Part one of a series on NI 43-101 myths

There is a phrase that has floated around the industry for over two decades, usually misused: “NI 43-101 compliant.” We’ve seen it applied to resource and reserve estimates, to feasibility studies and preliminary economic assessments, and even to an “NI 43-101 compliant mineral property.” But compliance is none of those things.

This is the first in a series of Standards columns where we, two securities commissions regulators, plan to examine and dispel some of the misconceptions that have grown up around the mineral disclosure rule since it came into effect in 2001. It isn’t just our pedantic joust at loose language; getting the rules wrong leads to trouble for companies, practitioners and the public.

“Compliance” with a securities rule means three things:
1. If you’re subject to the rule, you must comply with it or you’re breaking the law.
2. Those not subject to the rule cannot comply with it, no matter how hard they try. Look at NI 43-101: “an issuer shall…” and “an issuer must not.…” Only issuers—public companies in the Canadian capital markets—are subject to the rule. Nobody else, and nothing else, can comply with it.
3. Everything in the rule applies to public disclosure, not to geoscientific or engineering practice, and not to business conduct.

Several truths flow from those three facts. One is that only scientific and technical information disclosed to the Canadian capital markets can be “NI 43-101 compliant.” Exploration and estimation practices, mining studies and the resource and reserve estimates that come out of them do not comply. So there is no such thing as an “NI 43-101 compliant mineral resource” or an “NI 43-101 compliant prefeasibility study.” Only the public company’s disclosure can comply with the rule.

Loose talk about “JORC compliance” has already led Australia’s Joint Ore Reserves Committee to add guidance to Clause 6 of its code, warning companies that only their reporting, not their estimates, can comply with JORC. That’s just as true for NI 43-101.

Another is that only an issuer of securities in the Canadian capital markets—and so subject to NI 43-101—can comply with NI 43-101. The world out there crawls with companies having no connection to the Canadian market that claim they comply, or that their estimates or reports comply, with a rule that does not even apply to them. That’s false, and securities regulators holding jurisdiction over those companies are often very interested to hear about false disclosures. The United States Securities and Exchange Commission, for one, has taken a dim view of American issuers claiming “NI 43-101 compliance.”

One more principle is that it’s never correct for a company to disclose old or best-guess estimates and then brush them off as “not NI 43-101 compliant.” That’s an evasion: a company should never disclose information that doesn’t comply with the rule. Do you have numbers that you haven’t verified from another operator, old estimates in the assessment files or inventories that don’t meet the CIM definitions? The rule provides ways to disclose those and stay inside the lines. Tagging them with a shopworn phrase like “not NI 43-101 compliant” isn’t the way.

Misuse of the “compliance” concept has given birth to another big misconception: that the disclosure rule mandates a certain standard of practice, and that waving a technical report around guarantees good work. (One of our old bosses lamented a long time ago that “people have started to think it’s an inoculation against fraud.”)

A company wanting investors to know it is following CIM Practice Guidelines should just say so, not claim that “compliance” means something else.

Professional bodies carry the ball on practice standards. The disclosure rule places an obligation on public companies to assign work to competent professionals; they, in turn, must be part of an organization that enforces practice standards. Contrast that with the principle behind disclosure rules: to provide a transparent summary of work that’s been done on a project so investors can decide for themselves whether that work met a standard of good practice.

That doesn’t mean that regulators in the securities commissions and at the exchanges won’t comment on apparent failures in practice when reviewing a company’s disclosure. The “General Guidance” section of NI 43-101’s Companion Policy states that regulators expect practitioners will normally follow “industry standard practices.” It cautions that disclosing information that doesn’t conform to standard practices could be misleading (an offence under provincial Securities Acts).

In the columns to follow, we (and other authors) will go into more detail on the conventional wisdom about securities disclosure rules—wisdom that ain’t necessarily so.

Victoria Yehl, P.Geo. is manager of mining at the British Columbia Securities Commission. James Whyte, P.Geo., retired last year from his role as senior geologist at the Ontario Securities Commission. Both authors are writing in their private capacity.