who may be familiar with the mining industry but who are not geologists
or mining engineers. These requirements are consistent with similar
Canadian mining disclosure standards \1155\ and also with the
transparency principle under the CRIRSCO standards, which ``requires
that the reader of a Public Report is provided with sufficient
information, the presentation of which is clear and unambiguous, so as
to understand the report and not to be misled.'' \1156\
---------------------------------------------------------------------------

    \1152\ See supra note 1119 and accompanying text.
    \1153\ 17 CFR 229.601(b)(96)(ii) [Item 601(b)(96)(ii) of
Regulation S-K].
    \1154\ See id; see also Securities Act Rule 421 and Securities
Exchange Act Rule 13a-20.
    \1155\ See Instruction 3 to Canada's Form 43-101F1.
    \1156\ CRIRSCO International Reporting Template, supra note 20,
at cl. 3. Also as proposed, the final rules similarly require a
registrant, when providing either summary or individual property
disclosure: To use plain English principles, to the extent
practicable; to not include detailed illustrations and technical
reports, full feasibility studies, or other highly technical data,
but to furnish such reports and other material supplementally to the
staff upon request; and to provide an appropriate glossary if the
disclosure requires the use of technical terms relating to geology,
mining, or related matters, which cannot readily be found in
conventional dictionaries. See 17 CFR 229.1301(d). The first two
requirements are consistent with Securities Act Rule 421 and
Exchange Act Rule 13a-20. The third requirement is consistent with
current practice pursuant to Guide 7's guidance that an appropriate
glossary should be included in a Commission filing if technical
terms relating to geology, mining, or related matters, whose
definition cannot readily be found in conventional dictionaries, are
used. See paragraph (b)(6) of Guide 7.
---------------------------------------------------------------------------

    While we acknowledge the concerns of those commenters \1157\ that
stated that we should use a different name, we continue to believe
``technical report summary'' more accurately reflects the disclosure we
are requiring. By using this name, we do not mean to imply that there
necessarily exists, in all cases, a single compilation of all the
technical information and documentation (a ``technical report'') from
which the qualified person will summarize the information and prepare
the technical report summary. However, we believe that, in all cases,
there will be such information and documentation (even if there is no
single compilation), which forms the basis of the qualified person's
(or persons') determination that there exist exploration results,
mineral resources, or mineral reserves. Because, in preparing the
technical report summary, the qualified person must summarize such
information, we believe the name is appropriate.
---------------------------------------------------------------------------

    \1157\ See supra note 1095 and accompanying text.
---------------------------------------------------------------------------

    We agree with those commenters that stated there is no need to
expand the technical report summary provision to require the qualified
person to describe in more detail the factors pertaining to
environmental compliance, permitting, and local individuals or groups,
which are related to the project. We do not believe it is necessary to
prescribe more specific requirements about those factors because they
are already required to be considered and disclosed by the qualified
person as a technical or modifying factor.\1158\ As is current industry
practice, the final rules require the qualified person to describe all
relevant factors pertaining to environmental compliance, permitting,
and local individuals or groups, which are material to establishing
reasonable prospects of economic extraction for mineral resources and
economic viability for mineral reserves.\1159\ The final rules require
the technical report summary to include, among other matters: The
results of environmental studies, such as environmental baseline
studies or impact assessments; requirements and plans for waste and
tailings disposal; project permitting requirements; plans,
negotiations, and agreements with local individuals or groups; and mine
closure plans, including remediation and reclamation plans, and the
associated costs.\1160\ The technical report summary must also include
the qualified person's opinion on the adequacy of current plans to
address any issues related to environmental compliance, permitting, and
local individuals or groups. We believe the scope of these technical
report summary requirements is sufficient to address the environmental
and sustainability issues of concern to investors. We also agree with
those commenters that stated that requiring additional disclosure on
these issues in a registrant's technical report summary would be overly
prescriptive and could duplicate disclosure that the registrant may
provide in its corporate social responsibility report.\1161\
---------------------------------------------------------------------------

    \1158\ See supra note 1104 and accompanying text.
    \1159\ See Item 601(b)(96)(iii)(B)(17) of Regulation S-K.
    \1160\ See id.
    \1161\ See, e.g., letter from CRIRSCO.
---------------------------------------------------------------------------

    As proposed, the adopted rules require the qualified person to
provide the results of the economic analysis in the technical report
summary, which is filed as an exhibit to the registrant's
disclosure.\1162\ This further aligns our rules with the transparency
principle underlying the CRIRSCO-based codes by requiring public
disclosure of the underlying technical and economic analysis that is
the basis for a disclosure of mineral resources or reserves. We note
that Canada's NI 43-101 and Australia's JORC require disclosure of
investment decision criteria such as net present value (NPV) and
internal rate of return (IRR) to support the disclosure of mineral
resources and reserves.\1163\ Therefore, we believe this requirement
should not impose an unduly high compliance burden, especially for
those US registrants that are dual-listed in Canada or Australia.
---------------------------------------------------------------------------

    \1162\ 17 CFR 229.601(b)(96)(iii)(B)(19) [Item
601(b)(96)(iii)(B)(19) of Regulation S-K].
    \1163\ See, e.g., Canada's NI 43-101 F1, Item 22 (requesting the
qualified person to ``[p]rovide an economic analysis that includes .
. . (c) a discussion of net present value (NPV), internal rate of
return (IRR), and payback period of capital with imputed or actual
interest''). See also JORC Code, supra note 175, Table 1, Section 4
(requesting ``[t]he inputs to the economic analysis to produce the
net present value (NPV) in the study, the source and confidence of
these economic inputs including estimated inflation, discount rate,
etc. NPV ranges and sensitivity to variations in the significant
assumptions and inputs'').
---------------------------------------------------------------------------

    The final rules do not provide exemptions for any particular class
of registrants because we believe investors in all registrants with
material mining operations will benefit from the requirement to file a
technical report summary. This is generally consistent with the
approach taken in those CRIRSCO-based jurisdictions that require
disclosure of technical report summaries.\1164\ Although some
commenters requested that we permit producing registrants to omit cash
flow forecasts under certain circumstances,\1165\ we decline to do so
because we believe that such an exemption could result in the omission
of material information, to the detriment of investors. Cash flow
forecasts are essential to establishing whether portions of indicated
and measured mineral resources can be mined economically (at a profit)
and, thus, meet the definition of a mineral reserve. Without this
information, investors will have no basis to know the level of
confidence to associate with any mineral reserve determination,
especially since registrants, through management, choose what economic
criteria to apply to make the determination that the mining is
economic.
---------------------------------------------------------------------------

    \1164\ For example, Canada's NI 43-101 and JORC provide no
exemptions from the requirement to provide technical report
summaries to support mining property disclosures. We also note that
Canadian registrants are subject to a broader technical report
summary requirement in NI 43-101, which requires all material
properties to have a technical report regardless of whether the
registrant is disclosing mineral resources and reserves or not.
    \1165\ See supra note 1118 and accompanying text.
---------------------------------------------------------------------------

    For similar reasons, we decline to exempt registrants from
disclosing the qualified person's price assumption

used to determine whether portions of indicated and measured mineral
resources can be mined economically, in the technical report summary.
We note that CRIRSCO-based codes also consider the price assumption to
be a material assumption that the registrant must disclose in the
supporting documentation.\1166\
---------------------------------------------------------------------------

    \1166\ For example, both CRIRSCO Table 1 and JORC Table 1
require disclosure of the price for mineral reserve disclosure under
``revenue factors.''
---------------------------------------------------------------------------

    We also are not exempting registrants in the industrial minerals or
aggregates industry from the technical report summary requirements, as
requested by some commenters.\1167\ We note that industrial minerals or
aggregates registrants are much less likely to ever have to provide
technical report summaries since most have no individually material
mining properties. If such a registrant has individually material
properties, then we believe it is appropriate to provide a technical
report summary as any disclosure of mineral resources and reserves on
those properties will likely be material to investors. Also, since
industrial minerals and aggregates registrants go through the same
scientific and engineering analysis to estimate mineral resources and
reserves, they should already generate much of the information we are
requesting in the technical report summaries.
---------------------------------------------------------------------------

    \1167\ See letters from Alliance and NSSGA.
---------------------------------------------------------------------------

    The final rules also do not incorporate by reference or otherwise
adopt on a going forward basis the technical report requirements in
Canada's NI 43-101,\1168\ JORC,\1169\ or the SME Guide,\1170\ as
suggested by some commenters. As previously mentioned, we believe that
doing so would effectively bind the Commission's rules to current and
future iterations and interpretations of these requirements, over which
the Commission would have little to no control or influence.\1171\
---------------------------------------------------------------------------

    \1168\ See supra note 1085 and accompanying text.
    \1169\ See supra note 1087 and accompanying text.
    \1170\ See letter from NMA 2 and SME 3.
    \1171\ See supra Section II.C.2.
---------------------------------------------------------------------------

    We also are not adopting a ``reciprocal recognition'' approach that
would allow non-U.S. foreign issuers to file their home country
(CRIRSCO-based) reports in satisfaction of the Commission's rules, as
suggested by some commenters.\1172\ We do not believe a reciprocal
recognition approach is appropriate because, although we have more
closely aligned our technical report summary requirements with the
CRIRSCO standards and, in particular, with the Canadian technical
report requirements, there are nevertheless important differences, such
as the final rules' prohibition against disclaimers of liability for
information provided by the qualified person based on the work of a
third-party specialist who the qualified person has hired.\1173\ We
believe these differences provide meaningful protection for investors.
---------------------------------------------------------------------------

    \1172\ See, e.g., letters from Dorsey & Whitney and PDAC.
    \1173\ Other differences include the final rules' requirement
that a registrant disclose resource estimates exclusive of reserves
and the inclusion of mineral brines in the definition of mineral
resources.
---------------------------------------------------------------------------

4. Requirements for Internal Controls Disclosure
i. Rule Proposal
    We proposed to require that a registrant describe the internal
controls \1174\ that it uses in its exploration and mineral resource
and reserve estimation efforts. As proposed, such disclosure should
address quality control and quality assurance programs, verification of
analytical procedures, and comprehensive risk inherent in the
estimation.\1175\ We proposed an instruction stating that a registrant
must provide the required internal controls disclosure whether it is
providing summary disclosure under proposed Item 1303, individual
property disclosure under proposed Item 1304, or under both
items.\1176\
---------------------------------------------------------------------------

    \1174\ Internal controls in this context refers to the internal
controls used to ensure reliable disclosure of exploration results
and estimation of mineral resources and mineral reserves. It is not
to be confused with internal control over financial reporting. In
this regard, the Commission's disclosure requirements for
registrants engaged in oil and gas producing activities require
similar disclosure of internal controls over estimation efforts. See
17 CFR 229.1202(a)(7) [Item 1202(a)(7) of Regulation S-K].
    \1175\ See Proposing Release, supra note 5, at Section II.G.4.
    \1176\ See id.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Most commenters that addressed the issue supported the proposal to
require registrants to describe the internal controls that they use to
help ensure the reliability of their disclosure of exploration results
and estimates of mineral resources and mineral reserves.\1177\ One
commenter, however, opposed such a requirement, other than for mineral
reserve estimates, indicating that this information should already be
included as part of management's discussion of internal controls over
financial reporting. According to that commenter, anything beyond that
would create a significant burden on registrants and greatly outweigh
any marginal benefit to investors.\1178\ A second commenter opposed an
internal controls disclosure requirement as part of the Commission's
revised mining property disclosure rules on the grounds that there
should be a global alignment of minimum reporting requirements for
mining registrants. According to that commenter, the proposed internal
controls disclosure requirement would impose a greater disclosure
requirement on registrants reporting under a CRIRSCO-based code, such
as JORC or SAMREC.\1179\
---------------------------------------------------------------------------

    \1177\ See, e.g., letters from AngloGold, CBRR, Eggleston, Midas
and Rio Tinto.
    \1178\ See letter from Alliance.
    \1179\ See letter from Randgold.
---------------------------------------------------------------------------

    One commenter suggested a more detailed framework for the
disclosure of internal controls. This framework addressed the
accountability of management in the assessment of exploration results
and estimates of mineral resources and mineral reserves, the assessment
of internal controls over the reporting of exploration results and
estimates of mineral resources and reserves, and changes in internal
controls over the reporting of exploration results and estimates of
mineral resources and reserves.\1180\
---------------------------------------------------------------------------

    \1180\ See letter from AngloGold.
---------------------------------------------------------------------------

    Another commenter stated that it is common industry practice to
have QA/QC programs when undertaking mineral exploration.\1181\
According to the commenter, however, the Commission's proposed internal
control provision may have inappropriately included internal controls
for corporate governance purposes. That commenter therefore requested
that the Commission provide clear instructions regarding how the mining
industry can achieve the objective of the internal controls
requirement.\1182\
---------------------------------------------------------------------------

    \1181\ See letter from Amec.
    \1182\ See id.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting rules that, as proposed, require a registrant to
describe the internal controls that it uses in its exploration and
mineral resource and reserve estimation efforts, as proposed.\1183\ The
final rules specify that such disclosure should address quality control
and quality assurance programs, verification of analytical procedures,
and comprehensive risk inherent in the estimation.\1184\ We

continue to believe that such internal controls disclosure would be
beneficial to investors as it would help them evaluate whether the
registrant has established acceptable levels of certainty and precision
during exploration and whether and how it has verified and validated
the quality of the data used in its analyses. This requirement is
consistent with disclosure requirements in most foreign mining
jurisdictions. The CRIRSCO-based codes require the disclosure of
quality control and quality assurance procedures as they relate to
exploration results (data) and techniques and assumptions (analysis)
used for mineral resource and reserve estimation.\1185\ In addition,
the listing rules of some of these jurisdictions specifically call for
disclosure of the internal controls relating to estimates of mineral
resources and reserves.\1186\
---------------------------------------------------------------------------

    \1183\ 17 CFR 229.1305(a) [Item 1305(a) of Regulation S-K].
    \1184\ See id. In this regard we are not adopting the detailed
internal controls disclosure framework suggested by one commenter.
See letter from AngloGold. While we recognize that some registrants
may find it useful to model their internal controls disclosure along
the lines suggested by this commenter, other registrants may
reasonably conclude that a different or more abbreviated format is
suitable for their mining operations.
    \1185\ See, e.g., JORC Code, supra note 175, Table 1; Canada's
NI 43-101, supra note 123, at pt. 3.3; SAMREC Code, supra note 267,
Table 1, at pt. 3.6. The SME Petition also recognized the need for
and importance of appropriate internal and disclosure controls in
the estimation of mineral reserves. See SME Petition for Rulemaking,
supra note 6, at 17.
    \1186\ See, e.g., ASX Listing Rule 5.21.5 (requiring registrants
to disclose ``[a] summary of the governance arrangements and
internal controls that the mining entity has put in place with
respect to its estimates of mineral resources and ore reserves and
the estimation process'').
---------------------------------------------------------------------------

    Although not called for by Guide 7, some registrants provide
disclosure about their internal controls, including quality control and
quality assurance measures, which they have put in place to help ensure
the reliability of their disclosure of exploration results and
estimates of mineral resources and mineral reserves. The staff has also
requested, on a case by case basis, that registrants provide a brief
description of the quality control and quality assurance protocols for
sample preparation, controls, custody, assay precision and accuracy as
they relate to exploration programs. This current practice reinforces
our belief that requiring internal controls disclosure by registrants
regarding their exploration results and mineral resource and reserve
estimates is appropriate and should not impose an undue burden.
    Another provision states that a registrant must provide the
required internal controls disclosure whether it is providing summary
disclosure under Item 1303, individual property disclosure under Item
1304, or under both items.\1187\ Estimating mineral resources and
reserves requires use of statistical techniques to estimate tonnages
and grades based on data derived from laboratory analysis of
representative samples. In any such scientific study, best practice
requires the analyst to disclose the quality control and quality
assurance techniques employed to ensure the data used in the analysis
is reliable.\1188\ We believe this same practice should apply when
preparing and analyzing data for the purpose of individually material
property disclosure as well as disclosure regarding properties that are
only material in the aggregate. We also believe an internal controls
disclosure requirement is particularly important for a company with
multiple properties to ensure that best practice is followed across all
properties.
---------------------------------------------------------------------------

    \1187\ See 17 CFR 229.1305(b) [Item 1305(b) of Regulation S-K].
    \1188\ See S. C. Kazmierczak, Laboratory Quality Control: Using
Patient Data to Assess Analytical Performance, Clinical Chemistry
and Laboratory Medicine 617-627 (2003); see generally M. J. Chandra,
Statistical Quality Control (2001).
---------------------------------------------------------------------------

    In response to commenters,\1189\ we are clarifying that Item 1305
requires disclosure of internal controls that the registrant has put in
place to ensure that its exploration results and mineral resource and
reserve estimates on its mining properties are reliable, and not for
any other purpose. Given the similarity between our mining property
internal controls requirement and those of other mining jurisdictions,
our requirement should not significantly alter the disclosure practices
of those registrants that are listed in these jurisdictions. For
registrants that are not currently subject to an internal controls
disclosure requirement, and for which providing such disclosure has not
become current practice, we believe investors will benefit from such
disclosure, though we recognize that registrants will incur additional
costs.
---------------------------------------------------------------------------

    \1189\ See letters by FCX and Amec.
---------------------------------------------------------------------------

H. Conforming Changes to Certain Forms Not Subject to Regulation S-K

1. Form 20-F
i. Rule Proposal
    Foreign private issuers \1190\ use Form 20-F \1191\ as a
registration statement under Section 12 of the Exchange Act \1192\ or
as an annual or transition report filed under Section 13(a) \1193\ or
15(d) of the Exchange Act.\1194\ Form 20-F also provides much of the
substantive disclosure requirements for foreign private issuers filing
Securities Act registration statements on Forms F-1,\1195\ F-3 \1196\
and F-4.\1197\
---------------------------------------------------------------------------

    \1190\ A foreign private issuer is any foreign issuer other than
a foreign government, except for an issuer that has more than 50% of
its outstanding voting securities held of record by U.S. residents,
and regarding which any of the following is true: A majority of its
officers and directors are citizens or residents of the United
States, more than 50 percent of its assets are located in the United
States, or its business is principally administered in the United
States. See Securities Act Rule 405 and 17 CFR 240.3b-4(c) [Exchange
Act Rule 3b-4(c)].
    \1191\ 17 CFR 249.220f.
    \1192\ 15 U.S.C. 78l.
    \1193\ 15 U.S.C. 78m(a).
    \1194\ 15 U.S.C. 78o(d).
    \1195\ 17 CFR 239.31.
    \1196\ 17 CFR 239.33.
    \1197\ 17 CFR 239.34.
---------------------------------------------------------------------------

    The Commission revised Form 20-F in 1999 to conform its disclosure
requirements to the international disclosure standards endorsed by the
International Organization of Securities Commissions (``IOSCO'') in
September 1998.\1198\ As a result, Form 20-F, rather than Regulation S-
K, provides the primary non-financial disclosure requirements for
foreign private issuers under the Securities Act and the Exchange Act.
For example, Item 4.D of Form 20-F sets forth the disclosure
requirements for a foreign private issuer's property \1199\ rather than
Item 102 of Regulation S-K. An instruction to Item 4 directs the
registrant to ``[f]urnish the information specified in any industry
guide listed in subpart 229.800 of Regulation S-K.'' \1200\ Thus, like
domestic registrants, foreign private issuers currently provide the
disclosures set forth in Guide 7.
---------------------------------------------------------------------------

    \1198\ See Securities Act Release No. 33-7745 (September 28,
1999) [64 FR 53900].
    \1199\ Form 20-F Item 4.D provides that the registrant must
provide information regarding any material tangible fixed assets,
including leased properties, and any major encumbrances thereon,
including a description of the size and uses of the property;
productive capacity and extent of utilization of the company's
facilities; how the assets are held; the products produced; and the
location. The registrant must also describe any environmental issues
that may affect the company's utilization of the assets. With regard
to any material plans to construct, expand or improve facilities,
the registrant must describe the nature of and reason for the plan,
an estimate of the amount of expenditures including the amount of
expenditures already paid, a description of the method of financing
the activity, the estimated dates of start and completion of the
activity, and the increase of production capacity anticipated after
completion.
    \1200\ Instruction 1 to Item 4 of Form 20-F.
---------------------------------------------------------------------------

    Because of our belief that the Commission's mining property
disclosure rules should continue to apply to both foreign private
issuers and domestic registrants, we proposed to amend Form 20-F by
adding an instruction to Item 4 that issuers engaged in mining
operations must refer to and, if required, provide the disclosure under
subpart 1300 of Regulation S-K.\1201\ We further proposed to remove in
their entirety the current instructions to Item 4.D of Form 20-F,
which, among other matters, limit

the disclosure of estimates to proven and probable reserves.\1202\
---------------------------------------------------------------------------

    \1201\ See Proposing Release, supra note 5, at Section II.H.1.
    \1202\ These instructions provide, among other matters, that, in
the case of an extractive enterprise, other than an oil and gas
producing activity, the issuer must provide material information
about production, reserves, locations, developments and the nature
of its interest. If individual properties are of major significance,
the issuer must provide more detailed information about those
properties and use maps to disclose information about their
location. These instructions further provide that, in documents
filed publicly with the Commission, the issuer must not disclose
estimates of reserves unless the reserves are proven or probable and
must not give estimated values of those reserves, unless foreign or
state law requires the issuer to disclose the information. See
Instruction 1 to Item 4.D of Form 20-F.
---------------------------------------------------------------------------

    In addition, we proposed to add an instruction to the exhibits
section of Form 20-F stating that a registrant that is required to file
a technical report summary pursuant to Item 1302(b)(2) of Regulation S-
K must provide the information specified in Item 601(b)(96) of
Regulation S-K as an exhibit to its registration statement or annual
report on Form 20-F.\1203\
---------------------------------------------------------------------------

    \1203\ See Proposing Release, Section II.H.1. Because Forms F-1,
F-3, and F-4 are already subject to the exhibit requirements of Item
601 of Regulation S-K, registrants using those forms that meet the
requirements of proposed Item 1302(b)(2) would be required to file a
technical report summary as an exhibit pursuant to proposed Item
601(b)(96).
---------------------------------------------------------------------------

    As previously mentioned, we proposed to eliminate the ``foreign or
state law'' exception under Item 102 and Guide 7 whereby Canadian
registrants that report pursuant to Form 20-F and file registration
statements on Forms F-1, F-3, and F-4 are currently permitted to
provide mining disclosure that meets the requirements of Canada's NI
43-101.\1204\ Thus, as proposed, the sole group of Canadian registrants
that could continue to report pursuant to Canadian disclosure
requirements following adoption of the revised mining disclosure rules
would be those Canadian issuers that report pursuant to the
Multijurisdictional Disclosure System (``MJDS'').\1205\
---------------------------------------------------------------------------

    \1204\ See supra Section II.E.1.
    \1205\ The MJDS permits seasoned Canadian issuers meeting
certain other requirements to use their Canadian disclosure
documents when filing their Exchange Act registration statements and
annual reports on Form 40-F or their Securities Act registration
statements on Forms F-10, F-7, F-8 and F-80.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Commenters that addressed the issue supported the Commission's
proposal to amend Form 20-F to conform it to the disclosure
requirements of proposed subpart 1300 and proposed Item 601(b)(96) of
Regulation S-K so that foreign private issuers that use or refer to
Form 20-F for their Commission filings would be subject to the same
mining disclosure requirements as domestic mining registrants.\1206\
One commenter also approved of the proposal to preclude Canadian
issuers, other than MJDS issuers, from providing reports pursuant to
Canada's NI 43-101 in order to ensure comparability of reporting under
the proposed rules.\1207\
---------------------------------------------------------------------------

    \1206\ See letters from Alliance, Amec, AngloGold, CBRR,
Eggleston, Midas, Rio Tinto, SAMCODES 2, and SRK 1.
    \1207\ See letter from CBRR.
---------------------------------------------------------------------------

    Numerous commenters, however, recommended permitting Canadian
registrants, including those that do not qualify for the MJDS, to
continue providing mining disclosure that meets the requirements of
Canada's NI 43-101.\1208\ As one commenter explained, ``the Foreign Law
Exception should remain in place for Canadian foreign private issuers
of all sizes as a recognition of the sufficiency of NI 43-101 for the
protection of investors and the burdens of dual compliance for Canadian
20-F Filers.'' \1209\
---------------------------------------------------------------------------

    \1208\ See letters from Amec, AngloGold, Dorsey & Whitney,
Eggleston, Midas, SAMCODES 2, SME 1, SRK 1, and Troutman Sanders.
    \1209\ Letter from Troutman Sanders.
---------------------------------------------------------------------------

    Some commenters recommended allowing non-Canadian issuers to file
the disclosure documents produced under their home country listing
requirements as long as those requirements met CRIRSCO standards, such
as JORC or SAMREC.\1210\ Some commenters stated that not permitting
these issuers to file their CRIRSCO-based disclosure documents would be
burdensome particularly if the Commission adopted the mining property
disclosure requirements as proposed.\1211\
---------------------------------------------------------------------------

    \1210\ See letters from AngloGold, Midas, and Rio Tinto.
    \1211\ See, e.g., letters from Eggleston, Energy Fuels, and SME
1.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting the proposed revisions to Form 20-F so that foreign
private issuers that use Form 20-F to file their Exchange Act annual
reports and registration statements, or that refer to Form 20-F for
their Securities Act registration statements on Forms F-1, F-3, and F-
4, will have to comply with the mining disclosure requirements of new
subpart 1300 of Regulation S-K and the technical report summary
requirements in Item 601(b)(96), as applicable. We continue to believe
that, with the exception of MJDS registrants, foreign private issuers
with material mining operations should be subject to the same mining
property disclosure requirements as domestic registrants. This
treatment will protect investors, who require information about the
material mining operations of foreign registrants just as much as those
of domestic registrants, and facilitate the comparison of mining
property disclosure among most registrants.
    The final rules do not permit Canadian registrants that are not
MJDS-eligible to continue to provide disclosure that meets the
requirements of Canada's NI 43-101, nor do they permit non-Canadian
registrants to file disclosure documents that meet the requirements of
another CRIRSCO-based code to satisfy their U.S. reporting obligations,
as recommended by some commenters. Commenters that made these
recommendations were concerned about the significant differences
between the CRIRSCO standards and the proposed rules, and the
correspondingly significant compliance burden that a dual-listed
registrant would incur if the Commission adopted those rules as
proposed.\1212\ The final rules eliminate many of these differences,
and are less prescriptive than the proposed rules in several
respects.\1213\ For example, the final rules permit the registrant and
its qualified person to use any reasonable and justifiable price when
determining and disclosing estimates of mineral resources or mineral
reserves. The final rules also permit a qualified person to prepare a
pre-feasibility study for reserve determination, even in high risk
situations, without being required to justify its use instead of a
final feasibility study. We believe that these changes to the proposed
rules, together with many others that we are adopting, will
significantly limit the incremental burden of the final rules for dual-
listed issuers, and in particular for Canadian registrants.
Furthermore, although most of the technical report summary requirements
are based on the Canadian NI 43-101F1, there nevertheless are important
differences between the Canadian technical report requirements and the
final rules, such as the final rules' general prohibition against using
disclaimers of liability. For these reasons, we do not believe it is
necessary or appropriate to continue to permit Canadian issuers to
prepare and submit their Commission filings in accordance with Canada's
NI 43-101 under the ``foreign or state law'' exception or otherwise.
---------------------------------------------------------------------------

    \1212\ See, e.g., letters from Dorsey & Whitney, SME 1, and
Troutman Sanders.
    \1213\ See supra Section I.B. for a summary of the principal
changes to the proposed rules.
---------------------------------------------------------------------------

    We are not requiring MJDS registrants to comply with new subpart
1300 because, as we explained in the Proposing Release,\1214\ the
ability of

those registrants to use their Canadian disclosure documents for
purposes of their Exchange Act and Securities Act filings is based on
their eligibility to file under the MJDS, and not on the ``foreign or
state law'' exception under Guide 7 and Item 102. At least one
commenter expressly approved of the Commission's proposal to permit
MJDS filers to continue to meet their mining property disclosure
obligations pursuant to Canada's NI 43-101.\1215\
---------------------------------------------------------------------------

    \1214\ See Proposing Release, supra note 5, at Section II.H.1.
    \1215\ See letter from Dorsey & Whitney.
---------------------------------------------------------------------------

2. Form 1-A
i. Rule Proposal
    Regulation A provides an exemption from the registration
requirements of the Securities Act for certain securities offerings
that satisfy specified conditions, such as filing an offering statement
with the Commission,\1216\ limiting the dollar amount of the offering
\1217\ and, in certain instances, filing ongoing reports with the
Commission.\1218\ Form 1-A is the offering statement used by issuers
that are eligible to engage in securities offerings under Regulation
A.\1219\
---------------------------------------------------------------------------

    \1216\ See 17 CFR 230.251(d) [Securities Act Rule 251(d)].
    \1217\ See 17 CFR 230.251(a) [Securities Act Rule 251(a)].
    \1218\ See 17 CFR 230.257 [Securities Act Rule 257].
    \1219\ 17 CFR 230.251-230.263.
---------------------------------------------------------------------------

    When the Commission amended Regulation A in 2015,\1220\ it updated
Item 7 of Part II of Form 1-A concerning the required ``Description of
Business'' disclosure by adding a provision stating that the disclosure
guidelines in all Securities Act Industry Guides must be followed. The
provision also stated that, to the extent that the industry guides are
codified into Regulation S-K, the Regulation S-K industry disclosure
items must be followed.\1221\
---------------------------------------------------------------------------

    \1220\ See Securities Act Release No. 33-9741 (March 25, 2015)
[80 FR 21806] (``Regulation A Adopting Release'').
    \1221\ See Form 1-A, Part II, Item 7(c).
---------------------------------------------------------------------------

    Because this provision, however, only appears in Item 7(c) of Part
II, which governs ``business'' disclosure, we proposed to amend Part II
of Form 1-A to apply the scope of the requirement to the description of
property for certain issuers by adding similar language under Item 8 of
Part II to Form 1-A.\1222\ Specifically, in order to require the Form
1-A property disclosure requirements to include the mining disclosure
provisions under proposed subpart 1300 of Regulation S-K, we proposed
to add a provision stating that issuers engaged in mining operations
must refer to and, if required, provide the disclosure under subpart
1300 of Regulation S-K in addition to any disclosure required by Item
8.
---------------------------------------------------------------------------

    \1222\ See Proposing Release, supra note 5, at Section II.H.2.
See also Item 8 of Part II to Form 1-A (Description of Property)
(requiring that an issuer: ``[s]tate briefly the location and
general character of any principal plants or other material physical
properties of the issuer and its subsidiaries. If any such property
is not held in fee or is held subject to any major encumbrance, so
state and briefly describe how held. Include information regarding
the suitability, adequacy, productive capacity and extent of
utilization of the properties and facilities used in the issuer's
business''). We proposed to designate this current provision as
paragraph (a) of Item 8.
---------------------------------------------------------------------------

    We also proposed to amend the instruction to Item 8, which
currently provides that ``[d]etailed descriptions of the physical
characteristics of individual properties or legal descriptions by metes
and bounds are not required and should not be given.'' Because much of
the disclosure under proposed subpart 1300 would require detailed
descriptions of mining properties, we proposed to amend this
instruction by excepting from its scope the disclosure required under
the proposed rules, as referenced in paragraph (b) of Item 8.
    In order to require Regulation A issuers engaged in mining
operations to be subject to the new subpart's technical report summary
filing requirement, we proposed to amend Item 17 (Description of
Exhibits) of Part III under Form 1-A by adding a provision stating that
an issuer that is required to file a technical report summary pursuant
to Item 1302(b)(2) of Regulation S-K must provide the information
specified in Item 601(b)(96) of Regulation S-K as an exhibit to its
Form 1-A.\1223\
---------------------------------------------------------------------------

    \1223\ See Proposing Release, supra note 5, at Section II.H.2.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Several commenters addressed the Commission's proposal to amend
Form 1-A to conform it to the disclosure requirements of proposed
subpart 1300 and proposed Item 601(b)(96) of Regulation S-K so that
Regulation A issuers engaged in mining operations would be subject to
the same disclosure requirements as other issuers with mining
operations.\1224\ One commenter stated that because Form 1-A filers are
subject to the property disclosures outlined in Guide 7, it would be
appropriate to subject them to the new mining property disclosure
requirements.\1225\ Another commenter supported including Form 1-A
filers within the scope of the new rules in order to align the mining
property disclosure standards regardless of the type of
registrant.\1226\ The other commenters supported the proposal without
explanation.\1227\ No commenter opposed including Regulation A issuers
within the scope of the new rules.
---------------------------------------------------------------------------

    \1224\ See letters from Alliance, AngloGold, CBRR, Midas, Rio
Tinto, and SRK 1.
    \1225\ See letter from Alliance.
    \1226\ See letter from Rio Tinto.
    \1227\ See letters from AngloGold, CBRR, Midas, and SRK 1. One
other commenter stated that he had no comment regarding the
proposal. See letter from Eggleston.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting the proposed revisions to Form 1-A to require
Regulation A issuers with material mining operations to comply with all
of the disclosure requirements in subpart 1300 of Regulation S-K as
well as the technical report summary requirements in Item 601(b)(96),
as applicable. We continue to believe that investors in Regulation A
offerings by issuers with material mining operations require the same
information about those operations as investors in registered
offerings. This treatment will also facilitate a comparison of mining
property disclosure among issuers regardless of the type of issuer.

I. Transition Period and Compliance Date

    Several commenters requested that the Commission provide a
transition period in order to give registrants ample time to prepare
their Commission filings in compliance with the new mining property
disclosure regime.\1228\ Several commenters recommended that the
Commission provide a two-year transition period before the new regime
would become mandatory.\1229\ Other commenters recommended a three-year
transition period.\1230\ Commenters justified the need for a transition
period based on the extensive changes to the current disclosure
framework under Guide 7 \1231\ and because some registrants may not be
subject to similar disclosure requirements under the CRIRSCO-based
codes.\1232\ One of the commenters suggested that the Commission should
permit registrants to comply earlier on a voluntary basis.\1233\
---------------------------------------------------------------------------

    \1228\ The Proposing Release did not specify a particular
compliance date for the proposed rules.
    \1229\ See letters from Cleary & Gottlieb, FCX, SME 1, and Vale.
    \1230\ See letters from Davis Polk and NMA 1.
    \1231\ See letter from Vale.
    \1232\ See, e.g., letter from Davis Polk.
    \1233\ See id.
---------------------------------------------------------------------------

    Although we have made numerous changes to the proposed rules that
will more closely align our mining property disclosure regime with the
CRIRSCO standards, we are persuaded by commenters that adoption of an
appropriate transition period would

help to ease the burden of complying with the final rules. We are
therefore adopting a two-year transition period so that a registrant
will not be required to comply with the new rules until the first
fiscal year beginning on or after January 1, 2021. Thus, for a calendar
year-end company, a registrant will be required to comply with the
final rules when filing Securities Act and Exchange Act registration
statements on or after this date and when filing its Form 10-K or Form
20-F annual report for the fiscal year ended December 31, 2021.
    We believe this transition period will provide ample time for
mining registrants that are not familiar with the CRIRSCO standards to
comply with the new rules. If any registrant not subject to the CRIRSCO
standards finds that it faces unique challenges meeting the new
disclosure requirements, we encourage such registrant to contact the
staff.
    The transition period also will help registrants that are currently
subject to one or more of the CRIRSCO-based codes to comply with the
few requirements under subpart 1300 that differ from the CRIRSCO
standards (e.g., the general prohibition against using disclaimers of
liability). At the same time, we do not believe this transition period
will significantly delay the benefits of the final rules for investors.
    A registrant may decide that it would like to take advantage of the
final rules (e.g., by disclosing mineral resources in a Commission
filing) prior to the completion of the transition period. Once the
Commission has completed EDGAR reprogramming made necessary by the
final rules, we will permit registrants to comply with the new mining
property disclosure rules prior to the compliance date as long as they
abide by all of subpart 1300's requirements.\1234\ Until then,
registrants should continue looking to Guide 7 for their mining
property disclosures. Guide 7 will remain effective until all
registrants are required to comply with the final rules, at which time
Guide 7 will be rescinded.
---------------------------------------------------------------------------

    \1234\ Notice of EDGAR system readiness will be provided in a
manner similar to notices of EDGAR Filer Manual updates.
---------------------------------------------------------------------------

III. Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.

IV. Economic Analysis

    We are adopting amendments to modernize the property disclosure
requirements for mining registrants, and related guidance, currently
set forth in Item 102 of Regulation S-K and in Industry Guide 7. The
discussion below addresses the economic effects of the final rules,
including the likely costs and benefits of those rules, as well as the
likely effect of the final rules on efficiency, competition, and
capital formation.
    We are mindful of the costs imposed by, and the benefits obtained
from, the rules we adopt. Securities Act Section 2(b) and Exchange Act
Section 3(f) require us, when engaging in rulemaking that requires us
to consider or determine whether an action is necessary or appropriate
in the public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.\1235\ Exchange Act Section 23(a)(2) requires us,
when adopting rules under the Exchange Act, to consider the impact that
any new rule would have on competition and to not adopt any rule that
would impose a burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\1236\
We have considered the likely costs and benefits that will result from
the final rules, as well as the potential effects on efficiency,
competition, and capital formation.
---------------------------------------------------------------------------

    \1235\ 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
    \1236\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    We also have analyzed the potential benefits and costs of
reasonable alternatives to the final rules. The alternatives we
consider below represent different approaches to achieving the goal of
modernizing the Commission's mining property disclosure requirements
and policies. Given the goal of updating the existing regulatory
framework, we evaluate the potential costs and benefits of these
alternative approaches against the potential costs and benefits of the
final rules' disclosure requirements, rather than against the baseline.
    The final rules are intended to modernize the Commission's mining
property disclosure requirements by providing investors with a more
comprehensive and accurate understanding of a registrant's mining
properties, all of which should help investors make more informed
investment decisions. This, in turn, will reduce the cost of capital
and enhance capital formation. As suggested by several
commenters,\1237\ the U.S. capital markets may be comparatively less
attractive to potential mining registrants due, in part, to the
Commission's current disclosure regime, with some commenters \1238\
citing the comparatively low amount of capital among mining companies
in the U.S. markets. The final rules will also align more closely with
industry practices and standards as reflected in CRIRSCO-based
disclosure standards.
---------------------------------------------------------------------------

    \1237\ See letters from Coeur, Midas Gold, NMA, SME 1, SRK 1,
and Ur-Energy.
    \1238\ See letters from SRK 1 and Royal Gold.
---------------------------------------------------------------------------

A. Baseline

    To assess the economic impact of the final rules, we consider, as
part of our baseline, the current disclosure requirements and policies
in Item 102 of Regulation S-K, Guide 7, Form 20-F, and Form 1-A, as
well as current market practices. We also consider the disclosure
standards of various CRIRSCO-based disclosure standards, because mining
registrants compete in the international commodities and capital
markets, making international disclosure standards an important
benchmark for analysts and investors evaluating mining companies.
Furthermore, these standards are relevant to consider because, as
discussed above, many mining registrants are foreign private issuers or
U.S.-incorporated registrants with reporting obligations in foreign
jurisdictions. Thus, to the extent that the final rules align the
Commission's requirements with CRIRSCO-based disclosure standards, we
expect their economic impact to be less for these registrants.
1. Affected Parties
    The final rules will primarily affect registrants with mining
activities that are subject to the mining disclosure requirements and
policies contained in Item 102 of Regulation S-K and in Guide 7. In
addition to U.S. registrants with mining operations that are required
to report under Regulation S-K in their annual reports and registration
statements, the final rules will affect foreign private issuers with
mining operations that file their Exchange Act annual reports and
registration statements using Form 20-F or that refer to Form 20-F for
certain of their disclosure obligations under Securities Act
registration statements filed on Forms F-1, F-3, and F-4. Moreover, the
affected registrants will include mining companies filing Form 1-A
offering statements under Regulation A. Investors, analysts, and other
users of

the information in annual reports, registration statements, and
offering statements filed with the Commission also will be affected by
the final rules. Finally, mining professionals, such as geologists and
mining engineers, who provide services to registrants related to
exploration and estimation of mineral resources and reserves will
potentially be affected due to the qualified person requirement and
related provisions.
    To estimate the number of current registrants that will potentially
be affected by the final rules, we first identify those registrants as
of December 2017 that filed annual reports or relevant registration
statements at least once from January 2016 through December 2017. We
then identify registrants with mining primary Standard Industrial
Classification (``SIC'') codes.\1239\ We also identify those
registrants without mining primary SIC codes that provide disclosure
concerning their mining operations in their SEC filings pursuant to
Item 102 of Regulation S-K and Guide 7. Based on this approach, we
estimate that the total number of potentially affected registrants is
267 (46 of which are registrants that do not have mining primary SIC
codes), which includes one Regulation A issuer.
---------------------------------------------------------------------------

    \1239\ Specifically, the mining SIC codes considered are 1000,
1011, 1021, 1031, 1040, 1041, 1044, 1061, 1081, 1090, 1094, 1099,
1220, 1221, 1222, 1231, 1400, 1422, 1423, 1429, 1442, 1446, 1455,
1459, 1474, 1475, 1479, 1481, 1499, 3330, 3334, and 6795.
---------------------------------------------------------------------------

    Among these registrants, we anticipate that the final rules will
have a more significant effect on those mining registrants that are not
currently reporting consistent with CRIRSCO-based disclosure standards.
To estimate the number of registrants reporting consistent with
CRIRSCO-based disclosure standards, we identify those registrants
disclosing mining operations in jurisdictions using CRIRSCO-based codes
in addition to those U.S.-incorporated registrants that we can manually
verify are cross- or dual-listed, or otherwise reporting, in CRIRSCO
jurisdictions. Out of 267 registrants, we identify 107 registrants--70
foreign private issuers and 37 U.S. registrants--that are potentially
reporting mining operations according to CRIRSCO-based disclosure
standards. Accordingly, we estimate that there are 160 identified
registrants that report solely to the Commission and will therefore
potentially be more affected by the final rules than registrants that
currently report elsewhere according to CRIRSCO-based disclosure
standards.
    Included among the 107 registrants that are potentially reporting
mining operations according to CRIRSCO-based disclosure standards are
85 registrants that are registered with one of the Canadian provincial
securities administrators and therefore subject to the disclosure
requirements of Canada's NI 43-101. Out of these registrants, 37 are
U.S. domestic registrants and 48 are foreign private issuers (mainly
companies incorporated in Canada). Among the 48 foreign private issuers
registered in Canada, 10 voluntarily file with the Commission using
domestic forms and 38 use the forms for foreign private issuers. As
discussed above, Canadian registrants are currently able to provide
disclosure in their Commission filings pursuant to NI 43-101, in
addition to the disclosure called for by Guide 7 or Form 20-F. A number
of the provisions in the final rules will more closely align our
disclosure requirements with those in NI 43-101. As such, we estimate
that the 38 Canadian registrants that are currently providing
disclosure pursuant to NI 43-101 in their filings with the Commission
will likely be the least affected by the final rules. In addition, we
expect the 47 domestic registrants and foreign private issuers filing
disclosures pursuant to NI 43-101 with Canadian securities
administrators will be less affected than the remaining 22 foreign
private issuers that are not Canadian registrants, but that are
potentially reporting mining operations according to CRIRSCO-based
disclosure standards.
    Among the 22 foreign private issuers that are potentially reporting
mining operations according to CRIRSCO-based (but not Canadian)
disclosure standards are 14 companies listed in foreign jurisdictions
with CRIRSCO-based codes that require technical reports similar to our
final rule requirements.\1240\ The degree of similarity of foreign
jurisdictions' requirements to our final rule requirements should limit
the degree to which foreign private issuers experience any increases in
compliance costs. However, to the extent the requirements in these
jurisdictions are less closely aligned with Canada's NI 43-101F1
compared to the requirements for the technical report summary in the
final rules, we expect that these foreign private issuers will be
affected by the final rules more than Canadian registrants, as the
final rules are quite similar to Canadian disclosure requirements. On
the other hand, we expect these foreign private issuers to be affected
by the final rules less than foreign private issuers listed in other
non-Canadian jurisdictions that have adopted CRIRSCO-based standards,
but do not have requirements for technical reports, as these foreign
private issuers will be familiar with a technical report requirement.
---------------------------------------------------------------------------

    \1240\ Among these companies are four companies listed in
Australia and reporting pursuant to JORC, six companies listed on
the London Stock Exchange and reporting pursuant to PERC, and six
companies listed in South Africa and reporting pursuant to SAMREC.
For a discussion of the requirements for technical reports in these
codes, see supra notes 1127 and 1130, and accompanying text.
---------------------------------------------------------------------------

    As discussed above, we believe that some domestic mining
registrants are currently following certain of the CRIRSCO-based
disclosure standards, such as those relating to the determination of
mineral resources, for their own internal purposes, even if they are
not currently permitted to disclose mineral resources in their
Commission filings.\1241\ These registrants also will be less affected
by the final rules. Based on the comments received, it appears that
domestic registrants in the industrial minerals and aggregates sector
of the mining industry currently are least likely to follow CRIRSCO
standards, such as those relating to mineral resources.\1242\
Accordingly, we expect that registrants in the industrial minerals and
aggregates sector will be more affected on average by the final rules.
We estimate that 33 of the 267 registrants potentially affected by the
final rules operate in the industrial minerals/aggregates industry.
Five of those registrants may already be subject to the CRIRSCO
standards.
---------------------------------------------------------------------------

    \1241\ See supra note 447 and accompanying text.
    \1242\ See supra notes 438-439 and accompanying text.
---------------------------------------------------------------------------

    We estimate that 43% of mining registrants (114 out of the 267
registrants identified above) have $5 million or less in total assets.
Exploration-stage issuers, by definition, have no disclosed mineral
reserves and are therefore likely to be under the $5 million asset
threshold. In contrast, development-stage and production-stage issuers,
by definition, have mineral reserves on material properties and are
therefore likely to have assets that will push them above the $5
million threshold. Thus, it is likely that many of these smaller mining
registrants are exploration-stage issuers. We expect that these smaller
registrants may be comparatively more affected by the final rules
compared to larger registrants. For example, the benefits of being able
to disclose exploration targets and mineral resources may be relatively
larger for these firms, as by definition they have no mineral reserves
to disclose. In addition, although many of the disclosure requirements
are qualified by a materiality standard, the effect of the final rules'
compliance costs may be disproportionately larger for these

registrants to the extent such compliance costs have a fixed cost
component.
    The final rules will also affect mining professionals, in
particular those individuals who conduct the work that forms the basis
for disclosure of exploration results, mineral resources, and mineral
reserves. Commenters noted that many registrants already employ or hire
professionals who meet the definition of a qualified person.\1243\ More
generally, we estimate that there are currently a large number of
professionals in the United States who would meet the definition of
qualified person. For example, the Society for Mining, Metallurgy, and
Exploration currently has 15,000 members around the world.\1244\ More
than 800 of these members are registered with the organization and
already meet the definition of a qualified person.\1245\ Moreover, a
study by the Bureau of Labor Statistics reported that in 2014 there
were 34,000 geoscientists, 16,500 geological and petroleum technicians,
and 8,300 mining and geological engineers employed in the United
States.\1246\ A significant fraction of these professionals likely meet
the definition of qualified person, or could meet it after some
professional development. For example, California alone had more than
5,000 recorded licensed professional geologists as of November
2014.\1247\ We note that these estimates largely exclude professionals
who are active in foreign markets and who could also qualify. Although
we do not have access to information that would allow us to estimate
how many foreign professionals may qualify as qualified persons, we
believe there will be a significant number of such professionals who
meet the criteria because similar requirements are in place in
jurisdictions, such as Canada and Australia, that together have more
than 1,800 publicly-listed mining companies.\1248\
---------------------------------------------------------------------------

    \1243\ See letters from AIPG, Alliance, Amec, Davis Polk,
Eggleston, FCX, Golder, Graves, JORC, Rio Tinto, Shearman &
Sterling, SME 1, SRK 1, Vale, and Willis.
    \1244\ See the SME website at: https://www.smenet.org/about-sme/overview.
    \1245\ See the SME website at: http://www.smenet.org/membership/registered-member-directory.
    \1246\ See Bureau of Labor Statistics, U.S. Department of Labor,
Occupational Outlook Handbook, 2016-17 Edition, Geoscientists
(available at: http://www.bls.gov/ooh/life-physical-and-social-science/geoscientists.htm), Geological and Petroleum Technicians
(available at: http://www.bls.gov/ooh/life-physical-and-social-science/geological-and-petroleum-technicians.htm), and Mining and
Geological Engineers (available at: http://www.bls.gov/ooh/architecture-and-engineering/mining-and-geological-engineers.htm).
    \1247\ See the website of the National Association of State
Boards of Geology, http://asbog.org/states/cd_states.htm#California.
A geologist licensed by any state in the United States, provided he
or she has five years' relevant experience in mining with respect to
the type of mineralization under consideration, will likely meet the
definition of a qualified person.
    \1248\ For statistics on the number of listed mining issuers in
Canada, see https://www.tsx.com/listings/listing-with-us/sector-and-product-profiles/mining. For statistics on the number of listed
mining issuers in Australia, see https://www.asx.com.au/documents/resources/00180_MetalsMiningSector_FactSheet_web.pdf.
---------------------------------------------------------------------------

2. Current Regulatory Framework and Market Practices
    As discussed above, we evaluate the economic effects of the final
rules against the Commission's current disclosure requirements and
policies. Below we highlight three economically important aspects: (1)
The structure and detail of the current disclosure framework, (2) the
scope of the current disclosure framework, and (3) the lack of an
expertise requirement for the preparer of technical information in the
disclosures.\1249\
---------------------------------------------------------------------------

    \1249\ In addition, the current regulatory requirements impose
Section 11 liability on the named person who prepares mineral
reserve estimates. See supra note 278 and accompanying discussion.
---------------------------------------------------------------------------

i. Structure and Detail of Current Disclosure Framework
    The following aspects of the current disclosure regime can give
rise to compliance burdens for mining registrants:

     Overlapping disclosure framework. The current
disclosure framework is set forth in Item 102 of Regulation S-K,
which is a Commission rule, Form 20-F, which is a form used by
foreign private issuers that contains disclosure requirements,\1250\
and Industry Guide 7, which represents the disclosure policies and
practices followed by the Division of Corporation Finance. This
overlapping structure may give rise to unnecessary complexity and
uncertainty for mining registrants.\1251\
---------------------------------------------------------------------------

    \1250\ See 17 CFR 249.220f.
    \1251\ See supra Section II.A. and note 36 and accompanying
text.
---------------------------------------------------------------------------

     Multiple thresholds for disclosure. Item 102 of
Regulation S-K currently implies a two-tiered reporting standard.
Registrants with ``significant'' mining operations are referred to
the more extensive disclosure policies in Guide 7, whereas
registrants without significant mining operations, but with one or
more ``principal'' mines or other ``materially important''
properties, are required to comply with the more limited disclosure
requirements in Item 102. As discussed above, Commission staff
historically has advised that registrants apply a materiality
standard for disclosure and, when that standard is met, provide
disclosure according to both Item 102 and Guide 7.
     Level of detail. Because the disclosure policies in
Guide 7 are broadly drafted, registrants often look to staff
guidance to apply those policies. For example, as discussed above,
Guide 7 calls for the disclosure of mineral reserves, defined as the
part of a mineral deposit that can be economically and legally
extracted or produced. It does not, however, specify the level of
geological evidence or the analysis, such as the modifying factors
the registrant should consider, to convert existing mineral deposits
to reserves. By contrast, CRIRSCO-based disclosure standards specify
a more detailed framework for determination and disclosure of
mineral reserves that specifically addresses such issues. These
aspects of the current disclosure framework can be burdensome for
mining registrants, especially new registrants. In this regard, some
industry participants have raised concerns regarding the need to
look to informal staff guidance to achieve compliance.\1252\
---------------------------------------------------------------------------

    \1252\ See supra note 28 and accompanying text.
---------------------------------------------------------------------------

ii. Scope of the Current Disclosure Requirements and Policies
    As discussed above, Item 102 of Regulation S-K, Guide 7, and Form
20-F currently call for the disclosure of mineral reserves and preclude
the disclosure of non-reserve estimates such as mineral resources,
unless required by foreign or state law.\1253\ Further, none of these
provisions requires disclosure of mineral exploration results. By
contrast, for mining companies providing disclosure in certain foreign
jurisdictions, CRIRSCO-based codes require disclosure of material
mineral resources in addition to material mineral reserves and require
the disclosure of exploration results when they become material to
investors.
---------------------------------------------------------------------------

    \1253\ In practice, only Canadian issuers have been able to take
advantage of this exception because only Canada has adopted its
mining disclosure requirements as a matter of law. See supra note
423 and accompanying text.
---------------------------------------------------------------------------

    The scope of the Commission's current disclosure regime relative to
current industry practices for evaluating the prospects of mining
properties can result in mining registrants omitting from their
disclosures information about mineral resources they possess but are
not allowed to disclose. Omitting such information may increase
information asymmetries between mining registrants and investors, which
could lead to potentially negative capital market consequences, such as
reduced stock market liquidity and higher cost of capital.\1254\
Moreover, because mining companies providing disclosure

consistent with CRIRSCO-based disclosure standards in foreign
jurisdictions are required to disclose mineral resources, U.S.
registrants may suffer adverse competitive effects to the extent that
the more limited scope of their disclosures has negative capital market
effects. Industry participants have raised concerns regarding the
adverse competitive effects potentially stemming from the current
disclosure regime and, in particular, from the inability to disclose
mineral resources.\1255\
---------------------------------------------------------------------------

    \1254\ The link between asymmetric information and cost of
capital is well established in the academic literature. See, e.g.,
Douglas W. Diamond and Robert E. Verrecchia ``Disclosure, Liquidity,
and the Cost of Capital'' (1991), Journal of Finance, Volume 46,
Issue 4, pp. 1325-1359, and David Easley and Maureen O'Hara,
``Information and the cost of capital'' (2004), Journal of Finance,
Volume 59, Issue 4, pp. 1553-1583.
    \1255\ See supra note 34 and accompanying text.
---------------------------------------------------------------------------

    Currently, registrants can supplement, to some extent, the scope of
their mining property disclosures in several ways. First, although
there is no requirement to disclose exploration results, registrants
can voluntarily disclose such information in their SEC filings. While
voluntary disclosures can serve as a useful signaling device for
investors, the value of voluntary disclosures may be limited in the
absence of a requirement that ensures consistency and quality of the
disclosures.
    Second, regarding the disclosure of mineral resources, Commission
staff has periodically, on a case-by-case basis, not objected to
disclosure of non-reserve mineral deposits in the form of ``mineralized
material.'' \1256\ In practice, the mineral resources covered by the
definition of ``mineralized material'' generally correspond with the
indicated and measured mineral resource categories defined in CRIRSCO-
based disclosure standards. Commission staff previously has advised
registrants that they should not disclose as mineralized material in
their SEC filings non-reserve mineral deposits that would be equivalent
to inferred resources. The absence of specific, published guidelines
establishing how registrants should estimate and report mineralized
materials may have contributed to compliance uncertainty and lack of
consistency in disclosures.
---------------------------------------------------------------------------

    \1256\ See supra Section II.A.
---------------------------------------------------------------------------

    Further, under the exception for disclosure of mineral resources,
if required by foreign or state law, issuers registered in Canada are
able to disclose mineral resources in SEC filings if they do so in
their Canadian filings. Therefore, any potential competitive
disadvantage of not being allowed to disclose mineral resources in SEC
filings primarily affects registrants not also registered in
Canada,\1257\ which in our estimates represent about 82% of the
registrants potentially affected by the final rules.\1258\
---------------------------------------------------------------------------

    \1257\ See SME Petition for Rulemaking, supra note 6, at 14.
    \1258\ We do not include foreign private issuers that are
registered in Canada but are voluntarily reporting on domestic forms
in this estimate, as such registrants can transition to filing on
Form 20-F instead of domestic forms if they perceive the burden of
continuing to voluntarily file on domestic forms to be too large,
for example due to competitive reasons.
---------------------------------------------------------------------------

    Given this, and also given that the disclosures of mineralized
material that are currently permitted in SEC filings are not directly
comparable to the disclosures of mineral resources required by CRIRSCO-
based disclosure standards, some registrants have reported their
mineral resources in press releases, on their website, or in their
annual reports. Such disclosures, made outside of SEC filings, may
present risks for investors who rely on them. These disclosures are not
subject to the full range of disclosure rules and regulations,
including corresponding liability provisions, to which SEC filings are
subject (although disclosures outside SEC filings would be subject to
the anti-fraud provisions of the federal securities laws). They also
are not subject to staff review and comment, and may not be reported
using commonly recognized standards.
iii. Role of Experts in Support of Disclosures of Mineral Reserves
    Guide 7 provides, and Form 20-F requires, that a registrant
disclose the name of the person estimating mineral reserves and
describe the nature of his or her relationship to the registrant. There
is, however, no current disclosure policy or requirement in Guide 7,
Item 102, or Form 20-F that a registrant must base disclosures of
mineral reserves (or a study or technical report supporting such
disclosures) on findings of a professional with a particular level of
expertise. The absence of an expertise requirement is in contrast to
CRIRSCO-based disclosure standards, which require that disclosures of
mineral reserves--as well as exploration targets, exploration results,
and mineral resources--be based on information and supporting
documentation prepared by a ``competent'' or ``qualified person.''
\1259\
---------------------------------------------------------------------------

    \1259\ An author of a study or technical report that forms the
basis of mineral reserves disclosure in a Securities Act
registration statement is required to consent to the use of his or
her name as an expert and thereby becomes subject to expert
liability under Section 11 of the Securities Act. See 17 CFR 230.436
and 17 CFR 229.601(b)(23). While this provides some assurance that
the disclosure accurately reflects the technical study or report, it
does not require that the author have any minimum level of technical
expertise. CRIRSCO-based disclosure codes are based on the mutually
reinforcing principles of transparency, materiality, and competence.
---------------------------------------------------------------------------

    In the absence of an expertise requirement, disclosures of
exploration targets, exploration results, mineral resources, and
mineral reserves may be viewed by investors as less credible.\1260\ An
expertise requirement provides greater assurance that the information
provided by the qualified person is accurate. The lack of an expertise
requirement may put U.S. registrants at a comparative disadvantage in
terms of how investors value the disclosed information compared to
companies disclosing exploration targets, exploration results, mineral
resources, and mineral reserves according to CRIRSCO-based disclosure
standards.\1261\
---------------------------------------------------------------------------

    \1260\ See infra Section IV.B.4.i.
    \1261\ Under the current disclosure regime, registrants can
choose to hire an expert with similar qualifications as those
required by CRIRSCO-based disclosure standards and voluntarily
disclose this fact to mitigate any competitive disadvantage.
---------------------------------------------------------------------------

B. Analysis of Potential Economic Effects

    In this section, we analyze the anticipated costs and benefits
associated with the final rules against the baseline described above.
We have attempted to quantify to the extent feasible the costs,
benefits, and effects on efficiency, competition, and capital formation
expected to result from the final rules. In many cases, however, we are
unable to quantify the economic effects. Many of the relevant economic
effects, such as the effects of disclosure on information asymmetries
experienced by investors, are inherently difficult to quantify. In
other cases, we lack the information necessary to provide reasonable
estimates, including costs of incomplete convergence with CRIRSCO-based
disclosure standards, benefits of disclosing mineral resources, or
additional costs of hiring a qualified person subject to Section 11
liability, because, to our knowledge, no such data are publicly
available and commenters have not provided data to allow such
quantification. To the extent commenters have provided data to allow
quantification of the expected economic effects of the final rules,
including cost estimates, we examine that data below.
1. Broad Economic Effects of the Final Rules and Impact on Efficiency,
Competition, and Capital Formation
    We expect the final rules to increase the quality and availability
of information about registrants' mining properties and thereby promote
efficiency, competition, and capital formation. For example, the final
rules require registrants with material mining

operations to disclose determined mineral reserves, mineral resources,
and material exploration results. These requirements better align the
Commission's disclosure requirements with the current practices used by
mining companies to evaluate their projects, thereby reducing
information asymmetries between registrants and investors about the
prospects of mining operations. In addition, the qualified person
requirement, together with detailed requirements for the supporting
technical studies, should generate higher quality and more consistent
disclosures, which should reduce uncertainty surrounding the
disclosures. In turn, reduced information asymmetries and reduced
uncertainty about the disclosures may help investors achieve a more
efficient capital allocation while increasing demand for securities
offerings, reducing the cost of capital, and enhancing capital
formation for registrants.\1262\
---------------------------------------------------------------------------

    \1262\ The significant risk and negative impact on capital
formation from uncertainty surrounding mining disclosure is
illustrated by the evidence in William O. Brown, Jr. and Richard
C.K. Burdekin, ``Fraud and Financial Markets: The 1997 Collapse of
the Junior Mining Stocks'' (2000), Journal of Economics and
Business, Volume 52, Issue 3, pp. 277-288. The authors utilize an
event study methodology to analyze the effect on Canadian mining
companies' stock returns around the revelations in spring 1997 of
fraudulent disclosures of gold resources by the Canadian mining
company Bre-X. The study documents that a portfolio of 59 Canadian
gold mining stocks experienced significantly negative abnormal stock
returns around the Bre-X fraud revelations. Similarly, the Vancouver
Composite Index, which at the time was dominated by natural resource
companies, also experienced significantly negative abnormal returns
for the same event time period. We note that the Bre-X fraud
contributed to the development of the Canadian NI 43-101 mining
disclosure standards.
---------------------------------------------------------------------------

    In particular, we believe that the requirements for disclosure of
material exploration results and mineral resources will reduce
information asymmetries and uncertainty for smaller mining registrants,
as these registrants tend to have mining properties in earlier stages
of development with relatively fewer, if any, reported mineral
reserves. As a result, we expect the anticipated positive effects on
efficiency and capital formation to be relatively larger for smaller
registrants. However, these effects may only materialize to the extent
smaller registrants are able to pay for the studies that are required
to support disclosure in the first place. We anticipate that there may
be some smaller registrants who do not have access to the liquid funds
needed to make that investment.
    Although we expect the overall amount of disclosed information to
increase under the final rules, there may be exceptions. We expect that
the adopted disclosure requirements may increase the compliance costs
for disclosure of material exploration results and the currently
allowed (on a case-by-case basis) equivalent of mineral resources
(i.e., mineralized material). Registrants may also bear costs to the
extent that the disclosure requirements will result in the disclosure
of commercially-sensitive information to competitors.\1263\ Therefore,
despite the anticipated benefits from the final disclosure
requirements, some registrants may, for certain expected lower-value
exploration projects, find that these benefits do not outweigh the
compliance and competitive costs and may not undertake the work
necessary to disclose exploration targets or exploration results or to
determine mineral reserves or mineral resources in accordance with the
final rules. In such cases, this will reduce the information available
to investors about a registrants' full range of projects and could have
a negative impact on cost of capital and capital formation. However,
this effect may be limited, in that expected lower-value projects are
less likely to attract capital even if they were fully disclosed,
whether voluntarily or not.
---------------------------------------------------------------------------

    \1263\ As discussed in supra Section II.D.3, we believe that the
underlying documentation for exploration results is most likely to
be associated with concerns about disclosing commercially sensitive
information. To mitigate these concerns, the final rules make filing
a technical report summary to support disclosure of material
exploration results optional for registrants.
---------------------------------------------------------------------------

    The positive effects we expect on efficiency and capital formation
from the final rules may be lower for registrants that currently report
in foreign jurisdictions with CRIRSCO-based disclosure codes. These
registrants to a large degree already provide the disclosures required
by the final rules. This is particularly the case for Canadian
registrants, who disclose information pursuant to NI 43-101 standards
in their Forms 20-F under the ``foreign or state law'' exception.
    We expect the final rules to have certain competitive effects. For
example, there may be reallocation of capital as registrants that
previously could not disclose mineral resources or could not afford the
feasibility studies required for disclosure of mineral reserves (but
could afford pre-feasibility studies) may start to disclose a broader
range of their business prospects, making it easier for these
registrants to raise capital and compete with the mining companies that
already report material mineral resources and reserves. We also
anticipate that by aligning our disclosure requirements with CRIRSCO-
based disclosure standards, the final rules will improve the
competitiveness of U.S. securities markets and increase the likelihood
of prospective registrants listing their securities in the United
States, while decreasing the likelihood that current registrants would
exit U.S. markets.\1264\ In particular the qualified person requirement
and associated requirements for the supporting technical studies may
improve the global competiveness of U.S. registrants because such
quality assurances have become internationally recognized practice and
may help signal to market participants that U.S. registrants are able
to meet the standards codified by the final rules.
---------------------------------------------------------------------------

    \1264\ All else equal, the limited ability to provide valuable
disclosure (e.g., the full range of mineral resources or exploration
targets) decreases the attractiveness of the U.S. capital markets
for mining registrants relative to jurisdictions in which fuller
disclosure is possible (if not required, as in Canada).
---------------------------------------------------------------------------

    There could be an opposite effect in some cases. Among foreign
private issuers, registrants not currently reporting in foreign
jurisdictions with CRIRSCO-based disclosure standards are most likely
to experience an increase in compliance costs. If these compliance
costs become too burdensome, some of these foreign private issuers may
choose to withdraw from U.S securities markets. The impact of such a
potential outcome is limited, however, as we have only identified six
(as of December 31, 2017) foreign private issuers that are not subject
to CRIRSCO-based reporting standards. Moreover, a company that did not
want to comply with these or similar disclosure standards would only
have a limited number of alternative jurisdictions in which to list,
none of whose markets are as developed or robust as the U.S. or other
financial markets that have such standards.
    Some aspects of the final rules that are different from CRIRSCO-
based disclosure standards, such as the imposition of Section 11
liability for qualified persons, may discourage prospective registrants
from conducting registered offerings in the United States to the extent
registrants will incur additional costs related to this
liability.\1265\ However, the final rules

provide for some limitations on qualified persons' individual Section
11 liability with respect to when they rely on certain information
outside their expertise provided by registrants, or when they are
employed by third-party firms,\1266\ which should mitigate such
effects. Overall, we expect that the alignment of our disclosure
requirements with international practices, as embodied in CRIRSCO-based
disclosure standards, will make U.S. capital markets more competitive,
notwithstanding these differences.
---------------------------------------------------------------------------

    \1265\ Several commenters noted the increased costs that
subjecting qualified persons to Section 11 liability would likely
impose on registrants and the chilling effect it could have on
qualified persons' willingness to provide the required supporting
documentation. See letters from Alliance, Amec, Andrews Kurth,
Chamber, Cloud Peak, Davis Polk, Eggleston, Energy Fuels, Gold
Resource, FCX, MMSA, NMA, NSSGA 1, Rio Tinto, Shearman & Sterling,
Ur-Energy, and Vale. See also note 230 and accompanying discussion.
Commenters also noted that such costs could fall disproportionately
on small registrants. See letters from Gold Resource and Shearman &
Sterling.
    \1266\ See supra Section II.C.1.iii.
---------------------------------------------------------------------------

2. Consolidation of the Mining Disclosure Requirements
    The final rules consolidate the mining disclosure requirements and
policies of Regulation S-K and Industry Guide 7 into new subpart 1300
of Regulation S-K and rescind Industry Guide 7. Codifying the
Commission's mining disclosure requirements in Regulation S-K will
provide a single source for a mining registrant's disclosure
obligations, eliminating the complexity and uncertainty associated with
the fact that Guide 7 provides staff guidance and is not incorporated
in Commission rules, such as in Regulation S-K, thus facilitating
compliance and promoting more consistent disclosures to investors. The
benefits of consolidation were confirmed by several commenters, who
stated that the Commission's current disclosure regime for mining
properties has caused compliance uncertainty for mining
registrants.\1267\ In contrast, one commenter \1268\ noted that the
status of Guide 7 was well understood by and presented little
uncertainty for its members. For registrants in this category the
benefits of reducing complexity and uncertainty by codifying and
consolidating the Commission's mining disclosure requirements may be
limited.
---------------------------------------------------------------------------

    \1267\ See supra note 28 and accompanying text.
    \1268\ See letter from NSSGA 1.
---------------------------------------------------------------------------

3. The Standard for Mining-Related Disclosure
i. Threshold Materiality Standard
    The final rules replace the multiple standards of materiality in
the current rules with a single materiality standard for when a
registrant must provide disclosure about its mining properties or
operations.\1269\ In response to comments,\1270\ the final rules do not
include an instruction stating that a registrant's mining operations
are presumed to be material if they consist of 10% or more of its total
assets and emphasize that registrants may consider other quantitative
or qualitative factors to evaluate materiality. These clarifications
should help avoid the potential costs to investors of disclosing
immaterial information and the potential burden for registrants of
creating different disclosures for different jurisdictions.
---------------------------------------------------------------------------

    \1269\ See supra Section II.B.1. The definition of ``material''
in the final rule is the same as under Securities Act Rule 405 and
Exchange Act Rule 12b-2. Establishing materiality as the threshold
for disclosure is also consistent with the disclosure standard under
CRIRSCO-based disclosure standards.
    \1270\ See letters from Alliance, Amec, AngloGold, BHP,
Eggleston, JORC, Rio Tinto, SAMCODES 1 and 2, SME 1, and SRK 1.
---------------------------------------------------------------------------

    The final rules will increase clarity in terms of the conditions
under which registrants must provide disclosure and may facilitate
compliance by more closely aligning the disclosure standard in the
final rules with CRIRSCO-based disclosure standards. The final rules
also will promote consistency in mining property disclosures, which may
benefit investors' ability to compare and evaluate these disclosures
over time and across registrants, thus fostering more efficient
investment decisions.
ii. Treatment of Vertically-Integrated Companies
    New subpart 1300 of Regulation S-K will apply to all registrants
with material mining operations, including vertically-integrated
manufacturers.\1271\ Because requiring disclosure of mining operations
by vertically-integrated manufacturers is consistent with the
disclosure currently provided in Commission filings and under CRIRSCO-
based disclosure codes, we do not expect this requirement will impose
new compliance costs on registrants. By including vertically-integrated
manufacturers in the requirement to disclose material mining
operations, the final rules will provide investors with material
information about such operations that will help with investment
decisions, regardless of whether the company's primary business is
mining.\1272\
---------------------------------------------------------------------------

    \1271\ See supra Section II.B.2.iii.
    \1272\ See supra Section IV.B.1., regarding the broader economic
benefits of disclosure.
---------------------------------------------------------------------------

iii. Treatment of Multiple Property Ownership
    We are adopting the proposed treatment of multiple property
ownership and the proposed treatment of ancillary properties, which,
depending on the facts and circumstances, could give rise to disclosure
obligations under the final rules.\1273\ These provisions require a
registrant to consider all of its mining properties in the aggregate,
as well as individually, when assessing the materiality of its mining
operations. These provisions should facilitate compliance for companies
with multiple mining properties while eliciting material information
for investors in appropriate circumstances. We also expect that the
treatment of multiple property ownership will result in more efficient
and more effective disclosure compared to current practice, as
registrants will be able to provide summary disclosure about all of
their mining properties where some or all of the properties are not
individually material.
---------------------------------------------------------------------------

    \1273\ See supra Section II.B.3.
---------------------------------------------------------------------------

iv. Treatment of Royalty Companies
    Because the value of a royalty company or similar registrant
derives from the underlying mining properties that generate payments to
the registrant, the final rules require these registrants to provide
disclosure of the material underlying mining properties, analogous to
that of mining companies. While the final rules are consistent with
prior disclosure practices, we expect that consistent application of
this requirement will provide investors with information useful to
making informed investment decisions.\1274\ To the extent the final
rules will increase the quality and amount of disclosure by royalty
companies and similar registrants about underlying material mining
properties, we expect investors to benefit from access to more and
higher quality information to aid their investment decisions. To the
extent that royalty companies and similar registrants are able to omit
information about underlying material mining properties that is not
otherwise available, including not having to file a technical report
summary, the benefits to investors will be limited.\1275\
---------------------------------------------------------------------------

    \1274\ See supra Section II.B.4.iii.
    \1275\ We have identified three mining royalty companies
registered with the Commission as of December 31, 2017. Similarly,
one commenter noted they were not aware of any ``primarily mining
finance companies that participate in any mining or processing
activities.'' See letter from Crowell & Moring.
---------------------------------------------------------------------------

    We expect all royalty companies and similar registrants will incur
compliance costs related to assessment of access to required
information about underlying mining properties and/or the materiality
of the underlying properties. These compliance costs will be limited
for those royalty companies that already have access to the information
required to comply with the final rules. These compliance costs also
will be limited for those royalty companies that do not

have access to such information, as the final rules require disclosure
about underlying mining properties only insofar as the information is
known or reasonably available to the registrant.\1276\
---------------------------------------------------------------------------

    \1276\ Id.
---------------------------------------------------------------------------

    In addition, we expect royalty companies and similar registrants
that must provide disclosures and file technical report summaries about
underlying material mining properties to incur additional compliance
costs related to the preparation of those disclosures and reports.
These will include both direct and indirect costs related to gathering
the required information, potential payments to consultants, including
qualified persons, and costs associated with reporting the required
information in annual reports and registration statements filed with
the Commission. One commenter asserted that for royalty interests, the
costs of preparing the required disclosure for annual reports on Form
10-K could exceed $500,000.\1277\ However, it is not clear whether this
was a total cost or an incremental cost, or whether this was specific
to royalty companies. In the instances where a material property is
already covered by a technical report summary filed by the producing
registrant, we expect these additional compliance costs to be
substantially lower as the royalty company will be able to refer to the
producing registrant's report. As noted above, compliance costs also
will be limited to the extent the royalty company does not have access
to such information and the information is not otherwise known or
reasonably available to the registrant.
---------------------------------------------------------------------------

    \1277\ See letter from Royal Gold.
---------------------------------------------------------------------------

    Many commenters opposed the requirement for royalty companies to
provide disclosure for underlying mining properties that are
material,\1278\ but did not provide alternatives that would ensure that
investors have access to relevant information about these properties.
Excluding royalty companies from the final rules would eliminate the
practical difficulties and compliance costs associated with providing
disclosure about underlying mining properties. However, it also could
leave investors in royalty and similar companies with less information
about material mining properties than investors in other mining
registrants and thereby undermine the goal of providing enhanced mining
disclosure to the market generally. Some commenters noted that royalty
and other similar companies are unlike other mining registrants, in
that their revenue is based on royalty contracts and thus information
about these contracts may be more relevant for investors in such
companies.\1279\ However, the properties underlying the contracts are
the source of the revenue stream defined by those contracts. Thus, as
noted by other commenters,\1280\ royalty companies have an economic
interest in such properties. Consequently, providing information about
such properties' potential future production would enable investors in
royalty and other similar companies to make more informed investment
decisions.
---------------------------------------------------------------------------

    \1278\ See supra note 127 and accompanying text.
    \1279\ See letters from Crowell & Moring, NRP, Royal Gold, and
SME 2.
    \1280\ See letters from Rio Tinto and SAMCODES 2.
---------------------------------------------------------------------------

v. Definitions of Exploration, Development, and Production Stage
    The definitions adopted in the final rules of ``exploration stage
property,'' ``development stage property,'' and ``production stage
property,'' as well as the definitions of ``exploration stage issuer,''
``development stage issuer,'' and ``production stage issuer'' will
provide investors with clear, accurate, and consistent disclosure about
the type of company and level of risk.\1281\ For example, because the
classification at issuer level would be derived from the individual
property classifications, the final rules would prevent a registrant
without material reserves from characterizing itself as a development
stage or production stage issuer, which is possible under the current
classification scheme. By clarifying and codifying existing practices,
the final rules will also benefit registrants by reducing regulatory
uncertainty.
---------------------------------------------------------------------------

    \1281\ See 17 CFR 229.1304(c)(1).
---------------------------------------------------------------------------

    Because registrants already possess the information necessary to be
able to classify properties at the individual property level and
because the final classifications are consistent with prior disclosure
practices, we do not expect these provisions to increase compliance
costs for most registrants. However, because the final rules change how
registrants can classify themselves at the issuer level, there may be
some issuers that incur costs because they cannot continue to identify
themselves as development or production stage issuers under the final
rules. For example, some current production stage issuers (who under
the new rules will not be able to classify themselves as such) may find
it more costly to raise capital to the extent investors assign a higher
risk to the company's mining operations based on the change in
classification. Moreover, some current production stage issuers that
are able to continue classifying themselves as such under the new rules
may need to undertake additional work in order to do so (e.g., hiring a
qualified person to make a determination about mineral resources and
mineral reserves) and would therefore incur additional compliance
costs.
4. Qualified Person and Responsibility for Disclosure
i. The ``Qualified Person'' Requirement
    We are adopting the proposed requirement that every disclosure of
mineral resources, mineral reserves, and material exploration results
be based on, and accurately reflect, information and supporting
documentation prepared by a qualified person.\1282\ In a change from
the proposed rules, the final rules will also permit the disclosure of
exploration targets, with the same requirement that such disclosure be
based on, and accurately reflect, information and supporting
documentation prepared by a qualified person. We anticipate that the
qualified person requirement, together with the technical report
summary requirement, will benefit investors by enhancing the accuracy
and transparency of disclosures. For example, the requirement that the
qualified person have at least five years of relevant experience and be
an eligible member or licensee in good standing of a recognized
professional association helps ensure that estimates provided in
disclosures are based on work consistent with current professional
practice. This should, in turn, increase the reliability and
informational value of the disclosures. Several commenters supported
the qualified person requirement, citing similar benefits.\1283\ For
example, one commenter noted that ``[e]xperience in consulting firms
has shown that when individual members of the firm are specifically
identified as qualified persons, the work undertaken by the members of
the firm in preparing or reviewing technical reports is more careful.''
\1284\ Other commenters similarly expected the qualified person
requirement to result in higher quality disclosure.\1285\ In addition,
the written consent requirement will help ensure that the qualified
person's findings and conclusions are accurately represented by the
registrant and should further increase the reliability of the
disclosures.
---------------------------------------------------------------------------

    \1282\ See supra Section II.C.1.
    \1283\ See note 183 and accompanying text.
    \1284\ See SME 1.
    \1285\ See letters from BHP, Eggleston, Rio Tinto, and SRK 1.
---------------------------------------------------------------------------

    Moreover, because the qualified person requirement in the final
rules is

consistent with most foreign jurisdictions' mining disclosure
requirements, it should improve comparability between U.S. registrants
and foreign companies reporting in those other jurisdictions, which
will further benefit investors. A qualified person requirement helps
ensure that the individual preparing documentation to support mining
property disclosures in Commission filings possesses certain
professional credentials and relevant experience. Comparability should
therefore be improved, because qualified persons engaged by registrants
are likely to adhere to a common set of professional standards.
    These benefits to investors from the qualified person requirement
will be accompanied by costs for mining registrants.\1286\ We expect
the increase in compliance costs to be primarily related to search and
hiring costs for qualified persons. Registrants that wish to disclose
mineral resources and reserves, but are not currently employing or
contracting with professionals meeting the definition of qualified
person, will incur expenses to identify a pool of professionals who
meet the definition of qualified person and are willing to provide
their services. The costs for services of a qualified person may also
be higher than the costs for services of the professionals currently
hired by such registrants due to the level of expertise required under
the final rules and the liability that professionals will face under
the final rules. In this regard, one commenter noted that a qualified
person likely commands a 15-25% salary premium over a non-qualified
person,\1287\ although that premium does not appear to include any
premium for accepting Section 11 liability.
---------------------------------------------------------------------------

    \1286\ Quantifying these costs is challenging due to data
limitations. For example, we do not have access to data that would
allow us to more precisely measure the current supply of mining
professionals meeting the definition of a ``qualified person''
outside of the United States. We also do not have access to readily
available data sources of comprehensive compensation data for
geologists and mining engineers (in the United Sates or other
countries) that would help us estimate the incremental cost of
hiring a qualified person with the minimum level of expertise versus
professionals who do not qualify as qualified persons.
    \1287\ See letter from SRK 1.
---------------------------------------------------------------------------

    Because the required disclosures derive from activities mining
registrants already perform as a crucial part of their businesses
(i.e., mineral exploration and estimation of mineral resources and
reserves), we believe that most registrants likely already engage
experienced professionals meeting the required level of expertise,
either as employees or as contractors.\1288\ In particular, this should
be the case for registrants reporting consistent with CRIRSCO-based
disclosure standards, as those standards already require a similarly
defined ``qualified'' or ``competent'' person to support the
disclosures.\1289\ To the extent registrants already engage
professionals meeting the final qualified person requirement, they will
not incur costs related to searching for qualified persons, as long as
currently engaged professionals agree to act in the capacity of a
qualified person to support disclosures.
---------------------------------------------------------------------------

    \1288\ This view was affirmed by several commenters. See supra
note 1243.
    \1289\ See, e.g., letter from SRK 1.
---------------------------------------------------------------------------

    Even if registrants that are currently employing or contracting
with professionals meeting the final definition of a qualified person
do not incur additional costs associated with searching for and initial
hiring of such a person, they may nevertheless experience an increase
in compensation costs for these professionals. First, these
professionals may demand increased compensation due to increased
competition for the services of professionals meeting the definition of
a qualified person. We expect an increase in competition for these
services because registrants currently not hiring such professionals
will need to do so under the final rules to support disclosures of
mineral resources and reserves. Second, several commenters stated that
subjecting qualified persons to Section 11 liability would likely
reduce the willingness of individuals to serve in that role, which
would, in turn, limit the available supply and increase the cost of
hiring qualified persons. In a change from the proposed rules, the
final rules provide that the qualified person will not be subject to
Section 11 liability for any description of the procedures, findings,
and conclusions reached about matters based on information provided by
the registrant in certain required areas outside of the qualified
person's experience and expertise, which will limit a qualified
person's exposure to Section 11 liability.\1290\ Nevertheless, as a
general matter, we expect mining professionals who are already engaged
by registrants and who meet the definition of a qualified person would
request additional compensation for the imposition of Section 11
liability. However, given the nature of individual risk aversion and
the sunk costs in professional development, as well as the additional
factors of increased compensation and the ability to allocate potential
liability between individuals and firms (as discussed below), it is
difficult to reliably estimate the behavioral response of individuals
and firms to the imposition of Section 11 liability.
---------------------------------------------------------------------------

    \1290\ See supra Section II.C.1.iii.
---------------------------------------------------------------------------

    Rather than exiting the market entirely, professionals who
currently meet the definition of qualified person may be willing to
accept Section 11 liability, but only for a reduced scope of work. For
example, a technical report summary may involve the introduction of
analyses that draw on the range of experience and educational
backgrounds within the definition of qualified person under the final
rules.\1291\ Due to liability concerns, a qualified person--who would
be willing to assume responsibility for such items in a jurisdiction
without Section 11 liability--may be willing to assume responsibility
for only a subset of such items in Commission filings. In this case,
the registrant would need to hire or engage a greater number of
qualified persons to complete its technical report summary. For larger
registrants, this may not be a significant issue because they are
likely to already have access to multiple qualified persons. For
smaller registrants, this may be more costly, especially, as noted by
one commenter,\1292\ where the only qualified persons are executives of
the firm or, as noted by another commenter,\1293\ where exploration and
development companies with no production may not have qualified persons
with specific experience on their staff. To the extent hiring of
qualified persons to support disclosures becomes prohibitively costly
for some registrants, for example, due to search costs or increased
compensation demands in light of Section 11 liability, these
registrants may choose to forgo making disclosure about mineral
resources and reserves in their Commission filings, which would reduce
the benefit of such disclosure for both investors and registrants.
---------------------------------------------------------------------------

    \1291\ See letters from MMSA and SASB. For similar reasons,
commenters requested that limited disclaimers be permitted. See
supra note 229. The final rules clarify that multiple qualified
persons may expertize a technical report summary, allowing a
qualified person to limit their liability to a scope of work with
which he or she is comfortable applying his or her competence,
education, and experience.
    \1292\ See letter from SME 1.
    \1293\ See letter from Eggleston.
---------------------------------------------------------------------------

    It is difficult to assess the likelihood of these potential
negative outcomes, but we note that, based on the statistics reported
above in Section IV.A.1., there are many professionals who potentially
meet the definition of a qualified person in the United States alone,
and

therefore, broadly speaking, we believe it is unlikely that there will
not be a sufficient supply of qualified persons available to support
disclosures for at least larger-scale material mining properties, where
the benefits of disclosure for registrants likely outweigh any increase
in costs of qualified persons due to Section 11 liability. Moreover,
mining companies and mining consulting companies presently employ many
professionals who already meet the definition of qualified
person.\1294\ Nevertheless, because the mining industry is not
homogeneous, there may be segments of the mining industry for which the
supply of professionals meeting the qualified person requirement is
more limited, thus making it more difficult or costly for these
registrants to satisfy this requirement.
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    \1294\ See supra note 1288 and accompanying discussion.
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    Holding all else constant, the increased demand for qualified
persons' services is likely to incentivize more professionals to become
qualified, especially in areas in which the supply of qualified persons
is currently more limited, although there could be a lag in the time
required to obtain the relevant five years of experience. For smaller
registrants, whose material properties will be relatively less valuable
than the material properties of larger registrants, or registrants
engaged in mining of certain minerals, for which there is a limited
supply of professionals with the relevant experience, the potential
negative effects of Section 11 liability may be more pronounced.
    Several additional factors may mitigate the costs of subjecting
qualified persons to Section 11 liability. Requiring the registrant to
obtain the qualified person's written consent is consistent with the
Commission's longstanding approach to the use of an expert's report in
Securities Act filings.\1295\ Because a mining registrant is currently
required to file the written consent of the mining engineer, geologist,
or other expert upon whom it has relied when filing a Securities Act
registration statement, and such consent is already given today, the
adopted written consent requirement may not impose a significant
additional burden.
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    \1295\ See supra note 268 and accompanying text.
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    Additionally, in a change from the proposed rules, the final rules
provide that a third-party firm comprising mining experts, such as
professional geologists or mining engineers, may sign the technical
report summary and provide the written consent instead of its employee,
member, or other affiliated person who prepared the summary, and need
not identify such individual.\1296\ Because the third-party firm will
be treated as the mining expert subject to potential Section 11
liability rather than the individual qualified person in these
circumstances, this provision could further mitigate the costs of
Section 11 liability for those individual professionals who are
employed by third-party firms by shifting liability to an entity that
is more equipped to bear it.
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    \1296\ See supra Section II.C.1.iii.
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    Furthermore, as noted above, the final rules provide that a
qualified person will not be subject to Section 11 liability for
certain information provided by the registrant upon which the qualified
person relies.\1297\ Qualified persons likely would be most concerned
about being subjected to Section 11 liability for information outside
their expertise that has been provided by others. By limiting qualified
persons' individual liability exposure in cases where such information
has been proved by the registrant, this provision, when applicable,
will serve to limit the costs of Section 11 liability. At the same
time, the provision is not likely to come at the expense of reduced
assurance of quality in mining disclosures, as the registrant who is
providing the information will retain residual Section 11 liability for
the information and therefore will be incentivized to exercise care its
preparation.
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    \1297\ See id.
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    Although the final rules do not provide a complete exemption from
Section 11 liability, it may be possible, as suggested by several
commenters, to obtain insurance to protect against costs that could
arise out of Section 11 litigation.\1298\ As commenters noted,\1299\
this would effectively impose an additional cost on registrants.\1300\
While insurance may reduce qualified persons' reluctance to accept
liability, we do not have access to data or other information that
would allow us to quantify how much registrants' costs will increase
due to higher compensation or provision of insurance.
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    \1298\ See letters from Chamber, Cleary Gottlieb, Energy Fuels,
FCX, Gold Resource, MMSA, NSSGA 1, Rio Tinto, Shearman & Sterling,
SME 1, and Vale.
    \1299\ See letters from Energy Fuels, FCX, MMSA, NSSGA 1, Rio
Tinto, Shearman & Sterling, and Vale.
    \1300\ One commenter cited increases in liability insurance
costs for registrants ``well into six figures.'' See letter from
MMSA.
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    Finally, the qualified persons will not be subject to strict
liability. Under Section 11, a qualified person, as an expert, would
have an affirmative defense against liability for misstatements or
omissions made on the authority of another expert if the qualified
person ``had no reasonable ground to believe and did not believe, at
the time such part of the registration statement became effective, that
the statements therein were untrue or that there was an omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that such part of the
registration statement did not fairly represent the statement of the
expert or was not a fair copy of or extract from the report or
valuation of the expert.'' \1301\ This framework may mitigate the costs
of subjecting qualified persons to Section 11 liability.
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    \1301\ 15 U.S.C. 77k(a)(4).
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    The final rules do not require the qualified person to be
independent of the registrant. The absence of an independence
requirement is consistent with CRIRSCO-based disclosure codes, with the
exception of Canada, where the qualified person must be independent of
the company for new registrants or, in cases of significant changes to
existing disclosures, for established registrants.\1302\ Although there
is some evidence that outside experts reduce information asymmetries
about companies' valuations more than internal experts in related
circumstances,\1303\ this benefit must be balanced against the
additional cost of having to find and hire an outside expert, instead
of using an existing affiliated expert. Moreover, an outside expert may
in practice not be independent of the company if the person derives a
large fraction of overall compensation from that same company.
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    \1302\ See Canada's NI 43-101, supra note 123, at pt. 5.3.
    \1303\ See, e.g., Karl A. Muller III and Edward J. Riedl,
``External Monitoring of Property Appraisal Estimates and
Information Asymmetry'' (2002), Journal of Accounting Research,
Volume 40, Issue 3, pp. 865-881. Using a sample of UK investment
property firms, the paper finds that bid-ask spreads are lower for
firms employing external appraisers of property values versus those
employing internal appraisers, suggesting the information asymmetry
about the value of the company is lower in the former case.
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    As an alternative we could have exempted qualified persons from
Section 11 liability altogether. This would avoid the increased costs
associated with potential liability while retaining the benefit to both
registrants and investors of having qualified persons with relevant
credentials and experience provide the basis for disclosure of
exploration targets, exploration results, mineral resources, and
mineral reserves. The experience of other jurisdictions using CRIRSCO-
based codes that do not impose Section

11-type liability (but may have some other source of liability)
suggests that Section 11 liability is not necessary to obtain some
benefit from having a qualified person. However, relative to the final
rules, an outright exemption from Section 11 liability could reduce the
incentives for qualified persons to perform a thorough analysis of the
relevant properties and ensure that the disclosure in Commission
filings is complete and accurate.\1304\ In this way, we expect that
Section 11 liability will amplify the benefits of a qualified person
requirement and, thus, enhance investor protection relative to an
alternative that does not impose such liability, although we
acknowledge that such liability will come at a cost to mining companies
and investors in those companies.
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    \1304\ An outright exemption from Section 11 liability would
also be inconsistent with current requirements. See supra Section
II.C.1.iii. and notes 278 and 279.
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ii. The Definition of ``Qualified Person''
    We are adopting the proposed definition of a ``qualified person''
and related proposed criteria and provisions.\1305\ We believe this
definition will help ensure that disclosure of mineral resources,
mineral reserves, and material exploration results in Commission
filings is based on work by professionals who have the qualifications
necessary for the disclosure to be consistent with current professional
practices and accurately reflects the information and supporting
documentation.
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    \1305\ See supra Section II.C.2.
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    Providing a definition of qualified person will benefit investors
by establishing common criteria for persons supporting disclosures of
exploration results, mineral resources, and mineral reserves, thereby
increasing the reliability and comparability of those disclosures for
investors. As discussed above, however, the selection and hiring of
qualified persons will impose costs on registrants. As noted above,
these costs could be higher as a result of the level of expertise and
other professional credentials required by the adopted definition. To
the extent that professionals meeting all of the requirements are
scarce, the cost of hiring such professionals will tend to increase,
although this could draw more professionals into the field, thereby
bringing costs back down.
    As an alternative, we could have added an educational requirement
to the definition (e.g., the attainment of a bachelor's or equivalent
degree in an area of geoscience, metallurgy, or mining engineering), as
recommended by several commenters.\1306\ An educational requirement may
help ensure subject matter expertise and increase the quality and
credibility of the mining disclosures. However, because the recognized
professional organizations typically address such a requirement in
their membership criteria,\1307\ we believe the incremental benefit
from adding such a requirement to the definition would be minimal as it
would be largely redundant.
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    \1306\ See supra note 322 and accompanying text.
    \1307\  See supra note 324 and accompanying text.
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    As another alternative, we could have required that the qualified
person be a member of an approved list of ``recognized professional
organizations,'' similar to the approach under CRIRSCO-based standards.
This was recommended by numerous commenters.\1308\ This alternative
could provide more clarity for registrants about which organizations
are considered to be ``recognized professional organizations,'' thereby
facilitating compliance. However, as compared to the principles-based
approach in the final rules, an approved list would be less flexible
and could unduly restrict the pool of eligible qualified persons. In
addition, a specific list of organizations risks becoming outdated over
time as circumstances change, which could lead to deterioration in the
credentials of qualified persons and a corresponding reduction in