regulations) that are relevant to operating a mineral project using
existing technology. Should we expand proposed Item
601(b)(96)(iv)(B)(19)(vi) to provide additional specific examples, in
addition to those set forth in Items 601(b)(96)(iv)(B)(19)(i)-(iv), of
``issues related to environmental, permitting and social or community
factors'' that the qualified person must include in the technical
report summary? For example, should we expressly require that the
qualified person include a discussion of other sustainability issues
such as how he or she considered issues related to managing greenhouse
gas emissions or workforce health, safety and well-being? Are there
other items for which it would be appropriate to require the qualified
person to include a discussion in the technical report summary? If so,
please provide examples and explain why.
    111. Should we require, as proposed, a qualified person who
prepares a technical report summary that reports the results of a
preliminary or final feasibility study to provide information for all
26 items? If not, which items should not be required? Should we
require, as proposed, a qualified person who prepares a technical
report summary that reports the results of an initial assessment to
provide, at a

minimum, the information specified in paragraphs (iv)(B)(1) through
(13) and (iv)(B)(22) through (26) of proposed Item 601(b)(96)?
    112. The proposed rules would permit a qualified person who
prepares a technical report summary that reports the results of an
initial assessment to use mineral resources in economic analysis (and
provide the information specified in paragraph (iv)(B)(21) of proposed
Item 601(b)(96)). Should we permit a qualified person to do so if he or
she wishes?
    113. Should we require a qualified person who prepares a technical
report summary that reports material exploration results to provide, at
least, the information specified in paragraphs (iv)(B)(1) through (11)
and (iv)(B)(22) through (26) of proposed Item 601(b)(96), as proposed?
    114. Should we preclude a qualified person from disclaiming
responsibility if he or she relies on a report, opinion, or statement
of another expert who is not a qualified person in preparing the
technical report summary, as proposed? Why or why not?
    115. Should we require that the technical report summary not
include large amounts of technical or other project data, either in the
report or as appendices to the report, as proposed? Why or why not?
Should we require a qualified person to draft the technical report
summary to conform, to the extent practicable, with plain English
principles under the Securities Act and Exchange Act, as proposed?
4. Requirements for Internal Controls Disclosure
    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.
    We believe that disclosure about the internal controls that a
registrant uses to help ensure the reliability of its disclosure of
exploration results and estimates of mineral resources and mineral
reserves would benefit investors. Accordingly, we are proposing to
require that a registrant describe the internal controls \390\ that it
uses in its exploration and mineral resource and reserve estimation
efforts. As specified in the proposed rules, such disclosure should
address quality control and quality assurance programs, verification of
analytical procedures, and comprehensive risk inherent in the
estimation.\391\ Such disclosure would help investors 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 analysis. In addition, we
note that this requirement is consistent with disclosure requirements
in most foreign mining jurisdictions.\392\
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    \390\ 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
Item 1202(a)(7) of Regulation S-K. (17 CFR 229.1202(a)(7)).
    \391\ See proposed Item 1305 of Regulation S-K.
    \392\ See JORC Table 1 checklist and NI 43-101 pt. 3.3, which
call for disclosure of quality control and quality assurance
programs. The SME Petition also recognizes the need for and
importance of appropriate internal and disclosure controls in the
estimation of mineral reserves. See SME Petition for Rulemaking at
17.
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    A proposed instruction would state 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.\393\
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.\394\ We believe this same practice
should apply when preparing and analyzing data for the purpose of
individual property disclosure. We also believe an internal controls
disclosure requirement is particularly important for a company with
multiple properties in order to ensure that best practice is followed
across all properties.
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    \393\ See the Instruction to proposed Item 1305 of Regulation S-
K.
    \394\ See S.C. Kazmierczak, ``Laboratory Quality Control: Using
Patient Data to Assess Analytical Performance,'' in Clinical
Chemistry and Laboratory Medicine 617-627 (2003); see generally M.J.
Chandra, Statistical Quality Control (2001).
---------------------------------------------------------------------------

    Moreover, all 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.\395\ In addition, the
listing rules of several of these jurisdictions specifically call for
disclosure of the internal controls relating to estimates of mineral
resources and reserves.\396\ Our proposal is substantially similar to
these internal control disclosure requirements and therefore 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, we
believe investors would benefit from such disclosure, though we
recognize that registrants may incur additional costs.
---------------------------------------------------------------------------

    \395\ See, e.g., Canada's NI 43-101 pt. 3.3 and 43-101F1 Item
11. See also JORC Table 1 and SAMREC Table 1 T3.
    \396\ See, e.g., ASX Listing Rule 5.21.5 which requires
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.''
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Request for Comment
    116. Should we 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, as proposed? Should we require that such internal
controls disclosure address quality control and quality assurance
programs, verification of analytical procedures, and comprehensive risk
inherent in the estimation, as proposed? Are there other items, in
addition to or in lieu of those proposed items, that should be included
in such disclosure? Are there items that should be excluded from the
proposed internal controls disclosure requirement? In each case, why or
why not?
    117. Should we 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, as proposed? Should we require that such internal
controls disclosure address quality control and quality assurance
programs, verification of analytical procedures, and comprehensive risk
inherent in the estimation, as proposed? Are there other items, in
addition to or in lieu of those proposed items, that should be included
in such disclosure? Are there items that should be excluded from the
proposed internal controls disclosure

requirement? In each case, why or why not?

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

1. Form 20-F
    Foreign private issuers \397\ use Form 20-F \398\ as a registration
statement under Section 12 of the Exchange Act \399\ or as an annual or
transition report filed under Section 13(a) \400\ or 15(d) of the
Exchange Act.\401\ Form 20-F also provides much of the substantive
disclosure requirements for foreign private issuers filing Securities
Act registration statements on Forms F-1,\402\ F-3 \403\ and F-4.\404\
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    \397\ 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 (17 CFR 230.405) and Exchange
Act Rule 3b-4(c) (17 CFR 240.3b-4(c)).
    \398\ 17 CFR 249.220f.
    \399\ 15 U.S.C. 78l.
    \400\ 15 U.S.C. 78m(a).
    \401\ 15 U.S.C. 78o(d).
    \402\ 17 CFR 239.31.
    \403\ 17 CFR 239.33.
    \404\ 17 CFR 239.34.
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    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.\405\ 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 \406\ rather than
Item 102 of Regulation S-K.
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    \405\ See Release No. 33-7745 (September 28, 1999), [64 FR
53900] (October 5, 1999).
    \406\ 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.
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    We believe that the proposed rules should apply equally to foreign
private issuers and domestic registrants. This treatment would be
consistent with the current requirements for foreign private issuers
and domestic registrants under Form 20-F \407\ and Item 102 of
Regulation S-K whereby both foreign private issuers and domestic
registrants provide the disclosures set forth in Guide 7.\408\
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    \407\ Instruction 1 to Item 4 of Form 20-F directs the
registrant to ``[f]urnish the information specified in any industry
guide listed in Subpart 229.800 of Regulation S-K.''
    \408\ As discussed in section I, supra, Canadian registrants are
currently able to provide disclosure pursuant to NI 43-101 under the
foreign law exception included in Item 102, Guide 7 and Form 20-F.
Accordingly, the staff has not objected to disclosure by such
registrants of resources as well as reserves calculated in
accordance with Canadian law.
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    Accordingly, in order to make foreign private issuers filing on
Form 20-F subject to the new mining disclosure regime, we propose 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.\409\ We further
propose 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.\410\ Because the proposed
rules would require the disclosure of determined mineral resources,
mineral reserves and material exploration results by a registrant with
material mining operations, the Item 4.D instructions would be
inconsistent with the proposed new disclosure requirements.
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    \409\ See proposed Instruction 3 to Item 4 of Form 20-F.
    \410\ 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 propose 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.\411\ This would make the same technical report
summary filing requirements applicable to domestic registrants apply as
well to foreign private issuers registering securities or reporting
pursuant to Form 20-F.
---------------------------------------------------------------------------

    \411\ See proposed Instruction 17 to Form 20-F. 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 have to file a
technical report summary as an exhibit pursuant to proposed Item
601(b)(96).
---------------------------------------------------------------------------

    Thus, following adoption of these proposed revisions to Form 20-F,
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, would have to comply with the mining disclosure requirements of
new Regulation S-K subpart 1300. This would include Canadian
registrants that report pursuant to Form 20-F and that currently are
permitted to provide mining disclosure under NI 43-101 pursuant to the
``foreign or state law'' exception under Item 102 and Guide 7. We note
that the proposed disclosure requirements would be substantially
similar to Canada's NI 43-101. As previously noted, the proposed rules
would eliminate this ``foreign or state law'' exception.\412\ Thus, 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'').\413\ We are not proposing to subject MJDS registrants to
new subpart 1300 because 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.
---------------------------------------------------------------------------

    \412\ See section II.E.1, supra.
    \413\ 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.
---------------------------------------------------------------------------

Request for Comment
    118. Should we amend Form 20-F to conform it to the disclosure
requirements of subpart 1300 of Regulation S-K and Item 601(b)(96), as
proposed?
    119. Should foreign private issuers that use or refer to Form 20-F
for their SEC filings be subject to the same mining disclosure
requirements as

domestic mining registrants, as proposed? Why or why not?
    120. Should we continue to permit Canadian issuers to provide
disclosure under NI 43-101, as they are currently allowed to do
pursuant to the foreign or state law exception, as an alternative to
providing disclosure under the proposed rules? If so, what would be the
justification for such differential treatment?
2. Form 1-A
    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,\414\ limiting the dollar amount of the offering
\415\ and, in certain instances, filing ongoing reports with the
Commission.\416\ Form 1-A is the offering statement used by issuers
that are eligible to engage in securities offerings under Regulation
A.\417\
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    \414\ See Securities Act Rule 251(d) (17 CFR 230.251(d)).
    \415\ See Securities Act Rule 251(a) (17 CFR 230.251(a)).
    \416\ See Securities Act Rule 257 (17 CFR 230.257).
    \417\ 17 CFR 230.251 through 230.263. To be eligible to offer
securities under Regulation A, at a minimum, an issuer must be
organized and have its principal place of business in the United
States or Canada. Excluded from Regulation A eligibility are:
Exchange Act reporting companies; blank check companies; investment
companies registered or required to be registered under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or business
development companies as defined under that Act; issuers of
fractional undivided interests in oil, gas or mineral rights;
issuers that have been subject to a Commission order under Exchange
Act Section 12(j) within 5 years preceding the filing of the
offering statement; issuers that have failed to file the reports
required by Regulation A (under 17 CFR 230.257) during the two years
preceding the filing of the offering statement; and issuers that
have been disqualified under Securities Act Rule 262. See Securities
Act Rule 251(b) (17 CFR 230.251(b)).
---------------------------------------------------------------------------

    The Commission amended Regulation A in March of 2015 to permit two
tiers of offerings: Tier 1, for offerings of up to $20 million of
securities within a 12-month period; and Tier 2, for offerings of up to
$50 million of securities within a 12-month period.\418\ The amendments
require the filing and qualification of Form 1-A for both Tier 1 and
Tier 2 offerings and impose ongoing disclosure obligations for Tier 2
offerings.\419\ The Commission further amended Part II of Form 1-A by
eliminating the Model A (Question and Answer) disclosure format and
updating the Model B (Narrative) disclosure format allowed for both
tier offerings.\420\
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    \418\ See Release No. 33-9741 (March 25, 2015) [80 FR 21806
(April 20, 2015)] (the ``2015 Regulation A Adopting Release'').
    \419\ The Commission adopted new Forms 1-K (annual report), 1-SA
(semi-annual report) and 1-U (current report) for the Tier 2 ongoing
reporting regime. The Commission also adopted Form 1-Z, an exit
form, which must be filed by Tier 1 issuers upon termination or
completion of the offering and by most Tier 2 issuers when eligible
to suspend ongoing reporting.
    \420\ Issuers also have the option of providing disclosure under
Part II of Form 1-A that meets the requirements of Part I of either
Form S-1 or Form S-11.
---------------------------------------------------------------------------

    When updating Item 7 of Part II of Form 1-A concerning the required
``Description of Business'' disclosure, the Commission added 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.\421\
---------------------------------------------------------------------------

    \421\ See Form 1-A, Part II, Item 7(c).
---------------------------------------------------------------------------

    The purpose of this provision was to incorporate into Form 1-A the
disclosure guidance in all of the Securities Act Industry Guides.\422\
Moreover, because Regulation S-K does not directly apply to Form 1-A,
the Commission sought to require Form 1-A issuers to follow the
disclosure guidelines in any industry guides that have been codified as
disclosure items under Regulation S-K.
---------------------------------------------------------------------------

    \422\ See Release No. 33-9497 (December 18, 2013) [79 FR 3926
(January 23, 2014)] (``Updates to the Offering Circular would also
incorporate the disclosure guidelines in the Securities Act Industry
Guides . . .''); see also the 2015 Regulation A Adopting Release
(``As adopted, the Offering Circular includes disclosure based on
disclosure guidelines set forth in the Securities Act Industry
Guides . . .'').
---------------------------------------------------------------------------

    Because this provision, however, only appears in Item 7(c) of Part
II, which governs ``business'' disclosure, we are proposing 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.\423\ 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 propose 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.
---------------------------------------------------------------------------

    \423\ See proposed Item 8(b) of Form 1-A. Item 8 (Description of
Property) currently requires 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.'' The proposed rules would designate this
current provision as paragraph (a) of Item 8.
---------------------------------------------------------------------------

    We also propose 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 of Regulation S-K would require detailed
descriptions of mining properties, the proposed rules would amend this
instruction by excepting from its scope the disclosure required under
these rules, as referenced in paragraph (b) of Item 8.
    Thus, Regulation A issuers with material mining operations would be
subject to all of the disclosure requirements in subpart 1300 of
Regulation S-K. In order to require those Regulation A issuers to be
subject to the new subpart's technical report summary filing
requirement, we propose 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.\424\
---------------------------------------------------------------------------

    \424\ See proposed paragraph (15) under Item 17 of Part III
under Form 1-A.
---------------------------------------------------------------------------

Request for Comment
    121. Should we amend Form 1-A to require Regulation A issuers
engaged in mining operations to refer to, and if required, provide the
disclosure under subpart 1300 of Regulation S-K, in addition to any
disclosure required by Item 8 of that Form, as proposed? Why or why
not? Alternatively, should the disclosure requirements in proposed
subpart 1300 apply to only some Regulation A issuers (e.g., Regulation
A issuers in Tier 2 offerings)? Should we instead exempt all Regulation
A issuers from the proposed subpart 1300 disclosure requirements?
    122. In lieu of imposing full subpart 1300 disclosure requirements
on Regulation A issuers, should we limit, in whole or in part, the
proposed subpart 1300 disclosure requirements for issuers in Regulation
A offerings? If so, should these requirements be limited only for
issuers in Tier 1 offerings? Why or why not? Further, which provisions
of proposed subpart 1300 should, and should not, apply to issuers in
Regulation A offerings? For example, should we require compliance with
Item 1302's requirement to file the technical

report summary as an exhibit only in Tier 2 offerings?
    123. Would limiting disclosure of the information required under
proposed subpart 1300 for issuers in Regulation A offerings increase
the risk of inaccurate disclosure in such offerings or otherwise
increase risks to investors?

III. General Request for Comments

    We request and encourage any interested person to submit comments
on any aspect of our proposals, other matters that might have an impact
on the amendments, and any suggestions for additional changes. With
respect to any comments, we note that they are of greatest assistance
to our rulemaking initiative if accompanied by supporting data and
analysis of the issues addressed in those comments and by alternatives
to our proposals where appropriate.

IV. Economic Analysis

    As discussed above, we are proposing revisions to the property
disclosure requirements for mining registrants under the Securities Act
of 1933 and the Securities Exchange Act of 1934. The proposed revisions
are intended to modernize the Commission's mining disclosure
requirements and policies by aligning them with industry practices and
global regulatory practices and standards. Overall, we believe that the
proposed revisions would increase the amount and quality of information
about a registrant's mining operations available to investors as well
as provide a single source in Regulation S-K for these disclosure
obligations. We further believe that this will facilitate compliance by
eliminating the complexity resulting from the existing structure of
Commission disclosure obligations in Regulation S-K and staff
disclosure guidance in Industry Guide 7.\425\
---------------------------------------------------------------------------

    \425\ See SME Petition for Rulemaking at 9.
---------------------------------------------------------------------------

    We are mindful of the costs imposed by, and the benefits obtained
from, our proposed revisions. In this section we analyze the expected
economic effects of the proposed revisions relative to the current
baseline, which consists of the current regulatory framework and market
practices. We consider the potential economic impact of the proposed
revisions on the main affected parties, including registrants,
investors and other financial statement users, and mining
professionals, such as geologists and engineers, who provide services
to registrants in support of mineral exploration and estimation of
mineral resources and reserves. Our analysis considers the anticipated
benefits and costs of the proposed revisions as well as the likely
impact on efficiency, competition, and capital formation.\426\
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    \426\ Securities Act Section 2(a) and Exchange Act 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. Further, Exchange Act Section 23(a)(2)
requires us, when proposing 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.
---------------------------------------------------------------------------

    We also analyze the potential benefits and costs of reasonable
alternatives to the proposed revisions. The alternatives we consider
below represent different approaches to achieving the goal of
modernizing the Commission's mining 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 proposed
disclosure requirements, rather than against the baseline.

A. Baseline

    To assess the economic impact of the proposed revisions, our
baseline consists of the current disclosure requirements and policies
in Item 102 of Regulation S-K, Guide 7 and Form 20-F and current market
practices. We also consider the CRIRSCO-based disclosure codes because
mining registrants compete in the international commodities and capital
markets, making international disclosure standards an important
benchmark for 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 proposed revisions align the Commission's
requirements with the CRIRSCO-based disclosure codes, we expect their
economic impact to be lower for these registrants.
1. Affected Parties
    The proposed revisions would primarily affect current and future
registrants with mining activities that are, or would be, 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 proposed
revisions would 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
would include mining companies filing Form 1-A offering statements
under Regulation A. Investors, analysts, and other users of the
information in the registrants' annual reports and registration
statements filed with the Commission would also be affected by the
proposed revisions. Finally, mining professionals, such as geologists
and mining engineers, who provide services to registrants related to
exploration and estimation of mineral resources and reserves would be
potentially affected due to the proposed qualified person requirement
and related provisions.
    To estimate the number of current registrants that would be
potentially affected by the proposed revisions, we first consider the
active registrants as of December 2015 that filed annual reports or
relevant registration statements at least once from January 2014
through December 2015. We then identify registrants with mining primary
Standard Industrial Classification (``SIC'') codes.\427\ 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 345 (50 of which are registrants that do not
have mining primary SIC codes).
---------------------------------------------------------------------------

    \427\ 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, 3300, 3334, and 6795.
---------------------------------------------------------------------------

    Among these registrants, we anticipate that the proposed revisions
would have a more significant effect on those mining registrants that
are not currently reporting based on CRIRSCO standards. To estimate the
number of registrants reporting based on CRIRSCO standards, we identify
those registrants incorporated 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 345 registrants, we identify 129
registrants--85 foreign private issuers and 44 U.S. registrants--that
are potentially reporting mining operations according to CRIRSCO-based
disclosure standards.

Accordingly, we estimate that there are 216 identified registrants that
solely report to the Commission and would therefore be more
significantly affected by the proposed revisions than registrants that
report elsewhere.
    Included among the 129 registrants that are potentially reporting
mining operations according to CRIRSCO-based disclosure standards are
63 Canadian registrants. 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 proposed revisions would more
closely align our disclosure requirements with those in NI 43-101. As
such, we estimate that the Canadian registrants that are currently
providing disclosure pursuant to NI 43-101 likely would be less
significantly affected by the proposed revisions than the 66 non-
Canadian registrants that are potentially reporting mining operations
according to CRIRSCO-based disclosure standards.\428\
---------------------------------------------------------------------------

    \428\ For example, the technical report summary requirement in
our proposed rule is very similar to the NI 43-101 requirement to
file a technical report summary. That requirement is not, however,
part of the other CRIRSCO-based codes, so only Canadian filers would
not incur an additional cost to prepare the summary report.
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2. Current Regulatory Framework and Market Practices
    As discussed in Sections I and II above, we evaluate the economic
effects of the proposed revisions against the Commission's current
disclosure requirements and policies. Below we discuss 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.
i. Structure and Detail of Current Disclosure Framework
    The following aspects of the current disclosure regime may give
rise to compliance challenges 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,\429\ 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 compliance burdens for mining
registrants.\430\
---------------------------------------------------------------------------

    \429\ See 17 CFR 249.220f.
    \430\ See section II.A and note 26, supra.
---------------------------------------------------------------------------

     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 only
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 rely on 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 required, such as the modifying factors the
registrant should consider, to convert existing mineral deposits to
reserves. By contrast, the CRIRSCO 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 may have rendered it unnecessarily complex and
confusing for mining registrants, especially new registrants. In this
regard, industry participants have raised concerns regarding the need
to rely on informal staff guidance to ensure compliance.\431\ Reliance
on staff guidance also may affect the consistency of the disclosures,
which can impact comparability across registrants and over time for
investors.
---------------------------------------------------------------------------

    \431\ Id.
---------------------------------------------------------------------------

ii. Scope of the Current Disclosure Requirements and Policies
    The technological process for evaluating the value of a mineral
property starts with mineral exploration, then continues with
estimation of mineral resources (i.e., the quantity and quality of the
material of interest that has economic prospects of extraction), which
in turn forms the basis for the estimation of mineral reserves (i.e.,
the amount of material that can be extracted economically). 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. 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.\432\
In addition, none of Guide 7, Item 102 of Regulation S-K or Form 20-F
calls for or requires disclosure of mineral exploration results. By
contrast, CRIRSCO-based codes require disclosure of material
exploration results and material mineral resources in addition to
material mineral reserves.
---------------------------------------------------------------------------

    \432\ See note 14, supra.
---------------------------------------------------------------------------

    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 their mineral resources they possess but
are not allowed to disclose. Omitting such information may increase the
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.\433\
Moreover, because mining companies providing disclosure in foreign
jurisdictions based on CRIRSCO standards are required to disclose
material exploration results and 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.\434\
---------------------------------------------------------------------------

    \433\ 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.
    \434\ See note 27, supra.
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    Currently, registrants can supplement, to some extent, the limited
scope of the current disclosure regime in two ways. First, although
there is no requirement to disclose material exploration results,
registrants can voluntarily disclose such information in their SEC
filings. However, the value of such voluntary disclosures to investors
may be reduced in the absence of a requirement that ensures consistency
and quality of the

disclosures. Second, regarding the disclosure of mineral resources,
Commission staff has, on a case-by-case basis, not objected to
disclosure of non-reserve mineral deposits in the form of ``mineralized
material.'' In practice, although the mineral resources covered by the
definition of ``mineralized material'' generally correspond with the
indicated and measured mineral resource categories defined in the
CRIRSCO standards, they are not completely consistent with CRIRSCO
resource categories. For example, Commission staff historically 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. Moreover, 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 the disclosures.
    As discussed above, disclosure of mineral resources is currently
prohibited unless required by foreign or state law.\435\ Under this
exception, Canadian registrants 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 U.S. registrants and
non-Canadian foreign registrants,\436\ which in our estimates represent
about 82% of the registrants potentially affected by the proposed
revisions. 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 the CRIRSCO standards, some registrants have reported their
mineral resources in press releases, on their Web site, or in their
annual reports. Such disclosures, made outside of SEC filings, may
present risks for investors who rely on such disclosures. First, 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 antifraud provisions of the federal securities laws),
are not subject to staff review and comment, and may not be reported
using commonly recognized standards.
---------------------------------------------------------------------------

    \435\ See note 14, supra.
    \436\ See SME Petition for Rulemaking at 14.
---------------------------------------------------------------------------

iii. Role of Experts in Support of Disclosures of Mineral Reserves
    As discussed above, Guide 7 provides, and Form 20-F requires that a
registrant disclose the name of the person estimating the 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
the CRIRSCO-based codes, which all require that disclosures of mineral
reserves--as well as exploration results and mineral resources--be
based on information and supporting documentation prepared by a
``competent'' or ``qualified person.'' \437\
---------------------------------------------------------------------------

    \437\ 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 is therefore subject to expert liability
under Section 11 of the Securities Act. See also 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.
---------------------------------------------------------------------------

    In the absence of an expertise requirement, disclosures of
exploration results, mineral resources and mineral reserves may be
viewed as less credible. 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 mineral resources and reserves based on CRIRSCO-based
codes.\438\
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    \438\ Under the current disclosure regime, registrants can
choose to hire an expert with similar qualifications as those
required by the CRIRSCO standards and voluntarily disclose this fact
to mitigate any competitive disadvantage. However, investors may
discount such disclosures if they are not derived from a formal
regulatory requirement. Moreover, investors that tend to diversify
their investments across companies in the mining sector, rather than
in any specific mining company, may discount the sector as a whole
in jurisdictions that are perceived to have less robust disclosure
standards in this regard.
---------------------------------------------------------------------------

B. Analysis of Potential Economic Effects

    In this section, we analyze the anticipated costs and benefits
associated with the proposed revisions to the mining disclosure
requirements.
1. Consolidation and Harmonization of the Mining Disclosure
Requirements
    As discussed above, the proposed revisions would consolidate the
mining disclosure requirements and policies of Regulation S-K and Guide
7 into new subpart 1300 of Regulation S-K, and rescind Guide 7.
Codifying the current mining disclosure requirements in Regulation S-K
would provide a single source for a mining registrant's disclosure
obligations, eliminating the complexity associated with the fact that
Guide 7 provides staff guidance and is not incorporated in the
Commission rules, such as in Regulation S-K, thus facilitating
compliance and promoting more consistent disclosures to investors.
    As described in Section II.A.1, the proposed revisions would
replace the current multiple standards for disclosure (i.e.,
``principal'' mines, ``other materially important'' physical
properties, and ``significant'' mining operations) included in Item 102
of Regulation S-K with a single materiality standard for when a
registrant must provide disclosure about its mining properties or
operations. The definition of ``material'' in the proposed rule would
be the same as under Securities Act Rule 405 and Exchange Act Rule 12b-
2. This single standard should reduce any confusion or compliance
uncertainty that arises from the current multiple standards. In
addition, the proposed rules would provide more detailed guidance to
registrants about how to apply the proposed standard under varied
circumstances,\439\ which should further reduce compliance uncertainty
and help ensure consistency in the disclosures. Finally, given that the
proposed standard is similar to the disclosure standard under the
CRIRSCO-based mining codes, the proposed revision would harmonize the
U.S. standard with global practice.\440\
---------------------------------------------------------------------------

    \439\ See, e.g., section II.B.1.i-iii, supra.
    \440\ See section II.B.1, supra.
---------------------------------------------------------------------------

    The proposed standard would generally be consistent with current
staff guidance for applying the existing disclosure thresholds. To the
extent that registrants currently follow this guidance in determining
which disclosures to make concerning their mining operations, the
proposed new threshold would not significantly alter existing
disclosure practices.
    As discussed above, the proposed rules would redefine the
classifications of ``exploration,'' ``development'' and ``production''
stage so that they apply to individual properties as well as the
totality of a registrant's mining activities, the latter of which is
the case in Guide 7. This individual property classification would in
turn guide the classification of the registrant as a whole, as
described above in Section II.A.2. Applying the classification of the
technological stages at the property

level should have several potential benefits. First, by providing the
classification at the property level, the proposed rules would provide
more precise information to investors about the nature and risk of
registrants' mining operations. In addition, because the classification
at registrant level would be derived from the individual property
classifications, the proposed rules would prevent a registrant without
material reserves from characterizing itself as a development stage or
production stage company, which is possible under the current
classification scheme.\441\ Second, since many registrants have mining
properties in different stages, the proposed rules would instruct how
registrants should apply the definitions to their operations, thereby
reducing compliance uncertainty. Third, the proposed rules would align
the disclosure requirements with current accounting practice under U.S.
GAAP and IFRS (as issued by the IASB),\442\ facilitating consistency
among the disclosures. Because registrants already possess the
information necessary to be able to classify properties at the
individual property level, and the proposed classifications are
consistent with current accounting practice, we do not expect a
significant increase in compliance costs for registrants.
---------------------------------------------------------------------------

    \441\ See note 65, supra.
    \442\ See note 68, supra.
---------------------------------------------------------------------------

2. Qualified Person and Technical Report Summary Requirements
    As discussed above, we propose to require that every disclosure of
mineral resources, mineral reserves and material exploration results be
based on and accurately reflect information and supporting
documentation prepared by an identified qualified person. Moreover, we
propose to require that, for each material mining property, registrants
obtain and file a signed and dated technical report summary prepared by
this qualified person.
    We anticipate that the qualified person requirement paired with the
technical report summary requirement would enhance the accuracy,
transparency, and credibility of the proposed disclosures for
investors. 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
should ensure that the estimates provided in the disclosures are based
on work consistent with current professional best practice. This should
in turn increase the reliability and informational value of the
disclosures. Moreover, the technical report summaries for material
mining properties would provide investors and analysts with technical
details to allow them to improve their own individual assessments of
the value of the mining properties, including better estimates for
their own forecasting models. These anticipated benefits should be
especially pronounced in conjunction with the proposed disclosures of
mineral resources and material exploration results, since estimates of
mineral resources and material exploration results are typically
associated, for technological reasons, with a higher degree of
uncertainty compared to estimates of mineral reserves.
    These potential benefits from the proposed qualified person
requirement are not without associated costs.\443\ Regarding the
proposed qualified person requirement, we expect any increase in
compliance costs to be related to an increase in search and hiring
costs of qualified persons. Registrants that are not currently
employing or contracting with professionals meeting the proposed
definition of qualified person would incur costs, including expenses
for identifying a pool of professionals that would meet the definition
of qualified person and be willing to provide their services. The costs
for services of a qualified person may also increase for such
registrants due to the level of expertise required under the proposed
rules. Because the required disclosures derive from activities mining
registrants are already performing 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 proposed level of
expertise, either as employees or as contractors. In particular, this
should be the case for registrants reporting based on CRIRSCO
standards, as those disclosure codes already require a similarly
defined ``qualified'' or ``competent'' person to support the
disclosures. To the extent registrants already engage professionals
meeting the proposed qualified person requirement, the incremental
compliance costs of the proposed requirement would be minimal or none.
---------------------------------------------------------------------------

    \443\ Quantifying these cost are 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.'' 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), which would help us
estimate the marginal cost of hiring a qualified person with the
minimum level of expertise versus professionals that do not qualify
as qualified persons.
---------------------------------------------------------------------------

    Registrants that are currently employing or contracting with
professionals meeting the proposed definition of a qualified person
would not incur costs associated with hiring such a person but may
nevertheless experience an increase in compensation costs. One reason
for such an increase is that qualified persons would provide, sign and
consent to the filing of more extensive documentation in support of the
disclosures, which potentially would expose them to greater legal
liability. Moreover, if the qualified person requirement reduces the
pool of eligible mining professionals, compensation costs could
increase due to increased competition among registrants for the
services of these eligible professionals. However, we anticipate this
competitive effect on compensation costs to be minor as there is
currently a large pool of professionals both in the United States and
around the world that would meet the definition of qualified person.
For example, the Society for Mining, Metallurgy, and Exploration
currently has 15,000 members around the world.\444\ More than 800 of
these members are registered with the organization and already meet the
definition of a qualified person.\445\ 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.\446\ A
significant fraction of these professionals would likely meet the
definition of qualified person, or could meet it after some
professional development.\447\ For example, California alone had more
than 5,000 recorded licensed professional geologists as of November
2014.\448\ We

note that these estimates largely exclude professionals who are active
in foreign markets and who could also qualify.
---------------------------------------------------------------------------

    \444\ See the SME Web site at: https://www.smenet.org/about-sme/overview.
    \445\ See the SME Web site at: http://www.smenet.org/membership/registered-member-directory.
    \446\ 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).
    \447\ The increased demand for qualified persons' services is
likely to incentivize more professionals to become qualified.
    \448\ See the Web site 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
they have five years' relevant experience in mining with respect to
the type of mineralization under consideration, would likely meet
the proposed definition of a qualified person.
---------------------------------------------------------------------------

    Regarding the proposed technical report summary requirement, we
expect that registrants would experience an increase in compliance
costs related to the preparation of the report summaries for material
mining properties.\449\ Even registrants that currently produce
technical documentation and reports in compliance with requirements in
other jurisdictions would likely incur additional costs to conform the
reports to the specific requirements in the proposed rule. In this
regard, the proposal seeks to limit the additional compliance costs by
requiring that a registrant only has to file a technical report for
material properties, rather than for all its properties, and only when
the registrant is first reporting, or reporting a material change in,
exploration results, resources and reserves.
---------------------------------------------------------------------------

    \449\ It is challenging to estimate reliably the compliance
costs associated with the requirement to prepare a technical report
summary because of the diversity in the scope and complexity of the
reports that are to be summarized and the labor costs (by sector of
the industry and geographic location). Also, we could not find any
studies that have examined this question. For purposes of the
Paperwork Reduction Act, based on staff analysis of similar
reporting requirements in other jurisdictions, we estimate that
registrants would each incur between 11 and 50 burden hours to
prepare the required technical report summary, depending on whether
they are subject to CRIRSCO standards. These estimates assume that
all the information required to prepare a technical report summary
is already available to the qualified person as part of the
scientific and engineering assessment required to support disclosure
of exploration results, mineral resources, and mineral reserves. See
Section V, infra.
---------------------------------------------------------------------------

    The proposed qualified person and technical report summary
requirements are similar to the corresponding requirements in the
CRIRSCO-based disclosure codes, which generally should mitigate the
incremental impact of the proposed requirements on registrants
currently reporting in jurisdictions that use these codes. However,
some of the differences may be economically important. For example,
although the CRIRSCO jurisdictions require that a company's exploration
results, mineral resources and mineral reserves be based on and fairly
reflect information and supporting documentation prepared by a
``competent'' or ``qualified'' person, only Canada and Australia
require the filing of a technical report summary to support such
disclosure.\450\ Accordingly, we expect that the proposed technical
report summary requirement would increase the costs of compliance for
registrants currently reporting in foreign jurisdictions other than
Canada and Australia. On the other hand, these registrants would
receive the incremental benefits (identified above) associated with the
filing of such report summaries.
---------------------------------------------------------------------------

    \450\ Canada's NI 43-101 requires a registrant to file a
technical report summary, substantially similar to what we are
proposing, for each material mining property. See NI 43-101 pt. 4.
That Instrument also prescribes the form of the technical report
summary. See Form 43-101F1. Australia's ASX requires all public
disclosure of exploration results, mineral resources and mineral
reserves to be accompanied by an appendix that reports pursuant to
JORC Table 1. See ASX Listing Rules 5.7.1, 5.8.2 and 5.9.2. This
requirement is equivalent to requiring an abbreviated version of the
technical report summary.
---------------------------------------------------------------------------

    The proposed rules do not require the qualified person to be
independent of the registrant. The absence of an independence
requirement is consistent with the CRIRSCO-based codes, with the
exception of Canada where the qualified person supporting the
registrant's mining disclosures must be independent of the company for
new registrants or, in cases of significant changes to existing
disclosures, for established registrants.\451\ Although there is some
evidence that outside experts reduce information asymmetries about
companies' valuations in related circumstances,\452\ we believe this
benefit should 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. We also believe that the
expert liability incurred under section 11 of the Securities Act would
mitigate the potential for misleading or fraudulent disclosures by all
qualified persons, whether or not the person is affiliated with the
company or an independent expert.
---------------------------------------------------------------------------

    \451\ See NI 43-101 pt. 5.3.
    \452\ 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.
---------------------------------------------------------------------------

    We have considered reasonable alternatives to the proposed
qualified person and technical report summary requirements. One
alternative would be not to require or define the professional
requirements of the expert producing information and supporting
documents for the disclosures, but to require that registrants disclose
the relevant qualifications and professional background of the expert
as well as any affiliation with the registrant. Investors could use
this information to decide for themselves if the expert is likely to be
competent and reliable. Compared to the proposed rule, this alternative
would potentially lower costs for the services provided by qualified
persons since registrants could hire from a broader population of
experts. Moreover, registrants that already use experts not meeting the
definition of a qualified person under the proposed rule would avoid
switching costs. However, this alternative would potentially lead to
less consistency in the type of expertise and quality of reports across
firms. Moreover, this alternative would significantly differ from the
approach in the CRIRSCO standards of requiring a minimum level of
expertise in support of the disclosures. As a result, even when keeping
the actual level of competence of experts constant across
jurisdictions, this alternative could lead to a perception among
investors that disclosures of mineral resources and reserves within SEC
filings are not as well supported as disclosures in the CRIRSCO
jurisdictions, which could discourage investors from investing in
securities of mining companies listed in the U.S. markets.
    Another alternative would be not to require the filing of a
technical report summary to reduce expected compliance costs and be
consistent with the majority of CRIRSCO-based codes. Under this
alternative, the potential benefits discussed above that come from
investors having access to the information in the technical report
summary would be foregone.
3. Treatment of Exploration Results
    The proposed rules would require a registrant to disclose material
exploration results (as and if determined by a qualified person) for
each of its material mining properties. This proposed disclosure
requirement would align the Commission's disclosure requirements for
exploration results with those in CRIRSCO-based codes. The proposed
rules also would provide guidance for registrants when exploration
results are considered material.
    Although the Commission's current disclosure requirements and
policies do not provide for the disclosure of exploration results, some
registrants

disclose exploration results on a voluntary basis. Presumably,
registrants currently providing such voluntary disclosures benefit from
doing so. From an individual mining registrant's perspective, the
proposed requirements would be beneficial if the associated incremental
economic benefits exceed the incremental costs of complying with the
disclosure requirements, as proposed. From an investor's perspective,
the proposed rule would be incrementally beneficial if the expected
benefit in terms of more efficient investment decisions due to the
additional information exceeds the cost of processing the same
information.
    Because a new mining project inevitably starts from some form of
exploration activity, disclosure of material exploration results would
provide important information to investors about registrants' mining
operations and potential growth opportunities. We expect the disclosure
of exploration results by smaller mining registrants to be especially
useful to investors as such registrants tend to have a narrower range
of mining operations and fewer individual projects. We estimate that a
majority of mining registrants are very small firms: 51% of mining
registrants (176 out of the 345 registrants identified above) have $5
million or less in total assets, suggesting they are mainly exploration
stage registrants.
    It is important to recognize that exploration results, by
themselves, without the assessment of geologic and grade continuity
required in resource estimation, are inherently speculative. Thus, it
may be difficult for investors to value exploration results accurately
and there is a risk that some investors would put too much weight on
this information, which in turn could lead to inefficient investment
decisions. The proposed requirements are intended to mitigate any
potential costs related to the uncertainty associated with the
disclosure of exploration results in a couple of ways. First, the
proposed rules would preclude the use of exploration results, by
themselves, to derive estimates of tonnage, grade, and production
rates, or in an assessment of economic viability. This should reduce
the potential for overvaluing the disclosed exploration results.
Second, disclosure of material exploration results must be based on the
analysis of a qualified person submitting a technical report summary
that is filed as an exhibit with the Commission. The proposed qualified
person and technical report summary requirements should increase the
accuracy and reliability of the disclosed exploration results. In
addition, the proposed requirements would also increase the usefulness
of this information to investors by aligning the disclosure of material
exploration results with the requirements in CRIRSCO-based codes, which
would improve the comparability of the disclosed information relative
to similar disclosures by mining companies in jurisdictions such as
Canada and Australia.
    Quantifying the anticipated net benefit to investors from the
proposed disclosure requirement is difficult. There is some academic
evidence suggesting that investors respond favorably to the disclosures
of exploration results. For example, an academic study of 1,260
exploration results announcements made by 307 unique Australian mining
companies over the 2005-2008 time period documents an average abnormal
stock return of 2.8% on the announcement day.\453\ For each such
company, the abnormal return was calculated relative to the return on
the same day for a size-matched non-announcing commodity peer.
Consistent with exploration results being more value relevant for
smaller firms, the study also finds a significantly higher announcement
day return for smaller firms, where size is measured by pre-
announcement market capitalization. We also note that the announcements
of explorations results in the sample were compliant with the 2004
edition of the Australian JORC code for mining disclosure, which
contains requirements for disclosure of exploration results that are
similar to the proposed requirements.\454\
---------------------------------------------------------------------------

    \453\ See Ron Bird, Matthew Grosse, and Danny Yeung, ``The
market response to exploration, resources, and reserve announcements
by mining companies: Australian data'' (2013), Australian Journal of
Management, Volume 38, Issue 2, pp. 311-331.
    \454\ See the JORC Code, 2004 Edition, pts. 16, 17, and 18.
---------------------------------------------------------------------------

    We expect an increase in compliance costs for those registrants
that disclose material exploration results for the first time for any
particular project. These costs would include the assessment of
materiality, the costs of preparing the required technical report
summary, and the costs of reporting the results in annual reports and
registration statements filed with the Commission. To the extent that
these costs are fixed rather than scaled to the size of the project,
the cost burden would be relatively larger for smaller registrants.
    We note that the proposed requirement to disclose material
exploration results does not impose an affirmative obligation to hire a
qualified person to make a determination about exploration results.
Registrants who perceive that the compliance costs related to engaging
a qualified person are prohibitive can refrain from engaging a
qualified person to make a determination about the exploration results.
In that situation, the registrant would not be required to disclose
material exploration results because the required information and
documentation by an expert necessary to support the public disclosure
of material exploration results would not be present.
    The compliance costs of the proposed disclosure requirement should
be substantially mitigated for registrants that already report based on
CRIRSCO standards, as those standards have similar disclosure
requirements for material exploration results.
    The proposed rules require disclosure of determined material
exploration results only with respect to individually material
properties.\455\ One alternative to the proposed requirement would be
also to require disclosure of material exploration results when the
registrant has determined that the aggregate mining operations are
material but no individual property is material.\456\ Relative to the
proposed rules, this alternative would provide investors with more
information concerning the prospects of the registrant's mining
operations but it would be significantly costlier for affected
registrants. The costs of this alternative could be mitigated by
requiring the additional material exploration results to be presented
in summary form.
---------------------------------------------------------------------------

    \455\ See Section II.D., supra.
    \456\ See Section II.B.1, supra.
---------------------------------------------------------------------------

4. Treatment of Mineral Resources
    As discussed above, disclosure of mineral resources is currently
precluded in SEC filings unless required pursuant to foreign or state
law. Industry participants have raised concerns regarding the adverse
competitive effects potentially stemming from the inability of U.S.
registrants to disclose mineral resources.\457\ These industry
participants have stated that mining companies and their investors
consider mineral resource estimates to be material and fundamental
information about a company and its projects.\458\
---------------------------------------------------------------------------

    \457\ See note 27, supra.
    \458\ See SME Petition for Rulemaking at 1 and 13.
---------------------------------------------------------------------------

    The proposed rule would require a registrant with material mining
operations to disclose specified information concerning any mineral
resources that have been determined based on information and supporting
documentation from a qualified person.

In the absence of such information and supporting documentation, the
registrant would not have mineral resources as defined in the proposed
rules, and as such, would not be required or allowed to disclose
mineral resources in a SEC filing.\459\
---------------------------------------------------------------------------

    \459\ In other words, the disclosure requirement would not be
triggered if the registrant chose not to hire a qualified person
because it would lack the information and documentation to support
the disclosure of mineral resources, as required by the proposed
rule.
---------------------------------------------------------------------------

    As proposed, a registrant with material mining operations that has
multiple properties would be required to provide both summary
disclosure about its mineral resources in addition to more detailed
disclosure concerning its mineral resources for each material
property.\460\ As discussed above, the proposed requirement would
expand the scope of the current disclosure regime, while aligning the
Commission's mining disclosure rules with those in foreign
jurisdictions based on the CRIRSCO standards.
---------------------------------------------------------------------------

    \460\ See the discussion in section II.B, supra.
---------------------------------------------------------------------------

    We expect the proposed framework for disclosure of mineral
resources to result in additional useful information concerning a
registrant's operations and prospects. Because mining registrants
already assess mineral resources in the course of developing mining
projects, requiring information about mineral resources to be disclosed
would significantly reduce the information asymmetries between
investors and registrants. Reducing information asymmetry relating to
mineral resources should lower the cost of capital and improve capital
formation.\461\
---------------------------------------------------------------------------

    \461\ Although we expect disclosures that reduce information
asymmetries to reduce cost of capital for the typical mining
company, we also expect there to be a reallocation of capital from
relatively low quality companies to higher quality companies as
better information on the companies' prospects are revealed. This
reallocation would help improve efficiency and capital formation
overall, but also means that some poorer quality mining companies
would likely experience a higher cost of capital.
---------------------------------------------------------------------------

    Moreover, since the CRIRSCO-based codes already require similar
disclosure of mineral resources, the proposed framework would improve
competition among mining registrants by removing the competitive
disadvantage that U.S. registrants currently experience relative to
reporting firms in foreign jurisdictions. This also may improve the
attractiveness of U.S. capital markets for mining companies. Similar to
the case of the proposed requirement to disclose material exploration
results, the proposed requirement to disclose mineral resources may be
particularly beneficial to smaller exploration stage mining registrants
(and their investors) as their valuations may be more dependent on non-
reserve mineral deposits.
    We note that for registrants that currently disclose ``mineralized
materials'' there should be a comparatively lower incremental reduction
in information asymmetries. Nonetheless, the proposed framework would
result in disclosures that are more consistently presented and more
transparent to investors, thereby increasing comparability of such
information across mining registrants. For example, the differences
between measured and indicated mineral resources would be clear under
the proposed rules since they will be distinct and not aggregated as
mineralized material. The proposed requirement that the disclosures
must be supported by information and documentation provided by a
qualified person would also improve the quality and reliability of the
disclosures compared to the current disclosures of mineralized
material. To the extent the above expected incremental improvement in
disclosure to investors reduces information asymmetries, the efficiency
of investment decisions would increase and registrants that currently
disclose mineralized material may still experience a reduction in cost
of capital. Finally, relative to the current practice for disclosure of
mineralized materials, requiring the disclosure of mineral resources by
rule should reduce registrant uncertainty and facilitate compliance.
    Estimates of mineral resources are typically associated with a
greater uncertainty than estimates of mineral reserves. To help
investors better assess the uncertainty surrounding mineral resource
estimates, the proposed disclosure framework would mandate a
classification of mineral resources into inferred, indicated and
measured mineral resources, in order of increasing confidence based on
the level of underlying geological evidence, with the estimates for
inferred mineral resources being the most uncertain.\462\ In addition,
we are proposing that resource disclosures must be supported by an
initial assessment by a qualified person and that this assessment, at a
minimum, must include a qualitative evaluation of modifying factors to
establish the economic potential of the mining property or project. We
believe that requiring an initial assessment by a qualified person
would reduce the uncertainty surrounding mineral resource estimates and
increase the value of the information for investors. Specifically, we
believe that a well-defined and specific technical study to support
disclosure of mineral resources should improve the accuracy and
reliability of the mineral resource estimates for investors. Since
estimates of mineral reserves are based on estimates of mineral
resources, the greater accuracy of the resource findings should lead to
better mineral reserve determinations.
---------------------------------------------------------------------------

    \462\ Because of the inherent uncertainty associated with
inferred resources, we note that registrants may have an incentive
to aggressively report such resources. However, this incentive would
be mitigated by not allowing inferred resources to later be directly
converted to mineral reserves. See section II.E.2, supra.
---------------------------------------------------------------------------

    The proposed rule would generate compliance costs for registrants
with material mining operations that disclose mineral resources. The
increase in costs would be greater for registrants not currently
disclosing mineralized material. The costs would include the
incremental costs (above the registrant's mineral resource assessment
practices) of the initial assessment and the costs of preparing the
technical report summary, in the case that one is required. As
discussed above, if registrants are currently using a professional who
would not meet the qualified person definition, search costs and
potentially higher compensation costs may also be incurred. In deciding
whether to disclose mineral resources, we expect companies would weigh
the incremental compliance costs of producing reports that meet the
required standards against the expected benefits stemming from such
disclosure, based on their individual facts and circumstances.
    The compliance costs associated with the proposed framework for
disclosure of mineral resources would be mitigated to some extent for
registrants that report in foreign jurisdictions with CRIRSCO-based
disclosure codes given the similarity between the requirements in those
codes and our proposal. In this regard, however, although all CRIRSCO-
based codes require some type of study to support the determination and
disclosure of mineral resources, most do not define a specific type of
study. As such, the proposed initial assessment requirement could
result in increased burdens for these mining registrants to the extent
that our proposed initial assessment differs from registrants'
practices for determining resources.
    For example, although the CRIRSCO-based codes prohibit the use of
inferred mineral resources to support a determination of mineral
reserves, they typically permit the use of inferred

mineral resources in a scoping study \463\ as long as the competent or
qualified person provides appropriate cautionary language regarding the
low level of geological confidence in those resources. Accordingly, a
registrant may incur costs if it has obtained a scoping study that
would not be in compliance with the proposed rules because it contains
an economic analysis that includes inferred mineral resources.\464\
---------------------------------------------------------------------------

    \463\ A scoping study (called a preliminary economic analysis in
NI 43-101) is used to determine whether to proceed with further work
leading to preparing a pre-feasibility or feasibility study for
mineral reserve determination. In contrast to our proposed rules,
CRIRSCO-based codes allow registrants to disclose results of scoping
studies that use some inferred mineral resources in the economic and
technical assessment.
    \464\ See note 155, supra.
---------------------------------------------------------------------------

    There is evidence suggesting that investors respond favorably to
the disclosures of mineral resources. For example, the previously
discussed study regarding the disclosure of exploration results also
analyzes the announcement returns to disclosures of mineral
resources.\465\ Analyzing 624 resource announcements by 278 publicly
traded Australian firms between 2005 and 2008, the authors document an
average abnormal stock return of 2.5% on the announcement day. As for
the exploration results announcements, the abnormal return was
calculated relative to the return on the same day for a size-matched
non-announcing commodity peer. Unlike the announcements of exploration
results, the authors find no relation between company size and the
abnormal returns. However, abnormal returns are significantly greater
when a mining company announces mineral resources for the first time.
The authors suggest this may be the case because much of the existing
information asymmetry is resolved at the time of the first
announcement.
---------------------------------------------------------------------------

    \465\ See Ron Bird, Matthew Grosse, and Danny Yeung (2013), pp.
123-125.
---------------------------------------------------------------------------

    One alternative to the proposed disclosure requirement for mineral
resources is not to require the qualified person to provide an
assurance that all issues relating to the relevant modifying factors
can be resolved with further exploration and analysis. Instead, as is
required by the CRIRSCO-based codes, the qualified person could be
guided by the definition of mineral resources provided in the proposed
rules in determining that the mineral resources have ``reasonable
prospects of economic extraction.'' \466\ The compliance cost related
to preparing an initial assessment to support mineral resource
disclosure associated with this alternative would likely be lower than
the costs associated with the proposed requirement. First, the
alternative would reduce the amount of work that the qualified person
has to do to support his or her determination of resources. In
addition, the absence of the requirement to provide the specified
assurance could reduce the qualified person's potential liability, and
as a result, reduce the cost of engagement of the qualified person. At
the same time, this alternative could increase the uncertainty
surrounding the prospects of economic extraction of mineral resources
and therefore reduce the value of the disclosure of such resources.
---------------------------------------------------------------------------

    \466\ See, e.g., CRIRSCO's International Reporting Template pt.
21, which states ``[t]he term `reasonable prospects for eventual
economic extraction' implies a judgment (albeit preliminary) by the
Competent Person in respect of the technical and economic factors
likely to influence the prospect of economic extraction, including
the approximate mining parameters.''
---------------------------------------------------------------------------

    Another alternative we considered is not to require the preparation
of a technical report summary, as in most CRIRSCO jurisdictions. This
alternative would further lower compliance costs but would also reduce
consistency in the disclosures and increase the uncertainty about the
quality of the mineral resources estimates.
5. Treatment of Mineral Reserves
    As discussed above, we propose to revise the definition of mineral
reserves to align it with the CRIRSCO standards by requiring that the
qualified person apply defined modifying factors to the indicated and
measured mineral resources in order to convert them to mineral
reserves. The proposed rules would permit either a pre-feasibility or a
feasibility study to provide the basis for determining and reporting
mineral reserves. The proposed rules would also require that the
reserve estimations and disclosures thereof be based on the work of a
qualified person.\467\
---------------------------------------------------------------------------

    \467\ See section II.F, supra.
---------------------------------------------------------------------------

    We expect the proposed revisions to the disclosure of mineral
reserves to have several economic benefits. First, the proposed
revisions specify in more detail the process that is required for
registrants to convert mineral resources to probable or proven mineral
reserves, including, as noted above, requiring the application and
description of relevant modifying factors that affect the conversion.
The increased detail and clarity of the proposed requirements should
lead to more reliable and consistent disclosures. Second, because the
determination of mineral reserves would be based on the analysis and
documentation provided by a qualified person, the disclosure would be
associated with the incremental benefits potentially stemming from the
qualified person requirement, as discussed above. Third, the staff
currently requests that registrants obtain a full feasibility study to
support the determination of mineral reserves, but the proposed rules
would allow, under certain conditions, the use of a pre-feasibility
study, thus reducing compliance costs relative to current practice.
This benefit is likely to be more significant for smaller, capital-
constrained registrants since the cost of feasibility studies is
positively related to the size of individual projects rather than the
size of the registrant.
    Pre-feasibility studies, while adequate for disclosure of mineral
reserves, require less time than feasibility studies. For example, one
study estimates that between 12% and 15% of the engineering work on a
project is completed by the end of the pre-feasibility study compared
to between 18% and 25% at the end of the feasibility study.\468\ Thus,
assuming the same cost per worker-hour, a pre-feasibility study will be
around 33-40% less costly than a feasibility study. Allowing pre-
feasibility studies would be especially beneficial for registrants that
already have studies meeting the pre-feasibility standard, but not the
feasibility standard.
---------------------------------------------------------------------------

    \468\ See Richard L. Bullock, ``Mineral Property Feasibility
Studies,'' in 1 SME Mining Engineering Handbook, supra note115, at
227-261.
---------------------------------------------------------------------------

    In addition to compliance cost savings, allowing the use of pre-
feasibility studies could provide several ancillary benefits for
registrants and investors. Because CRIRSCO-based disclosure codes
already allow the use of pre-feasibility studies, allowing their use
under the proposed rules would place U.S. and non-Canadian foreign
registrants on equal footing with Canadian registrants availing
themselves of the ``foreign or state law'' exception and other mining
companies reporting only in CRIRSCO jurisdictions. Finally, the
proposed detailed requirements for feasibility studies should reduce
compliance uncertainty, while increasing consistency in disclosures
where feasibility studies are used to determine mineral reserves.
    Because the proposed treatment of mineral reserves is consistent
with established best practices in the mining industry, we do not
expect a significant increase in compliance costs beyond the potential
cost increases related to the qualified person requirement and the
filing of the technical report summary, as discussed above. Given the
potentially large compliance cost savings associated with allowing pre-

feasibility studies, we expect most registrants to experience an
overall reduction in compliance costs. However, because a pre-
feasibility study is typically associated with a lower confidence level
than a feasibility study, allowing the use of pre-feasibility studies
would likely lead to higher uncertainty associated with the mineral
reserve disclosures. This increased uncertainty should be mitigated by
the proposed qualified person requirement and proposed requirement of a
final feasibility study in certain specified high risk situations.
    One reasonable alternative to the proposed rules would be to
require feasibility studies by a qualified person and not allow pre-
feasibility studies. This alternative could lead to less uncertainty
surrounding mineral reserve estimates but would be associated with
significantly higher compliance costs than the proposed revisions.
Moreover, this alternative would continue to place U.S. and non-
Canadian registrants at a competitive disadvantage.
6. The Pricing Model for Determination of Mineral Resources and
Reserves
    As discussed above, Guide 7 does not include a specific pricing
model for the estimation of mineral reserves. Currently, registrants
generally use a commodity price that is no higher than the trailing 3-
year average price. The proposed disclosure requirements for mineral
resources and mineral reserves would require registrants to use in
their reserve and resource estimations a commodity price that is no
higher than the average closing price during the 24-month period prior
to the end of the last fiscal year, with the exception that registrants
can use a higher price if set by contractual arrangements.
    A key consideration when deciding on a pricing model is that a
price is assigned to mineral material that is in the ground and likely
will not be extracted for many years. Ideally, our rules would use a
pricing model that could accurately predict what prices will be at the
time of future expected extraction. Given that commodity prices are
volatile and generally difficult to predict, there is no established
industry ``best practice'' model. Absent an established industry
standard for the pricing model, we believe that, for the purpose of
public disclosure, the pricing model should be transparent and cost
effective, while producing unbiased estimates of future prices and
promoting comparability of estimated resources and reserves across
registrants. At the same time, given the inherent difficulty of
forecasting future commodity prices and the segmented nature of the
markets for some of the minerals involved, we also believe that the
pricing model should provide registrants with some flexibility to draw
on their knowledge and experience. However, we recognize that allowing
firms to use their internal pricing models may hurt comparability and
may create incentives to use unrealistically high prices that result in
overestimated mineral resources and reserves.
    A ceiling price model based on a trailing average, like the 3-year
trailing average price used as a ceiling in the current staff guidance,
strikes a balance between the objectives outlined above. First, the
ceiling price itself is transparent, easy to calculate, and consistent
for any given commodity and time, thus promoting comparability across
registrants. Second, because the trailing average price is a ceiling,
it gives registrants some flexibility to use their own preferred
pricing model as long as it does not exceed the ceiling. Third, any
tendency by registrants to select overly optimistic prices in an
attempt to inflate estimates is mitigated by the ceiling price, which
prevents registrants from assigning a price that is greater than what
has been observed over the time period of the trailing average.
    We believe that the proposed rules, which use a shorter time to
calculate the historic average price than current practice, would
result in a ceiling price that is more sensitive to shifts in price
trends and therefore would be more relevant for estimating the inherent
value of mineral resources and reserves. We also believe that the 24-
month time period is preferable to using a shorter time period. An
average price determined over, for example, a one-year period could be
affected by short-term price volatility in such a way that the value of
the estimated resources and reserves could reflect more short-term
market conditions than long-term fundamental market factors. The
proposed 24-month period intends to strike a balance between the
ceiling price being sensitive to recent changes in fundamental market
conditions while avoiding introducing fluctuations in the ceiling price
that may be driven more by short-term price volatility than by changes
in fundamental market conditions.\469\
---------------------------------------------------------------------------

    \469\ To illustrate the differences in the volatility depending
on the time horizon used for the ceiling price, staff analysis shows
that for copper prices on the London Metal Exchange over the 1986-
2015 time period, the standard deviation of the percentage change in
year-over-year prices was 16.6%, 20.0%, and 25.9% for average prices
calculated based on horizons of 36 months, 24 months, and 12 months,
respectively. This can be compared to the standard deviation of the
year-over-year change in daily prices, which was 34.1%. A
qualitatively similar pattern was found for a wide variety of
different minerals. (Note that for these calculations, end of the
month prices were used to calculate the year-over-year changes for
each of the different price alternatives, which means that the
standard deviations are based on 360 observations of year-to-year
percentage changes for each time horizon). The data used for the
analysis was collected from Thomson Reuters Markets LLC's DataStream
database.
---------------------------------------------------------------------------

    In practice, if the price that many mining registrants currently
use to estimate resources and reserves is at or below the 24-month
average closing price, the proposed rules would not significantly
impact compliance costs for these registrants.\470\ To the extent that
the price that management is using is above the 24-month average,
however, there would be a potential significant cost to registrants to
recalculate mineral resource and reserve estimates in compliance with
the proposed rules.\471\
---------------------------------------------------------------------------

    \470\ The only costs would be to calculate the 24 month average
price and determine whether the price that management currently uses
to estimate its mineral resources and reserves is below that price.
    \471\ These costs would vary significantly depending on the
facts and circumstances, including the type of deposit, mining
methods, and magnitude of price change. In some instances, a price
change may require very little additional engineering and economic
analysis to determine the economic viability of the mineral
resources in question. In other instances, a price change may lead
to a significant change in the scale of the proposed mining project.
The qualified person would then have to repeat almost all the
engineering and economic analysis to determine mineral resources.
---------------------------------------------------------------------------

    We recognize that because the proposed ceiling price model is a
trailing average of historical prices, the ceiling price by design may
be slow to incorporate recent price trends. Thus, to the extent that a
recent significant trend in prices marks a true structural break
towards higher (lower) commodity prices on the long run, the proposed
ceiling price may result in underestimation (overestimation) of mineral
reserves and resources. It is worth noting that, to mitigate the risk
that the ceiling price does not appropriately reflect recent changes in
the fundamental market conditions, the proposed rules would allow
registrants that have contracts with prices that are higher than the
ceiling to use such prices. Moreover, the proposed rules would require
disclosure of the assumptions used in the economic analysis underlying
the estimates of mineral resources and reserves, including the price
chosen, if the registrant has not previously disclosed mineral reserve
or resource estimates in a filing with the Commission or is disclosing
material changes to its previously disclosed mineral reserve or

resource estimates.\472\ The overall economic effects of the proposed
pricing model are particularly difficult to quantify, and we request
comment on these effects.
---------------------------------------------------------------------------

    \472\ See proposed Item 1304(b)(9) of Regulation S-K.
---------------------------------------------------------------------------

    There are several reasonable alternatives to the proposed pricing
model. One alternative would be the approach followed by several
foreign jurisdictions with CRIRSCO-based codes, where the qualified
person is allowed to use any reasonable and justifiable price based on
that qualified person's or management's view of long-term market
trends.\473\ Compared to the proposed price ceiling model, this
alternative approach would reduce the risk of underestimation of
mineral reserves and resources following a fundamental upward shift in
the commodity price, but would also carry a higher risk of
overestimation. A modified version of this alternative would be to
require registrants also to provide a sensitivity analysis of the
estimates of mineral resources and reserves with respect to the
commodity price used, where the price points used in the sensitivity
analysis surrounding the base price would be selected by the
registrant. A sensitivity analysis with respect to price would help
investors better assess the risk associated with the estimated mineral
resources and reserves and could, therefore, lead to more efficient
investment decisions. However, because a sensitivity analysis would
require registrants to calculate at least three estimates of resources
and reserves (the base price, as well as one price each above and below
the base price, respectively), compliance costs would be increased.
These compliance costs would be mitigated to the extent that
registrants are able to use estimates based on existing calculations
from an internal sensitivity analysis.
---------------------------------------------------------------------------

    \473\ See note 196, supra.
---------------------------------------------------------------------------

    A second alternative would be to calculate the ceiling price
differently, for example, as spot, forward, or futures price as of the
end of the last fiscal year to incorporate more quickly shifts in price
trends. However, due to the volatility associated with prices from any
given specific day, the disclosed estimates of mineral resources and
reserves may fluctuate more than the underlying fundamental values of
the resources and reserves, thus increasing the uncertainty of the
estimates for investors. Moreover, to the extent the ceiling price
calculated using this alternative is below the price that registrants
use based upon their own internal calculations, the higher volatility
of this alternative ceiling price may create higher compliance costs as
registrants may have to provide more frequent recalculations of their
mineral resources and reserves, solely for the purpose of their SEC
filings.
    A third alternative would be to require registrants to estimate
mineral resources and reserves using a price no higher than the 24-
month trailing average price and allow registrants to also disclose
mineral resources and reserves based on a higher price of their own
choosing, to the extent that they include a description of the model
and assumptions used to select the price.\474\ This approach would
present standardized estimates that are transparent and comparable
across registrants, while letting managers present supplement estimates
based on an alternative price if they, for example, believe that the
24-month average may lead to inaccurate estimates. Because reporting a
second set of estimates based on prices higher than the ceiling price
would be voluntary, presumably registrants only would provide such
alternative estimates if they expect the benefits of doing so to
outweigh the costs. The potential cost of this alternative is that the
price ceiling mechanism would lose its ability to constrain disclosure
of overestimated mineral resources and mineral reserves due to the use
of overly optimistic prices, which is one of the objectives for the
price model discussed above.
---------------------------------------------------------------------------

    \474\ As currently proposed, a registrant would not be permitted
to provide a supplemental mineral reserve determination (i.e.,
estimate based upon prices higher than the 24 month trailing
average). See note 252, supra.
---------------------------------------------------------------------------

7. Specific Disclosure Requirements
i. Requirements for Summary Disclosure
    Currently, Guide 7 does not explicitly address what disclosure
should be provided when a registrant has multiple mining properties.
Instead, on a filing-by-filing basis, staff has not objected to a
registrant with multiple mining properties providing summary disclosure
that encompasses all of its properties instead of providing disclosure
on a property by property basis. The proposed rules would require that
registrants that own multiple mining properties provide summary
disclosure of their mining operations. The summary disclosure would
include maps of the locations of all mining properties, a tabular
presentation of certain material information about the 20 properties
with the largest asset values, and a summary of all mineral resources
and reserves at the end of the most recently completed fiscal
year.\475\
---------------------------------------------------------------------------

    \475\ See the discussion in Section II.G.1., supra.
---------------------------------------------------------------------------

    We expect that the proposed summary disclosure would help
registrants to convey more effectively to investors information about
their aggregate mining properties and operations. Because of the
clarity and detail in the proposed summary requirement, it should also
reduce compliance uncertainty and increase consistency of summary
disclosures across registrants. These benefits should be particularly
important for registrants with a diverse set of mining properties.\476\
---------------------------------------------------------------------------

    \476\ See section II.B. 2, supra.
---------------------------------------------------------------------------

    Given that the proposed requirement for summary disclosure would
align with what most registrants already provide in their SEC filings,
we do not expect the requirement to impose significant additional costs
on registrants with mining operations that are material in the
aggregate, but have no individual property that is material. We also
note that one CRIRSCO-based jurisdiction, Australia, through the ASX
listing rules, requires summary disclosure similar to the proposed
summary disclosure requirements.\477\ For registrants that do not
already provide summary disclosure, whether reporting pursuant to Guide
7 or under any of the CRIRSCO-based codes, other than the ASX listing
rules, there could be additional costs to comply with the summary
disclosure requirements in addition to any individual property
disclosure requirements.
---------------------------------------------------------------------------

    \477\ See ASX Listing Rules 5.1.2 and 5.3.2.
---------------------------------------------------------------------------

    One alternative to the proposed summary disclosure would be to
limit the disclosure required by proposed Item 1303(b)(3) to only the
mineral resources and reserves for the 20 largest properties, rather
than for all mining operations. This would reduce compliance costs for
registrants with greater than 20 mining properties. The cost of this
alternative would be a potentially significant reduction in the
information about mineral resources and reserves available to investors
by excluding such information for many properties, which could be a
significant portion or majority of the registrant's mineral resources
and reserves. This reduction in information would be particularly
significant for registrants with multiple properties where no
individual property is material.
    Another alternative would be to require summary information about
the mining operations in aggregate but not for any individual property.
Compared to the proposed requirements, this alternative would lower not
only

compliance costs but also the amount of information available to
investors, especially when the registrant has material mining
operations in aggregate but no individual mining property that is
material.
    The required summary disclosures would increase the accessibility
of the information to investors and other data users. The proposed
tabular formats (Tables 2 and 3), however, may not be readily machine-
readable or directly comparable across filers without additional
structure. An alternative to the proposed summary requirements would be
also to require the disclosure required in Tables 2 and 3 to be made
available in a structured data format, such as eXtensible Business
Reporting Language (XBRL). When registrants provide disclosure items in
a structured data format, investors and other data users (e.g.,
analysts) can more easily retrieve and use the information reported by
registrants and perform comparisons of common disclosures across
registrants and reporting periods.\478\ Investors can download
information directly into spreadsheets or statistical analysis
software, which eliminates the need to enter the information manually
and minimizes the time burden and risk of errors associated with data
entry. The structuring of the data would require the development of a
taxonomy (a standard list of tags necessary for reporting in XBRL),
which in turn would require some level of standardization of the
various data elements based on mining industry practices. To the extent
that the proposed rules permit tailoring of the disclosures in Tables 2
and 3 to registrants' unique circumstances and provide filers with the
flexibility in how to report the required information, the
comparability of the data across registrants would be decreased, which
in turn would decrease the usefulness of requiring the data in Tables 2
and 3 to be made available in the XBRL format.
---------------------------------------------------------------------------

    \478\ See Release No. 33-9002A (Apr. 1, 2009) [74 FR 15666]
(``Financial Statement Information Adopting Release'').
---------------------------------------------------------------------------

    A company may choose to tag its own disclosures in-house or to
outsource the tagging process. Whether structured data filings are
prepared in-house or by an outside service provider, registrants would
incur additional costs to make the disclosure available in a structured
data format, including initial set-up costs and ongoing costs. To the
extent that such costs have a fixed component, they could impose a
relatively greater burden on smaller registrants.
ii. Requirements for Individual Property Disclosure
    As discussed above, the proposed requirements for individual
property disclosure for material properties would standardize the
current policies and requirements in Guide 7, Item 102 of Regulation S-
K, and Form 20-F, including a requirement that registrants present most
of the disclosure in tabular format. The proposed requirements would
also increase the amount and type of individual property information
that registrants disclose. Much of this new information would be a
direct consequence of the proposed new requirements to disclose
material exploration results and mineral resources. Another new item of
information would be the required comparison of a registrant's mineral
resources and reserves as of the end of the last fiscal year against
the mineral resources and reserves as of the end of the preceding
fiscal year, with an explanation of any change between the two.
    The standardizations of the proposed format for disclosures
relative to the current disclosure regime should increase the
effectiveness of the information conveyed to investors. The comparative
year-to-year disclosure requirement should also help investors better
understand the risk and prospects of the registrants' mining
operations.
    We expect that the tabular format of some of the individual
property requirements could initially result in additional compliance
costs. However, we expect that ultimately the costs for the disclosure
of a registrant's mineral resources, mineral reserves and material
exploration results may decline over time because companies should only
have to incur the costs to update their systems and procedures to
collect and structure the required information once, and thereafter
will only have to update the reported information. The remainder of the
individual property disclosure requirements should not increase costs
to registrants since they are substantially similar to those currently
provided under the existing disclosure regime.\479\
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    \479\ The costs we consider in this subsection are only the
costs related to the format of the individual property disclosure
requirements, as costs related to the proposed expansion of
information required to be disclosed are discussed in preceding
sections.
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    Similar to the above discussed requirement for summary disclosure,
an alternative to the proposed requirements for individual property
disclosure would be to require the disclosures in Tables 4 to 8 to be
made available in XBRL format. This alternative would have the same
potential benefits and costs as those discussed above in Section
IV.B.7.i.
iii. Requirements for Technical Report Summaries
    We expect that the proposed technical report summary requirement
would have the largest impact on registrants' compliance costs since
currently only registrants from Canada and Australia are subject to a
similar requirement.\480\ The proposed requirements for the technical
report summaries are largely consistent with the items of information
required under the Canadian NI 43-101 standards, with some relevant
differences. One important difference is that NI 43-101 allows the
qualified person to include a disclaimer of responsibility if he or she
relies on a report, opinion, or statement of another expert who is not
a qualified person in preparing the technical report summary, while the
proposed requirement would not allow such a disclaimer. The potential
benefit of not allowing such a disclaimer is that it would give the
qualified person, as a consenting expert, greater incentive to verify
information included in the technical report that is provided by
others. However, the resulting increase in legal liability could also
raise the cost of hiring a qualified person.\481\
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    \480\ We estimate that 113 out of the 345 existing mining
registrants are currently also reporting in Canada or Australia.
    \481\ As discussed in Section II.F.3 above, other differences
from NI 43-101 in the proposed requirement concern the structure of
how certain types of information are presented, which we believe
would enhance the presentation of the information without any
significant impact on compliance costs relative to NI 43-101.
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iv. Requirements for Internal Controls Disclosure
    The proposed requirement that a registrant describe the internal
controls that it uses in the disclosure of its exploration results and
in its estimates of mineral resources and mineral reserves would align
the Commission's disclosure regime with the requirements of the
CRIRSCO-based codes. Current rules and guidance do not address internal
controls. Commission staff has, on a case-by-case basis when warranted
by the specific facts and circumstances, requested a brief description
of the quality control and quality assurance protocols used for
exploration plans.
    We expect disclosure of the internal controls that a registrant
uses to improve significantly investors' understanding of the risks
related to the quality and reliability of a registrant's disclosure of
exploration results and estimates of mineral resources and

mineral reserves, and therefore also lead to more efficient investment
decisions. We also expect the requirement to increase compliance costs
for registrants. Registrants already disclosing internal controls in
CRIRSCO jurisdictions or voluntarily providing such disclosures in
their SEC filings should be largely unaffected by the proposed
requirements.
8. Conforming Changes to Certain Forms Not Subject to Regulation S-K
i. Form 20-F
    The proposed conforming changes to Form 20-F are intended to ensure
consistency in the mining disclosures across both domestic registrants
and foreign private issuers (excluding Canadian 40-F filers). The
proposed changes would particularly affect Canadian registrants that
report pursuant to Form 20-F and are currently permitted to provide
additional mining disclosure under NI 43-101 pursuant to the ``foreign
or state law'' exception under Guide 7 and the ``foreign law''
exception under Form 20-F. The proposed rules would eliminate this
exception and may thus increase compliance costs for these registrants
to the extent that, as discussed previously, the proposed disclosure
requirements differ from NI 43-101.\482\ That said, to the extent that
these differences in disclosure requirements also provide expected
incremental benefits, these benefits would mitigate any increase in
compliance costs.
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    \482\ Although the disclosure requirements of the proposed rules
are similar to those in NI 43-101, there are some differences that
may impose additional costs. For example, the requirements in the
proposed rules concerning how to determine prices for mineral
reserve estimates are different from those in NI 43-101. In
addition, the proposed rules require that the qualified person
conduct a preliminary evaluation of the relevant modifying factors
to establish the prospects of economic extraction in estimating
resources, which NI 43-101 does not.
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ii. Form 1-A
    The proposed conforming changes to Form 1-A would subject
Regulation A issuers with material mining operations to the full mining
disclosure requirements in the proposed subpart 1300 of Regulation S-K.
Thus, these issuers may incur the benefits and costs of these
requirements, as previously discussed. Because Regulation A issuers are
typically smaller companies, the economic considerations discussed
above about smaller companies would apply to this group of issuers. In
general, we expect that the proposed rules would benefit Regulation A
issuers given that smaller companies typically suffer a higher degree
of information asymmetry between the company and investors, which may
increase capital costs and lower access to financing. Nevertheless, the
expected increase in compliance costs from the proposed mining
disclosures requirements may be of particular importance for mining
issuers that are likely to consider Regulation A offerings. Under the
proposed requirements, mining issuers would be able to avoid the costs
associated with the prescribed technical reports by forgoing disclosure
of exploration results, mineral resources, and reserves, as defined,
which would mitigate any negative effect of increased compliance costs
on the propensity to use a Regulation A offering. Mining issuers may
also be able to avoid costs by choosing to offer securities under other
exemptions under the Securities Act, such as Regulation D. However,
this may put such issuers at a competitive disadvantage relative to
their peers who are raising capital with the benefit of these
disclosures.
    One alternative to the proposed conforming changes to Form 1-A
would be to require the proposed mining disclosures for Tier 2
offerings only. Because Tier 2 offerings may be larger than Tier 1
offerings, the relative importance of fixed compliance costs could be
lower for Tier 2 issuers, and thus the net benefit to Tier 2 issuers
from the disclosure requirements could potentially be larger. Another
alternative we considered would be to require disclosure only of the
information in the proposed summary disclosure requirement discussed in
Section II.F, including for issuers that only own one material mining
property. This would lower compliance costs, but would also reduce the
information to investors about material mining properties.
9. Compliance Costs of Preparing and Filing Forms
    The most significant compliance costs associated with the proposed
rules for mining disclosure would likely be the costs associated with
engaging qualified persons and the technical analyses and reports they
prepare. Registrants would also incur direct compliance costs from the
proposed rules related to preparing and incorporating the required
information in relevant Commission forms. For purposes of the Paperwork
Reduction Act, we analyze these costs in more detail in Section V, but
for the average firm, we expect an increase of 44.64 internal company
burden hours and an increase of costs for outside professionals equal
to $11,975.\483\ As we discuss in Section V, we expect the incremental
company burden hours and professional costs would be lower than these
estimates for registrants subject to CRIRSCO-based codes and larger for
registrants not subject to such codes. Moreover, the incremental burden
and costs would likely vary with the size and complexity of the
registrant's mining operations.
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    \483\ The average increase in internal burden hours and outside
professional costs are calculated using the estimates of total
incremental company burden hours (15,400) and total incremental
professional costs ($4,131,200), as reported in Table 2 of Section
V.D, supra, and dividing them by the estimated number of total
annual responses (345).