By Andrew Elbaz, Partner; Alexander Katznelson, Associate; and Darren Nguyen, Associate - Securities and Capital Markets

Disclosure of a mineral resource estimate (“MRE”) is a critical step for any mining issuer. Investors often use the MRE to evaluate any potential investment in the securities of a mining issuer. The MRE contains information concerning the ore tonnage and grade of the mineral deposit. It is often used as the starting point for any subsequent mining report(s) that serve to quantify the attractiveness and feasibility of a mineral project as an investment opportunity.

On June 4, 2020, the Canadian Securities Administrators (“CSA”) published CSA Staff Notice 43-311 Review of Mineral Resource Estimates in Technical Reports (the “Notice”). The purpose of the Notice is to: (i) provide both mining issuers and the qualified person (“QP”) preparing the MRE with an explanation as to how regulators assess MREs and (ii) offer guidance as to how issuers and QPs can avoid deficiencies in their disclosure and remain onside with the provisions found under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”).

The Notice outlines the seven key areas that regulators will focus on when assessing the disclosure of the MRE and includes guidance from CSA staff on best practices for each area, all of which will be discussed below.

1. QP’s relevant experience and the purpose of the technical report

The QP tasked with preparing the MRE must be properly qualified and the MRE must correspond to the specific property and its deposit model. In addition, the technical report must include proper terms of reference, as these will provide readers with specific information about the stage of the project. CSA staff also noted that disclosure should reference the QP’s certificate, which should outline the QP’s experience with comparable mineral deposit types and provide examples of the MREs the QP has prepared in the past.

2. Data verification and adequacy for use in MRE

When making reference to or describing sample preparation, security, analytical procedures, and quality assurance/quality control (collectively, the “Project Procedures”) in relation to the project, QPs must state their professional opinion on the merits of the Project Procedures and explain the steps taken to verify the accuracy of the data.

In addition, QPs should state their professional opinion on whether the data used is appropriate for the purpose of the technical report. QPs should be aware of the distinction between the current project operator’s Project Procedures and the QP’s own independent data verification. It is also important for QPs to verify the integrity of any previous data collected before the activities of the current operator, especially if the Project Procedures associated with the previously collected data are no longer applicable. As such, it is highly recommended that the QP responsible for the MRE conducts a personal site visit prior to the completion of the MRE.

3. Mineralization controls and geological model

The mineralization controls form the basis of the geological model used to constrain the scope of the MRE. The mineralization controls also includes descriptions of the data used in the MRE, and the criteria and methodology used to develop the mineral resource model. It is important to properly define the geological mineralization model from the geological settings and mineralization controls in order to create an accurate MRE. An improperly defined geological model could result in an erroneous estimate that may require future restatement by the issuer.

4. Mineral resource estimate data analysis

This area includes the description of analyses that quantify the statistical and spatial relationships of the variables (grades, dimensions, densities, etc.) used in the estimation process. CSA staff note that it is important to identify any matters that might materially affect a reasonably informed reader’s understanding of the estimate being reported. Issues encountered during the collection of data, or with the sufficiency of data, must be clearly disclosed.

5. Mineral resource estimation and classification

This area includes a commentary on the procedures and methodologies used to estimate and classify the mineral resource, including the steps taken to confirm the validity of the mineral resource model. The criteria used for classification of the MRE should be presented in a manner that would allow a reasonably informed reader to understand the criteria used. CSA staff note that one way to accomplish this is through the disclosure of the block model validation methods and results, which would allow a reasonably informed reader to assess the robustness of the MRE.

6. Reasonable prospects for eventual economic extraction

This area includes the description of the various technical and economic assumptions used to determine that the estimated mineralized material has reasonable prospects for economic extraction purposes. This is a critical aspect of the MRE. A reasonably informed reader must be presented with complete disclosure of the assumptions relied upon in order to understand how the deposit is a mineral resource with demonstrated reasonable prospects for economic extraction, and not just a mineral inventory. CSA staff note that it is important for the issuer to disclose how the cut-off grade was determined from the selected assumptions and parameters. In the case of early stage projects, the QP can accomplish this by comparing the subject deposit to analogous mine operations, and where possible the QP should seek opinions or assistance from other professionals in areas where they may lack certain expertise, such as mining, metallurgy, and infrastructure.

7. Reporting results, sensitivities, risks, and uncertainties in the MRE

This area includes disclosure of the MRE in accordance with the requirements under NI 43-101, including: (i) tonnage; (ii) grade; (iii) mineral resource categories; and (iv) a discussion about uncertainties or risk factors that could materially affect the MRE. Any omission of any risks or uncertainties associated with the MRE could cause the MRE to be misleading, which would be in contravention of both NI 43-101 and Canadian securities laws.

It is recommended that issuers provide the reader with a sensitivity analysis using alternative cut-off grade scenarios. In order to show these scenarios clearly, CSA staff recommend that the disclosure:

• shows the MRE at the base case cut-off grade prominently, as there can only be one current MRE for the mineral project at any point in time;
• ·only disclose the alternative cut-off grade scenarios that meet the test of reasonable prospects for eventual economic extraction; and
• does not include an estimate with a zero cut-off grade, as this would represent a mineral inventory with no demonstrated reasonable prospects for eventual economic extraction.

CSA Findings and Recommendations

After reviewing the disclosure of MREs in technical reports made by 86 issuers, CSA staff noted that while disclosure was generally acceptable, the areas that require improvement were:

• Reasonable Prospects for Eventual Economic Extraction: A mineral deposit cannot be considered as a mineral resource unless it has demonstrated reasonable prospects for eventual economic extraction. CSA staff noted that some technical reports lacked proper disclosure with regards to metal recoveries, assumed mining and processing methods and costs, and constraints applied to the MRE to demonstrate that the mineralized material had the potential for eventual economic extraction.
• Data Verification and Adequacy for use in MRE: Data used to support a MRE must be properly verified and validated as appropriate for the project for use in the MRE. Mineral projects often pass through several operators, each generating exploration and drilling data. The use of such previously obtained data is permissible, however, such data requires careful verification, which should be documented in the technical report.
• Reporting results, sensitivities, risks, and uncertainties in the MRE: Each mineral project has its own risks, many of which may have an impact on the MRE. CSA staff noted that many technical reports only included boilerplate disclosure about potential risks and uncertainties that are applicable to all mining projects. Issuers must set out meaningful known risks, which are specific to the mineral project in order to avoid potentially misleading disclosure. In addition, variations to the cut-off grade to indicate the relative accuracy of the estimate can be useful information for the reader. However, all estimates resulting from each of the cut-off grade scenarios must conform to the reasonable prospects for eventual economic extraction test and the base case or preferred scenario must be clearly indicated.

Mining issuers should take note of both the methodology used by the regulators in assessing the disclosure of MREs and the shortcomings of the disclosure of MREs outlined in the Notice in order to improve their disclosure practices.

For more information concerning the disclosure of MREs in technical reports or any other business issues involving public companies and securities, please contact Andrew Elbaz, Alexander Katznelson, or Darren Nguyen in our Securities and Capital Markets Group.