As often happens over the holidays, one has some time to catch up on some reading. I spent some time today reading through U.S. Securities and Exchange Commission (SEC) staff comment letters to registrants relating to compliance with Regulation S-K 1300. I found myself drawn to the exchanges between the SEC staff and Blue Gold Limited (NASDAQ: BGL). First, this is because BGL owns the Bogoso Prestea project in my native Ghana. Second, I found the issues the SEC staff raised in some of the letters very interesting. Two issues stood out: (1) how the SEC expects registrants to handle low‑confidence cost estimates from an initial assessment in their general disclosures, and (2) how registrants should justify price assumptions in technical report summaries. I thought I would write a brief post to share my thoughts.
Those of you who have been involved in mining disclosure for a while know there used to be a time the SEC only allowed registrants to use prices that are lower than the average price over the past three years. Under Regulation S-K 1300 (17 CFR § 229.1300-1305), the SEC allowed registrants and their qualified persons (QPs) to use prices that provide a “reasonable basis” for establishing prospects of economic extraction (in the case of mineral resources) or economic viability (in the case of mineral reserves). This change was a big concession on the part of the SEC to industry. But it also means the SEC is more likely to issue comments on a registrant or QP’s basis for establishing prices.
At issue in the Blue Gold exchange is the basis for price assumptions in the TRS by the QP and those in the disclosure. Additionally, the SEC questions Blue Gold’s reliance on cost estimates in the TRS in its disclosure. For background, BGL filed a registration statement on June 14, 2024, which triggered a series of letters between the SEC staff and BGL and its counsel. In the SEC’s letter dated August 2, 2024, the SEC issues the two comments (comments 27 and 28) that are of interest to me:
- Comment 27: “We note that you have included various cost estimates and economic indicators throughout the filing, many of which appear to have come from the technical report summary. As the technical report summary is an initial assessment, the utility of the optional cash flow analysis is generally limited to demonstrating economic potential, where the accuracy of the operating and cost estimates is generally plus or minus 50% with a contingency level of no greater than 25%, as noted in Item 1302(d)(4) of Regulation S-K.
- Please expand your disclosures of cost estimates and economic indicators that are associated with the cash flow analysis in the technical report summary to clearly state the accuracy and contingency levels that are associated with the measures and to clarify that the numbers are based on an initial assessment. This disclosure should be included in each instance where such estimates and indicators are presented.”
- Comment 28: “We note your disclosures on page 133 of cashflows and net present values based on a range of gold prices and a range of discount rates. Please tell us if these numbers have come from your technical report summary and if this is not the case, identify the source or explain how you have established a reasonable basis for these numbers. …”
For comment 27, it is important to note that, under Regulation S-K 1300, an initial assessment is “a preliminary technical and economic study of the economic potential of all or parts of mineralization to support the disclosure of mineral resources. … An initial assessment is required for disclosure of mineral resources but cannot be used as the basis for disclosure of mineral reserves.” Registrants and their QPs have the option to include a cash flow analysis in an initial assessment. Such cash flow analysis does not have the same level of confidence as those in a prefeasibility or feasibility study.
Comment 27 reflects a straightforward point: cost estimates and economic indicators derived from an initial assessment carry low confidence, and the SEC does not want registrants presenting them in general disclosures without clearly stating their accuracy and contingency levels. In other words, if you use initial‑assessment numbers outside the TRS, you must flag their limitations for investors. BGL conceded this fact in their response to the SEC dated September 25, 2024, and filed an amendment to their registration statement.
BGL could not so easily resolve comment 28. In its letter to the SEC dated September 25, 2024, BGL confirmed that the “range of gold prices” indeed came from the TRS and provided their basis for this assumption. In a subsequent letter dated October 11, 2024, the SEC staff’s comment 8 read “We note that several gold prices have been included in the technical report summary
without clear explanation of support or rationale.” BGL responded in a letter dated November 8, 2024, revising the TRS to clearly state that the QP used a gold price of US$2,050/oz to establish the optimal pit shells and then determined mineral resources as those blocks that had a grade exceeding the cut-off grade established using a gold price of $1,950/oz. Then BGL provided the QP with a long-term price estimate of US$2,006/oz for the cash flow (financial) model. Note that Item 1302(f)(1) of Regulation S-K allows the registrant to provide such information to the QP.
The ultimate take away here is that the QP has a responsibility to clearly define and justify the price assumptions used in an initial assessment, prefeasibility study, or final feasibility study. The QP should also clearly identify those assumptions that are the QPs and those that are provided by the registrant as allowed under Item 1302(f)(2). Finally, when the registrant quotes these price assumptions in the disclosure, the explanations and basis should be clear to investors and the SEC staff.
I hope this has been helpful in some way. I would love to hear your thoughts on these issues. If you and others would benefit from Sphinx’s training course on advice on complying with Regulation S-K 1300, do not hesitate to reach out. Happy New Year!