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.

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Now Clarified: SEC’s Regulation S-K 1300’s Compliance Timeline

When the Securities & Exchange Commission (SEC) passed its new mining property disclosure rules (Regulation S-K 1300) it set January 1, 2021 as the compliance date. Specifically, the SEC required that companies with material mining operations “must comply with the final rule amendments for the first fiscal year beginning on or after January 1, 2021.” While the compliance date for a company’s annual report has been clear from the beginning, the implications for when a company needs to file a registration statement within its “first fiscal year beginning on or after January 1, 2021” that requires disclosures of exploration results, resources and reserves have not been that obvious. The SEC, in guidance issued in April 2019, clarified circumstances under which disclosures of exploration results, resources and reserves in registration statements prior to the first annual report that is S-K 1300 complaint do not have to comply with S-K 1300. In this post, I will do my best to explain this to mining professionals who are not attorneys.

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Was the SEC Encouraging Companies to use External QPs in S-K 1300?

Since the US Securities & Exchange Commission (SEC) passed its new mining property disclosure rules, I have heard many suggest that the SEC would prefer mining companies to use external professionals (i.e. consultants) as qualified persons (QPs) instead of their own employees. Such people cite the fact that the Commission, in the rules, allowed a third-party firm (i.e. a consulting company) to sign a technical report summary (TRS) and provide written consent on behalf of its employees who prepare the TRS. They point to the fact that the rules do not provide the same allowance for employees. This is simply not true and I will attempt to explain the Commission’s reasoning for arriving at this position in this post.

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