Regulation S-K 1300 and Limited QP Liability

When I teach my short course on the basics of Regulation S-K 1300 one of the discussion points that takes the most time is how S-K 1300 handles qualified person (QP) liability. Under S-K 1300, as with all the CRIRSCO standards, the QP is liable for misstating or omitting material facts. The Canadian National Instrument (NI) 43-101, section 6.4(2) and Item 3 of Form 43-101F1, allows QPs to disclaim certain items of the disclosure in the technical report if the QP is “relying on a report, opinion, or statement of another expert
who is not a qualified person, or on information provided by the issuer, concerning legal, political, environmental, or tax matters relevant to the technical report” so long as the QP provides certain disclosures. S-K 1300, on the other hand, only provides that the QP can disclaim certain items of disclosure that he/she received from the registrant.

Specifically, Item 1302(f)(1) of S-K 1300 says:

“The qualified person may indicate in the technical report summary that the qualified person has relied on information provided by the registrant in preparing its findings and conclusions regarding the following aspects of modifying factors:

  1. Macroeconomic trends, data, and assumptions, and interest rates;
  2. Marketing information and plans within the control of the registrant;
  3. Legal matters outside the expertise of the qualified person, such as statutory and regulatory interpretations affecting the mine plan;
  4. Environmental matters outside the expertise of the qualified person;
  5. Accommodations the registrant commits or plans to provide to local individuals or groups in connection with its mine plans; and
  6. Governmental factors outside the expertise of the qualified person.”

The heated discussion in my course is often the result of my explanation that the Securities and Exchange Commission (SEC) intended for this to be a “limited” reliance on information provided by the registrant and not a carte blanche for the QP to put any and all liability on the registrant. Doing so will defeat the Commissions intent when it said all disclosure of exploration results, mineral resources and mineral reserves must be based on and accurately reflect information and supporting documentation prepared by a QP. The SEC’s intent is for QPs to use this only in the cases listed in Item 1302(f)(1). And S-K 1300 does not allow reliance on “other experts”, as is the case under NI 43-101.

Expect the SEC staff to issue comments if you try to use the NI 43-101 standard in your S-K 1300 filings. You will find an example of such comments in the SEC staff comment letter to Fortitude Gold Corporation dated November 13, 2020. On page 2 (comment 3), the SEC raises this exact point in response to Fortitude Gold’s disclosure.

There are some significant differences between NI 43-101 (and indeed other CRIRSCO standards) and S-K 1300. If you plan to serve as a QP for S-K 1300 technical reports, it is important that you educate yourself on the whole rule and the specific differences. Sphinx Mining Systems offers training that can help you know the standards and reduce your liability.

I hope this blog is helpful in preparing you to comply with the rules.

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