Recent Development in Mining

There have been two important developments in mining law over the past few years. The national securities rule National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") was revised effective June 30, 2011, and changes to the environmental assessment process are occurring. This article will discuss each development in some detail.

With New NI 43-101, an issuer must file a technical report with a Short Form Prospectus if the Short Form Prospectus discloses, for the first time, mineral resources, mineral reserves, or the results of a preliminary economic assessment that constitutes a material change in relation to the issuer, or a change in this information, if the change constitutes a material change in relation to the issuer. The securities regulators have said that in most cases, they think that first time disclosure of mineral resources, reserves, or the results of a preliminary economic assessment on a property material to the issuer will constitute a material change in the affairs of the issuer. Note that if disclosure of this information was made within 45 days of filing the Short Form Prospectus, and no technical report was filed in support, then a current technical report would have to be filed with the Short Form Prospectus. For example, prior to the effective date of New NI 43-1010, if an issuer were describing for the first time a material property in a Short Form Prospectus (with or without a resource or reserve estimate or preliminary assessment), the issuer would be required to file a technical report at the same time as filing its Short Form Prospectus. Under New NI 43-101, the issuer would not have to file a technical report to support the scientific or technical information at the same time as the Short Form Prospectus, unless the Short Form Prospectus disclosed for the first time mineral resources, mineral reserves, or the results of a preliminary economic assessment that constitutes a material change, or a change in this information, if the change constitutes a material change.

New NI 43-101 should result in significantly less technical reports being filed in connection with Short Form Prospectus offerings. Also, these changes remove a significant uncertainty as to whether securities regulators reviewing the Short Form Prospectus would consider previously filed technical reports still current and suitable to support disclosure in the Short Form Prospectus. Issuers should therefore be able to access markets more quickly, and with less uncertainty about the outcome of the regulatory review, under New NI 43-101.

If an issuer treats the historical estimates as historical and complies with New NI 43-101, no technical report will be triggered (this has remained the same as under NI 43-101). What has changed under New NI 43-101, is the time limit for filing a technical report when an issuer treats historical estimates as current. Under New NI 43-101, the time limit has been extended to six months, subject to the caution set out below.

Issuers should be aware that it will be easy to have the six-month deadline in mind and forget that it can be shortened if an issuer hits another trigger to file a technical report under New NI 43-101 before the six months is up. For example, in the context of an acquisition, if an issuer discloses, in a press release for instance, resource estimates on a property it is set to acquire, and that information constitutes a material change in the affairs of the issuer, under New NI 43-101 the issuer has six months from the date of the press release to prepare and file its own technical report on the property, as long as there is a technical report on SEDAR that supports that information. However, if the issuer then includes this information in an information circular or annual information form ("AIF") one month later, the six-month deadline is shortened to the date it files its information circular or AIF.

These are not the only examples when the six-month deadline will be abridged. An issuer must be aware of all of the triggers that will shorten this time period as set out in New NI 43-101.

QP consent requirements are more relaxed under new NI 43-101

Some changes in New NI 43-101 that facilitate QP consents include:

1. QP consents are limited to parts of the technical report that the QP prepared;

 
2. QP consents must identify the disclosure that it supports;

 
3. in-house QP can approve later disclosure (see example below); and

 
4. updated QP consents and certificates are not required where issuers rely on previously filed technical reports and there is no new material scientific or technical information (see example below).

Regarding subparagraph (iii) above, this means issuers are not required to get the original QP that prepared a technical report to sign off on technical information that is based on that technical report and presented in a later disclosure document. For example, if an issuer filed a technical report in connection with resource estimates disclosed in a press release, and the issuer then uses that same information in their AIF, the issuer does not need to name the author of the original technical report as having prepared or supervised the preparation of the technical disclosure in the AIF. Instead, they can get their own in-house QP to review and approve the disclosure.

Regarding subparagraph (iv) above, this means that if an issuer already has a technical report on file that supports scientific or technical information in a document the issuer is now filing (e.g., press release, AIF, information circular, takeover bid circular, offering memorandum, etc.), and there is no new material information on the property (i.e., the technical report is still current), no technical report is triggered under New NI 43-101. Therefore, no additional QP consents are required.

Under New NI 43-101, producing issuers are exempt from including economic analysis in technical reports on properties currently in production, unless the technical report includes information on a material expansion of current production. This will provide relief to producing issuers who often do not want to provide this sensitive information in publically available technical reports.

• the technical report form is less prescriptive and gives more discretion to the QP on form content details;

 
• the technical report content requirements are different depending on the stage of development of the subject property;

 
• exemptions from filing technical reports for issuers holding royalty interests if the owner or operator of the property is a reporting issuer in Canada and for producing issuers listed on a specified exchange who have disclosed the scientific and technical information that is material to the royalty holder;

 
• gross value of metal or mineral in a deposit or a sampled interval or drill intersection is prohibited;

 
• metal or mineral equivalent grade for a multiple commodity deposit, sampled interval or drill intersection is prohibited, unless the grade for each material or metal used to establish the equivalent grade is also disclosed; and

 
• other changes in New NI 43-101 and consequential amendments to other securities national instruments that, together with the changes described in this article, should make New NI 43-101 more flexible and easier to deal with for issuers, once issuers understand how to take advantage of these changes.

In the last year or so, however, some things have occurred that hold promise on this front. As discussed below, these are the successful use (for the first time ever in Canada) of the delegation powers under section 17 of the Act, and some amendments to the Act that, while quite technical, can have a profound impact on the extent (and timing) of the federal environmental assessment process.

A responsible authority may delegate to any person, body or jurisdiction within the meaning of subsection 12(5) any part of the screening or comprehensive study of a project or the preparation of the screening report or comprehensive study report, and may delegate any part of the design and implementation of a follow-up program, but shall not delegate the duty to take a course of action pursuant to subsection 20(1) or 37(1).

Although this section has been in the Act since it was passed nearly 20 years ago, it had never been used until recently. However, in 2009 the BC Environmental Assessment Office (the "BC EAO") entered into an agreement¹ with its federal counterparts whereby the federal government delegated its environmental assessment responsibilities to the BC EAO in respect of a project (the Northwest Transmission Line). That process was successfully completed and the federal government granted approval for this project on May 6, 2011.

A second delegation agreement² was entered into between BC and federal environmental assessment officials in respect of a coal mine expansion in southeast BC. That environmental assessment is ongoing.

These are positive developments and it would be excellent if the use of them grows to other projects and in other provinces. At the same time, it should be noted that they do not fully eliminate the issue of duplication and overlap in environmental assessment, because provincial officials are still, under a delegation agreement, required to meet the requirements of both the provincial and federal environmental assessment legislation. But having one entity run two overlapping and integrated processes is clearly preferable to have two agencies (from different levels of government) doing so.

An even more effective and efficient approach would be to eliminate altogether the requirement for environmental assessments to be completed under both federal and provincial law. While nobody expects either the federal government or any province to vacate the field generally, this goal could be achieved on a case by case or class by class basis, through the use of "equivalency agreements." Under such an agreement, one level of government accepts the other's environmental assessment to be "equivalent" to its own, and in doing so eliminates the obligation for an environmental assessment to be conducted under its legislation.

The BC Environmental Assessment Act³ contains such a power to enter into equivalency agreements in section 27. It states:

27 (1) The minister may enter into an agreement regarding any aspect of environmental assessment with another jurisdiction including but not limited to

(a) Canada,

…

(3) An agreement under this section may

…

(d) provide for a means to accept another party's or jurisdiction's assessment as being equivalent to an assessment required under this Act,

The power has been used twice. The BC EAO and the federal government entered into an equivalency agreement to accept the federal environmental assessment of a port expansion as equivalent to its own.⁴ Similarly, the BC EAO and the National Energy Board (the "NEB") have also entered into an agreement to accept various types of NEB environmental assessments as "equivalent" to the BC process and thus obviating the need for both.⁵

Unfortunately, while the federal government has the ability to enter into agreements to have a province accept a federal environmental assessment as equivalent to its own, it does not have the ability to enter into agreements that do the opposite — accept provincial environmental assessments as equivalent and thus eliminate a federal environmental assessment. This is a matter that would require federal legislative change (albeit a fairly simple change) to be effected.

There are other provinces that have "equivalency" agreement provisions similar to BC, and even more might wish to add them if the federal government were to amend its legislation at some point. This would be welcomed by the mining industry, and by any other project proponent that must undergo both federal and provincial environmental assessments.

The diffusion of responsibility was a longstanding challenge to timely and effective decision making. This was recognized by the Canadian Environmental Assessment Agency itself, the Canadian Council of Ministers of Environment⁷ and the office of the Auditor General of Canada.⁸

The July 2010 amendments to the Act changed this. Section 11.01 now provides that, for most major projects requiring a "comprehensive study" level of assessment, the Canadian Environmental Assessment Agency is the entity charged with undertaking that environmental assessment. The effect of this change is to centralize environmental assessment process responsibility in a single agency dedicated to this work; other interested agencies will simply provide substantive input and comment. Placing environmental assessment responsibilities in an agency other than the one responsible for subsequent permitting decisions should also help avoid (or at least minimize) some of the challenges that occurred in past where there was a failure to distinguish the nature of an environmental assessment decision from subsequent permitting decisions. In some cases, the federal environmental assessment process was delayed while information was sought and issues addressed by "responsible authorities" at a level that would better have been left for detailed permitting (after the environmental assessment was completed).⁹

Under the amended Act, there is no longer a requirement for such a decision to be made at any specific point in the process. Rather, the Minister of Environment has the authority to refer a project to an independent review panel at any time. While this introduces some degree of procedural uncertainty, the issue is still likely to be addressed early in the process for the relatively few number of projects that might warrant an independent review panel. As such, on balance, this should be a significant improvement to the process.

1. a metal mine, other than a gold mine, with an ore production capacity of 3,000 t/d or more;

 
2. a metal mill with an ore input capacity of 4,000 t/d or more;

 
3. a gold mine, other than a placer mine, with an ore production capacity of 600 t/d or more;

 
4. a coal mine with a coal production capacity of 3,000 t/d or more; or

 
5. a potash mine with a potassium chloride production capacity of 1,000,000 t/a or more.

Federal environmental assessment officials had previously taken the position that once the project triggered the Comprehensive Study List Regulation, they had the ability to set the "scope" of the federal environmental assessment to something less than the full project as referenced in the regulation (e.g., assess only the fisheries and explosives issues and not all aspects of the processing). This gave rise to litigation that went all the way to the Supreme Court. In January 2010, in Mining Watch Canada v. Canada (Fisheries and Oceans) ("Mining Watch"),¹¹ the Court held that federal environmental assessment officials did not have the ability to define the scope of the environmental assessment as anything less than the full project as proposed. The Court was aware of the fact that this would increase (not decrease) overlap and duplication with provincial environmental assessment entities, but it noted that was the effect of the law as written and that other steps could be taken to cooperate with other governments.

One of the effects of the 2010 amendments to the Act was to override this aspect of the Mining Watch decision. Specifically, section 15.1 was added. It states:

15.1 (1) Despite section 15, the Minister may, if the conditions that the Minister establishes are met, determine that the scope of the project in relation to which an environmental assessment is to be conducted is limited to one or more components of that project.

Availability

(2) The conditions referred to in subsection (1) must be made available to the public.

This is a very powerful provision. It can be used to significantly reduce overlap and duplication with matters being assessed in a provincial process, and can preserve limited federal environmental assessment resources for those matters that are most closely connected to federal jurisdiction. It will be interesting to see whether the federal minister and the Canadian Environmental Assessment Agency embrace this new power with creativity and vigor. To date it does not appear that the minister has published "the conditions" upon which this power may be used and, as such, it would seem the power has not in fact been used.

Although the regulation does not set any requirement for the ultimate time frame within which an environmental assessment decision must be made, these are positive changes and they directly address several issues that had been the source of significant delays in past.

The regulations also require the Canadian Environmental Assessment Agency to publish annual reports on its implementation of these new timeline provisions.