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 or articles, or otherwise adopted and disseminated by the issuer.
The CSA has also expressed the concern that issuers and qualified persons appear to use overly optimistic or highly aggressive assumptions in the PEA, or methodologies that diverge significantly from industry best practice guidelines and standards for exploration and mineral resources. 43-307 reminds issuers that the results of a PEA include, or are based on, forward-looking information that is subject to the requirements of Part 4A of NI 51-102. Under Part 4A, an issuer must not disclose forward-looking information unless the issuer has a reasonable basis for the forward-looking information. Hence, any assumption under the PEA must have a reasonable basis in the context of the mineral project.
If you have questions about the use of a PEA, contact any member of Clark Wilson LLP’s Corporate Finance & Securities Law Group.