recommendations.\445\ Requiring the disclosure of mineral resources
will also help place U.S. registrants on a level playing field with
Canadian mining registrants and non-U.S. mining companies that are
subject to one or more of the other CRIRSCO-based mining codes. For
these reasons, numerous commenters supported the required disclosure of
determined mineral resources in Commission filings.\446\
---------------------------------------------------------------------------

    \444\ 17 CFR 229.1303(b)(3) [Item 1303(b)(3) of Regulation S-K]
and 229.1304(d)(1) [Item 1304(d)(1) of Regulation S-K].
    \445\ See, e.g., SME Petition for Rulemaking, supra note6;
letters from Northern Dynasty and SRK 1; CRIRSCO International
Reporting Template, supra note 20, at cl. 21; and JORC Code, supra
note 175, at pt. 20.
    \446\ See supra note 430.
---------------------------------------------------------------------------

    Requiring disclosure of mineral resources in Commission filings
could increase the reporting costs for those mining companies that do
not currently disclose mineral resource information. We believe,
however, that any such increase would be modest as most mining
companies already assess mineral resources in order to determine
reserves.\447\
---------------------------------------------------------------------------

    \447\ Best practice in mining engineering is to first determine
the quantity and quality of the material of economic interest (i.e.,
mineral resource estimation), prior to engineering and economic
evaluation, to determine if any or all of that material can be
extracted economically (i.e., mineral reserve estimation). See,
e.g., Alan C. Noble, Mineral Resource Estimation, in 1 SME Mining
Engineering Handbook 203 (P. Darling, ed., 2011), which states
``[t]he ore reserve estimate follows the resource estimate.''
---------------------------------------------------------------------------

    As some commenters noted, requiring the disclosure of mineral
resources could also increase the possibility that investors may
misunderstand the economic value of a mining company, given that
mineral resources are less certain than mineral reserves.\448\ As
discussed below, however, we believe that this risk is limited by the
definition of the term mineral resource, by requiring disclosure of the
particular class of mineral resource, and by requiring an initial
assessment for mineral resource disclosure.
---------------------------------------------------------------------------

    \448\ See letters from Alliance and Midas.
---------------------------------------------------------------------------

    We also believe that there are important potential benefits to
investors from the disclosure of mineral resources, including more
comprehensive and potentially more accurate disclosure of mineral
reserves. Given that mineral reserve estimates are based on estimates
of mineral resources,

we believe that the required rigor surrounding the disclosure of
mineral resources as well as the attendant scrutiny from the qualified
person, particularly regarding mineral resource classification, is
likely to lead to more reliable mineral reserves disclosure.\449\
---------------------------------------------------------------------------

    \449\ See, e.g., letter from Northern Dynasty (stating that
because mineral resources, if rigorously estimated, can materially
change the valuation of a company, shareholders and potential
investors should be made aware of those assets).
---------------------------------------------------------------------------

    We recognize that some industry participants, such as those in the
industrial minerals and aggregates business, view mineral resources as
less important to their business than other mining registrants and
therefore have opposed a requirement to disclose mineral
resources.\450\ As previously explained, however, like the proposed
rules, the final rules do not impose an affirmative obligation to
determine mineral resources.\451\ If an aggregates or other mining
company does not want to incur the expense of hiring a qualified person
to determine the existence of mineral resources, it need not do so. In
that case, however, the company would not be able to declare that it
has mineral resources in a Commission filing.
---------------------------------------------------------------------------

    \450\ See supra notes 438-439 and accompanying text.
    \451\ See supra Section II.E.1.i.
---------------------------------------------------------------------------

    Once a registrant with material mining operations does determine
that it has mineral resources, based on information and supporting
documentation of a qualified person, then, because of their importance
to the potential valuation of the company and to investors,\452\ we do
not believe that the registrant should have the option, as one
commenter suggested,\453\ of not disclosing the mineral resources in a
Commission filing, or of otherwise being excepted from disclosing them.
In this regard we note that the approach we are taking is consistent
with the regulatory frameworks of the CRIRSCO-based codes, which,
without exception, require disclosure of mineral resources (and mineral
reserves) once the registrant has made the determination that it has
them and they are material.\454\
---------------------------------------------------------------------------

    \452\ See, e.g., letter from Northern Dynasty.
    \453\ See letter from Davis Polk.
    \454\ See supra note 428 and accompanying text.
---------------------------------------------------------------------------

2. Definition of Mineral Resource
i. Rule Proposal
    We proposed to define ``mineral resource'' as a concentration or
occurrence of material of economic interest in or on the earth's crust
in such form, grade or quality, and quantity that there are reasonable
prospects for its economic extraction.\455\ We further proposed to
define the term ``material of economic interest,'' as used in the
definition of mineral resource, to include mineralization, including
dumps and tailings,\456\ geothermal fields, mineral brines, and other
resources extracted on or within the earth's crust. As proposed, the
term ``material of economic interest'' would not include oil and gas
resources resulting from oil and gas producing activities, as defined
in Regulation S-X,\457\ gases (e.g., helium and carbon dioxide), or
water.\458\
---------------------------------------------------------------------------

    \455\ See Proposing Release, supra note 5, at Section II.E.1.
    \456\ The term ``dumps'' refers to stockpiles of mined material.
The term ``tailings'' refers to a mixture of fine mineral matter and
process effluents generated by mineral processing plants.
    \457\ See 17 CFR 210.4-10(a)(16)(i) [Rule 4-10(a)(16)(i) of
Regulation S-X].
    \458\ See Proposing Release, supra note 5, at Section II.E.1.
---------------------------------------------------------------------------

    The proposed rules further specified that, when determining the
existence of a mineral resource, a qualified person must be able to
estimate or interpret the location, quantity, grade or quality
continuity, and other geological characteristics of the mineral
resource from specific geological evidence and knowledge, including
sampling.\459\ In addition, when determining the existence of a mineral
resource, as proposed, the qualified person must conclude that there
are reasonable prospects for economic extraction of the mineral
resource based on an initial assessment that he or she conducts by
qualitatively applying the modifying factors likely to influence the
prospect of economic extraction.\460\
---------------------------------------------------------------------------

    \459\ See id.
    \460\ See id.
---------------------------------------------------------------------------

    Similar to the CRIRSCO-based codes, we proposed to state in
connection with the definition of mineral resource that it is not to be
merely an inventory of all mineralization \461\ drilled or
sampled.\462\ A mineral resource is instead a reasonable estimate of
mineralization, taking into account relevant factors such as cut-off
grade,\463\ likely mining dimensions, location or continuity, which,
with the assumed and justifiable technical and economic conditions, is
likely to, in whole or in part, become economically extractable.\464\
---------------------------------------------------------------------------

    \461\ The term ``inventory of mineralization'' means an estimate
of the total quantity of mineralization based on the available
evidence.
    \462\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 21; JORC Code, supra note 175, at pt. 20; and SAMREC
Code, supra note 267, at pt. 24.
    \463\ The term cut-off grade refers to the grade (the
concentration of metal or mineral in rock) at which the destination
of the material changes during mining. For establishing prospects of
economic extraction, it is the grade that distinguishes between the
material that is uneconomic and the material that is economic and
therefore going to be mined and processed. Terms with similar
meanings include net smelter return, pay limit and break-even
stripping ratio. See the definition of cut-off grade in 17 CFR
229.1300.
    \464\ See Proposing Release, supra note 5, at Section II.E.1.
---------------------------------------------------------------------------

    We further proposed to include within the definition of mineral
resource non-solid matter, such as geothermal fields and mineral
brines, in addition to mineralization, even though the CRIRSCO-based
codes restrict mineral resources to solid matter.
ii. Comments on the Rule Proposal
    Several commenters generally supported the Commission's proposal to
define ``mineral resource'' as a concentration or occurrence of
material of economic interest in or on the earth's crust in such form,
grade or quality, and quantity that there are reasonable prospects for
its economic extraction.\465\ Some commenters supported the proposed
definition because it is aligned or consistent with the CRIRSCO
standards.\466\ Another commenter indicated the proposed definition was
reasonable because it included the requirement that there are
``reasonable prospects for economic extraction'' as under the CRIRSCO
jurisdictions.\467\ In contrast, although agreeing that mineral
resources must have reasonable prospects for their economic extraction,
one commenter opposed the proposed definition on the grounds that a
qualified person will not be able to assure that all modifying factors
can be accommodated for eventual economic extraction.\468\
---------------------------------------------------------------------------

    \465\ See, e.g., letters from AngloGold, Eggleston, Midas,
Northern Dynasty, and Rio Tinto.
    \466\ See letters from AngloGold, CBRR, and Rio Tinto.
    \467\ See letter from Midas.
    \468\ See letter from SRK 1.
---------------------------------------------------------------------------

    Several commenters recommended that the Commission revise the
definition of mineral resource by requiring that there be reasonable
prospects for eventual economic extraction, as under the CRIRSCO
standards.\469\ As one commenter explained, under the proposed
definition, ``there is an implication that a mineral resource has
reasonable prospects for economic extraction today'' whereas ``[i]n
many cases, mineral resources are identified that may not have
reasonable prospects today, but with improved prices, technology, may
be economic tomorrow.'' \470\ Some commenters

further recommended that the Commission provide interpretive guidance
on the meaning of the term ``eventual.'' \471\
---------------------------------------------------------------------------

    \469\ See letters from Amec, AngloGold, BHP, Eggleston, Energy
Fuels, Rio Tinto, and Vale.
    \470\ Letter from Eggleston; see also letter from Energy Fuels;
letter from Vale (explaining that ``[t]he word ``eventual''
indicates timing for economic extraction, and timing may vary
depending on the commodity or mineral'').
    \471\ See letters from SME 1 and Vale.
---------------------------------------------------------------------------

    Several commenters supported the proposed definition's inclusion of
dumps and tailings.\472\ One commenter explained that mine dumps and
tailings are a significant source of metals and, in some cases, are the
only identified mineral resource on a property.\473\ Another commenter
stated that, in addition to dumps and tailings, the definition of
mineral resource should specifically include ``slag heaps (dumps),
stockpiles, heap or dump leach pads, and backfill materials.'' \474\
---------------------------------------------------------------------------

    \472\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
    \473\ See letter from Eggleston.
    \474\ Letter from Amec.
---------------------------------------------------------------------------

    Some commenters generally supported the proposed definition's
inclusion of mineral brines.\475\ Two of those commenters conditioned
their support on the Commission's adoption of significant additional
guidance regarding mineral brines.\476\ Two commenters also supported
the proposed inclusion of geothermal energy.\477\ One of the commenters
conditioned support on the Commission's adoption of separate rules for
geothermal energy with additional guidance.\478\
---------------------------------------------------------------------------

    \475\ See letters from Eggleston, Northern Dynasty, and Rio
Tinto.
    \476\ See letters from Eggleston and Rio Tinto.
    \477\ See letters from Eggleston and Northern Dynasty.
    \478\ See letter from Eggleston.
---------------------------------------------------------------------------

    In contrast, several commenters expressly opposed the inclusion of
mineral brines and geothermal energy in the definition of mineral
resource.\479\ One commenter explained that extraction of mineral
brines and geothermal energy ``requires the pumping of fluids rather
than digging of solid materials'' and, like water and gases, which the
proposed definition would exclude, involves scientific and engineering
principles that are substantially different from those used to estimate
solid mineral resources.\480\ Regarding geothermal energy, this
commenter stated that there is no internationally accepted standard
protocol to estimate and report the potential for geothermal
energy.\481\
---------------------------------------------------------------------------

    \479\ See letters from Amec, CBRR, CRIRSCO, Davis Polk, SAMCODES
2, SME 1, and SRK 1.
    \480\ See letter from SME 1; see also letter from Amec (stating
that the definition of mineral resource should exclude mineral
brines because ``[m]ineral brine reservoirs are dynamic systems, and
the methodology for estimation of brine resources and brine reserves
is significantly different to that used in Mineral Resource and
Mineral Reserve estimates, since brine resource and brine reserve
estimates also require temporal measurements of fluid flow and brine
chemistry'').
    \481\ See letter from SME 1.
---------------------------------------------------------------------------

    Some commenters believed that disclosure of mineral brines should
be regulated under the oil and natural gas rules.\482\ A few commenters
recommended regulating disclosure of geothermal energy under its own
set of rules.\483\
---------------------------------------------------------------------------

    \482\ See, e.g., letters from Rio Tinto and SRK 1; see also
letter from SAMCODES 2 (stating that disclosure of both mineral
brines and geothermal energy should be regulated under oil and
natural gas rules).
    \483\ See letters from Amec and SRK 1; see also letter from MMSA
(recommending the adoption of separate rules for both geothermal
energy and mineral brines because ``these commodities do not closely
correspond with solid minerals'').
---------------------------------------------------------------------------

    Several commenters supported the proposed exclusion of oil and gas
resources resulting from oil and gas producing activities, as defined
in Regulation S-X, gases (e.g., helium and carbon dioxide), and water
from the definition of mineral resource.\484\ As one commenter
explained, the above substances are not traditional or industry
standard commodities considered as ``mining operations.'' \485\
---------------------------------------------------------------------------

    \484\ See letters from Amec, AngloGold, CBRR, Eggleston, Rio
Tinto, and SRK 1.
    \485\ See letter from SRK 1.
---------------------------------------------------------------------------

    Many commenters supported requiring in the definition of mineral
resource that a qualified person estimate or interpret the location,
quantity, grade or quality continuity, and other geological
characteristics of the mineral resource from specific geological
evidence and knowledge, including sampling.\486\ Commenters noted that
the proposed requirement is in alignment with CRIRSCO standards \487\
and is the current industry standard.\488\ One commenter stated that a
qualified person should also consider non-geologic factors, such as
processing, mining method costs, and economic evaluation, when
determining the reasonable prospects for a mineral resource's economic
extraction.\489\
---------------------------------------------------------------------------

    \486\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
    \487\ See letters from AngloGold, Eggleston, and Rio Tinto.
    \488\ See letter from SRK 1.
    \489\ See letter from CBRR.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting the definition of mineral resource, as proposed, to
mean a concentration or occurrence of material of economic interest in
or on the Earth's crust in such form, grade or quality, and quantity
that there are reasonable prospects for economic extraction.\490\ As
commenters noted, this definition is consistent with the requirement
under the CRIRSCO-based codes that, in order for a deposit, in whole or
part, to be determined to be a mineral resource, there must be
reasonable prospects for its economic extraction.\491\
---------------------------------------------------------------------------

    \490\ See the definition of ``mineral resource'' in 17 CFR
229.1300.
    \491\ See, e.g., letters from CBRR and Midas. See infra note 493
and accompanying text for why we are not adopting the modifier
``eventual'' as used in the CRIRSCO definition of mineral resource.
---------------------------------------------------------------------------

    In order to classify a deposit as a resource, a qualified person
must establish that there are reasonable prospects of economic
extraction by estimating or interpreting key geological characteristics
from specific geological evidence. We believe that requiring an
analysis based on specific geological evidence to establish prospects
of economic extraction provides an appropriate standard, and
importantly, one that is more exacting than what we are requiring for
the disclosure of exploration results. A qualified person should have a
higher level of confidence to determine that a deposit is properly
classified as a mineral resource (which is an estimate of tonnage and
grade that has reasonable prospects of economic extraction) than to
report exploration results (which may not indicate the existence of any
tonnage with reasonable prospects of economic extraction) because of
the relatively greater weight that investors are likely to place on
estimates of mineral resources. This in turn should help mitigate the
uncertainty inherent in the determination of mineral resources.
Moreover, because the CRIRSCO-based codes impose a substantially
similar requirement, we do not believe this aspect of the definition of
mineral resources would significantly alter existing disclosure
practices of registrants subject to these codes.\492\
---------------------------------------------------------------------------

    \492\ As discussed below, in a change from the proposed rules,
the final rules require a qualified person to consider relevant
technical and economic factors likely to influence the prospect of
economic extraction, rather than applicable modifying factors, at
the resource determination stage in order to more closely align the
final rules with the CRIRSCO standards. See infra Section II.E.4.
---------------------------------------------------------------------------

    We are not modifying the proposed definition of mineral resource to
mean that there must be reasonable prospects for its eventual economic
extraction.\493\ Because a qualified person must consider relevant
technical and economic factors likely to influence the prospect of
economic extraction, including pricing for the resource that could be
based on forward-looking price

forecasts,\494\ when determining whether mineral resources exist on a
property, we believe it is clear from the definition of mineral
resource that the reasonable prospects for economic extraction will
occur over a timeline.
---------------------------------------------------------------------------

    \493\ See, e.g., letters from Eggleston and Vail.
    \494\ See infra Section II.E.4.
---------------------------------------------------------------------------

    To be clear, by requiring that there be reasonable prospects for a
mineral resource's economic extraction, we do not mean that the
extraction must occur immediately. Rather, we expect that it will occur
over a temporal period, which will vary depending on the mineral or
commodity being mined. As noted by the CRISCRO-based codes, for coal,
iron ore, bauxite or other bulk minerals and commodities, it may be
reasonable to consider economic extraction as occurring over a time
period of 50 or more years when determining whether the deposit is a
mineral resource. However, for smaller mineral deposits, it would
likely be reasonable to consider economic extraction as occurring over
a much shorter time period, for example, no more than 10-15 years.\495\
Under the final rules, the qualified person will choose the appropriate
temporal period when determining whether mineral resources exist and,
if the property is material, must explain its choice in the technical
report summary.\496\
---------------------------------------------------------------------------

    \495\ See, e.g., JORC Code, supra note 175, at pt. 20; and SME
Guide, supra note177, at pt. 35.
    \496\ See infra Section II.E.4.
---------------------------------------------------------------------------

    The final rules provide that the term ``material of economic
interest,'' when used in the context of mineral resource determination,
includes mineralization, including dumps and tailings, mineral brines,
and other resources extracted on or within the earth's crust.\497\ Most
commenters \498\ that addressed the issue supported including dumps and
tailings within the definition because it reflects industry practice
and is consistent with the CRIRSCO-based codes.\499\ The inclusion of
dumps and tailings in the definition of mineral resource reflects the
fact that, under certain circumstances, these byproducts from older
mining operations possess value.
---------------------------------------------------------------------------

    \497\ See the definition of ``material of economic interest'' in
17 CFR 229.1300.
    \498\ See supra note 472.
    \499\ See, e.g., JORC Code, supra note 175, at pt. 20; SAMREC
Code, supra note 267, at pt. 24; PERC Reporting Standard, supra note
302, at pt. 7.4; and SME Guide, supra note 177, at pt. 35.
---------------------------------------------------------------------------

    The final rules do not exclude mineral brines from the definition
of mineral resource \500\ because we continue to believe that, by
definition, extracting minerals, such as lithium, from mineral brines
constitutes mining.\501\ While such extraction may involve the
consideration and application of additional factors, the scientific and
engineering principles used to characterize mineral brine and resources
and reserves are substantially similar to those used to characterize
solid mineral resources and reserves. We also note that, although the
CRIRSCO-based codes define a mineral resource as ``solid material,'' at
least one CRIRSCO-based jurisdiction has determined that disclosure
regarding the mining of mineral brines should be regulated under the
same set of rules governing mineral resources.\502\ Moreover, including
minerals extracted from mineral brines within the definition will
provide registrants with a workable, reasonable, and consistent
framework for disclosure related to these activities while providing
investors with useful and reliable information about the properties
containing the mineral brines.\503\
---------------------------------------------------------------------------

    \500\ See supra note 479 and accompanying text.
    \501\ Mining can be defined as the ``[p]rocess of obtaining
useful minerals from the earth's crust.'' Lewis & Clark, Elements of
Mining 20 (1964).
    \502\ See Ontario Securities Commission (OSC), Mineral Brine
Projects and National Instrument 43-101 Standards of Disclosure for
Mineral Projects, Notice 43-704 (July 22, 2011) (``In our view
mineral brine projects are mineral projects as defined in NI 43-
101'').
    \503\ See, e.g., OSC Notice 43-704 (``We also think that it is
in the public interest for mineral brine projects to be subject to
the requirements of NI 43-101. NI 43-101 provides a proper and
rigorous disclosure framework for mineral projects hosted in a
brine'').
---------------------------------------------------------------------------

    In a change from the proposed rules, the adopted definition of
mineral resource does not include geothermal energy.\504\ We have been
persuaded to exclude geothermal energy from the definition of mineral
resource due to the lack of consensus regarding how to regulate the
disclosure of geothermal energy resources.\505\
---------------------------------------------------------------------------

    \504\ See the definition of ``material of economic interest''
referenced in the definition of mineral resource in 17 CFR 229.1300.
    \505\ See, e.g., letter from SME 1. For example, the Australian
Geothermal Energy Association's Geothermal Code Committee concluded
that JORC was a better model for the Australian Geothermal Reporting
Code than the Society of Petroleum Engineers' Resources Management
System, which is favored by some U.S. industry groups. See, e.g.,
J.V. Lawless, M. Ward and G. Beardsmore, The Australian Code for
Geothermal Reserves and Resources Reporting: Practical Experience,
Proceedings of the World Geothermal Congress (2010).
---------------------------------------------------------------------------

    The adopted definition of mineral resource also excludes oil and
gas resources resulting from oil and gas producing activities, as
defined in Rule 4-10(a)(16)(i) of Regulation S-X,\506\ gases (e.g.,
helium and carbon dioxide), and water.\507\ Most commenters that
addressed the issue supported the exclusion of oil and gas resources
because their exclusion is consistent with industry practice.\508\ Also
consistent with industry practice, we are excluding gases (such as
helium and carbon dioxide) and water because the scientific and
engineering principles used to estimate these resources are
substantially different from those used to estimate mineral resources.
---------------------------------------------------------------------------

    \506\ 17 CFR 210.4-10(a)(16)(i).
    \507\ See the definition of ``material of economic interest''
referenced in the definition of mineral resource in 17 CFR 229.1300.
    \508\ See supra note 484.
---------------------------------------------------------------------------

    As proposed, the final rules provide that a mineral resource is a
reasonable estimate of mineralization, taking into account relevant
factors such as cut-off grade, likely mining dimensions, location or
continuity that, with the assumed and justifiable technical and
economic conditions, is likely to, in whole or in part, become
economically extractable. It is not merely an inventory of all
mineralization drilled or sampled.\509\
---------------------------------------------------------------------------

    \509\ See the definition of ``mineral resource'' in 17 CFR
229.1300; see also 17 CFR 229.1302(d)(1)(i)(A) [Item
1302(d)(1)(i)(A) of Regulation S-K].
---------------------------------------------------------------------------

    Several commenters supported requiring in the definition of mineral
resource that a qualified person estimate or interpret the location,
quantity, grade or quality continuity, and other geological
characteristics of the mineral resource from specific geological
evidence and knowledge, including sampling.\510\ As commenters noted,
this requirement is in alignment with CRIRSCO standards \511\ and is
the current industry standard.\512\ Accordingly, its adoption should
help promote uniformity in the disclosure of mineral resources.
Although some commenters suggested that we expand the definition to
include other specific factors to consider at the resource
determination stage,\513\ we believe that such expansion would increase
the prescriptive nature of subpart 1300 and could thereby increase the
compliance burden of the final rules without providing significant
additional benefits for investors.
---------------------------------------------------------------------------

    \510\ See letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
    \511\ See letters from AngloGold, Eggleston, and Rio Tinto.
    \512\ See letter from SRK 1.
    \513\ See, e.g., letter from Amec.
---------------------------------------------------------------------------

3. Classification of Mineral Resources
i. Rule Proposal
    We proposed to adopt the CRIRSCO-based classification of mineral
resources \514\ by requiring a registrant

with material mining operations to classify its mineral resources into
inferred, indicated, and measured mineral resources, in order of
increasing confidence based on the level of underlying geological
evidence.\515\ We further proposed to define each of those
subcategories of mineral resources.
---------------------------------------------------------------------------

    \514\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 21; JORC Code, supra note 175, at pt. 20; SAMREC
Code, supra note 267, at pt. 24; and PERC Reporting Standard, supra
note 302, at pt. 7.2.
    \515\ See Proposing Release, supra note 5, at Section II.E.2.
---------------------------------------------------------------------------

a. Inferred Mineral Resources
    Similar to the CRIRSCO-based codes,\516\ we proposed to define
``inferred mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
limited geological evidence and sampling.\517\ As the proposed rules
explained, ``limited geological evidence'' means evidence that is only
sufficient to establish that geological and grade or quality continuity
is more likely than not. The proposed rules further provided that the
level of geological uncertainty associated with an inferred mineral
resource is too high to apply modifying factors in a manner useful for
evaluation of economic viability.\518\ Because an inferred mineral
resource has the lowest level of geological confidence of all mineral
resources, under the proposed rules it may not be considered when
assessing the economic viability of a mining project and may not be
converted to a mineral reserve.\519\
---------------------------------------------------------------------------

    \516\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 22; JORC Code, supra note 175, at pt. 21; SAMREC
Code, supra note 267, at pt. 25; and PERC Reporting Standard, supra
note 302, at pt. 7.5.
    \517\ See Proposing Release, supra note 5, at Section II.E.2.
    \518\ See id.
    \519\ See id.
---------------------------------------------------------------------------

    We further proposed to establish the level of certainty that a
qualified person must strive to achieve when determining the existence
of an inferred mineral resource. As proposed, the qualified person must
have a reasonable expectation that the majority of inferred mineral
resources could be upgraded to indicated or measured mineral resources
with continued exploration. In addition, the qualified person should be
able to defend the basis of this expectation before his or her
peers.\520\
---------------------------------------------------------------------------

    \520\ See id.
---------------------------------------------------------------------------

b. Indicated and Measured Mineral Resources
    We proposed to define ``indicated mineral resource'' as that part
of a mineral resource for which quantity and grade or quality are
estimated on the basis of adequate geological evidence and
sampling.\521\ As the proposed rules explained, ``adequate geological
evidence'' means evidence that is sufficient to establish geological
and grade or quality continuity with reasonable certainty. This means
that the level of geological certainty associated with an indicated
mineral resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit.\522\ We also
proposed to explain that an indicated mineral resource has a lower
level of confidence than that applicable to a measured mineral resource
and may only be converted to a probable mineral reserve.\523\
---------------------------------------------------------------------------

    \521\ See id.
    \522\ See id.
    \523\ See id.
---------------------------------------------------------------------------

    We proposed to define ``measured mineral resource'' as that part of
a mineral resource for which quantity and grade or quality are
estimated on the basis of conclusive geological evidence and
sampling.\524\ As the proposed rules explained, ``conclusive geological
evidence'' means evidence that is sufficient to test and confirm
geological and grade or quality continuity. This means that the level
of geological certainty associated with a measured mineral resource is
sufficient to allow a qualified person to apply modifying factors in
sufficient detail to support detailed mine planning and final
evaluation of the economic viability of the deposit.\525\ We also
proposed to provide that, because a measured mineral resource has a
higher level of confidence than that applying to either an indicated
mineral resource or an inferred mineral resource, it may be converted
to a proven mineral reserve or to a probable mineral reserve.\526\
---------------------------------------------------------------------------

    \524\ See id.
    \525\ See id.
    \526\ See id.
---------------------------------------------------------------------------

c. Considerations of Geologic Uncertainty
    We proposed to require that the qualified person quantify the
uncertainty associated with each class of mineral resources by
disclosing the uncertainty associated with the production estimates
derived from each class of mineral resources.\527\ While a qualified
person would be permitted to develop mineral resource estimates using
any generally accepted method, including geostatistics, simulation, or
inverse distance, under the proposed rules, he or she would also be
required to estimate the uncertainty associated with each class of
mineral resource, expressed in a prescribed format that depended upon
the specific classification of the resource.
---------------------------------------------------------------------------

    \527\ We proposed to require this quantification of uncertainty
in the ``initial assessment'' prepared by the qualified person. We
proposed to define ``initial assessment'' as a preliminary technical
and economic study of the economic potential of all or parts of
mineralization to support the disclosure of mineral resources. See
Proposing Release, supra note 5, at Section II.E.2. An initial
assessment is different from a pre-feasibility study in that a pre-
feasibility study is used to determine whether all or part of a
mineral resource can be converted into a mineral reserve. We discuss
the initial assessment requirement in detail in Section II.E.4
below.
---------------------------------------------------------------------------

    As we explained in the Proposing Release,\528\ for indicated and
measured mineral resources, the qualified person would be required to
provide the confidence limits of relative accuracy,\529\ at a specific
confidence level, of the preliminarily estimated production quantities
per period from the resource.\530\ This approach for reporting the
level of uncertainty is consistent with what many have suggested in the
mining engineering literature to be best practice.\531\ When proposing
this approach, we did not impose any restrictions on the acceptable
confidence limits of relative accuracy or confidence level required to
disclose indicated or measured mineral resources. In that regard, we
recognized that the natural variability of geologic characteristics is
different for different deposits.
---------------------------------------------------------------------------

    \528\ See Proposing Release, supra note 5, at Section II.E.2.
    \529\ The term ``confidence limits of relative accuracy'' refers
to the values on both sides of zero (the average relative accuracy
for unbiased mineral resource estimates) that show, for a specified
probability (the confidence level), the range in which the relative
accuracy lies. For example, if a report says the confidence limits
of relative accuracy for a mineral resource is 10% at
90% confidence for annual production quantities, it means there is a
nine out of ten chance that the actual annual production quantities
will be between 90% and 110% of the planned quantities.
    \530\ Using this approach, the geologic uncertainty associated
with indicated and measured mineral resources is stated by keeping
any two of the three relevant variables (confidence limits of
relative accuracy, confidence level, and production periods)
constant while varying the third. For example, the risk could be
stated as 15% at 90% confidence for monthly, quarterly,
or annual production estimates, or 10% or 15% at 90% confidence for annual production estimates.
    \531\ The mining engineering literature makes clear that
specifying the confidence limits of relative accuracy, at a specific
confidence level, of production quantities per period is the best
way to quantify uncertainty associated with resources. See, e.g.,
E.H. Isaaks, and R.M. Srivastava, An Introduction to Applied
Geostatistics 489-513 (1990); and M.E. Rossi, and C.V. Deutsch,
Mineral Resource Estimation 209-222 (2014). See generally P.R.
Stephenson, Mineral Resource Classification. How the Viability of
Your Project May Hang On a Qualified Person's Judgment (2011); and
P. Stoker and C. Moorhead, Confidence in Resource Estimates--Beyond
Classification (2009).

---------------------------------------------------------------------------

    We further proposed that, when estimating the geologic uncertainty
associated with indicated and measured mineral resources, the qualified
person would be required to consider the limitations of the data,
assumptions, and models used to determine the resource estimates. This
is because the numerical estimates of uncertainty from geostatistics or
simulation do not account for risk factors associated with the input
such as, but not limited to, drilling or sampling methods, laboratory
assaying methods, outlier treatment, assumptions made during modeling
of domains and geologic controls, compositing (averaging grades over
similar sampling volumes or lengths), and establishing upper limits of
grades. Consequently, such numerical estimates may underestimate the
uncertainty associated with the mineral resources.
    Regarding inferred mineral resources, we proposed to require
qualified persons to state the minimum percentage of inferred mineral
resources they believe will be converted to indicated and measured
mineral resources with further exploration.\532\ As we explained,
because inferred resources have such a low level of confidence, it
would be inappropriate for a qualified person to use them in production
estimates for a period equal to or shorter than a year. Differences
between actual and estimated production for such periods would have
such high standard deviations that they would not provide an
appropriate basis for investment decisions.\533\
---------------------------------------------------------------------------

    \532\ We proposed to require uncertainty estimates for inferred
mineral resources to be stated in the form ``the qualified person
expects at least z% of inferred mineral resources to convert to
indicated or measured mineral resources with further exploration and
analysis.'' See Proposing Release, supra note 5, at note 180 and
accompanying text.
    \533\ Possible sources of uncertainty that affect the reporting
of inferred resources may include sampling or drilling methods, data
processing and handling, geologic modeling and estimation.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Many commenters supported the Commission's proposal to require a
registrant to classify its mineral resources into inferred, indicated,
and measured mineral resources because such a requirement would be
consistent with the CRIRSCO standards.\534\ Other commenters supported
the classification requirement as long as the definitions of inferred,
indicated and measured mineral resources are identical to those under
the CRIRSCO-based codes.\535\
---------------------------------------------------------------------------

    \534\ See letters from Amec, AngloGold, BHP, CBRR, Eggleston,
FCX, Midas, Rio Tinto, SAMCODES 2, SRK 1, and Vale.
    \535\ See, e.g., letters from Amec, CIM, Coeur, Northern
Dynasty, and SAMCODES 2.
---------------------------------------------------------------------------

    One commenter saw little value in the classification of mineral
resources. According to that commenter, ``[b]ecause resources are
considered economically marginal and of lower certainty to begin with,
dividing resources into low, middle, and high level of certainty offers
little value'' and ``tends to give additional credibility to the
resources as a whole that may not be warranted.'' \536\
---------------------------------------------------------------------------

    \536\ Letter from Alliance.
---------------------------------------------------------------------------

a. Inferred Mineral Resources
    Some commenters supported requiring a registrant with material
mining operations to disclose inferred resources, despite limited
geologic evidence underlying those resources, on the grounds that such
a requirement is consistent with CRIRSCO \537\ or industry
standards.\538\ Other commenters, however, recommended permitting
rather than requiring the disclosure of inferred resources.\539\
According to one of those commenters, an optional approach is warranted
because of the high level of geologic uncertainty associated with that
class of mineral resource.\540\
---------------------------------------------------------------------------

    \537\ See, e.g., letters from AngloGold, Midas, and Rio Tinto.
    \538\ See letter from SRK 1.
    \539\ See letters from CBRR, Eggleston, and Gold Resource.
    \540\ See letter from Gold Resource.
---------------------------------------------------------------------------

    Several commenters supported defining ``inferred mineral resource''
as that part of a mineral resource for which quantity and grade or
quality are estimated on the basis of limited geological evidence and
sampling.\541\ Other commenters, however, objected to the proposed
definition of inferred resource because it is not identical to the
CRIRSCO definition.\542\ For example, one commenter objected to the
proposed definition of ``limited geological evidence'' as evidence that
is only sufficient to establish that geological and grade or quality
continuity is more likely than not. Instead, that commenter recommended
substituting the CRIRSCO definition of inferred mineral resource, which
includes the requirement that ``[g]eologic evidence is sufficient to
imply but not verify geological and grade or quality continuity.''
According to that commenter, by using the CRIRSCO definition, ``the
assumptions underlying the estimates of inferred mineral resources are
more clearly defined.'' \543\
---------------------------------------------------------------------------

    \541\ See, e.g., letters from AngloGold, Eggleston, Gold
Resource, and Rio Tinto.
    \542\ See supra note 535.
    \543\ Letter from CIM.
---------------------------------------------------------------------------

    One commenter supported the Commission's proposed prohibition
regarding the use of inferred resources in economic assessments of
mining properties.\544\ This commenter indicated that using inferred
resources in this way could mislead registrants and investors on the
economic potential of the property.\545\
---------------------------------------------------------------------------

    \544\ See letter from Gold Resource.
    \545\ See id.
---------------------------------------------------------------------------

    Many other commenters opposed the Commission's proposal to prohibit
the use of inferred resources to make a determination about the
potential economic viability of extraction.\546\ Commenters stated that
this prohibition would be inconsistent with the CRIRSCO-based codes,
which permit the inclusion of inferred resources in a scoping study or
a preliminary economic assessment (as permitted under Canada's NI 43-
101) as long as cautionary disclaimers regarding the geologically
speculative nature of inferred resources and the corresponding high
level of risk associated with them are provided.\547\ According to
several of these commenters, adoption of this prohibition would place
U.S. registrants at a significant disadvantage and deprive investors of
information they have found relevant to their investment
decisions.\548\
---------------------------------------------------------------------------

    \546\ See letters from Amec, AngloGold, BHP, CBRR, Coeur,
CRIRSCO, Eggleston, Energy Fuels, JORC, Midas, MMSA, NMA, Northern
Dynasty, Randgold, SAMCODES 2, SME 1, SRK 1, Ur-Energy, Vale, and
Willis.
    \547\ See letters from Amec, Coeur, CRIRSCO, Eggleston, Energy
Fuels, JORC, Midas, MMSA, NMA, Northern Dynasty, SME 1, SRK 1, Ur-
Energy, Vale and Willis.
    \548\ See letters from Coeur, NMA, Northern Dynasty, SME 1, Ur-
Energy, and Vale.
---------------------------------------------------------------------------

    Commenters generally agreed with the Commission's proposal to
preclude the conversion of inferred resources into a mineral reserve
because of the high level of geologic uncertainty associated with
inferred resources.\549\ In response to our request for comment about
whether we should require a registrant to use a legend or cautionary
language when disclosing inferred resources, while commenters supported
such use in a preliminary economic assessment or scoping study to warn
of a high level of geologic uncertainty,\550\ a few commenters opposed
the use of cautionary language in the reporting of inferred resources
because such language is already captured in the

definition.\551\ Another commenter supported providing an appropriate
cautionary statement to accompany the reporting of inferred resources,
but asserted that a cautionary statement should be required for all
mineral resource and mineral reserve statements because they are
estimates based on various assumptions that may or may not be met at a
particular time.\552\
---------------------------------------------------------------------------

    \549\ See letters from Amec, AngloGold, CBRR, Eggleston, Gold
Resource, Rio Tinto, SAMCODES 1, SRK 1, and Vale.
    \550\ See, e.g., letters from CBRR, Coeur, Northern Dynasty, SRK
1, and Vale.
    \551\ See letters from AngloGold and Rio Tinto. Another
commenter opposed the use of cautionary statements regarding
inferred resources because ``[r]equiring prescriptive statements is
not beneficial to the industry.'' Letter from Amec.
    \552\ See letter from Eggleston.
---------------------------------------------------------------------------

b. Indicated and Measured Mineral Resources
    Several commenters supported the Commission's proposal to define
``indicated mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
adequate geological evidence and sampling.\553\ Those commenters stated
that the proposed definition aligned with the CRIRSCO definition of
indicated mineral resource.\554\ The commenters also supported the
proposed definition of ``adequate geological evidence'' as evidence
that is sufficient to establish geological and grade or quality
continuity with reasonable certainty. Two of those commenters further
agreed that the definition of ``adequate geologic evidence'' should be
based on a qualified person's ability to apply modifying factors in
sufficient detail to support mine planning and evaluation of the
economic viability of the deposit.\555\
---------------------------------------------------------------------------

    \553\ See letters from AngloGold, CBRR, Midas, Northern Dynasty,
and Rio Tinto.
    \554\ See, e.g., letters from CBRR, Midas, and Rio Tinto.
    \555\ See letters from AngloGold and Northern Dynasty.
---------------------------------------------------------------------------

    Other commenters urged the Commission to adopt verbatim the CRIRSCO
definition of indicated mineral resource, which includes the provision
that ``[g]eologic evidence is derived from adequately detailed and
reliable exploration, sampling and testing and is sufficient to assume
geological and grade or quality continuity between points of
observation.'' \556\ Commenters stated that the CRIRSCO definition ``is
more specific'' \557\ than the Commission's proposed definition and is
the industry standard.\558\ In opposing the proposed definition of
indicated mineral resource, one of those commenters further explained
that a qualified person will not be able to assure that all modifying
factors can be accommodated for eventual economic extractions.\559\
---------------------------------------------------------------------------

    \556\ See letters from Amec, CIM, Coeur, SRK 1, and Willis.
    \557\ See letter from Willis.
    \558\ See letters from SRK 1 and Willis.
    \559\ See letter from SRK 1.
---------------------------------------------------------------------------

    Some commenters supported the Commission's proposal to define
``measured mineral resource'' as that part of a mineral resource for
which quantity and grade or quality are estimated on the basis of
conclusive geological evidence and sampling.\560\ Those commenters
further supported the proposed definition of ``conclusive geological
evidence'' as evidence that is sufficient to test and confirm
geological and grade or quality continuity, which means that the level
of geological certainty associated with a measured mineral resource is
sufficient to allow a qualified person to apply modifying factors in
sufficient detail to support detailed mine planning and final
evaluation of the economic viability of the deposit.\561\ Those
commenters stated that the proposed definition of measured mineral
resource is consistent with the CRIRSCO standards.\562\
---------------------------------------------------------------------------

    \560\ See letters from AngloGold and CBRR.
    \561\ See id.
    \562\ See id.
---------------------------------------------------------------------------

    Other commenters recommended that the Commission adopt the CRIRSCO
definition of measured mineral resource instead of the proposed
definition.\563\ Commenters stated that the CRIRSCO definition is the
industry standard,\564\ did not favor use of the term ``conclusive
geological evidence'' because, in their view, it sets an unrealistic
standard,\565\ and maintained that a qualified person would not be able
to assure that all modifying factors could be accommodated for eventual
economic extraction.\566\ One of the commenters recommended replacing
the term ``conclusive'' with ``a high level of confidence.'' \567\
---------------------------------------------------------------------------

    \563\ See letters from Amec, Coeur, Northern Dynasty, Rio Tinto,
and SRK 1.
    \564\ See letters from Coeur and SRK 1.
    \565\ See letters from Amec, Midas, Rio Tinto, and SRK 1.
    \566\ See id.
    \567\ See letter from SRK 1.
---------------------------------------------------------------------------

c. Considerations of Geologic Uncertainty
    Many commenters opposed the Commission's proposal to quantify the
level of risk associated with indicated and measured mineral resources
based on the confidence limits of relative accuracy at a particular
confidence level for production estimates for periods of one year or
less.\568\ While acknowledging that the use of confidence limits of
relative accuracy is considered best practice in the industry, one
commenter opposed mandating such a requirement because, depending on
the deposit, a quantitative assessment of risk may not be necessary
and, in any event, may not be available to the company.\569\ Instead,
this commenter recommended relying on the application of the CRIRSCO
definitions of inferred, indicated, and measured mineral resource, each
of which requires a certain level of geological evidence, and requiring
the qualified person to disclose the basis for the classification.\570\
---------------------------------------------------------------------------

    \568\ See letters from AIPG, Amec, AngloGold, BHP, CBRR, Cloud
Peak, Eggleston, FCX, Gold Resource, JORC, Midas, MMSA, Northern
Dynasty, NSSGA, Rio Tinto, SAMCODES 1 and 2, SRK 1, Ur-Energy, and
Vale.
    \569\ See letter from SAMCODES 1.
    \570\ See id.
---------------------------------------------------------------------------

    A second commenter stated that qualitative risk assessments (e.g.,
low, medium, high) are more likely to provide investors with a sense of
the risks inherent in mineral resource and reserve estimates than
numerical risk assessments that inherently fail to account for the
underlying geological uncertainties, estimates and
interpretations.\571\ A third commenter stated that quantitative
estimation of uncertainties is burdensome and, in most cases, the costs
outweigh the benefits. That commenter recommended that the Commission
follow CRIRSCO's approach, which encourages but does not require the
quantitative estimation of uncertainties.\572\
---------------------------------------------------------------------------

    \571\ See letter from AIPG. Several other commenters recommended
that the Commission permit a qualified person to provide a
qualitative discussion of the uncertainties involved in resource
determination in lieu of a quantitative assessment based on the
confidence limits of relative accuracy. See letters from Cloud Peak,
Gold Resource, Midas, Northern Dynasty, Rio Tinto, and SRK 1.
    \572\ See letter from Vale; see also letters from Eggleston and
MMSA.
---------------------------------------------------------------------------

    Many commenters opposed the Commission's proposal to require a
qualified person to describe the level of risk associated with an
inferred mineral resource based on the minimum percentage that he or
she estimates would convert to indicated or measured mineral resources
with further exploration.\573\ Commenters stated that there is no
realistic way to quantify such an estimate with any degree of
accuracy,\574\ such a requirement would be impractical and burdensome
for small mining companies,\575\ and such a

requirement is not imposed by other jurisdictions.\576\
---------------------------------------------------------------------------

    \573\ See letters from Amec, CBRR, Eggleston, Gold Resource,
JORC, Midas, MMSA, Northern Dynasty, Rio Tinto, Royal Gold, SRK 1,
Ur-Energy, and Vale.
    \574\ See, e.g., letters from Amec, Eggleston, Gold Resource,
Northern Dynasty, SRK 1, and Vale.
    \575\ See letter from MMSA.
    \576\ See letter from Vale.
---------------------------------------------------------------------------

    Some commenters noted that, consistent with the CRIRSCO-based
codes, the proposed definition of inferred mineral resource included
the requirement that the qualified person have a reasonable expectation
that the majority of inferred mineral resources could be upgraded to
indicated or measured mineral resources with continued exploration.
Those commenters suggested that this proposed requirement would act as
a substitute for the proposed quantification in that, if the qualified
person cannot meet this expectation with regard to part of a deposit,
that part could not be classified as inferred resources.\577\
---------------------------------------------------------------------------

    \577\ See letters from Amec, Eggleston, Northern Dynasty, Rio
Tinto, and Ur-Energy.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting the proposed requirement that a registrant with
material mining operations classify its mineral resources into
inferred, indicated, and measured mineral resources, in order of
increasing confidence based on the level of underlying geological
evidence.\578\ We believe this classification requirement will improve
the accuracy of a registrant's mining disclosure in Commission filings,
and thereby benefit investors, because it is based upon an assessment
of ``geologic uncertainty,'' which is the risk related to the quality,
quantity and location of the mineral in the ground. Geologic
uncertainty directly affects two very significant estimates, production
quantities per period and related cash flows, which are crucial to a
registrant's determination, and an investor's understanding, of mineral
resource disclosure. We, therefore, believe that the final rules should
require, and not merely allow, the classification of mineral
resources.\579\
---------------------------------------------------------------------------

    \578\ See, e.g., 17 CFR 229.1302(d)(1)(iii)(A) [Item
1302(d)(1)(iii)(A) of Regulation S-K]; 17 CFR 229.1303(b)(3); and 17
CFR 229.1304(d)(1).
    \579\ Depending on the particular classes of resources that are
determined (e.g., if most or all of the determined resources are
inferred resources), a registrant should consider whether
appropriate risk factor disclosure is needed to explain to investors
the limitations and risks of the resource determination.
---------------------------------------------------------------------------

    As several commenters noted, requiring the classification of
mineral resources into inferred, indicated, and measured mineral
resources is consistent with the CRIRSCO standards and prevailing
industry practice.\580\ Thus, adoption of this classification
requirement will more closely align the Commission's mining property
disclosure rules with global industry practice and promote uniformity
in mining property disclosure.
---------------------------------------------------------------------------

    \580\ See letters from AngloGold, BHP, Eggleston, Midas, Rio
Tinto, and SAMCODES 2.
---------------------------------------------------------------------------

a. Inferred Mineral Resources \581\
---------------------------------------------------------------------------

    \581\ See also Section II.E.4.c. below for our discussion
concerning the inclusion of inferred mineral resources in a
quantitative assessment of the potential economic viability of a
deposit.
---------------------------------------------------------------------------

    We are adopting the definition of ``inferred mineral resource,''
largely as proposed.\582\ In a slight change from the proposed rules,
the adopted definition of inferred mineral resource provides that the
level of geological uncertainty associated with an inferred mineral
resource is too high to apply relevant technical and economic factors
likely to influence prospects of economic extraction in a manner useful
for evaluation of economic viability.\583\ In response to commenters,
the final rules use the term ``relevant technical and economic
factors'' instead of ``modifying factors,'' as proposed, in order to
more closely align the definition of inferred resources with that under
the CRIRSCO-based codes.
---------------------------------------------------------------------------

    \582\ See the definition of ``inferred mineral resource'' in 17
CFR 229.1300 to mean that part of a mineral resource for which
quantity and grade or quality are estimated on the basis of limited
geological evidence and sampling.
    \583\ See id. As proposed, the final rules also explain that,
because an inferred mineral resource has the lowest level of
geological confidence of all mineral resources, which prevents the
application of the modifying factors in a manner useful for
evaluation of economic viability, an inferred mineral resource may
not be considered when assessing the economic viability of a mining
project, and may not be converted to a mineral reserve. See id.
---------------------------------------------------------------------------

    As some commenters noted, the adopted definition of inferred
mineral resource is generally consistent with the definition under the
CRIRSCO-based codes.\584\ The central tenet under both definitions is
that inferred mineral resources are estimates of quantity and grade or
quality based on limited geological evidence and sampling.\585\
Although our definition of ``limited geological evidence'' differs
slightly from the definition of geologic evidence in the CRIRSCO
definition of inferred mineral resource,\586\ its meaning is
substantially similar to the CRIRSCO definition.
---------------------------------------------------------------------------

    \584\ See supra note 541 and accompanying text.
    \585\ See, e.g., the CRIRSCO International Reporting Template,
supra note 20, at cl. 22; JORC Code, supra note 175, at pt. 21; and
SAMREC Code, supra note 267, at pt. 25.
    \586\ When used in the context of mineral resource
determination, ``limited geological evidence'' means evidence that
is only sufficient to establish that geological and grade or quality
continuity is more likely than not. See the definition of ``limited
geological evidence'' in 17 CFR 229.1300. Under CRIRSCO's definition
of inferred mineral resource, the requisite evidence is defined to
mean geologic evidence that is sufficient to imply but not verify
geological and grade or quality continuity. See CRIRSCO
International Reporting Template, supra note 20, at cl. 22. We
believe our articulation of the requisite evidence is more
appropriate because it provides a clearer description of the low
level of evidence that may support a determination of inferred
mineral resources.
---------------------------------------------------------------------------

    As commenters noted, it is consistent with the CRIRSCO standards to
require the disclosure of inferred resources, which have been
determined by a qualified person, in the Commission filings of a
registrant with material mining operations.\587\ Although some
commenters recommended that we permit rather than require the
disclosure of inferred resources in Commission filings because they
have the lowest level of geologic confidence,\588\ we believe that
inferred mineral resources are nonetheless important to an investor's
understanding of a registrant's mining operations because they may be
converted into indicated or measured mineral resources with further
exploration.
---------------------------------------------------------------------------

    \587\ See supra note 537 and accompanying text.
    \588\ See, e.g., letter from Gold Resource.
---------------------------------------------------------------------------

    Additionally, the definition of inferred mineral resource will
reduce any potential investor misunderstanding of the nature of a
registrant's mining operations by providing appropriate context for and
limitations on the disclosure of inferred resources. First, the
definition clearly highlights for investors that inferred mineral
resources have the highest degree of uncertainty, allowing investors to
take this factor into account when assessing a registrant's disclosure.
Second, the definition prohibits a registrant from using inferred
mineral resources as a basis to determine mineral reserves. Rather,
inferred resources will first have to meet the definitional
requirements of, and be converted into, measured or indicated mineral
resources, before they will be eligible to be considered as potential
mineral reserves under the final rules. This will help limit the
incentive for a registrant to be aggressive in disclosing inferred
mineral resources because such disclosure would not increase the
likelihood that such resources would ultimately be deemed to be mineral
reserves.
b. Indicated and Measured Mineral Resources
    We are adopting the proposed definition of indicated mineral
resource.\589\ This definition provides

that the level of geological certainty associated with an indicated
mineral resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit.\590\ The
definition further explains that an indicated mineral resource has a
lower level of confidence than that applying to a measured mineral
resource and may only be converted to a probable mineral reserve.\591\
As those commenters that supported the proposed definition noted,\592\
this definition of indicated mineral resource is consistent with the
comparable definition and guidance under the CRIRSCO-based codes.\593\
---------------------------------------------------------------------------

    \589\ See 17 CFR 229.1300, which defines an indicated mineral
resource as that part of a mineral resource for which quantity and
grade or quality are estimated on the basis of adequate geological
evidence and sampling. When used in the context of mineral resource
determination, the term ``adequate geological evidence'' means
evidence that is sufficient to establish geological and grade or
quality continuity with reasonable certainty. See id.
    \590\ See id.
    \591\ See id.
    \592\ See supra note 553 and accompanying text.
    \593\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 23; JORC Code, supra note 175, at pt. 22; and SAMREC
Code, supra note 267, at pt. 27.
---------------------------------------------------------------------------

    We are also adopting the proposed definition of measured mineral
resource.\594\ This definition provides that the level of geological
certainty associated with a measured mineral resource is sufficient to
allow a qualified person to apply modifying factors in sufficient
detail to support detailed mine planning and final evaluation of the
economic viability of the deposit.\595\ The adopted definition also
explains that a measured mineral resource has a higher level of
confidence than that applying to either an indicated mineral resource
or an inferred mineral resource, and may be converted to a proven
mineral reserve or to a probable mineral reserve.\596\
---------------------------------------------------------------------------

    \594\ See 17 CFR 229.1300, which defines a measured mineral
resource to mean that part of a mineral resource for which quantity
and grade or quality are estimated on the basis of conclusive
geological evidence and sampling. When used in the context of
mineral resource determination, the term ``conclusive geological
evidence'' means evidence that is sufficient to test and confirm
geological and grade or quality continuity. See the definition of
``conclusive geological evidence'' in 17 CFR 229.1300.
    \595\ See the definition of ``measured mineral resource'' in 17
CFR 229.1300.
    \596\ See id.
---------------------------------------------------------------------------

    Although some commenters opposed the use of the term ``conclusive
evidence'' because they believed that it set an unrealistic
standard,\597\ we believe the term is appropriate because, as other
commenters noted,\598\ it is consistent with the CRIRSCO standards and
conveys that the level of evidence is sufficiently high enough to
enable a qualified person to conclude that he or she may proceed with
detailed mine planning and final evaluation of the economic viability
of the deposit using measured mineral resources. The term is not meant
to convey that there is no uncertainty in the estimate. But rather, as
is the case with the CRIRSCO-based codes, the term means there is no
reasonable doubt, in the opinion of the qualified person estimating
mineral resources, that the tonnage and grade of the deposit can be
estimated to such accuracy that any variation from the estimate would
have an insignificant effect on the potential economic viability.\599\
---------------------------------------------------------------------------

    \597\ See supra note 565 and accompanying text.
    \598\ See supra note 560 and accompanying text.
    \599\ See, e.g., JORC Code, supra note 175, at pt. 23 (stating
that ``[m]ineralisation may be classified as a Measured Mineral
Resource when the nature, quality, amount and distribution of data
are such as to leave no reasonable doubt, in the opinion of the
Competent Person determining the Mineral Resource, that the tonnage
and grade of the mineralisation can be estimated to within close
limits, and that any variation from the estimate would be unlikely
to significantly affect potential economic viability'').
---------------------------------------------------------------------------

    Because the definitions of ``indicated mineral resource'' and
``measured mineral resource'' are substantially similar to the
corresponding CRIRSCO-based definitions, their adoption will more
closely align the Commission's mining property disclosure requirements
with the foreign mining code provisions, which would benefit both
registrants and investors by promoting uniformity in mining disclosure
standards. For those mining registrants that are dual-listed and
already subject to the CRIRSCO-based requirements, such alignment
should help to limit any potential additional costs imposed by the new
requirement under the final rules to disclose indicated and measured
mineral resources. In addition, some registrants, even if not currently
subject to the CRIRSCO-based requirements, nonetheless apply
substantially similar definitions of indicated and measured mineral
resources as part of the process of determining mineral reserves,\600\
and should therefore benefit from their familiarity with the adopted
definitions.
---------------------------------------------------------------------------

    \600\ As previously explained, the best practice in mining
engineering is to determine mineral resources, prior to engineering
and economic evaluation, to determine if any or all of those
resources can be classified as mineral reserves. See supra note 447
and accompanying text. The predominant approach in the mining
engineering literature is that mineral resource classification
should be based on the estimator's judgment of the uncertainty in
estimates due to the geologic uncertainty. See, e.g., JORC Code,
supra note 175, at pt. 24; and SAMREC Code, supra note 267, at pt.
29. This is consistent with the adopted definitions of mineral
resource classifications.
---------------------------------------------------------------------------

c. Considerations of Geologic Uncertainty
    In a change from the proposed rules, the final rules do not require
that the qualified person quantify and disclose the uncertainty
associated with indicated and measured mineral resources in terms of
the uncertainty associated with the production estimates derived from
them by providing the confidence limits of relative accuracy, at a
specific confidence level, of the preliminarily estimated production
quantities per period from the resource.\601\ Although this approach
for reporting the level of uncertainty is consistent with best practice
in the industry,\602\ we acknowledge that, for the reasons several
commenters stated, requiring this approach in all instances could be
impractical or inappropriate, unduly burdensome, and costly for many
registrants.\603\
---------------------------------------------------------------------------

    \601\ See 17 CFR 229.601(b)(96)(iii)(B)(11)(v) [Item
601(b)(96)(iii)(B)(11)(v) of Regulation S-K].
    \602\ See supra note 531 and accompanying text.
    \603\ See, e.g., letters from CBRR, MMSA, Rio Tinto, and Vale.
---------------------------------------------------------------------------

    In lieu of a provision mandating a quantitative assessment of risk
regarding indicated and measured mineral resources, we are requiring
the qualified person to disclose the criteria used to classify a
resource as indicated or measured and to justify the
classification.\604\ This disclosure must include a discussion of the
uncertainty in the indicated or measured mineral resource estimates,
the sources of the uncertainty, and how those sources were considered
in the estimates.\605\ This approach is consistent with commenters'
suggestion that we permit a qualitative discussion of the uncertainties
involved in resource determinations in lieu of a quantitative
assessment.\606\ While the final rules do not require a qualified
person to use estimates of confidence limits derived from geostatistics
or other numerical methods to support the disclosure of uncertainty
surrounding mineral resource classification, if the qualified person
chooses to use such confidence limit estimates, the final rules
instruct that he or she should consider the limitations of these
methods and adjust the estimates appropriately to reflect

sources of uncertainty that are not accounted for by these
methods.\607\
---------------------------------------------------------------------------

    \604\ 17 CFR 229.601(b)(96)(iii)(B)(11)(iv) [Item
601(b)(96)(iii)(B)(11)(iv) of Regulation S-K].
    \605\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K.
    \606\ See supra notes 570-572 and accompanying text.
    \607\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K. For
example, if a qualified person uses geostatistics or simulation to
estimate the uncertainty associated with a particular mineral
resource as ``15% relative accuracy at 90% confidence
level for annual production quantities,'' then he or she, after
determining that the risks associated with external risk factors are
negligible, may report the numerically derived estimate without
adjusting for any external risks. On the other hand, if the
qualified person first determines that the risk factors external to
the calculation are not negligible, then he or she should adjust the
confidence limits to be wider than 15% or use a
confidence level less than 90% to account for the risk factors
external to the calculation. In such case, the specific confidence
limits (e.g., 25%) or confidence level (e.g. 80%) that
would be appropriate will depend on the nature and significance of
the risk factors external to the calculation of confidence limits
obtained using numerical methods (e.g., kriging or conditional
simulation).
---------------------------------------------------------------------------

    The adopted approach is similar to the approach under the CRIRSCO-
based codes, which encourages but does not require a quantitative
assessment of risk regarding indicated or measured mineral resource
estimates, and leaves the decision whether to use estimates of
confidence limits to the discretion of the qualified person.\608\ The
qualified person may use estimates of confidence limits when assessing
the level of uncertainty regarding his or her mineral resource
estimates if he or she believes that such use would be practical and
helpful. If, however, the qualified person determines that the use of
estimates of confidence limits would be inappropriate or impractical,
he or she may refrain from undertaking such a quantitative assessment
of risk regarding his or her indicated or measured mineral resource
estimates.
---------------------------------------------------------------------------

    \608\ See, e.g., JORC Code, supra note 175, at pt. 25
(``Competent Persons are encouraged, where appropriate, to discuss
the relative accuracy and confidence level of the Mineral Resource
estimates with consideration of at least sampling, analytical and
estimation errors. The statement should specify whether it relates
to global or local estimates, and, if local, state the relevant
tonnage. Where a statement of the relative accuracy and confidence
level is not possible, a qualitative discussion of the uncertainties
should be provided in its place'').
---------------------------------------------------------------------------

    For similar reasons, the final rules do not require a qualified
person to state the minimum percentage of inferred mineral resources he
or she believes will be converted to indicated and measured mineral
resources with further exploration. Many commenters objected to the
proposed requirement because they believed that it would be impractical
and burdensome.\609\ We have been persuaded that such a requirement may
not be necessary because the final rules require the qualified person
to have a reasonable expectation that the majority of inferred mineral
resources could be upgraded to indicated or measured mineral resources
with continued exploration.\610\ As some commenters suggested, this
required expectation will act as a substitute for the proposed
quantification in that, if the qualified person cannot meet this
expectation with regard to part of a deposit, that part cannot be
classified as inferred resources.\611\ Further, the provision requiring
the qualified person to be able to defend the basis for his or her
reasonable expectation before his or her peers \612\ will also help to
dissuade the determination and disclosure of unreasonable inferred
mineral resource estimates.
---------------------------------------------------------------------------

    \609\ See supra note 573 and accompanying text.
    \610\ 17 CFR 229.1302(d)(1)(iii)(B)(1) [Item
1302(d)(1)(iii)(B)(1) of Regulation S-K].
    \611\ See supra note 577 and accompanying text.
    \612\ See Item 1302(d)(1)(iii)(B)(2) of Regulation S-K [Item
1302(d)(1)(iii)(B)(2) of Regulation S-K].
---------------------------------------------------------------------------

    Similar to the approach adopted regarding indicated and measured
resources, in lieu of a provision requiring a quantitative assessment
of risk regarding inferred resources, we are requiring the qualified
person to disclose the criteria used to classify a resource as inferred
and to justify the classification.\613\ This disclosure must include a
discussion of the uncertainty in the inferred resource estimates, the
sources of the uncertainty, and how those sources were considered in
the estimates. This approach is again consistent with commenters'
suggestion that we permit a qualitative discussion of the uncertainties
involved in resource determination. We believe that such a required
qualitative discussion of the criteria used to classify and justify a
deposit, in whole or part, as inferred resources would serve to inform
investors about the reliability of the disclosure without unduly
burdening registrants.
---------------------------------------------------------------------------

    \613\ See Item 601(b)(96)(iii)(B)(11)(iv) of Regulation S-K.
---------------------------------------------------------------------------

    Regardless of whether the qualified person provides a qualitative
or quantitative assessment of risk, under the final rules the qualified
person must adequately explain his or her reasons for classifying a
mineral resource as inferred, indicated, or measured and that his or
her classification is consistent with the definitions of inferred,
indicated, and measured mineral resources. In this regard, the final
rules require the qualified person to list all of the factors
considered regarding the level of uncertainty and explain how those
factors contributed to the final conclusion about the level of
uncertainty underlying the resource estimates.\614\
---------------------------------------------------------------------------

    \614\ See Item 601(b)(96)(iii)(B)(11)(v) of Regulation S-K. In
deciding between inferred and indicated mineral resources, the
qualified person should note that our definitions provide that the
level of geological uncertainty associated with inferred mineral
resources is too high to apply relevant technical and economic
factors likely to influence the prospect of economic extraction in a
manner useful for evaluation of economic viability whereas the level
of geological uncertainty associated with indicated mineral
resources is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning and
evaluation of the economic viability of the deposit. Similarly, in
deciding between indicated and measured mineral resources, the
qualified person should note that our definitions provide that the
level of geological certainty associated with an indicated mineral
resource is sufficient to allow a qualified person to apply
modifying factors in sufficient detail to support mine planning
whereas the level of geological uncertainty associated with measured
mineral resources allows it to be used for ``detailed'' mine
planning. This guidance is consistent with the CRIRSCO standards.
See CRIRSCO International Reporting Template, supra note 20, at cl.
25.
---------------------------------------------------------------------------

4. The Initial Assessment Requirement
i. Rule Proposal
    We proposed that a registrant's disclosure of mineral resources
must be based upon a qualified person's ``initial assessment''
supporting the determination of mineral resources.\615\ We proposed to
define an ``initial assessment'' as a preliminary \616\ technical and
economic study of the economic potential of all or parts of
mineralization to support the disclosure of mineral resources. As
proposed, the initial assessment must be prepared by a qualified person
and must include appropriate assessments of reasonably assumed
modifying factors together with any other relevant operational factors
that are necessary to demonstrate, at the time of reporting, that there
are reasonable prospects for economic extraction.\617\ Also as
proposed, an initial assessment is required for disclosure of mineral
resources but cannot be used as the basis for disclosure of mineral
reserves.\618\
---------------------------------------------------------------------------

    \615\ See Proposing Release, supra note 5, at Section II.E.3.
    \616\ As used in this context, the term ``preliminary'' refers
to a less rigorous study than what is required for feasibility
studies, as defined and discussed in Section II.G.2., below.
    \617\ See Proposing Release, supra note 5, at Section II.E.3.
    \618\ See id.
---------------------------------------------------------------------------

    As we explained in the Proposing Release, an initial assessment is
not a scoping \619\ or conceptual study as

defined in some of the CRIRSCO-based codes \620\ or a preliminary
economic assessment as defined in Canada's NI 43-101.\621\ The purpose
of an initial assessment is narrower than those studies as it would be
done solely to support disclosure of mineral resources and not to
determine whether to proceed with further work leading to preparing a
pre-feasibility study for reserve determination.
---------------------------------------------------------------------------

    \619\ A scoping study is ``an order of magnitude technical and
economic study of the potential viability of Mineral Resources. It
includes appropriate assessments of realistically assumed Modifying
Factors together with any other relevant operational factors that
are necessary to demonstrate at the time of reporting that progress
to a Pre-Feasibility Study can be reasonably justified.'' JORC Code,
supra note 175, at pt. 38 and SME Guide, supra, note 177, at pt. 50.
    \620\ See, e.g., JORC Code, supra note 175, at pt. 38 and SME
Guide, supra note 177, Table 2, at 68-69 (providing requirements for
scoping, pre-feasibility, and feasibility studies).
    \621\ See Canada's NI 43-101 supra note 123, at pt. 1.1
(defining a preliminary economic assessment to mean ``a study, other
than a pre-feasibility or feasibility study, that includes an
economic analysis of the potential viability of mineral
resources'').
---------------------------------------------------------------------------

    As proposed, at a minimum, the qualified person's initial
assessment must include a qualitative evaluation of modifying factors
to establish the economic potential of the mining property or project
(i.e., that there are reasonable prospects for economic extraction of
the mineral resource.) As we explained in the Proposing Release,
requiring a well-defined and specific technical study to support
disclosure of mineral resources would provide greater assurance to
investors that mineral resource disclosure is reliable.\622\
---------------------------------------------------------------------------

    \622\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------

a. Cut-Off Grade and Price Estimation
    We proposed instructions to the initial assessment requirement
designed to elicit material information concerning the basis for the
qualified person's conclusion that there are reasonable prospects for
economic extraction. The first proposed instruction was that an initial
assessment must include cut-off grade estimation, based on assumed unit
costs for surface or underground operations and estimated mineral
prices.\623\ As we explained, cut-off grade refers to the grade at
which the destination of the material changes during mining. For
purposes of the initial assessment, cut-off grade distinguishes between
material that is going to the waste dump and material that is going to
the processing plant (in surface mining) or between material that is
not mined and material mined to be processed (in underground mining).
---------------------------------------------------------------------------

    \623\ See id.
---------------------------------------------------------------------------

    As part of the proposed initial assessment, the qualified person
would need to assume the cost to mine a typical unit of the specific
material involved. We did not propose to require the qualified person
to estimate all specific operating and capital costs in detail in order
to estimate unit cost as part of the initial assessment.\624\ Rather,
for the initial assessment, the proposed rule requires the qualified
person to make assumptions about the two key determinants of cut-off
grade estimation--operating costs and commodity prices. As we
explained, any cut-off grade estimation that is not based upon, or does
not disclose, these two assumptions may not fully meet the standard
required to demonstrate reasonable prospects of economic
extraction.\625\
---------------------------------------------------------------------------

    \624\ If the qualified person decides to include economic
analysis in the initial assessment, then the proposed rules would
require the inclusion of detailed cost estimates. See Proposing
Release, supra note 5, at note 190 and accompanying text.
    \625\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------

    As proposed, a qualified person must base the unit cost estimate
used in cut-off grade estimation in an initial assessment on assumed
unit costs derived, for example, from historic data or factoring, for
either underground or surface mining. In addition, the qualified person
must make and disclose an assumption about whether the deposit will be
mined with underground or surface mining methods.\626\
---------------------------------------------------------------------------

    \626\ See id.
---------------------------------------------------------------------------

    When estimating mineral prices for the cut-off grade estimation, we
proposed to require the qualified person to use a commodity price that
is no higher than the average spot price during the 24-month period
prior to the end of the last fiscal year, determined as an unweighted
arithmetic average of the daily closing price for each trading day
within such period, unless prices are defined by contractual
arrangements.\627\ For purposes of consistency, we proposed that
qualified persons use this same ceiling for all other commodity price
estimates in the proposed mining disclosure for both mineral resources
and reserves.\628\
---------------------------------------------------------------------------

    \627\ See id.
    \628\ See id.
---------------------------------------------------------------------------

    When explaining our reasons for proposing the 24-month trailing
average price requirement, we stated our belief that the qualified
person must use commodity price estimates that are reasonable and
justifiable and represent long term \629\ market trends in mineral
resource and reserve estimation. However, we also noted that most
foreign jurisdictions allow the qualified person to use any reasonable
and justifiable price, which is based on the qualified person's or
management's view of long term market trends.\630\
---------------------------------------------------------------------------

    \629\ ``Long term'' in this context refers to the life of the
mine. See, e.g., David Humphreys, Pricing and Trading in Metals and
Minerals, 1 SME Mining Engineering Handbook, at 49 (stating that the
assumed commodity price should be ``the expected annual average
price to be achieved for the mined product during each year of the
project's life'').
    \630\ For example, the JORC Code and Canada's NI 43-101 and CIM
Standards call for the qualified person to report the assumptions
underlying price estimates and do not prescribe a specific price
model. See, e.g., JORC Code, supra note 175, Table 1, at 32
(requiring the qualified person to report ``[t]he derivation of
assumptions made of metal or commodity price(s), for the principal
metals, minerals and co-products'' under revenue factors). See also
ASX Listing Rules-Guidance Note 31 pt. 2.4 (``ASX also notes that to
the extent that an estimate of mineral resources or ore reserves
involves a representation about future matters, it must be based on
reasonable grounds--meaning that the price, capital expenditure and
operational expenditure assumptions used to calculate the estimates
must also be objectively reasonable . . .''). Canada's NI 43-101
requires that a registrant disclosing mineral resources or reserves
must disclose ``the key assumptions, parameters, and methods used to
estimate the mineral resources and mineral reserves.'' Canada's NI
43-101, supra note 123, at pt. 3.4(c). The CIM Best Practice
Guidelines lists [commodity] prices as one such key assumption but
provides no guidance on how prices should be determined except that
``if commodity prices used differ from current prices . . ., an
explanation should be given, including the effect on the economics
of the project if current prices were used.'' CIM Estimation of
Mineral Resources and Mineral Reserves Best Practice Guidelines 30
(2003).
---------------------------------------------------------------------------

b. Qualitative Assessment of Factors and Permitted Assumptions
    A second proposed instruction requires the qualified person to
provide a qualitative assessment of all other relevant modifying
factors to establish economic potential and justify why he or she
believes that all issues can be resolved with further exploration and
analysis.\631\ We proposed to provide the minimum requirements for
various factors that the qualified person must evaluate when preparing
an initial assessment, pre-feasibility study, or feasibility study in a
single table to facilitate a comparison of the modifying factors
evaluation requirement across the three key technical studies proposed
to be used for mineral resource and reserve disclosure. According to
the proposed presentation, the modifying factors evaluative process
becomes more exacting as mining property assessment progresses from
mineral resource estimation to mineral reserve estimation.\632\
---------------------------------------------------------------------------

    \631\ See Proposing Release, supra note 5, at Section II.E.3
(discussing Table 1).
    \632\ The modifying factors and requirements in proposed Table 1
were modeled on accepted industry practice and supported by the
relevant mining engineering literature. See, e.g., Richard L.
Bullock, Mineral Property Feasibility Studies, 1 SME Mining
Engineering Handbook, at 227-261.
---------------------------------------------------------------------------

    As proposed, at the initial assessment stage, a qualified person
would be

---------------------------------------------------------------------------
required to evaluate, at a minimum, the following factors:

     Site infrastructure (e.g., whether access to power and
site is possible);
     Mine design and planning (e.g., what is the broadly
defined mining method);
     Processing plant (e.g., whether all products used in
the preliminary economic assessment can be processed with methods
consistent with each other);
     Environmental compliance and permitting (e.g., what are
the required permits and corresponding agencies and whether
significant obstacles exist to obtaining those permits); and
     Any other reasonably assumed modifying factors,
including socio-economic factors, necessary to demonstrate
reasonable prospects for economic extraction.

    Another proposed instruction to the initial assessment requirement
refers the qualified person to proposed Table 1 for the assumptions
permitted to be made when preparing the initial assessment. These
include assumptions concerning infrastructure location and the required
plant area, type of power supply, site access roads and camp or town
site, production rates, processing method and plant throughput, post-
mining land uses, and plans for tailings disposal, reclamation, and
mitigation.\633\
---------------------------------------------------------------------------

    \633\ See Proposing Release, supra note 5, at Section II.E.3
(discussing Table 1).
---------------------------------------------------------------------------

c. Optional Economic (Cash Flow) Analysis
    We explained in the Proposing Release that an initial assessment,
the singular goal of which is to demonstrate reasonable prospects of
economic extraction, not economic viability, need not contain the
quantitative analysis required to demonstrate the economic feasibility
of mining projects. To demonstrate such economic feasibility, estimates
of future cash flows are necessary because capital expenditures,
operating costs, and revenues vary over the life of a mine due to
variations in mining conditions. We stated, however, that if the
qualified person chose to demonstrate the economic potential of the
mining property beyond the minimum requirements of an initial
assessment by including a cash flow analysis, we believed such analysis
could benefit investors, subject to appropriate restrictions.
    One proposed instruction to the initial assessment requirement
addresses the option of providing cash flow analysis as part of the
initial assessment. This instruction states that, while a qualified
person may include cash flow analysis in an initial assessment to
demonstrate economic potential, the qualified person may not use
inferred mineral resources in such cash flow analysis.\634\ Moreover,
if the qualified person includes cash flow analysis in the initial
assessment, then operating and capital cost estimates must have an
accuracy level of at least approximately 50% \635\ and a
contingency level of no greater than 25% of the direct estimate.\636\
The proposed instruction also provided that the qualified person must
state the accuracy and contingency levels in the initial
assessment.\637\
---------------------------------------------------------------------------

    \634\ See Proposing Release, supra note 5, at Section II.E.3.
    \635\ The phrase ``accuracy level of at least approximately
50%'' means that the qualified person must have a
reasonable basis to believe that assumptions underlying the estimate
will result in actual costs with a substantial likelihood of being
within 50% and 150% of the estimate.
    \636\ The term ``contingency'' is used to address the level of
confidence in the cost estimates. It generally means the amount
``set aside for any additional, unforeseen costs associated with
unanticipated geologic circumstances or engineering conditions.''
Scott A. Stebbins, Cost Estimating for Underground Mines,1 SME
Mining Engineering Handbook, at 270. Thus, a contingency level of
<=25% means the contingency cannot be more than 25% of the direct
cost estimate.
    \637\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------

    We also proposed, to the extent a qualified person wants to include
an economic analysis in an initial assessment, he or she would only be
permitted to use a cash flow analysis. All other quantitative analyses
would be prohibited. We based this prohibition on our belief that other
quantitative measures of economic potential that omit cash flows could
be potentially misleading.\638\
---------------------------------------------------------------------------

    \638\ See id.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Several commenters supported the Commission's proposal to require
that a registrant's disclosure of mineral resources be based upon a
qualified person's initial assessment, which supports the determination
of mineral resources, including that the qualified person consider
applicable modifying factors and relevant operational factors at the
resource evaluation stage.\639\ Many other commenters either offered
only conditional support for or opposed the Commission's proposed
initial assessment requirement because they believed it went beyond
what is required under the CRIRSCO standards at the resource
determination stage. For example, some commenters stated that, while
there should be some form of documentation required by a qualified
person to support the disclosure of mineral resources in Commission
filings, it should be consistent with what is allowed under the
CRIRSCO-based codes, and should not be termed ``an initial assessment''
in order to avoid investor confusion.\640\ One commenter recommended
that the required initial assessment take the form of a ``conceptual
study,'' as defined under the CRIRSCO standards, which would include
the consideration of applicable modifying factors.\641\ Another
commenter stated that the assessment of modifying factors as set forth
in proposed Table 1 was overly prescriptive, but also agreed that the
qualified person should ``apply the CRIRSCO principles for the
qualitative assessment of modifying factors'' when determining mineral
resources.\642\ In lieu of the proposed initial assessment requirement,
that commenter, as well as others, recommended allowing a report that
conforms to JORC Table 1 on an ``if not why not basis.'' \643\
---------------------------------------------------------------------------

    \639\ See letters from CBRR (recommending that the initial
assessment include material risk analysis, but that more
comprehensive risk analysis should not be required because the more
detailed analysis would be expected in a separate report); Columbia,
CSP\2\, Gold Resource (recommending that the initial assessment
include a discussion of the material risks associated with the
mineral resource determination); and Montana Trout.
    \640\ See, e.g., letters from AngloGold, BHP, JORC, and Rio
Tinto.
    \641\ See letter from AngloGold.
    \642\ See letter from BHP. In contrast, five other commenters
indicated that proposed Table 1 would be useful. See letters from
AngloGold, Midas, MMSA, NSSGA, and Northern Dynasty.
    \643\ See letters from BHP, JORC, and Rio Tinto. Such a report
requires an estimate of mineral resources to be supported by a
discussion of factors enumerated in that table, and if certain
factors have been omitted, there must be a reasonable explanation of
why they have been excluded. As one commenter explained, such a
report would entail a qualitative assessment of modifying factors as
well as a discussion of the assumptions underlying cut-off
estimates. See letter from Rio Tinto.
---------------------------------------------------------------------------

    In explaining its opposition to the proposed initial assessment
requirement, one commenter maintained that, under CRIRSCO, at the
resource determination stage, all that is required is that the
qualified person demonstrate that there are reasonable prospects for
eventual economic extraction. That commenter stated that it is best
left to the discretion of the qualified person to determine the most
appropriate methodology for identifying, estimating, and disclosing
mineral resources.\644\
---------------------------------------------------------------------------

    \644\ See letter from Eggleston.
---------------------------------------------------------------------------

a. Cut-Off Grade and Price Estimation
    Most commenters that addressed the issue supported the proposed
requirement that a qualified person's documentation in support of
resource determination and disclosure include cut-off grade estimation
based on assumed unit costs for surface or

underground operations.\645\ One commenter recommended requiring that,
consistent with current industry practice, the determination of the
cut-off grade include estimates of processing costs, metallurgical
recovery, and general and administrative costs.\646\ Another commenter
recommended using the term ``cut-off'' instead of ``cut-off grade''
because the criteria used may be grade, but could also be net smelter
return or include quality or metallurgical characteristics.\647\
---------------------------------------------------------------------------

    \645\ See letters from AngloGold, CBRR, Eggleston, Golder,
Midas, Northern Dynasty, and SRK 1. One commenter, however, opposed
requiring an initial assessment using assumed unit costs for
operations that would include pricing and other cash flow
information on the grounds that this information is proprietary,
commercially sensitive, and confidential. See letter from Alliance.
    \646\ See letter from SRK 1.
    \647\ See letter from Amec. The commenter also stated that a
qualified person should be allowed to make the determination of
assumed unit costs based on benchmarking to similar deposit types
and types of operations in the particular jurisdiction.
---------------------------------------------------------------------------

    Many commenters opposed the proposed requirement that, when
estimating mineral prices for the purpose of cut-off grade estimation
or cash flow analysis for both mineral resource and reserve
determination, the qualified person must use a commodity price that is
no higher than the average spot price during the 24-month period prior
to the end of the last fiscal year, determined as an unweighted
arithmetic average of the daily closing price for each trading day
within such period, unless prices are defined by contractual
arrangements. While commenters generally agreed that cut-off estimation
should be based on estimated prices, most commenters that addressed the
issue opposed the proposed 24-month trailing average pricing model on
the grounds that it is unrealistic and inconsistent with pricing
requirements, guidance, and practice under the CRIRSCO-based codes,
which permit prices to be based on forward-looking pricing forecasts.
Consequently, according to those commenters, compliance with the
historical-based pricing requirement would be costly and unduly
burdensome for companies dual-listed in the United States and one or
more of the CRIRSCO jurisdictions.\648\
---------------------------------------------------------------------------

    \648\ See letters from AIPG, Alliance, Amec, AngloGold, BHP,
CBRR, Chamber, CIM, Cleary & Gottlieb, Cloud Peak, Coeur, CRIRSCO,
Davis Polk, Dorsey & Whitney, Eggleston, Energy Fuels, FCX, Golder,
Graves, JORC, MMSA, Newmont, NMA 1, Northern Dynasty, PDAC,
Randgold, Rio Tinto, Royal Gold, SAMCODES 1 and 2, Shearman &
Sterling, SME 1, Ur-Energy, Vale, and Willis.
---------------------------------------------------------------------------

    According to those commenters, the prevailing industry practice in
the CRIRSCO-based jurisdictions is to use forward-looking pricing
forecasts when estimating mineral resources and reserves. The
forecasted prices ``are typically based on consensus projections that
are derived from an average of the short-term and an average of the
long-term prices provided by numerous financial institutions that are
independent of the companies that report mineral resources and
reserves.'' \649\ Because most mining companies base their mineral
resource and reserve estimates on these consensus prices, investors can
then compare similar mineral projects in different parts of the world.
The proposed required use of a two-year trailing average price would
not allow for this comparability. The commenters claimed this would
force unrealistically optimistic price assumptions in a declining
market and unrealistically pessimistic prices in a rising market.\650\
---------------------------------------------------------------------------

    \649\ Letter from CIM.
    \650\ See id; see also letter from SME 1.
---------------------------------------------------------------------------

    One commenter estimated that the proposed 24-month pricing model,
if adopted, would result in a 40 percent reduction in mineral resources
reported to the Commission compared to other jurisdictions.\651\
Another commenter stated that the proposed historical pricing model
would create timing concerns because registrants would not be able to
conduct a rigorous reserve analysis between the end of the fiscal year
and the filing deadline for Form 10-K annual reports. Accordingly,
``registrants would be forced, as a practical matter, months before the
end of the reporting period, to make a very conservative estimate of
what the actual mandated ceiling price will be, which may lead to
overly conservative reserve and resource estimates.'' \652\ One other
commenter stated that the 24-month period is too short because pricing
for coal can vary and fluctuate widely in a relatively short period of
time and over multiple markets.\653\
---------------------------------------------------------------------------

    \651\ See letter from BHP.
    \652\ Letter from FCX.
    \653\ See letter from Alliance.
---------------------------------------------------------------------------

    Many commenters recommended that, in lieu of the 24-month trailing
average price requirement, and consistent with the CRIRSCO-based codes,
the Commission require that, when estimating prices for the purpose of
both mineral resource and reserve disclosure, the qualified person use
any reasonable and justifiable price, which is typically based on the
qualified person's or management's view of long-term market trends, as
long as the qualified person provides justification for, and discloses
all material assumptions concerning the price used.\654\ Some
commenters further noted that such a requirement would be consistent
with certain financial reporting requirements for the mining industry
under U.S. GAAP.\655\
---------------------------------------------------------------------------

    \654\ See, e.g., letters from AIPG, Amec, CBRR, Chamber , Cleary
& Gottlieb, Cloud Peak, Davis Polk, Eggleston, Energy Fuels, FCX,
JORC, Newmont, SAMCODES 1, Shearman & Sterling, SME 1, and Vale.
    \655\ See letter from AIPG (``U.S. GAAP requires that estimated
future cash flows from mineral properties be used in determining the
value of mining assets in a purchase price allocation and in testing
mining assets for impairment. The estimated future cash flows are
based on management's projections using projected sales prices
reflecting the current and future forecasted prices. The forecasted
prices should be consistent with the length of the mine life''). See
also FCX, Newmont, SME 1, and Vale.
---------------------------------------------------------------------------

    In contrast, one commenter recommended using a 36-month average
because the commenter believed it is less volatile and, therefore more
appropriate than the proposed 24-month period.\656\ Another commenter
also preferred the use of a 36-month period but only as a ``fallback
position'' in the event that an issuer is not permitted to engage in
forward-looking analysis of the price.\657\ One commenter recommended
that the Commission adopt a 12-month trailing average price model for
mineral resource and reserve determination and disclosure because it
would reflect mineral resource and reserve estimates based on current
market conditions.\658\
---------------------------------------------------------------------------

    \656\ See letter from Gold Resource.
    \657\ See letter from Eggleston.
    \658\ See letter from Andrews & Kurth.
---------------------------------------------------------------------------

    Most of the commenters that addressed the pricing issue opposed the
Commission's proposal to require the use of the same pricing standard
for both mineral resource and mineral reserve determination.\659\ Those
commenters maintained that commodity prices used to estimate mineral
resources are typically higher than the prices used to estimate mineral
reserves because of the longer period it takes to effect commodity
production from resources compared to reserves. According to
commenters, using the same price standard for resources and reserves
would result in an underestimation of a registrant's resources, which
would put a U.S. registrant at a significant disadvantage relative to
registrants not subject to the proposed rules.\660\ A few commenters
recommended using a price estimate for resources determination that is
a set

percentage (ranging from 5% to 20%) higher than the price used for
reserve estimation.\661\
---------------------------------------------------------------------------

    \659\ See letters from Amec, AngloGold, BHP, CBRR, CIM, Coeur,
Eggleston, Energy Fuels, FCX, Golder, JORC, Midas, MMSA, Newmont,
NMA 1, Northern Dynasty, Randgold, Rio Tinto, Royal Gold, SAMCODES
1, SME 1, SRK 1, Vale, and Willis.
    \660\ See, e.g., letter from Vale; see also letter from SME 1.
    \661\ See, e.g., letters from SRK 1, Eggleston and Newmont.
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    An additional commenter believed that the research it conducts to
estimate future commodity prices is sensitive intellectual property
that is not required to be disclosed under the CRIRSCO template or
JORC.\662\ This commenter suggested that the Commission permit a
registrant to discuss the methodology used to estimate its pricing
model without requiring disclosure of the price itself. Alternatively,
this commenter requested that a registrant be allowed to compare its
forward-looking pricing to that produced by an industry recognized
expert and comment on whether there is a material difference between
the forward-looking pricing models.\663\
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    \662\ See letter from BHP.
    \663\ See id.
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    One commenter requested that the Commission allow a registrant to
keep its future price assumptions confidential when reporting resources
and reserves if those assumptions are commercially sensitive.\664\ As
conditions to keeping its price assumptions confidential, a registrant
would have to disclose the methodology for estimating mineral resources
and reserves, and state whether those resources and reserves would be
extractable if commodity prices were not greater than a certain
historical price. This commenter suggested using a 36-month average
trailing price for this purpose rather than a 24-month average trailing
price because it is less volatile.\665\
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    \664\ See letter from Vale; see also letter from MMSA
(requesting generally that the Commission allow for exemptions from
the required disclosure ``to protect trade secrets, confidential
information, product pricing, and marketing information that is
vital for a company to maintain its competitive advantage or that
could represent violations in anti-trust or other legislation in the
country of operation'').
    \665\ See letter from Vale.
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b. Qualitative Assessment of Factors and Permitted Assumptions
    One commenter opposed requiring the determination of mineral
resources to include appropriate assessments of reasonably assumed
modifying factors because it believed that the term ``modifying
factors'' should be used exclusively when converting mineral resources
to mineral reserves.\666\ That commenter recommended substituting the
phrase ``technical and economic factors'' for ``modifying factors'' in
order to be consistent with the CRIRSCO standards. That commenter also
believed that the proposed initial assessment requirement may create an
expectation of a much more detailed and formal evaluation of the
technical and economic factors than what is currently industry-accepted
practice.\667\ A second commenter similarly indicated that because
consideration of all applicable modifying factors is only appropriate
at the reserve determination stage, requiring an assessment of the
modifying factors at the resource evaluation stage could confuse
investors into mistakenly believing that resources are reserves.\668\
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    \666\ See letter from Amec.
    \667\ See id.
    \668\ See letter from Eggleston; see also letter from Energy
Fuels (opposing the proposed initial assessment requirement because
it attempts to treat a mineral resource as a ``mineral reserve
currently in the making,'' which would send the wrong message to
investors); and SAMCODES 2 (stating that ``[i]t is good practice to
undertake a high-level ``initial assessment'' to support the claim
of reasonable prospects for economic extraction, but it is not
necessary to have to disclose the process and modifying/operational
factors that were applied.).
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    Some commenters stressed the importance of considering
environmental factors at the initial assessment stage.\669\ According
to two of those commenters, such consideration should include whether
the company's operations will generate acid-mine drainage, which often
requires post-project collection and treatment of pollution in
perpetuity and results in considerable environmental and financial
liability.\670\ Another commenter recommended that the initial
assessment discuss a mining project's water requirements and address
how water availability for the region is predicted to change in the
future, whether from increased incidents of drought, competing demands
from nearby agricultural users, or groundwater drawdowns.\671\
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    \669\ See letters from Columbia, CSP\2\, and Montana Trout.
    \670\ See letters from CSP\2\ and Montana Trout.
    \671\ See letter from Columbia.
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c. Optional Economic (Cash Flow) Analysis
    Some commenters maintained that the Commission should align itself
with Canada's NI 43-101 and permit the disclosure of an economic
assessment of resources, with cash flow analysis, including permitting
the use of inferred resources as long as appropriate disclaimers are
given, in addition to requiring disclosure of material assumptions and
qualitative assessment of relevant technical and economic factors
likely to affect prospects of economic extraction, if a registrant
discloses mineral resource estimates.\672\ Those commenters recommended
that the Commission not use the term ``initial assessment'' and instead
name the documentation to support a mineral resource estimate a
``resource study'' and name the report describing economic potential of
mineral resources either a scoping study or preliminary economic
assessment.\673\ Commenters stated that, because inferred mineral
resources are permitted to be included in economic analyses in
preliminary economic assessments under Canada's NI 43-101 and in
scoping studies under other CRIRSCO-based codes, U.S. registrants would
be placed at a competitive disadvantage were the Commission to adopt
the proposed prohibition of inferred mineral resources in economic
assessments.\674\
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    \672\ See, e.g., letters from Coeur, Midas, SME 1, and Willis.
    \673\ See letters from Coeur, SME 1, and Willis.
    \674\ See, e.g., letters from Coeur and SME 1.
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iii. Final Rules
    We are adopting the proposed requirement that a registrant's
disclosure of mineral resources be based upon a qualified person's
``initial assessment'' supporting the determination of mineral
resources.\675\ The final rules define an initial assessment, as
proposed, to mean a preliminary technical and economic study of the
economic potential of all or parts of mineralization to support the
disclosure of mineral resources.\676\ However, in a change from the
proposed rules, as a result of comments received, the final rules do
not require the qualified person's initial assessment to include a
qualitative evaluation of the modifying factors to establish the
economic potential of the mining property or project. Rather,
consistent with the suggestion of some commenters,\677\ the final rules
provide that, at a minimum, the initial assessment must include the
qualified person's qualitative evaluation of relevant technical and
economic factors likely to influence the prospect of economic
extraction to establish the economic potential of the mining property
or project.\678\ To reflect this change, we have revised the proposed
definition of initial assessment to provide that the initial assessment
must include appropriate assessments of reasonably assumed technical
and economic factors, together with any other relevant operational
factors, that are necessary to demonstrate at the time

of reporting that there are reasonable prospects for economic
extraction.\679\
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    \675\ 17 CFR 229.1302(d)(1) [Item 1302(d)(1) of Regulation S-K].
    \676\ See the definition of ``initial assessment'' in 17 CFR
229.1300.
    \677\ See, e.g., letter from Amec.
    \678\ See 17 CFR 229.1302(d)(1)(i)(B) [Item 1302(d)(1)(i)(B) of
Regulation S-K].
    \679\ See 17 CFR 229.1300.
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    This change is intended to address the concern of some commenters
\680\ that the proposed initial assessment requirement would exceed
what is required under the CRIRSCO standards because full consideration
of the modifying factors is only required at the mineral reserve
determination stage. The adopted initial assessment requirement will
more closely align the Commission's mining property disclosure
requirements with the CRIRSCO standards.\681\
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    \680\ See, e.g., letters from Amec, Eggleston, and Northern
Dynasty.
    \681\ See, e.g., letter from Amec; see also CRIRSCO
International Reporting Template, supra note 175, at cl. 21 (``The
term `reasonable prospects for eventual economic extraction' implies
a judgement (albeit preliminary) by the Competent Person in respect
of the technical and economic factors likely to influence the
prospect of economic extraction, including the approximate mining
parameters.'').
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    At the same time, the adopted requirement will underscore that, at
the resource determination stage, the qualified person must assess both
the geologic characteristics of the deposit as well as the relevant
technical and economic factors likely to influence the prospect of
economic extraction in order to conclude that the parts of the mineral
deposit he or she is determining to be mineral resources have
reasonable prospects of economic extraction. While the relevant
technical and economic factors to be considered at the resource
determination stage are likely to be similar to the modifying factors
applied at the reserve determination stage, because the final rules
only require a qualitative assessment of the technical and economic
factors at the resource determination stage, that assessment will be
less thorough and less certain than the assessment of modifying factors
required at the reserve determination stage. Accordingly, the final
rules provide, as proposed, that an initial assessment cannot be used
as the basis for disclosure of mineral reserves.\682\
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    \682\ See the definition of ``initial assessment'' in 17 CFR
229.1300.
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    Although a commenter recommended that the format of the initial
assessment conform to JORC Table 1's Checklist of Assessment and
Reporting Criteria on an ``if not why not basis,'' \683\ we are
adopting, substantially as proposed, a format for the initial
assessment that more closely resembles the technical report format of
Canada's NI 43-101F1. While there is substantial overlap in the items
required to be considered and discussed under JORC Table 1 and Canada's
NI 43-101F1, we believe that the presentation of disclosure
requirements in the Canadian technical report format is clearer and
more comprehensive and, as such, will help elicit better
disclosure.\684\
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    \683\ See letters from BHP, JORC, and Rio Tinto.
    \684\ See infra Section II.G.3. for a detailed discussion of the
disclosure requirements for the technical report summary regarding
mineral resources (in addition to those regarding mineral reserves
and exploration results).
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a. Cut-Off Grade and Price Estimation
    Similar to the proposed rules, the final rules require that a
qualified person include in the initial assessment a cut-off grade
\685\ estimation based on assumed unit costs for surface or underground
operations and estimated mineral prices.\686\ We continue to believe
that a discussion of cut-off grade is an appropriate requirement for a
technical study that supports mineral resource estimation because, by
definition, a mineral resource estimate is not just an inventory of all
mineralization. It is an estimate of that part of the deposit that has
reasonable prospects of economic extraction.\687\ We believe the cut-
off grade is the best indicator, at this stage, of such prospects
because it requires the qualified person to estimate and exclude that
portion of the deposit that has no reasonable prospects of economic
extraction at the time of the analysis.
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    \685\ The final rules define cut-off grade, as proposed, to mean
the grade (i.e., the concentration of metal or mineral in rock)