RE: On the connection between mine feasibility studies, valuation, and impairment analysis

In November 2021, I posted a blog post about the connection between feasibility studies, valuation, and impairment analysis. I recently came across a comment letter by SEC staff that, I believe illustrates this connection. In this post, I wanted to quickly point out how this comment letter illustrates this connection and the fact that the SEC staff are on watch for issues such as these.

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On the connection between mine feasibility studies, valuation, and impairment analysis

Most mining engineers are taught how to do mine feasibility studies in school but not all are familiar with property valuation and impairment tests. However, valuation and impairment analysis are also key aspects of the mining business that mining engineers should familiarize themselves with as they develop in their careers. In this post, I’m going to try to explain these terms, show the relationships between them, and discuss the role of mining engineers (and mine engineering work) in these.

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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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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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