which determines the destination of the material during mining. For
purposes of establishing ``prospects of economic extraction,'' the
cut-off grade is the grade that distinguishes material deemed to
have no economic value (it will not be mined in underground mining
or if mined in surface mining, its destination will be the waste
dump) from material deemed to have economic value (its ultimate
destination during mining will be a processing facility). Other
terms used in similar fashion as cut-off grade include net smelter
return, pay limit, and break-even stripping ratio. 17 CFR 229.1300.
    \686\ See 17 CFR 229.1302(d)(2) [Item 1302(d)(2) of Regulation
S-K].
    \687\ See, e.g., CIM Definition Standards at 4 (``A Mineral
Resource is an inventory of mineralization that under realistically
assumed and justifiable technical and economic conditions might
become economically extractable.''). See also JORC Code, supra note
175, at pt. 20 (``Portions of a deposit that do not have reasonable
prospects for eventual economic extraction must not be included in a
Mineral Resource''); and SME Guide, supra note 177, at pt. 35 (``. .
.a Mineral Resource is not an inventory of all mineralization
drilled or sampled, regardless of cut-off grade, likely mining
dimensions, location, or continuity; rather it is a realistic
estimate of mineralization which, under assumed and justifiable
technical and economic conditions, might become economically
extractable.'').
---------------------------------------------------------------------------

    In connection with the cut-off grade estimation requirement, the
qualified person must make and disclose an assumption about whether the
deposit will be mined with underground or surface mining methods.\688\
Given the wide disparity between surface and underground mining costs,
we are concerned that any unit costs estimate that is not specific to
one of these two broad categories of mining methods may not adequately
establish the reasonable prospects of economic extraction.
---------------------------------------------------------------------------

    \688\ See Item 1302(d)(2) of Regulation S-K.
---------------------------------------------------------------------------

    In a change from the proposed rules, in response to comments
received, we are not requiring that the qualified person use a
commodity price that is no higher than the average spot price during
the 24-month period prior to the end of the last fiscal year, unless
prices are defined by contractual arrangements. Consistent with the
suggestion of numerous commenters, the final rules instead provide
that, when estimating mineral prices, the qualified person must use a
price for each commodity that provides a reasonable basis for
establishing the prospects of economic extraction for mineral
resources.\689\ In addition, the qualified person must disclose the
price used and explain, with particularity, his or her reasons for
using the selected price, including the material assumptions underlying
the selection. This explanation must include disclosure of the time
frame used to estimate the commodity price and unit costs for cut-off
grade estimation and the reasons justifying the selection of that time
frame.\690\ The selected price and all material assumptions underlying
it must be current as of the end of the registrant's most recently
completed fiscal year.\691\ Similar to the proposed rule, the qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used.\692\
---------------------------------------------------------------------------

    \689\ See id.
    \690\ See id.
    \691\ See id.
    \692\ See id.
---------------------------------------------------------------------------

    We believe that the adopted estimated pricing requirement will more
closely align the Commission's disclosure rules to the ``any reasonable
and justifiable price'' standard under the CRIRSCO-based codes and
thereby address several concerns raised by commenters.\693\ First,
under the final rules, a qualified person is able to use a price that
is either a historical price or one based on forward-looking pricing
forecasts. Because, according to commenters, most mining companies
currently rely on consensus prices based on forward-looking pricing
forecasts,\694\ the adopted estimated

pricing requirement will allow registrants to use the same prices for
disclosing mineral resources in Commission filings as they do for their
own internal management purposes and when reporting in CRIRSCO-based
jurisdictions. This should help limit the compliance costs of the final
rules.
---------------------------------------------------------------------------

    \693\ We are also adopting this estimated pricing standard for
the determination and disclosure of mineral reserves. See infra
Section II.F.2.
    \694\ See, e.g., letter from CIM.
---------------------------------------------------------------------------

    Second, the revised estimated pricing requirement permits a
registrant to use a different price for mineral resource determination
than it uses for reserve determination, and to vary the estimated price
for different commodities, as long as those prices are reasonable and
justifiable. Consequently, the determination and disclosure of a
registrant's mineral resources should more accurately reflect the
information guiding a registrant's business decisions because the
qualified person has more flexibility in selecting the different prices
for mineral resource and reserve estimation (as opposed to being
limited to prices less than the 24-month trailing average).\695\
---------------------------------------------------------------------------

    \695\ See supra note 659 and accompanying text.
---------------------------------------------------------------------------

    Third, because the adopted estimated pricing requirement conforms
to the CRIRSCO standards and global industry practice, it will help to
promote uniformity and comparability regarding the disclosure of
mineral resource and reserve estimates among mining registrants, which
should benefit investors by enhancing their analysis and understanding
of registrants' mining operations.\696\
---------------------------------------------------------------------------

    \696\ See, e.g., letter from CIM.
---------------------------------------------------------------------------

    We are not adopting a provision, as suggested by a few
commenters,\697\ that would exempt the disclosure of the price, and
related material assumptions, underlying mineral resource (or mineral
reserve) estimates. Because of the important role that pricing
considerations play in determining estimates of mineral resources (and
mineral reserves), we believe that such an exemption could lead to the
omission of information that is material to an investor's understanding
of those estimates.
---------------------------------------------------------------------------

    \697\ See supra notes 662-664 and accompanying text.
---------------------------------------------------------------------------

b. Qualitative Assessment of Factors and Permitted Assumptions
    We are adopting a provision that specifies the relevant technical
and economic factors likely to influence the reasonable prospect of
economic extraction that, at a minimum, the qualified person must
qualitatively assess.\698\ While the factors are identical to those in
the proposed instruction, we have conformed that instruction to reflect
the change in the definition of, and required disclosure concerning,
the initial assessment. We believe a qualitative evaluation of these
listed factors, at a minimum, is necessary to determine the economic
potential of a mining property. An assessment of the geological
characteristics of the mined material would not be complete if it did
not include an evaluation and discussion of infrastructure, mine
design, processing, and environmental issues that could pose obstacles
to the material's extraction.
---------------------------------------------------------------------------

    \698\ See 17 CFR 229.1302(d)(3) [Item 1302(d)(3) of Regulation
S-K]. These factors include: site infrastructure; mine design and
planning; processing plant; environmental compliance and permitting;
and any other reasonably assumed technical and economic factors,
including factors related to local individuals and groups, which are
necessary to demonstrate reasonable prospects for economic
extraction. See also Table 1 to paragraph (d) of Item 1302 of
Regulation S-K.
---------------------------------------------------------------------------

    We are adopting another provision that refers the qualified person
to Table 1 to paragraph (d) of Item 1302 for the assumptions permitted
to be made when preparing the initial assessment as well as other
technical studies.\699\ This table sets forth the minimum requirements
for various factors that the qualified person must evaluate when
preparing an initial assessment, pre-feasibility study, or feasibility
study. It is substantially similar to the proposed Table 1 but has been
conformed to reflect the change in the definition of, and required
disclosure concerning, the initial assessment. We are presenting the
minimum factors to be considered for each study in one table to
facilitate a comparison of the evaluative factor requirement across the
three key technical studies proposed to be used for mineral resource
and reserve disclosure. As this presentation demonstrates, the
evaluative process becomes more exacting as mining property assessment
progresses from mineral resource estimation to mineral reserve
estimation.
---------------------------------------------------------------------------

    \699\ See 17 CFR 229.1302(d)(1)(iv) [Item 1302(d)(1)(iv) of
Regulation S-K].
---------------------------------------------------------------------------

    The assumptions permitted to be made in the initial assessment
include those pertaining to infrastructure location and the required
plant area, type of power supply, site access roads and camp or town
site, production rates, processing method and plant throughput, post-
mining land uses, and plans for tailings disposal, reclamation, and
mitigation. Allowing assumptions for a variety of factors at the
resource determination stage is generally consistent with guidelines
under the CRIRSCO-based codes.\700\ Moreover, the assumption phase is
temporary as the qualified person must substitute most assumptions with
empirical evidence and facts as part of the pre-feasibility or
feasibility study that is required for determining mineral reserves.
---------------------------------------------------------------------------

    \700\ See, e.g., SME Guide, supra note177, Table 1, at 44-67.
---------------------------------------------------------------------------

    We are not expanding the disclosure of environmental factors in
connection with the initial assessment, as suggested by some
commenters.\701\ As explained in greater detail below, we believe that
the specified environmental factors required to be included in the
technical report summary will likely cover the concerns raised by those
commenters to the extent that they are material to investors.\702\
---------------------------------------------------------------------------

    \701\ See supra notes 669-671 and accompanying text.
    \702\ See infra Section II.G.3.
---------------------------------------------------------------------------

c. Optional Economic (Cash Flow) Analysis
    Similar to a proposed instruction, we are adopting a provision
stating that a qualified person may include cash flow analysis in an
initial assessment to demonstrate economic potential. If the qualified
person includes cash flow analysis in the initial assessment, then the
adopted provision imposes the same accuracy and contingency levels
required for operating and capital cost estimates as under the proposed
instruction.\703\ The qualified person must state the accuracy and
contingency levels in the initial assessment. We believe that these
accuracy and contingency requirements \704\ for operating and capital
costs are appropriate because they are generally consistent with those
accepted for scoping studies.\705\
---------------------------------------------------------------------------

    \703\ 17 CFR 229.1302(d)(4)(i) [Item 1302(d)(4)(i) of Regulation
S-K], which requires operating and capital cost estimates to have an
accuracy level of at least approximately 50 percent and
a contingency level of no greater than 25 percent.
    \704\ We have included both accuracy and contingency
requirements for operating and capital cost estimates in Table 1 to
paragraph (d) of Item 1302 of Regulation S-K.
    \705\ See, e.g., SME Guide, supra note177, Table 2, at 68-69
(providing accuracy and contingency ranges for capital and operating
cost estimates in scoping, pre-feasibility, and feasibility
studies).
---------------------------------------------------------------------------

    In a change from the proposed rules, the final rules will permit a
qualified person to include inferred mineral resources in a cash flow
analysis prepared as part of the initial assessment as long as the
qualified person:

     States with equal prominence to the disclosure of
mineral resource estimates that the assessment is preliminary in
nature, it includes inferred mineral resources that are considered
too speculative geologically to have modifying factors applied to
them that would enable them to be categorized as mineral reserves,
and there is no certainty

that this economic assessment will be realized;
     Discloses the percentage of the mineral resources used
in the cash flow analysis that are classified as inferred resources;
and
     Discloses, with equal prominence, the results of the
economic analysis excluding inferred resources in addition to the
results that include inferred resources.\706\
---------------------------------------------------------------------------

    \706\ 17 CFR 229.1302(d)(4)(ii) [Item 1302(d)(4)(ii) of
Regulation S-K].

    These conditions are generally in line with the approach of
Canada's NI 43-101, which permits the use of inferred resources in a
preliminary economic assessment as long as cautionary language about
such use is provided. We are adopting this change to address
commenters' concern that, because inferred resources may be included in
economic analyses in preliminary economic assessments under Canada's NI
43-101 and in scoping studies under other CRIRSCO-based codes, U.S.
registrants would be at a competitive disadvantage were we to adopt
subpart 1300, as proposed.\707\ We believe that the above conditions
will appropriately caution investors concerning the level of risk
underlying such mineral resource estimates and provide them with
additional information to help evaluate whether to invest on the basis
of estimates that include inferred resources.
---------------------------------------------------------------------------

    \707\ See supra note 674 and accompanying text.
---------------------------------------------------------------------------

    As previously noted, an initial assessment is not required to have
an economic analysis, and when it does not include such an analysis,
its scope is narrower than that of a preliminary economic assessment
under Canada's NI 43-101 or a scoping study under other CRIRSCO-based
codes.\708\ But if a qualified person opts to provide an economic
analysis, which includes inferred resources, in an initial assessment
under the final rules, a U.S. registrant may use such an initial
assessment for substantially similar purposes as a Canadian registrant
uses a preliminary economic assessment or another non-U.S. registrant
uses a scoping study in Australia, South Africa, or other foreign
jurisdiction that has adopted a CRIRSCO-based code.
---------------------------------------------------------------------------

    \708\ See supra notes 619-621 and accompanying text.
---------------------------------------------------------------------------

    As previously discussed, we do not believe that other quantitative
measures of economic potential that omit cash flows are appropriate,
and we are concerned that they potentially could be misleading.\709\
Capital expenditures, operating costs, and revenues vary over the life
of a mine due to variations in mining conditions. Hence, economic
analyses that do not account for these variations may not tell a
complete story. For example, a gross profit evaluation that does not
account for the timing of capital outlays and revenues could indicate
that a project is viable, yet in actuality timely loan repayments may
not be possible. Consequently, to the extent a qualified person wants
to include an economic analysis in an initial assessment, he or she
must use a cash flow analysis.
---------------------------------------------------------------------------

    \709\ See Proposing Release, supra note 5, at Section II.E.3.
---------------------------------------------------------------------------

5. USGS Circular 831 and 891
i. Proposed Interpretation
    In the Proposing Release, we explained why we do not believe that
it would be appropriate to permit the continued classification of
mineral resources based on United States Geological Survey (``USGS'')
Circulars 831 and 891 following adoption of subpart 1300 of Regulation
S-K.\710\ Consistent with the mission of the USGS, these circulars were
mostly suitable for national and regional level reporting of mineral
resources and reserves for government planning purposes,\711\ and were
not intended to be the basis for public company disclosure to
investors. While Circular 831 initially established a classification
system for all mineral commodities, its classification scheme has been
largely phased out for metal mining. It is still used in coal and some
industrial minerals mining, while Circular 891 was specifically
designed, and is still used, for resource or reserve classification of
coal.\712\
---------------------------------------------------------------------------

    \710\ See Proposing Release, supra note 5, at Section II.E.4,
which refers to USGS Circular 891 (stating that ``[i]n 1980, the
[USGS and Bureau of Mines] published Circular 831, `Principles of
the Mineral Resource Classification System of the U.S. Bureau of
Mines and U.S. Geological Survey' (U.S. Geological Survey, 1980).
The circular, which outlines a classification system for all mineral
commodities, filled the classification needs of the Bureau of Mines,
which was no longer responsible for coal resource classification,
and was the basis for this revision of the coal resource
classification system by the Geological Survey. The revision,
embodied in this report, has two main objectives: (1) to provide
detailed information lacking in Bulletin 1450-B; and (2) to provide
standard definitions, criteria, guidelines, and methods required for
uniform application of the principles outlined in Circular 831'').
Gordon H. Wood, Jr et al., U.S. Geological Survey, U.S. Dep't of the
Interior, Coal Resource Reclassification System of the U.S.
Geological Survey, USGS Circular 891 (1983), http://pubs.usgs.gov/circ/1983/0891/report.pdf.
    \711\ See Proposing Release, Section II.E.4, which refers to
USGS Circular 831 (stating that ``[t]he system can be used to report
the status of mineral and energy-fuel resources for the Nation or
for specific areas''). U.S. Geological Survey & U.S. Bureau of
Mines, U.S. Dep't of the Interior, Principles of a Resource/Reserve
Classification for Minerals: A Revision of the Classification System
Published as USGS Survey Bulletin 1450-A, USGS Circular 831 (1980),
http://pubs.usgs.gov/circ/1980/0831/report.pdf.
    \712\ See id.
---------------------------------------------------------------------------

    In the past, the staff has not objected to mineral reserve
disclosure that used these circulars to classify mineral resources as
inferred, indicated, or measured resources.\713\ However, we indicated
in the Proposing Release that we do not believe the use of USGS
Circulars 831 and 891 for resource classification in Commission filings
would be consistent with the proposed rules. As we explained, the
primary criterion for the required mineral resource classification
under the CRIRSCO standards, upon which the Commission's proposed rules
are based, is the geologic confidence in the estimates based on the
geologic evidence (limited, adequate, or conclusive).\714\ In addition,
under the CRIRSCO standards and the Commission's proposed rules, all
disclosed mineral resources must have reasonable prospects of economic
extraction, which requires the qualified person to consider a variety
of technical and economic factors, in addition to geologic evidence,
when evaluating the economic potential of a deposit.\715\
---------------------------------------------------------------------------

    \713\ Guide 7 prohibits mineral resource disclosure and as such
does not provide any guidance, or place any restrictions, on how to
classify mineral resources.
    \714\ See supra Section II.E.3.
    \715\ See supra Sections II.E.2 and II.E.4.
---------------------------------------------------------------------------

    In contrast, the primary criterion in the Circulars' classification
system is the extent to which tonnages fall within particular distances
from a drill hole or outcrop.\716\ Although drill hole spacing may be a
factor that informs the qualified person's assessment of geologic
confidence, for the purposes of public company disclosure to investors,
we indicated that we do not believe it should be the sole factor.\717\
We therefore solicited comment on the appropriateness of using
Circulars 831 and 891 to classify mineral resources.\718\
---------------------------------------------------------------------------

    \716\ The Circulars prescribe strict guidelines to classify
mineral resources based on the distance from a drill hole (``drill
hole spacing'') that do not vary depending on the complexity and
specific facts of the deposit. For example, these Circulars define
measured (0- to \1/4\-mile), indicated (\1/4\ to \3/4\-mile) and
inferred (\3/4\- to 3-miles) mineral resources based on drill hole
(or outcrop) radii.
    \717\ See, e.g., Ricardo A. Olea and James A. Luppens, Modeling
Uncertainty in Coal Resource Assessments, With an Application to a
Central Area of the Gillette Coal Field, USGS Scientific
Investigations Report 2014-5196 1 (2014) (concluding that an
approach that involved establishing confidence limits ``should be
considered realistic improvement[ ] over distance methods used for
quantitative classification of uncertainty in coal resource, such as
U.S. Geological Survey Circular 891'').
    \718\ See Proposing Release, supra note 5, at Section II.E.4.

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

ii. Comments on the Proposed Interpretation
    Numerous parties supported the Commission's position that use of
USGS Circulars 831 and 891 to classify mineral resources would not be
appropriate under the proposed rules.\719\ Some commenters stated that
the Circulars are inconsistent with the CRIRSCO standards and were
designed for a different purpose (i.e., government identification of
mineral occurrences that may be of economic interest 25-50 years in the
future.) \720\ For that reason, according to those commenters, allowing
continued use of the Circulars to classify resources would lead to
investor confusion and should never be permitted,\721\ even for
coal.\722\
---------------------------------------------------------------------------

    \719\ See, e.g., letters from AIPG, Amec, AngloGold, BHP, CBRR,
Eggleston, Gold Resource, Midas, Northern Dynasty, Rio Tinto, SME 1,
and SRK 1.
    \720\ See, e.g., letters from AIPG and SME 1.
    \721\ See, e.g. letters from AIPG, Eggleston, and SME 1.
    \722\ See letters from AIPG and SME 1.
---------------------------------------------------------------------------

    One commenter opposed the use of Circulars 831 and 891 to classify
mineral resources because they are not based on modern geostatistical
methods that are now routinely applied and, thus, are outdated.\723\
Another commenter agreed that Circulars 831 and 891 are ``completely
out of date and do not address many modern aspects of exploration,
sampling, chain of custody, quality assessment/quality controls (`QA/
QC'), resource estimation methods, validation and reconciliation.''
\724\ One other commenter stated that the use of Circulars 831 and 891
to classify mineral resources would not be appropriate because of the
poor alignment with CRIRSCO, the lack of economic criteria, and the
potential to cause inconsistent disclosure.\725\
---------------------------------------------------------------------------

    \723\ See letter from BHP.
    \724\ Letter from SRK 1.
    \725\ See letter from Rio Tinto.
---------------------------------------------------------------------------

    In contrast, a few commenters stated that the Commission should
allow the use of the Circulars for coal deposits because they are still
a valid tool in classifying coal deposits.\726\ As one of those
commenters explained, because coal is a tabular deposit that is often
relatively consistent over large areas, it lends itself to the type of
evaluation provided by the Circulars.\727\
---------------------------------------------------------------------------

    \726\ See letters from Alliance, Cloud Peak, and NMA 1.
    \727\ See letter from Alliance.
---------------------------------------------------------------------------

iii. Final Interpretation
    Having considered the comments received, we are affirming our
position that the use of USGS Circulars 831 and 891 for resource
classification in Commission filings should not be permitted under the
final rules. As we explained in the Proposing Release, those Circulars
provide a method of classification that primarily relies on a single
criterion--the extent to which tonnages fall within particular
distances from a drill hole or outcrop.\728\ In contrast, the final
rules, which provide a mineral resource classification scheme that is
substantially similar to the CRIRSCO classification system, require a
qualified person to assess the geologic confidence in the resource
estimates based on the geologic evidence and, in addition, to consider
a variety of relevant technical and economic factors likely to
influence the prospect of economic extraction.\729\
---------------------------------------------------------------------------

    \728\ See Proposing Release, supra note 5, at Section II.E.4.
    \729\ See supra Sections II.E.2 through II.E.4.
---------------------------------------------------------------------------

    Consequently, we agree with commenters that the method used to
classify mineral resources in Circulars 831 and 891 is inconsistent
with the CRIRSCO standards and should not be permitted under new
subpart 1300, even when classifying coal resources.\730\ Because, as
commenters indicated, the USGS Circulars do not address many modern
aspects of exploration, sampling, resource estimation methods,
validation, and reconciliation,\731\ which are included under the
CRIRSCO standards, we do not believe that the Circulars are the most
appropriate method for purposes of public company disclosure to
investors. Rather, we believe that the continued reliance on those
Circulars to classify mineral resources would lead to inconsistencies
with mineral resource estimates determined under the CRIRSCO standards
and investor confusion. Accordingly, neither a registrant nor its
qualified person may use Circulars 831 and 891 to classify mineral
resources when providing the disclosure required under subpart 1300.
---------------------------------------------------------------------------

    \730\ See, e.g., letters from AIPG and SME 1.
    \731\ See, e.g., letters from BHP and SRK 1.
---------------------------------------------------------------------------

F. Treatment of Mineral Reserves

1. The Framework for Determining Mineral Reserves
i. Rule Proposal
    Guide 7 defines a mineral reserve as ``that part of a mineral
deposit which could be economically and legally extracted or produced
at the time of the reserve determination.'' \732\ Guide 7 does not,
however, delineate the factors that must be considered when making a
reserve determination. In contrast, other jurisdictions have adopted
the CRIRSCO framework whereby the determination of mineral reserves
occurs by applying and evaluating specifically defined ``modifying
factors'' to indicated and measured mineral resources.\733\
---------------------------------------------------------------------------

    \732\ Paragraph (a)(1) of Guide 7.
    \733\ See, e.g., CIM Definition Standards, supra note 351, at 5-
6; JORC Code, supra note 175, at pt. 29; SME Guide, supra note 177,
at pt. 41; SAMREC Code, supra note 267, at pt. 35; and PERC
Reporting Standard, supra note 302, at pt. 8.1.
---------------------------------------------------------------------------

    We proposed to revise the definition of mineral reserves to align
it generally with the definition under the CRIRSCO-based codes by
adopting the framework of applying modifying factors to indicated or
measured mineral resources in order to convert them to mineral
reserves.\734\ As part of this framework, we proposed definitions of
``mineral reserves,'' ``probable mineral reserves,'' ``proven mineral
reserves,'' and ``modifying factors.''
---------------------------------------------------------------------------

    \734\ See Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------

    We proposed to define ``mineral reserve'' as an estimate of tonnage
and grade or quality of indicated or measured mineral resources that,
in the opinion of the qualified person, can be the basis of an
economically viable project. More specifically, as proposed, a mineral
reserve is the economically mineable part of a measured or indicated
mineral resource, net of allowances for diluting materials and for
losses that may occur when the material is mined or extracted.\735\
---------------------------------------------------------------------------

    \735\ See id.
---------------------------------------------------------------------------

    Under the proposed rules, the determination that part of a measured
or indicated mineral resource is economically mineable would have to be
based on a preliminary feasibility (pre-feasibility) or feasibility
study conducted by a qualified person applying the modifying factors to
indicated or measured mineral resources. Such study would have to
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions. Moreover, the study would have to establish a life of mine
plan that is technically achievable and economically viable, which
would be the basis of determining the mineral reserve.\736\
---------------------------------------------------------------------------

    \736\ See id.
---------------------------------------------------------------------------

    As used in the proposed definition of mineral reserve,
``economically viable'' means that the qualified person has determined,
using a discounted cash flow analysis, or has otherwise analytically
determined, that extraction of the mineral reserve is economically
viable under reasonable investment and market assumptions.\737\ As used
in this proposed definition, ``investment and market assumptions''
includes all

assumptions made about the prices, exchange rates, sales volumes and
costs that are necessary and are used to determine the economic
viability of the reserves.\738\
---------------------------------------------------------------------------

    \737\ See id.
    \738\ See id.
---------------------------------------------------------------------------

    As proposed, the price used to determine the economic viability of
the mineral reserves could not be higher than the average spot price
during the 24-month period prior to the end of the fiscal year covered
by the study, determined as an unweighted arithmetic average of the
daily closing price for each trading day within such period, except in
cases where sales prices are determined by contractual agreements. In
such a case, the qualified person would be able to use the price set by
the contractual arrangement, provided that such price is reasonable and
the qualified person discloses that he or she is using a contractual
price and discloses the contractual price used.\739\
---------------------------------------------------------------------------

    \739\ See id.
---------------------------------------------------------------------------

    The proposed rules used the CRIRSCO classification scheme and
framework for mineral reserve determination, which subdivides mineral
reserves, in order of increasing confidence in the results obtained
from the application of the modifying factors to the indicated and
measured mineral resources, into probable mineral reserves and proven
mineral reserves.\740\ Similar to the CRIRSCO classification
scheme,\741\ we proposed to define ``probable mineral reserves'' as the
economically mineable part of an indicated and, in some cases, a
measured mineral resource.\742\
---------------------------------------------------------------------------

    \740\ See id.
    \741\ See, e.g., JORC Code, supra note 175, at pt. 30; CIM
Definition Standards, supra note 351, at 6; SAMREC Code, supra note
267, at pt. 36; and PERC Reporting Standard, supra note 302, at pt.
8.11.
    \742\ See Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------

    As we explained in the Proposing Release, for a probable mineral
reserve, the qualified person's confidence in the results obtained from
the application of the modifying factors and in the estimates of
tonnage and grade or quality is lower than what is sufficient for a
classification as a proven mineral reserve, but is still sufficient to
demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions.\743\ This lower level of confidence can be due either to
higher geologic uncertainty when the qualified person converts an
indicated mineral resource to a probable mineral reserve or higher risk
in the results of the application of modifying factors at the time when
the qualified person converts a measured mineral resource to a probable
mineral reserve. As further required by the proposed rules, a qualified
person must classify a measured mineral resource as a probable mineral
reserve when his or her confidence in the results obtained from the
application of the modifying factors to the measured mineral resource
is lower than what is sufficient for a proven mineral reserve.\744\
---------------------------------------------------------------------------

    \743\ See id.
    \744\ See id.
---------------------------------------------------------------------------

    Similar to the CRIRSCO classification scheme,\745\ we proposed to
define ``proven mineral reserves'' as the economically mineable part of
a measured mineral resource.\746\ As the proposed rules explained, for
a proven mineral reserve, the qualified person must have a high degree
of confidence in the results obtained from the application of the
modifying factors and in the estimates of tonnage and grade or
quality.\747\ In addition, as proposed, a proven mineral reserve can
only result from conversion of a measured mineral resource.\748\
---------------------------------------------------------------------------

    \745\ See, e.g., JORC Code, supra note 175, at pt. 31; CIM
Definition Standards, supra note 351, at 6; SAMREC Code, supra note
267, at pt. 37; and PERC Reporting Standard, supra note 302, at pt.
8.13.
    \746\ See Proposing Release, Section II.F.1.
    \747\ See id.
    \748\ See id.
---------------------------------------------------------------------------

    We proposed to define ``modifying factors'' as the factors that a
qualified person must apply to mineralization or geothermal energy and
then evaluate in order to establish the economic prospects of mineral
resources, or the economic viability of mineral reserves.\749\ Similar
to the CRIRSCO framework, a qualified person would have to apply and
evaluate modifying factors to convert measured and indicated mineral
resources to proven and probable mineral reserves.\750\ As proposed,
these factors included, but were not restricted to, mining, energy
recovery and conversion, processing, metallurgical, economic,
marketing, legal, environmental, infrastructure, social, and
governmental factors. We also proposed that the number, type, and
specific characteristics of the applied modifying factors are a
function of and depend upon the mineral, mine, property, or
project.\751\
---------------------------------------------------------------------------

    \749\ See id.
    \750\ See, e.g., JORC Code, supra note 175, at pt. 12; CRIRSCO
International Reporting Template, supra note 20, at cl. 12; SAMREC
Code, supra note 267, at pt. 12; and PERC Reporting Standard, supra
note 302, at pt. 4.3.
    \751\ See Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------

    We proposed several instructions about the conversion of mineral
resources into mineral reserves. For example, one instruction explained
that, similar to the CRIRSCO framework,\752\ if the uncertainties in
the results obtained from the application of the modifying factors,
which prevented a measured mineral resource from being converted to a
proven mineral reserve, no longer exist, then the qualified person may
convert the measured mineral resource to a proven mineral reserve.\753\
---------------------------------------------------------------------------

    \752\ See, e.g., JORC Code, supra note 175, at pt. 32; CRIRSCO
International Reporting Template, supra note 20, at cl. 33; SAMREC
Code, supra note 267, at pt. 38, and PERC Reporting Standard, supra
note 302, at pt. 8.15.
    \753\ See Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------

    Another instruction stated that a qualified person cannot convert
an indicated mineral resource to a proven mineral reserve unless there
is new evidence that justifies conversion of the indicated mineral
resource to a measured mineral resource.\754\ A third instruction
explained that a qualified person cannot convert an inferred mineral
resource to a mineral reserve without first obtaining new evidence that
justifies converting it to an indicated or measured mineral
resource.\755\ These proposed instructions are consistent with the
CRIRSCO framework for conversion of mineral resources into mineral
reserves.\756\
---------------------------------------------------------------------------

    \754\ See id.
    \755\ See id.
    \756\ See, e.g., JORC Code, supra note 175, at pt. 32; CRIRSCO
International Reporting Template, supra note 20, at cl. 33; SAMREC
Code, supra note 267, at pt. 38; and PERC Reporting Standard, supra
note 302, at pt. 8.15.
---------------------------------------------------------------------------

    We proposed a definition of mineral reserve as an estimate of
tonnage and grade or quality that is net of allowances for diluting
materials and mining losses. This is in contrast to the definition of
mineral reserve under the CRIRSCO standards, which includes diluting
materials in reserve estimates.\757\ We proposed a net estimate for
reserves because the proposed rules would require disclosure of mineral
reserves at three points of reference: In-situ,\758\ plant or mill
feed, and saleable product.\759\ As we explained, estimates that are
exclusive of diluting materials and mining losses would provide a

clearer picture of the efficiency of the processing method.\760\
---------------------------------------------------------------------------

    \757\ In this regard, we stated our belief that, because
excluding diluting materials is a minor computational step in
reserve estimation, the proposed net estimate for reserves measure
would not impose a significant additional compliance burden for
registrants. See Proposing Release, supra note 5, at Sections
II.F.1.
    \758\ In-situ means ``in its original place.'' It is used in
this context to refer to mineral reserves estimated as in-place
tons.
    \759\ See Proposing Release, supra note 5, at Sections II.F.1-2.
    \760\ The efficiency of the processing method demonstrates how
well the registrant converts the resource into saleable product. See
Proposing Release, supra note 5, at Section II.F.1.
---------------------------------------------------------------------------

    Under the proposal, when discussing the analysis in the technical
report summary, the qualified person would be required to disclose the
assumptions made about prices, exchange rates, discount rate, sales
volumes and costs necessary to determine the economic viability of the
reserves.\761\
---------------------------------------------------------------------------

    \761\ See id.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Many commenters generally supported the Commission's proposal to
adopt the CRIRSCO framework of applying modifying factors to indicated
or measured mineral resources in order to convert them to mineral
reserves.\762\ One commenter supported the Commission's proposed
definition of ``mineral reserve'' as the economically mineable part of
a measured or indicated mineral resource, net of allowances for
diluting materials and for losses that may occur when the material is
mined or extracted.\763\ Another commenter stated that the proposed
definition of mineral reserve was acceptable, but the definition in the
CIM Definition Standards, which does not use a net reserve concept, is
substantially better and consistent with international usage.\764\ One
other commenter preferred the CRIRSCO definition of mineral reserve,
which includes dilution and allowances for losses, but stated that,
alternatively, the Commission should permit a registrant to disclose
its reserves both as inclusive of dilution and losses and as a net
estimate.\765\
---------------------------------------------------------------------------

    \762\ See, e.g., letters from AngloGold, BHP, CBRR, Eggleston,
Gold Resource, JORC, Midas, Northern Dynasty, Rio Tinto, SAMCODES 1
and 2, and Vale.
    \763\ See letter from Midas.
    \764\ See letter from Eggleston.
    \765\ See letter from Energy Fuels.
---------------------------------------------------------------------------

    Many other commenters, however, strongly opposed the net reserve
concept and urged the Commission to adopt the CRIRSCO definition of
mineral reserve.\766\ Those commenters disagreed with the Commission's
statement that the calculation of a net estimate would be ``relatively
minor.'' \767\ Moreover, some commenters stated that, in addition to
conflicting with the comparable definition under the CRIRSCO standards,
the proposed definition of mineral reserve also is inconsistent with
that part of the proposed definition that requires the application of
the modifying factors to mineral resources in order to determine
mineral reserves, and is therefore unrealistic.\768\ Because
application of the modifying factors, which include operational and
processing factors, necessarily involves dilution and allowances for
losses, it is not possible to exclude them and satisfy the modifying
factors prong of the mineral reserve definition.\769\
---------------------------------------------------------------------------

    \766\ See letters from Amec, AngloGold, BHP, CBRR, Coeur, FCX,
Gold Resource, Golder, MMSA, NMA 1, Northern Dynasty, Randgold, Rio
Tinto, Royal Gold, SAMCODES 1, SME 1, SRK 1, Vale, and Willis.
    \767\ See, e.g., letters from BHP, FCX, Golder, and MMSA.
    \768\ See, e.g., letters from BHP, CBRR, Randgold, and Rio
Tinto.
    \769\ Some of the commenters made similar arguments when
objecting to the proposed requirement to disclose mineral reserves
as in-situ in addition to plant/mill feed and saleable product. See,
e.g., letters from Amec, Rio Tinto, SME 1, and Vale. See infra
Section II.G. for further discussion.
---------------------------------------------------------------------------

    Several commenters were generally supportive of the proposed
definitions of probable and proven mineral reserve because they are
consistent with the CRIRSCO definitions.\770\ Several commenters also
generally supported the proposed definition of modifying factors.\771\
One commenter stated that the proposed definition is consistent with
the CRIRSCO standards.\772\ Other commenters recommended adding other
specified factors to the definition, such as decommissioning costs,
reclamation costs, and assumptions for mining losses, among other
things.\773\
---------------------------------------------------------------------------

    \770\ See letters from AngloGold, CBRR, Eggleston, Midas,
Northern Dynasty, and SRK 1.
    \771\ See, e.g., letters from AngloGold, CBRR, Golder, Midas,
and SRK 1.
    \772\ See letter from CBRR.
    \773\ See letters from SRK 1 and Golder. As previously
discussed, some commenters objected to the application of the
modifying factors at the mineral resource determination stage. See,
e.g., letters from Amec and Eggleston. Those commenters requested
that we remove from the definition of modifying factors their use to
establish the economic prospects of mineral resources.
---------------------------------------------------------------------------

    Several commenters supported the Commission's proposal to include a
life of mine plan disclosure requirement in the technical studies
required to support a determination of mineral reserves.\774\ One
commenter described the life of mine requirement as ``fundamental'' to
determining whether a mine will be economically viable at the time of
reporting.\775\ A second commenter stated that the proposed life of
mine plan requirement is consistent with requirements in global
jurisdictions.\776\
---------------------------------------------------------------------------

    \774\ See letters from Amec, CBRR, Eggleston, Gold Resource,
Golder, Midas, Northern Dynasty, Rio Tinto, SAMCODES 2, and SRK 1.
    \775\ See letter from Eggleston.
    \776\ See letter from CBRR.
---------------------------------------------------------------------------

    One commenter, however, opposed a life of mine plan disclosure
requirement because such a requirement would reveal commercially
sensitive information and would be onerous on registrants with a large
number of reserves.\777\ Another commenter objected to the proposed
life of mine plan disclosure requirement on the grounds that, because
coal mine plans often include areas not yet controlled by a company,
disclosing mine life plans would allow competitors to interfere with
the company's operations by acquiring strategic mineral rights already
targeted by the company.\778\ That commenter also stated that, because
life of mine plans are always subject to change, their disclosure could
lead potential investors to assume incorrectly that mining is possible
under all conditions.\779\
---------------------------------------------------------------------------

    \777\ See letter from BHP.
    \778\ See letter from Alliance.
    \779\ See id.
---------------------------------------------------------------------------

    Several commenters generally supported the proposed requirement
that a qualified person conduct a discounted cash flow analysis to
demonstrate economic viability.\780\ One commenter stated that
discounted cash flows are the most widespread and industry accepted
approach of evaluation and should be required.\781\ Another commenter
stated that we should require a non-discounted cash flow analysis in
addition to the industry standard discounted cash flow analysis.\782\
---------------------------------------------------------------------------

    \780\ See, e.g., letters from Amec, AngloGold, Eggleston, Midas,
Northern Dynasty, Rio Tinto, and SRK 1.
    \781\ See letter from Midas; see also letter from Eggleston.
    \782\ See letter from SRK 1.
---------------------------------------------------------------------------

    In contrast, one commenter opposed the proposed discounted cash
flow requirement because it ``is overly prescriptive compared to the
CRIRSCO requirement to base reserves on studies that have determined a
mine plan that is technically and economically achievable.'' \783\
Another commenter stated that annual cash flow forecasts should be
omitted for operating mines ``as publication may affect a competitive
advantage in labor or customer negotiations.'' \784\
---------------------------------------------------------------------------

    \783\ Letter from BHP.
    \784\ Letter from SME 1.
---------------------------------------------------------------------------

    Similar to comments received on the proposed pricing requirement
for mineral resource estimates, many commenters objected to the
proposed requirement that a qualified person use a 24-month trailing
average price for the discounted cash flow analysis required for the
determination of mineral reserves. Commenters maintained that the
proposed historical pricing requirement would conflict with the
industry practice of relying on forward-looking pricing forecasts and
the

CRIRSCO guidance allowing the use of any reasonable and justifiable
price.\785\
---------------------------------------------------------------------------

    \785\ See, e.g., letters from Amec, AngloGold, CBRR, CIM,
Eggleston, JORC, NMA 1, Northern Dynasty, Randgold, Rio Tinto, SME
1, and Vale.
---------------------------------------------------------------------------

iii. Final Rules
    We are revising the definition of mineral reserves (currently in
Guide 7) by adopting the CRIRSCO framework of applying modifying
factors to indicated or measured mineral resources in order to convert
them to mineral reserves, as proposed. The adopted framework requires a
registrant's disclosure of mineral reserves to be based on a qualified
person's detailed evaluation of the modifying factors as applied to
indicated or measured mineral resources, which would demonstrate the
economic viability of the mining property or project.\786\ The adopted
framework includes a series of definitions that describe the
relationship between the different classes of mineral resources and
reserves and underscores the incremental nature of mineral resource and
reserve determination.
---------------------------------------------------------------------------

    \786\ See Item 1302(e) of Regulation S-K [17 CFR 229.1302(e)].
---------------------------------------------------------------------------

    We are adopting the definition of mineral reserve largely as
proposed.\787\ In a change from the proposed rules, the adopted
definition of mineral reserve provides that a mineral reserve includes
diluting materials and allowances for losses that may occur when the
material is mined or extracted.\788\ We have been persuaded to remove
the proposed net reserve concept from the definition of mineral reserve
by commenters that maintained that such removal was necessary to make
the definition consistent with the comparable CRIRSCO definition \789\
and to avoid internal inconsistencies.\790\ As commenters noted, the
CRIRSCO standards and the final rules \791\ require the determination
of mineral reserves to be based upon a qualified person's application
of the modifying factors to indicated or measured mineral resources.
The modifying factors include mining method, which is the source of
dilution and mining losses, and mineral processing methods, which
determine recovery factors. Because dilution and losses are realistic
consequences of applying the modifying factors, we believe it is
reasonable to include both diluting materials and allowances for losses
in the definition of mineral reserve.\792\
---------------------------------------------------------------------------

    \787\ See 17 CFR 229.1300, which defines a mineral reserve as an
estimate of tonnage and grade or quality of indicated and measured
mineral resources that, in the opinion of the qualified person, can
be the basis of an economically viable project. The adopted
definition further provides that a mineral reserve is the
economically mineable part of a measured or indicated mineral
resource.
    \788\ See id.
    \789\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 30; JORC Code, supra note 175, at pt. 29; SAMREC
Code, supra note 267, at pt. 35; and PERC Reporting Standard, supra
note 302, at pt. 8.1.
    \790\ See supra note 768 and accompanying text.
    \791\ 17 CFR 229.1302(e)(2) [Item 1302(e)(2) of Regulation S-K]
(providing in relevant part that the ``determination of probable or
proven mineral reserves must be based on a qualified person's
application of the modifying factors to indicated or measured
mineral resources, which results in the qualified person's
determination that part of the indicated or measured mineral
resource is economically mineable'').
    \792\ In addition, removal of the net reserve concept from the
definition of mineral reserve is consistent with our elimination of
the requirement to disclose mineral reserves in-situ. See infra
Section II.G.
---------------------------------------------------------------------------

    The final rules no longer define modifying factors to include
factors used to establish the economic prospects of mineral resources.
Instead, the adopted definition provides that modifying factors are the
factors that a qualified person must apply to indicated and measured
resources and then evaluate in order to establish the economic
viability of mineral reserves.\793\ This change from the proposal is
consistent with the change made to the initial assessment requirement,
which no longer requires application of the modifying factors at the
resource determination stage.\794\ Referencing the modifying factors
solely in the context of mineral reserve determination will align the
final rules with the CRIRSCO standards and avoid confusing registrants
and investors about the level of analysis required at the resource
determination stage.
---------------------------------------------------------------------------

    \793\ See the definition of ``modifying factors'' in 17 CFR
229.1300.
    \794\ See supra Section II.E.4.
---------------------------------------------------------------------------

    Consistent with the proposed rules, the adopted definition of
modifying factors provides that a qualified person must apply and
evaluate modifying factors to convert measured and indicated mineral
resources to proven and probable mineral reserves. Also largely as
proposed, the adopted definition provides examples of the modifying
factors, which include, but are not restricted to: Mining; processing;
metallurgical; infrastructure; economic; marketing; legal;
environmental compliance; plans, negotiations, or agreements with local
individuals or groups; and governmental factors.\795\ Although some
commenters suggested adding other specific factors to the list,\796\ we
decline to do so because the adopted definition makes clear that the
list of factors is not exclusive, and is consistent with the factors
specified in the CRIRSCO definition of modifying factors.\797\
---------------------------------------------------------------------------

    \795\ See 17 CFR 229.1300. These factors are similar to the
modifying factors under the CRIRSCO standards, which include
``mining, processing, metallurgical, infrastructure, economic,
marketing, legal, environmental, social, and governmental factors.''
CRIRSCO International Reporting Template, supra note 20, at cl. 12.
Rather than refer to ``social'' or ``social-economic'' factors, as
in the Proposing Release, the final rules refer more specifically to
factors pertaining to local individuals or groups. Examples of such
matters include consideration of: Limitations on a mining project
that abuts a tribal burial ground; the potential need to relocate
local individuals because of the scope of the mining project; and
commitments to build a community center or local clinic. We believe
this change will clarify the type of factors the qualified person
may wish to consider in this area.
    \796\ See letters from Golder and SRK 1.
    \797\ See CRIRSCO International Reporting Template, supra note
20, at cl. 12.
---------------------------------------------------------------------------

    The adopted definition of modifying factors further states, as
proposed, that the number, type and specific characteristics of the
modifying factors applied will necessarily be a function of and depend
upon the mineral, mine, property, or project.\798\ For example,
applying and evaluating processing factors means the qualified person
must examine the characteristics of the mineral resource and determine
that the material can be processed economically into saleable product
using existing technology. Similarly, applying and evaluating legal
factors means the qualified person must examine the regulatory regime
of the host jurisdiction to establish that the registrant can comply
(fully and economically) with all laws and regulations (e.g., mining,
safety, environmental, reclamation, and permitting regulations) that
are relevant to operating a mineral project using existing technology.
---------------------------------------------------------------------------

    \798\ See 17 CFR 229.1300.
---------------------------------------------------------------------------

    As proposed, the final rules provide that a qualified person must
subdivide mineral reserves, in order of increasing confidence in the
results obtained from the application of the modifying factors to the
indicated and measured mineral resources, into probable mineral
reserves and proven mineral reserves.\799\ The final rules define
``probable mineral reserve'' to mean the economically mineable part of
an indicated and, in some cases, a measured mineral resource.\800\ As
the final rules explain, for a probable mineral reserve, the qualified
person's confidence in the results obtained from the application of the
modifying factors and in the estimates of tonnage and grade or quality
is lower than what is sufficient for a classification as a proven
mineral reserve, but is still sufficient to

demonstrate that, at the time of reporting, extraction of the mineral
reserve is economically viable under reasonable investment and market
assumptions. The lower level of confidence is due to higher geologic
uncertainty when the qualified person converts an indicated mineral
resource to a probable mineral reserve or higher risk in the results of
the application of modifying factors at the time when the qualified
person converts a measured mineral resource to a probable mineral
reserve.\801\ The final rules further provide that a qualified person
must classify a measured mineral resource as a probable mineral reserve
when his or her confidence in the results obtained from the application
of the modifying factors to the measured mineral resource is lower than
what is sufficient for a proven mineral reserve.\802\
---------------------------------------------------------------------------

    \799\ See 17 CFR 229.1302(e)(2).
    \800\ See the definition of ``probable mineral reserve'' in 17
CFR 229.1300.
    \801\ 17 CFR 229.1302(e)(2)(i) [Item 1302(e)(2)(i) of Regulation
S-K].
    \802\ Id.
---------------------------------------------------------------------------

    The final rules define ``proven mineral reserve,'' as proposed, to
mean the economically mineable part of a measured mineral
resource.\803\ For a proven mineral reserve, the qualified person must
have a high degree of confidence in the results obtained from the
application of the modifying factors and in the estimates of tonnage
and grade or quality.\804\ Moreover, a proven mineral reserve can only
result from conversion of a measured mineral resource.\805\ The adopted
definitions of probable and proven mineral reserves are generally
consistent with the comparable definitions under the CRIRSCO-based
codes and, as such, were supported by several commenters.\806\
---------------------------------------------------------------------------

    \803\ See the definition of ``proven mineral reserve'' in 17 CFR
229.1300.
    \804\ 17 CFR 229.1302(e)(2)(ii) [Item 1302(e)(2)(ii) of
Regulation S-K].
    \805\ See the definition of ``proven mineral reserve'' in 17 CFR
229.1300.
    \806\ See supra note 770 and accompanying text.
---------------------------------------------------------------------------

    As discussed below,\807\ the determination that part of a measured
or indicated mineral resource is economically mineable must be based on
a preliminary feasibility (pre-feasibility) or feasibility study that
discusses the qualified person's application of the modifying factors
to indicated or measured mineral resources, and demonstrates that, at
the time of reporting, extraction of the mineral reserve is
economically viable under reasonable investment and market
assumptions.\808\ As proposed, the final rules provide that the study
must establish a life of mine plan that is technically achievable and
economically viable, and which will be the basis of determining the
mineral reserve.\809\ As commenters noted, establishing a life of mine
plan is fundamental to determining the economic viability of a deposit
and is consistent with global industry practice.\810\ Although some
commenters expressed concern that requiring the disclosure of a life of
mine plan could result in the disclosure of proprietary, commercially
sensitive information,\811\ given the importance of the life of mine
plan to determining the economic viability of a mining project, we
believe that requiring disclosure of the life of mine plan is necessary
to help an investor understand the basis of a registrant's mineral
reserves estimate.
---------------------------------------------------------------------------

    \807\ See infra Section II.F.2.
    \808\ 17 CFR 229.1302(e)(1) and (3) [Item 1302(e)(1) and (3) of
Regulation S-K].
    \809\ See Item 1302(e)(3) of Regulation S-K.
    \810\ See, e.g., letters from CBRR and Eggleston; see also supra
note 774. In this regard, we note that the SME Guide expressly
requires a life of mine plan in its technical study. See SME Guide,
supra note 177, Table 1, at 54 (``Mining method(s), mine plans and
production schedules defined for the life of the project'' are
required to support mineral reserve disclosure). Under the CRIRSCO-
based codes, the qualified person has to develop mine plans in order
to estimate cash flows, which are required by the codes for the
financial analysis necessary to support mineral reserve disclosure.
The cash flows must be based on costs and revenues associated with
planned production over the life of the project. See, e.g., JORC
Code, supra note 175, at pt. 29 (stating that ``[d]eriving an Ore
Reserve without a mine design or mine plan through a process of
factoring of the Mineral Resource is unacceptable . . . The studies
will have determined a mine plan and production schedule that is
technically achievable and economically viable and from which the
Ore Reserves can be derived'').
    \811\ See supra notes 777-778 and accompanying text.
---------------------------------------------------------------------------

    Consistent with numerous comments received,\812\ the final rules
provide, as proposed, that when used in reference to a mineral reserve,
the term ``economically viable'' means that the qualified person has
determined, using a discounted cash flow analysis, or has otherwise
analytically determined, that extraction of the mineral reserve is
economically viable under reasonable investment and market
assumptions.\813\ Although one commenter disagreed,\814\ we believe the
requirement to conduct a discounted cash flow or other similar analysis
is consistent with industry practice \815\ and the requirement under
the CRIRSCO-based codes that mineral reserve determination must be
based on a financial analysis under reasonable assumptions
demonstrating that extraction of the reserve is economically
viable.\816\
---------------------------------------------------------------------------

    \812\ See supra note 780 and accompanying text.
    \813\ See the definition of ``economically viable'' in 17 CFR
229.1300. Whether the investment and market assumptions are
``reasonable'' will necessarily be a facts and circumstances
determination based upon the relevant economic and market factors.
    \814\ See letter from BHP.
    \815\ See letters from Eggleston and Midas.
    \816\ See, e.g., SME Guide, supra note 177, at pt. 41 (``The
term `economically viable' implies that extraction of the Mineral
Reserve has been determined or analytically demonstrated (e.g., such
as by a cash flow in the report) to be viable and justifiable under
reasonable investment and market assumptions''). See also JORC Code,
supra note 175, at pt. 29 (``The term `economically mineable'
implies that extraction of the Ore Reserves has been demonstrated to
be viable under reasonable financial assumptions'').
---------------------------------------------------------------------------

    The final rules further provide, as proposed, that the term
``investment and market assumptions'' includes all assumptions made
about the prices, exchange rates, interest and discount rates, sales
volumes, and costs that are necessary and are used to determine the
economic viability of the reserves.\817\ In a change from the proposed
rules, however, and in response to comments received, the final rules
do not require the qualified person to use a price that is no higher
than the 24-month trailing average price. Instead, the qualified person
must use a price for each commodity that provides a reasonable basis
for establishing that the project is economically viable.\818\ The
qualified person will be required to explain, with particularity, his
or her reasons for selecting the price and the underlying material
assumptions regarding the selection.\819\ We are adopting this change
for the same reasons that we changed the pricing requirement for the
cut-off estimation required for the determination of mineral
resources.\820\
---------------------------------------------------------------------------

    \817\ See the definition of ``investment and market
assumptions'' in 17 CFR 229.1300.
    \818\ 17 CFR 229.1302(e)(4) [Item 1302(e)(4) of Regulation S-K].
    \819\ See id.
    \820\ See supra Section II.E.4.iii.a.
---------------------------------------------------------------------------

    We believe that the adopted framework for mineral reserve
determination and disclosure is preferable to Guide 7's approach.
Although Guide 7 similarly defines a mineral reserve as that part of a
mineral deposit that can be economically and legally extracted or
produced, it does not specify the level of geologic evidence that must
exist or the factors that must be considered to convert the deposit to
a mineral reserve. In contrast, under the adopted framework, the only
estimates of grade or quality and tonnages that a registrant can
disclose as mineral reserves are those parts of the indicated and
measured mineral resources that, after all relevant modifying factors
have been evaluated, can be shown to be part of a viable mineral
project.\821\ The adopted

framework requires the qualified person to disclose the specific
mining, processing, metallurgical, environmental, economic, legal, and
other applicable factors that he or she has evaluated in detail, and
which has led the qualified person to conclude that extraction of the
deposit is economically viable. We therefore believe that the adopted
framework will promote clearer, more detailed, and more accurate
disclosure about the economic viability of a registrant's mineral
deposits, which should enhance an investor's understanding of the
registrant's mining operations.
---------------------------------------------------------------------------

    \821\ In this regard, a qualified person will not be able to use
inferred mineral resources to support a determination of mineral
reserves unless new evidence (e.g., data and analysis) has first
caused an increased confidence in the geologic evidence sufficient
to reclassify those resources as indicated or measured mineral
resources. Similarly, a qualified person will not be able to convert
an indicated mineral resource to a proven mineral reserve without
first determining that conclusive, rather than just adequate,
geological evidence exists to support reclassification to a measured
mineral resource.
---------------------------------------------------------------------------

    When considered as a whole, and in light of the significant changes
made to the proposed rules discussed above, we believe that the adopted
mineral reserve disclosure framework is substantially similar to the
CRIRSCO framework. As such, its adoption should enhance consistency in
mining disclosure across jurisdictions and thereby facilitate
comparability of information for investors. It also should limit
reporting costs for the numerous mining registrants that are dual-
listed and currently subject to different Commission and CRIRSCO-based
disclosure requirements.
2. The Type of Study Required To Support a Reserve Determination
i. Rule Proposal
    Historically, the staff has requested a final feasibility study to
support the disclosure of mineral reserves in a Commission filing. In
contrast, the CRIRSCO-based codes have permitted either a pre-
feasibility study or a feasibility study in support of a determination
of mineral reserves. To help align the Commission's mining property
disclosure rules with the CRIRSCO standards, we proposed to permit
either a preliminary feasibility study or a feasibility study to
support the determination and disclosure of mineral reserves.\822\ We
proposed to define a ``preliminary feasibility study'' (or ``pre-
feasibility study'') as a comprehensive study of a range of options for
the technical and economic viability of a mineral project that has
advanced to a stage where a qualified person has determined (in the
case of underground mining) a preferred mining method, or (in the case
of surface mining) a pit configuration, and in all cases has determined
an effective method of mineral processing and an effective plan to sell
the product.\823\
---------------------------------------------------------------------------

    \822\ See Proposing Release, supra note 5, at Section II.F.2.
    \823\ See id.
---------------------------------------------------------------------------

    As proposed, a pre-feasibility study must include a financial
analysis based on reasonable assumptions, based on appropriate testing,
about the modifying factors and the evaluation of any other relevant
factors that are sufficient for a qualified person to determine if all
or part of the indicated and measured mineral resources may be
converted to mineral reserves at the time of reporting.\824\ The
study's financial analysis must have the level of detail necessary to
demonstrate, at the time of reporting, that extraction is economically
viable. In addition, as noted in the proposed definition of a pre-
feasibility study, while a pre-feasibility study is less comprehensive
and results in a lower confidence level than a feasibility study, a
pre-feasibility study is more comprehensive and results in a higher
confidence level than an initial assessment.\825\
---------------------------------------------------------------------------

    \824\ See id.
    \825\ See id.
---------------------------------------------------------------------------

    We proposed to define a ``feasibility study'' \826\ as a
comprehensive technical and economic study of the selected development
option for a mineral project, which includes detailed assessments of
all applicable modifying factors together with any other relevant
operational factors, and detailed financial analysis that are necessary
to demonstrate, at the time of reporting, that extraction is
economically viable.\827\ According to the proposed definition, the
results of the study may serve as the basis for a final decision by a
proponent or financial institution to proceed with, or finance, the
development of the project. Thus, a feasibility study is more
comprehensive, with a higher degree of accuracy, and yielding results
with a higher level of confidence, than a pre-feasibility study. Under
the proposed rules, it must contain mining, infrastructure, and process
designs completed with sufficient rigor to serve as the basis for an
investment decision or to support project financing.\828\
---------------------------------------------------------------------------

    \826\ As proposed, terms such as ``full, final, comprehensive,
bankable, or definitive'' feasibility study are equivalent to a
feasibility study. See id.
    \827\ See id.
    \828\ See id.
---------------------------------------------------------------------------

    Although the use of a pre-feasibility study could increase the
uncertainty regarding a registrant's disclosure about mineral reserves,
compared to a feasibility study, we proposed to allow either study to
support the determination and disclosure of mineral reserves based on
our belief that any such uncertainty would be reduced by the
requirements included in the proposed definitions and corresponding
proposed instructions. One such proposed requirement was that all
reserve disclosures based on a pre-feasibility study must include the
qualified person's justification for using a pre-feasibility study
instead of a final feasibility study.\829\
---------------------------------------------------------------------------

    \829\ See id.
---------------------------------------------------------------------------

    Another proposed requirement was that the pre-feasibility study
must include a financial analysis at a level of detail sufficient to
demonstrate the economic viability of extraction. A proposed
instruction stated that the pre-feasibility study must include an
economic analysis that supports the property's economic viability as
assessed by a detailed discounted cash flow analysis.\830\ This
economic analysis must describe in detail applicable taxes and provide
an estimate of revenues, which in certain situations (e.g., where the
products are not traded on an exchange or no established market or
sales contract exists) must be based on at least a preliminary market
study.\831\ We also proposed to prohibit a qualified person from using
inferred mineral resources in the pre-feasibility study's financial
analysis.\832\
---------------------------------------------------------------------------

    \830\ See id.
    \831\ We proposed to define a ``preliminary market study'' to
mean a study that is sufficiently rigorous and comprehensive to
determine and support the existence of a readily accessible market
for the mineral. It must, at a minimum, include product
specifications based on preliminary geologic and metallurgical
testing, supply and demand forecasts, historical prices for the
preceding five or more years, estimated long term prices, evaluation
of competitors (including products and estimates of production
volumes, sales, and prices), customer evaluation of product
specifications, and market entry strategies. The study must provide
justification for all assumptions. It can, however, be less rigorous
and comprehensive than a final market study, which is required for a
full feasibility study. See Proposing Release, supra note 5, at note
264 and accompanying text.
    \832\ See Proposing Release, supra note 5, at Section II.F.2.
---------------------------------------------------------------------------

    In another instruction, we proposed to require the use of a final
feasibility study in high risk situations.\833\ For example, as
proposed, a final feasibility study would be required in situations
where the project is the first in a particular mining district with
substantially different conditions than existing company projects, such
as environmental and permitting restrictions, labor availability and
skills,

remoteness, and unique mineralization and recovery methods.\834\
---------------------------------------------------------------------------

    \833\ See id.
    \834\ See id.
---------------------------------------------------------------------------

    We proposed other instructions to help ensure that the pre-
feasibility study is sufficiently rigorous to support a conclusion that
extraction of the reserve is economically viable. For example, one
proposed instruction explained that the factors to be considered in a
pre-feasibility study are typically the same as those required for an
initial assessment, but considered at a greater level of detail or at a
later stage of development.\835\ According to another proposed
instruction, the operating and capital cost estimates in a pre-
feasibility study must have an accuracy level and a contingency range
that are significantly narrower than those permitted to support a
determination of mineral resources.\836\
---------------------------------------------------------------------------

    \835\ See id.
    \836\ See id. According to this proposed instruction, operating
and capital cost estimates in a pre-feasibility study must, at a
minimum, have an accuracy level of approximately 25% and
a contingency range not exceeding 15%.
---------------------------------------------------------------------------

    An additional proposed instruction addressed whether and when a
registrant would be required to take additional steps to support its
determination of mineral reserves. As that instruction explained, a
determination of mineral reserves does not necessarily require that
extraction facilities are in place or operational, that the company has
obtained all necessary permits, or that the company has entered into
sales contracts for the sale of mined products. However, such
determination does require that the qualified person has, after
reasonable investigation, not identified any obstacles to obtaining
permits and entering into the necessary sales contracts, and reasonably
believes that the chances of obtaining such approvals and contracts in
a timely manner are highly likely.\837\ The qualified person must take
into account the potential adverse impacts, if any, from any unresolved
material matter on which extraction is contingent and which is
dependent on a third party.
---------------------------------------------------------------------------

    \837\ See id.
---------------------------------------------------------------------------

    Another proposed instruction addressed when the completion of a
preliminary or final market study, as part of a pre-feasibility or
feasibility study, may be required to support a determination of
mineral reserves. As proposed, a preliminary market study (for a pre-
feasibility study) or final market study (for a feasibility study)
would be required where the mine's product cannot be traded on an
exchange, there is no other established market for the product, and no
sales contract exists.
    Finally, pursuant to another proposed instruction, a pre-
feasibility study must identify sources of uncertainty that require
further refinement in a final feasibility study.\838\ We proposed this
requirement to elicit appropriate disclosure about the areas of risk
present in the pre-feasibility study, which we believed would help
investors in assessing the reliability of the study.
---------------------------------------------------------------------------

    \838\ See id.
---------------------------------------------------------------------------

    We proposed several instructions regarding the use of a feasibility
study to support the determination and disclosure of mineral reserves.
Pursuant to one instruction, a feasibility study must apply and
describe all relevant modifying factors in a more detailed form and
with more certainty than a pre-feasibility study.\839\
---------------------------------------------------------------------------

    \839\ See id.
---------------------------------------------------------------------------

    According to another instruction, a feasibility study must include
an economic analysis that describes taxes, estimates revenues, and
assesses economic viability by a detailed discounted cash flow
analysis.\840\ In addition, in certain circumstances, the feasibility
study must include an estimate of revenues based on at least a final
market study \841\ or possible letters of intent to purchase.
---------------------------------------------------------------------------

    \840\ See id.
    \841\ We proposed to define a ``final market study'' to mean a
comprehensive study to determine and support the existence of a
readily accessible market for the mineral. Under the proposed rules,
the study must, at a minimum, include product specifications based
on final geologic and metallurgical testing, supply and demand
forecasts, historical prices for the preceding five or more years,
estimated long term prices, evaluation of competitors (including
products and estimates of production volumes, sales, and prices),
customer evaluation of product specifications, and market entry
strategies or sales contracts. The study also must provide
justification for all assumptions, which must include all material
contracts required to develop and sell the reserves. See Proposing
Release, supra note 5, at note 286 and accompanying text.
---------------------------------------------------------------------------

    Pursuant to a third proposed instruction, operating and capital
cost estimates in a feasibility study, at a minimum, must have an
accuracy level of approximately 15% and a contingency range
not exceeding 10%.\842\ As proposed, the qualified person must state
the accuracy level and contingency range in the feasibility study.
---------------------------------------------------------------------------

    \842\ See id.
---------------------------------------------------------------------------

ii. Comments on the Rule Proposal
    Most commenters that addressed the issue supported the Commission's
proposal to permit either a pre-feasibility or feasibility study to
provide the basis for determining and reporting mineral reserves.\843\
While commenters generally agreed with the proposed definitions of
``pre-feasibility study'' and ``feasibility study,'' many commenters
opposed the Commission's proposal to require the use of a feasibility
study in high risk situations.\844\ Most of those commenters believed
that the decision regarding whether to use a pre-feasibility or
feasibility study should be left to the discretion and professional
judgment of the qualified person.\845\ One commenter explained that,
for a pre-feasibility study, under CRIRSCO guidance, the qualified
person is required to assess and disclose relevant risks, including
high risks. If the qualified person has therefore met all of the
requirements for a pre-feasibility study, he or she should not need to
justify the use of a pre-feasibility study to support mineral reserve
estimates.\846\ A second commenter stated that ``with a high risk
project, it is even more important to complete a pre-feasibility study
prior to a feasibility study to help identify and mitigate the risks
before proceeding to a feasibility study.'' \847\ After stating that
qualified persons should be allowed to use their discretion as to
whether the risk associated with a pre-feasibility study is too high to
support a reserve, a third commenter noted that if the first pre-
feasibility study is inconclusive, it is common practice to not
disclose mineral reserves until additional studies are completed and
the development case is clear.\848\
---------------------------------------------------------------------------

    \843\ See letters from Amec, AngloGold, BHP, CBRR, CIM,
Eggleston, Gold Resource, Golder, Midas, Northern Dynasty, Randgold,
Rio Tinto, SAMCODES 2, SME 1, SRK 1, and Vale.
    \844\ See letters from Amec, AngloGold, Eggleston, Energy Fuels,
Golder, Midas, Northern Dynasty, Rio Tinto, and SRK 1.
    \845\ See, e.g., letters from Amec, AngloGold, Eggleston, Energy
Fuels, Rio Tinto, and SRK 1.
    \846\ See letter from Amec.
    \847\ Letter from SRK 1.
    \848\ See letter from Rio Tinto.
---------------------------------------------------------------------------

    In contrast, another commenter expressed its support for requiring
a feasibility study for high risk situations where a proposed mining
project has unique or particularly challenging conditions, such as when
it is in close proximity to environmentally protected resources.\849\
One other commenter stated that, for ``greenfield projects (including
new process routes for production expansion of existing operations)''
and other high risk situations, a feasibility study should

support the definition of mineral reserves.\850\
---------------------------------------------------------------------------

    \849\ See letter from Columbia. The commenter also recommended
requiring a feasibility study to address: Design criteria for
tailing dams, specifically the risk of failure; contingency and
emergency plans for tailings dam failures; drought management plans;
and remediation plans.
    \850\ See letter from CBRR.
---------------------------------------------------------------------------

    One commenter opposed requiring either a pre-feasibility study or
feasibility study to support the determination and disclosure of
reserves. According to that commenter, ``[f]or coal companies operating
in well-defined coal fields, these types of formal studies are not
typically conducted, as on-going operations provide all the feasibility
information that is required.'' \851\ That commenter estimated that
requiring either type of study would cost it several million dollars
without providing a benefit. Moreover, according to that commenter, due
to the competitive bidding nature of the coal industry, public
disclosure of information contained in those studies would likely cause
it competitive harm.\852\
---------------------------------------------------------------------------

    \851\ Letter from Alliance.
    \852\ See id.
---------------------------------------------------------------------------

    One commenter stated that the proposed accuracy and contingency
levels for a pre-feasibility study are too rigid and do not reflect the
diversity of mining project locations and mine project types.\853\ That
commenter also was concerned with the level of detail required for
certain items of the pre-feasibility study, such as environmental
compliance and permitting requirements.
---------------------------------------------------------------------------

    \853\ See letter from Amec.
---------------------------------------------------------------------------

    Some commenters expressly supported the Commission's proposal to
include definitions of preliminary and final market studies as part of
the instructions for pre-feasibility and feasibility studies.\854\ One
commenter stated that market studies should be required for non-freely
traded commodities where there are barriers to market entry, but the
Commission should not require disclosure of certain portions of the
market studies if such disclosure would break confidentiality
agreements or divulge planned market entry strategies that are
proprietary to the company.\855\ Other commenters, however, opposed the
proposed definitions on the grounds that they are vague,\856\ are not
standard practice,\857\ or include strategic market decisions that can
affect the market competition.\858\
---------------------------------------------------------------------------

    \854\ See letters from Amec, AngloGold, Eggleston, Golder, Rio
Tinto, and SRK 1.
    \855\ See letter from Amec.
    \856\ See letter from Northern Dynasty.
    \857\ See letter from SAMCODES 2.
    \858\ See letter from CBRR.
---------------------------------------------------------------------------

    Some commenters objected to our inclusion of environmental
compliance and permitting requirements or interests of agencies, non-
governmental organizations, communities and other stakeholders as
required items to be covered under a pre-feasibility or feasibility
study.\859\ These commenters stated that such inclusion would introduce
an ``unworkable and inappropriate disclosure mandate'' and impose high
direct and indirect costs. Other commenters advocated expanding the
required disclosure of environmental and sustainability factors.\860\
---------------------------------------------------------------------------

    \859\ See, e.g., letters from NMA 2 and SME 1.
    \860\ See, e.g., letters from Columbia and SASB.
---------------------------------------------------------------------------

iii. Final Rules
    We are adopting the proposed requirement that a registrant's
disclosure of mineral reserves must be based upon a qualified person's
pre-feasibility study or feasibility study, which supports a
determination of mineral reserves.\861\ The pre-feasibility or
feasibility study must include the qualified person's detailed
evaluation of all applicable modifying factors to demonstrate the
economic viability of the mining property or project.\862\ Moreover,
the technical report summary submitted by the qualified person to
support a determination of mineral reserves must describe the
procedures, findings, and conclusions reached for the pre-feasibility
or feasibility study.\863\
---------------------------------------------------------------------------

    \861\ Item 1302(e)(1) of Regulation S-K.
    \862\ See id.
    \863\ See id., referencing 17 CFR 229.601(b)(96).
---------------------------------------------------------------------------

    Most commenters addressing the issue supported requiring either a
pre-feasibility study or feasibility study to support a determination
of mineral reserves.\864\ Although one commenter opposed requiring
either type of study on the grounds that, because neither study is
commonly undertaken in the coal industry, the proposed requirement
would be costly and could result in competitive harm,\865\ we believe
that, as evidenced by the widespread support from other commenters, the
pre-feasibility or feasibility study requirement is consistent with
current industry practice under the CRIRSCO standards. We also note
that, as previously explained, the final rules do not require a mining
company, such as a coal company, to hire a qualified person before it
can develop and extract the mined commodity. However, once the company
engages in public capital-raising, and seeks to classify and report its
deposits as mineral reserves, then, consistent with the CRIRSCO
standards, for the protection of investors, there must be a pre-
feasibility or feasibility study to support its disclosure of reserves
in Commission filings.
---------------------------------------------------------------------------

    \864\ See supra note 843 and accompanying text.
    \865\ See letter from Alliance.
---------------------------------------------------------------------------

    We also are adopting the proposed definitions of preliminary
feasibility study \866\ and feasibility study.\867\ Because these
definitions are substantially similar to the comparable definitions
under the CRIRSCO-based codes,\868\ many commenters supported their
adoption.\869\ These definitions establish that, while both a pre-
feasibility and feasibility study are comprehensive technical and
economic studies, which must include a financial analysis at a level of
detail necessary to demonstrate, at the time of reporting, that
extraction is economically viable, a pre-feasibility study is less
comprehensive and results in a lower confidence level than a
feasibility study. This is because of the key differences between a
pre-feasibility study and a (final) feasibility study, which include
that:

    \866\ See the definition of ``preliminary feasibility study'' in
17 CFR 229.1300.
    \867\ See the definition of ``feasibility study'' in 17 CFR
229.1300.
    \868\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 38-39; JORC Code, supra note 175, at pts. 39-40;
SAMREC Code, supra note 267, at pts. 46-47; and PERC Reporting
Standard, supra note 302, at pts. 5.5-5.9.
    \869\ See, e.g., letters from AngloGold, BHP, CBRR, Rio Tinto,
and SRK 1.
---------------------------------------------------------------------------

     A pre-feasibility study discusses a ``range of
options'' for the technical and economic viability of a mineral
project whereas a feasibility study focuses on a particular option
selected for the development of the project;
     A pre-feasibility study generally has a less detailed
assessment of the modifying factors necessary to demonstrate that
extraction is economically viable than the corresponding assessment
in a feasibility study; and
     A pre-feasibility study generally has a less detailed
financial analysis that is based on less firm budgetary
considerations (e.g., historical costs rather than actual, firm
quotations for major capital items) and more assumptions than the
financial analysis in a feasibility study.

    Despite these differences, we believe that revising our rules to
allow a pre-feasibility study to support the determination and
disclosure of mineral reserves benefits both registrants and investors.
Permitting the use of a pre-feasibility study to determine mineral
reserves under our rules would align the Commission's disclosure regime
with those under the CRIRSCO-based codes and, as such, provide greater
uniformity in global mining disclosure requirements to the benefit of
both mining registrants and their investors. Permitting the use of a
pre-feasibility study also could significantly reduce a mining
registrant's costs in connection

with the determination of mineral reserves.
    We also continue to believe that the adopted requirements in the
definition of, and provisions regarding, a pre-feasibility study will
limit any additional uncertainty caused by its use. For example, like a
feasibility study, a pre-feasibility study must include an economic
analysis that supports the property's economic viability as assessed by
a detailed discounted cash flow analysis or other similar financial
analysis.\870\ Consistent with other adopted provisions that contain a
pricing requirement, an adopted provision states that, for either type
of study, a qualified person must use a price for each commodity that
provides a reasonable basis for establishing that the project is
economically viable.\871\ The qualified person must disclose the price
used and explain, with particularity, his or her reasons for using the
selected price, including the material assumptions underlying the
selection. This explanation must include disclosure of the time frame
used to estimate the price and costs and the reasons justifying the
selection of that time frame.\872\ As with other adopted pricing
provisions, for the pre-feasibility or feasibility study, the qualified
person may use a price set by contractual arrangement, provided that
such price is reasonable, and the qualified person discloses that he or
she is using a contractual price when disclosing the price used.\873\
---------------------------------------------------------------------------

    \870\ 17 CFR 229.1302(e)(5) [Item 1302(e)(5) of Regulation S-K].
    \871\ 17 CFR 229.1302(e)(4) [Item 1302(e)(4) of Regulation S-K].
    \872\ See id.
    \873\ See id. Like the other adopted pricing provisions, this
provision further states that the selected price and all material
assumptions underlying it must be current as of the end of the
registrant's most recently completed fiscal year. When discussing
the analysis in the technical report summary, the qualified person
will be required to disclose the assumptions made about prices,
exchange rates, discount rate, sales volumes and costs necessary to
determine the economic viability of the reserves.
---------------------------------------------------------------------------

    In addition, the economic analysis for a pre-feasibility study must
describe in detail applicable taxes and provide an estimate of
revenues.\874\ We believe that this level of detail for the economic
analysis in a pre-feasibility study is consistent with current practice
in the industry and comparable to the requirements for mineral reserve
disclosure based on a pre-feasibility study in the CRIRSCO-based
jurisdictions.\875\
---------------------------------------------------------------------------

    \874\ See Item 1302(e)(5) of Regulation S-K.
    \875\ See, e.g., CIM Definition Standards, supra note 351, at 3
(stating that the standard ``requires the completion of a
Preliminary Feasibility Study as the minimum prerequisite for the
conversion of Mineral Resources to Mineral Reserves''); see also CIM
Estimation of Mineral Resources and Mineral Reserves Best Practice
Guidelines 45 (2003) (in discussing work to determine the economic
merits of a deposit, stating that ``[t]his work specifically
includes mining engineering evaluations and, most importantly, the
preparation of an appropriate cash flow analysis. These aspects are
normal components of both feasibility studies and preliminary
feasibility studies'').
---------------------------------------------------------------------------

    Similar to a proposed instruction, the final rules require a
qualified person to exclude inferred mineral resources from the pre-
feasibility study's demonstration of economic viability in support of a
disclosure of a mineral reserve.\876\ Under the adopted framework, a
qualified person cannot convert an inferred mineral resource to a
mineral reserve without first obtaining new evidence that justifies
converting it to an indicated or measured mineral resource.\877\ This
treatment of inferred resources is consistent with guidance under the
CRIRSCO standards, which explains that, because confidence in the
inferred resource estimate is usually not sufficient to allow the
results of the application of technical and economic parameters to be
used for detailed mine planning, there is no direct link from an
inferred resource to any category of mineral reserves.\878\
---------------------------------------------------------------------------

    \876\ 17 CFR 229.1302(e)(6) [Item 1302(e)(6) of Regulation S-K].
    \877\ 17 CFR 229.1302(e)(15) [Item 1302(e)(15) of Regulation S-
K].
    \878\ See CRIRSCO International Reporting Template, supra note
20, at cl. 22; see also JORC Code, supra note 175, at pt. 21
(``Confidence in the estimate of Inferred Mineral Resources is not
sufficient to allow the results of the application of technical and
economic parameters to be used for detailed planning in Pre-
Feasibility (Clause 39) or Feasibility (Clause 40) Studies'').
---------------------------------------------------------------------------

    Similar to proposed instructions, we are adopting other
requirements that relate to the conversion of indicated or measured
mineral resources into mineral reserves.\879\ These requirements are
consistent with the mineral resource classification scheme and mineral
reserve disclosure framework under the CRIRSCO standards.\880\
---------------------------------------------------------------------------

    \879\ One provision states that the qualified person cannot
convert an indicated mineral resource to a proven mineral reserve
unless new evidence first justifies conversion to a measured mineral
resource. See 17 CFR 229.1302(e)(14) [Item 1302(e)(14) of Regulation
S-K]. Another provision states that if the uncertainties in the
results obtained from the application of the modifying factors that
prevented a measured mineral resource from being converted to a
proven mineral reserve no longer exist, then the qualified person
may convert the measured mineral resource to a proven mineral
reserve. See 17 CFR 229.1302(e)(13) [Item 1302(e)(13) of Regulation
S-K].
    \880\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 33; JORC Code, supra note 175, at pt. 32; SAMREC
Code, supra note 267, at pt. 38; and PERC Reporting Standard, supra
note 302, at pt. 8.15.
---------------------------------------------------------------------------

    Also similar to proposed instructions, we are adopting other
provisions pertaining to the use of a pre-feasibility study. One such
provision explains that factors to be considered in a pre-feasibility
study are typically the same as those required for a feasibility study,
but considered at a lower level of detail or at an earlier stage of
development.\881\ The list of factors is not exclusive. For example, a
pre-feasibility study must define, analyze, or otherwise address in
detail, to the extent material:
---------------------------------------------------------------------------

    \881\ 17 CFR 229.1302(e)(7) [Item 1302(e)(7) of Regulation S-K].

     The required access roads, infrastructure location and
plant area, and the source of all utilities (e.g., power and water)
required for development and production;
     The preferred underground mining method or surface mine
pit configuration, with detailed mine layouts drawn for each
alternative;
     The bench lab tests \882\ that have been conducted, the
process flow sheet, equipment sizes, and general arrangement that
have been completed, and the plant throughput;
---------------------------------------------------------------------------

    \882\ In the design of industrial process plants, engineers test
the design concepts at increasingly larger scales. An initial step
in this process is to conduct laboratory tests using a laboratory
simulation of the conceptual process plant (referred to as bench lab
tests). If successful, engineers then conduct tests using a small
scale field plant that can process bulk samples (referred to as
pilot or demonstration plant tests). It is only when these tests are
successful that designs for full scale industrial plants are
approved and the plants are constructed. Feasibility studies,
depending on the stage, involve bench lab scale or pilot scale
tests. See, e.g., Christopher G. Morris, Academic Press Dictionary
of Science and Technology 244 (1992) (defining bench-scale testing
as ``[t]he practice of examining materials, methods, or chemical
processes on a scale that can be performed on a work bench''). See
also American Geological Institute, Dictionary of Mining, Mineral,
and Related Terms 406 (2d ed. 1997) (defining a pilot plant as ``a
small-scale processing plant in which representative tonnages of ore
can be tested under conditions which foreshadow (or imitate) those
of the full-scale operation proposed for a given ore'').
---------------------------------------------------------------------------

    The environmental compliance and permitting requirements, the
baseline studies, and the plans for tailings disposal, reclamation
and mitigation, together with an analysis establishing that
permitting is possible; and
     Any other reasonable assumptions, based on appropriate
testing, regarding the modifying factors sufficient to demonstrate
that extraction is economically viable.\883\
---------------------------------------------------------------------------

    \883\ See Item 1302(e)(7) of Regulation S-K; see also Table 1 to
paragraph (d) of Item 1302 of Regulation S-K.

    Some commenters objected to the inclusion of environmental
compliance and permitting requirements or the interests of agencies,
non-governmental organizations, communities, and other stakeholders as
required items to be disclosed in a pre-feasibility (or feasibility)
study.\884\ We believe that the inclusion of compliance, regulatory,
and legal risks that are material to the

conclusions of the study is necessary because factors such as
environmental regulatory compliance, the ability to obtain necessary
permits, and other legal challenges can directly impact the economic
viability of a mining project. We are adopting requirements for pre-
feasibility studies largely as proposed, but with modifications in
order to simplify the description of the factors to be considered and
to clarify that the pre-feasibility (or feasibility) factors must only
be analyzed and discussed if they are material to the findings of the
study.
---------------------------------------------------------------------------

    \884\ See supra note 859 and accompanying text.
---------------------------------------------------------------------------

    Another provision requires that operating and capital cost
estimates in a pre-feasibility study, at a minimum, have an accuracy
level of approximately 25% and a contingency range not
exceeding 15%. The qualified person must state the accuracy level and
contingency range in the pre-feasibility study.\885\
---------------------------------------------------------------------------

    \885\ 17 CFR 229.1302(e)(9) [Item 1302(e)(9) of Regulation S-K];
see also Table 1 to paragraph (d) of Item 1302 of Regulation S-K.
---------------------------------------------------------------------------

    A further provision requires the pre-feasibility study to identify
sources of uncertainty that require further refinement in a final
feasibility study, as proposed.\886\ This provision is consistent with
the qualified person's duty to assess risk in a pre-feasibility study.
As noted by one commenter, assessment of risk is intrinsic to
completion of a pre-feasibility study, and material risks must be
appropriately evaluated by the qualified person and disclosed by the
registrant to protect investors.\887\
---------------------------------------------------------------------------

    \886\ 17 CFR 229.1302(e)(8) [Item 1302(e)(8) of Regulation S-K].
    \887\ See letter from Rio Tinto.
---------------------------------------------------------------------------

    As noted by commenters,\888\ these latter provisions (addressing
the level at which the modifying factors are assessed, the appropriate
accuracy level and contingency range for operating and capital costs,
and sources of uncertainty) are generally consistent with current
industry practice and comparable to requirements for the use of a pre-
feasibility study in the CRIRSCO-based jurisdictions.\889\ As such, the
adopted provisions will cause a registrant's use of a pre-feasibility
study in Commission filings to meet the industry established minimum
level of detail and rigor sufficient to determine mineral reserves.
---------------------------------------------------------------------------

    \888\ See, e.g., letters from AngloGold, Eggleston, SAMCODES 2,
and SRK 1.
    \889\ See, e.g., SME Guide, supra note 177, Tables 1-2.
---------------------------------------------------------------------------

    Similar to a proposed instruction, we are adopting a provision
explaining that the term ``mineral reserves'' does not necessarily
require that extraction facilities are in place or operational, that
the company has obtained all necessary permits or that the company has
entered into sales contracts for the sale of mined products. It does
require, however, that the qualified person has, after reasonable
investigation, not identified any obstacles to obtaining permits and
entering into the necessary sales contracts, and reasonably believes
that the chances of obtaining such approvals and contracts in a timely
manner are highly likely.\890\ This provision is similar to guidance
provided under the CRIRSCO standards.\891\
---------------------------------------------------------------------------

    \890\ 17 CFR 229.1302(e)(3)(i) [Item 1302(e)(3)(i) of Regulation
S-K].
    \891\ See, e.g., CRIRSCO International Reporting Template, supra
note 20, at cl. 30; SME Guide, supra note 267, at pt. 41; JORC Code,
supra note 175, at pt. 29; and PERC Reporting Standard, supra note
302, at pt. 8.3.
---------------------------------------------------------------------------

    The provision further states that, in certain circumstances, the
determination of mineral reserves may require the completion of at
least a preliminary market study, in the context of a pre-feasibility
study, or a final market study, in the context of a feasibility study,
to support the qualified person's conclusions about the chances of
obtaining revenues from sales. For example, a preliminary or final
market study would be required where the mine's product cannot be
traded on an exchange, there is no other established market for the
product, and no sales contract exists.\892\ Although one commenter
opposed the proposed requirement to obtain a preliminary or final
market study on the grounds that it could compel the disclosure in the
technical report summary of commercially sensitive information,\893\
the final rules do not require the disclosure of all of the details of
a market study. As with exploration results, a registrant only has a
duty to disclose the details that are material to investors.
---------------------------------------------------------------------------

    \892\ 17 CFR 229.1302(e)(3)(ii) [Item 1302(e)(3)(ii) of
Regulation S-K].
    \893\ See letter from CBRR.
---------------------------------------------------------------------------

    When assessing mineral reserves, the qualified person must take
into account the potential adverse impacts, if any, from any unresolved
material matter on which extraction is contingent and which is
dependent on a third party.\894\ Several commenters generally supported
this requirement.\895\ We believe that this provision will result in
more detailed disclosure, when required under the circumstances,
concerning the basis for the qualified person's conclusions as to
whether the deposit is a mineral reserve.
---------------------------------------------------------------------------

    \894\ See Item 1302(e)(3)(ii) of Regulation S-K.
    \895\ See letters from Amec, AngloGold, Eggleston, Golder, Rio
Tinto, and SRK 1.
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    In a change from the proposed rules, we are not requiring the
qualified person to justify the use of a pre-feasibility study in lieu
of a feasibility study. We also are not requiring the use of a
feasibility study in high risk situations. We are persuaded by
commenters' view that, consistent with the CRIRSCO standards, it should
be left to the discretion and professional judgment of the qualified
person to determine the appropriate level of study required to support
the determination of mineral reserves under the circumstances.\896\ We
believe that the adopted disclosure requirements for a pre-feasibility
study, taken as a whole, will help to mitigate any increased risk
resulting from permitting the use of a pre-feasibility study to support
the determination and disclosure of mineral reserves. If the qualified
person satisfies those requirements, including conducting an assessment
of material risks affecting the economic viability of the deposit, we
do not believe additional disclosure concerning why he or she chose to
conduct a pre-feasibility study is necessary. Moreover, in high risk
situations, the qualified person will have to perform additional
evaluative work to meet the level of certainty required for a pre-
feasibility study. If, in the judgment of the qualified person, that
level of certainty has been met, we believe the pre-feasibility study
should be permitted to support the determination of mineral reserves.
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    \896\ See supra note 845 and accompanying text.
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    Similar to a proposed instruction, we are adopting a provision
requiring a feasibility study to contain the application and
description of all relevant modifying factors in a more detailed form
and with more certainty than a pre-feasibility study.\897\ The list of
factors is not exclusive. Pursuant to that provision, a feasibility
study must define, analyze, or otherwise address in detail, to the
extent material:
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    \897\ 17 CFR 229.1302(e)(10) [Item 1302(e)(10) of Regulation S-
K]; see also Table 1 to paragraph (d) of Item 1302 of Regulation S-
K.

     Final requirements for site infrastructure, including
well-defined access roads, finalized plans for infrastructure
location, plant area, and camp or town site, and the established
source of all required utilities (e.g., power and water) for
development and production;
     A finalized mining method, including detailed mine
layouts and final development and production plan for the preferred
alternative with the required equipment fleet specified, together
with detailed mining schedules, construction and production ramp up,
and project execution plans;

     Completed detailed bench lab tests and a pilot plant
test,\898\ if required, based on risk, in addition to final
requirements for process flow sheet, equipment sizes, general
arrangement, and the final plant throughput;
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    \898\ See supra note 882 and accompanying text.
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     The final identification and detailed analysis of
environmental compliance and permitting requirements, together with
the completion of baseline studies and finalized plans for tailings
disposal, reclamation, and mitigation; and
     Detailed assessments of other modifying factors
necessary to demonstrate that extraction is economically
viable.\899\
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    \899\ See Item 1302(e)(10) of Regulation S-K; see also Table 1
to paragraph (d) of Item 1302(d) of Regulation S-K.

    Similar to another proposed instruction, we are adopting a
provision requiring a feasibility study to include an economic analysis
that describes taxes in detail, estimates revenues, and assesses
economic viability by a detailed discounted cash flow analysis.\900\
The qualified person must use a price for each commodity in the
economic analysis that meets the requirements of the earlier described
pricing provision.\901\ Thus, as long as the price provides a
reasonable basis for establishing that the project is economically
viable, and the qualified person explains, with particularity, his or
her reasons for using the selected price, including the material
assumptions regarding the selection, the price used may be either a
historical price or one based on forward-looking pricing forecasts.
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    \900\ 17 CFR 229.1302(e)(11) [Item 1302(e)(11) of Regulation S-
K].
    \901\ See Item 1302(e)(4) of Regulation S-K.
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    Finally, similar to a proposed instruction, we are adopting a
provision requiring that operating and capital cost estimates in a
feasibility study, at a minimum, have an accuracy level of
approximately 15 percent and a contingency range not
exceeding 10 percent. The qualified person must state the accuracy
level and contingency range in the feasibility study.\902\
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    \902\ 17 CFR 229.1302(e)(12) [Item 1302(e)(12) of Regulation S-
K].
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    These requirements for the use of a feasibility study to support
mineral reserve estimates are intended to promote accurate and uniform
disclosure of mineral reserves in Commission filings, which should
benefit investors as well as registrants. As commenters noted,\903\ the
requirements concerning the level of detail or stage of development for
the evaluation of modifying factors, and those regarding the accuracy
level and contingency range for operating and capital cost estimates,
are generally comparable to those required for the use of a feasibility
study to support mineral reserve estimates under the CRIRSCO-based
codes.\904\ We believe aligning the Commission's disclosure
requirements with international standards will benefit investors and
registrants by promoting uniformity in mining disclosure standards. In
addition, these requirements are generally consistent with current
practices regarding the use of a feasibility study to support a
determination and disclosure of mineral reserves.
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    \903\ See, e.g., letters from Eggleston, SAMCODES 2, and SRK 1.
    \904\ See, e.g., SME Guide, supra note 177, Tables 1-2.
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G. Specific Disclosure Requirements

1. Requirements for Summary Disclosure
i. Rule Proposal
    We proposed that registrants with material mining operations that
own two or more mining properties must provide summary disclosure of
their mining operations.\905\ We proposed the summary disclosure
requirement based on our belief that investors would benefit from an
overview of a registrant's mining operations in addition to a property
by property description. We also believed that this proposed
requirement would help foster more efficient and more effective
disclosure, as a registrant would be able to provide summary disclosure
about all of its properties where some or all are not individually
material.\906\
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    \905\ See Proposing Release, supra note 5, at Section II.G.1.
The proposed provision specified that the registrant would be
required to provide summary disclosure for all properties that: The
registrant owns or in which it has, or it is probable that it will
have, a direct or indirect economic interest; it operates, or it is
probable that it will operate, under a lease or other legal
agreement that grants the registrant ownership or similar rights
that authorize it, as principal, to sell or otherwise dispose of the
mineral; and for which it has, or it is probable that it will have,
an associated royalty or similar right.
    \906\ See id.
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    As part of its summary disclosure, we proposed to require a
registrant to include a map or maps showing the locations of all mining
properties.\907\ The proposed map requirement would provide investors a
point of reference to assess the geographic and socio-political risks
associated with the registrant's mining operations.\908\
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    \907\ See id.
    \908\ See id.
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    We also proposed that the summary disclosure must include a
presentation, in tabular form (Table 2 of the proposed rules), of
certain specified information about the 20 properties with the largest
asset values (or fewer, if the registrant has an economic interest in
fewer than 20 mining properties).\909\ For the purpose of determining
the top 20 properties by asset value, we proposed to permit a
registrant with interrelated mining operations to treat those
operations as one mining property.\910\ As proposed, for each of the
properties required to be included in the summary disclosure, a
registrant would be required to identify the property, report the total
production from the property for the three most recently completed
fiscal years, and disclose the following information:
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    \909\ See id.
    \910\ See id.

     The location of the property;
     The type and amount of ownership interest;
     The identity of the operator;
     Title, mineral rights, leases or options and acreage
involved;
     The stage of the property (exploration, development or
production);
     Key permit conditions;
     Mine type and mineralization style; and
     Processing plant and other available facilities.\911\
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    \911\ See id.

    We proposed this requirement to provide investors with an
appropriately comprehensive and thorough understanding of a
registrant's mining operations.
    We further proposed to require a registrant to provide a summary,
in tabular form (Table 3 of the proposed rules), of its mineral
resources and mineral reserves at the end of its most recently
completed fiscal year, by commodity and geographic area, and for each
property containing 10 percent or more of the registrant's mineral
reserves or 10 percent or more of the registrant's combined measured
and indicated mineral resources.\912\ The registrant would be required
to provide this summary for each class of mineral reserves (probable
and proven) and resources (inferred, indicated, and measured), together
with total mineral reserves and total measured and indicated mineral
resources.\913\ As proposed, all mineral reserves and resources
reported in the summary table must be based on, and accurately reflect,
information and supporting documentation prepared by a qualified
person.
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    \912\ See id.
    \913\ See id.
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    The Commission also proposed several instructions to the proposed
summary disclosure requirement that:

     Defined the term ``by geographic area'' to mean by
individual country, regions of a country, state, groups of states,
mining

district, or other political units, to the extent material to and
necessary for an investor's understanding of a registrant's mining
operations;
     Explained that all disclosure of mineral resources must
be exclusive of mineral reserves;
     Required that all disclosure of mineral resources and
reserves must be only for the portion of the resources or reserves
attributable to the registrant's interest in the property;
     Required all mineral resource and reserve estimates to
be based on prices that are no higher than the average spot price
during the 24-month period prior to the end of the fiscal year
covered by the report, determined as an unweighted arithmetic
average of the daily closing price for each trading day within such
period, unless prices are defined by contractual arrangements; and
     Required that the mineral resource and reserve
estimates called for in Table 3 of the proposed rules must be in
terms of saleable product.\914\
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    \914\ See id.

    As proposed, for a registrant with mining operations that are, in
the aggregate, material but for which no individual property is
material, this summary disclosure would be the only mining disclosure
required in the registrant's filings. For a registrant with individual
properties that are material, we proposed additional, more detailed,
disclosure about such properties.\915\ We proposed to exclude a
registrant with only one mining property from the summary disclosure
requirement because we did not see any benefit to requiring summary
disclosure, in addition to individual disclosure, for a single material
property.\916\
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    \915\ See infra Section II.G.2.
    \916\ See Proposing Release, supra note 5, at Section II.G.1.
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ii. Comments on the Rule Proposal
    Several commenters offered conditional support for the Commission's
summary disclosure proposal.\917\ One commenter supported the proposed
summary disclosure requirement but recommended that the requirement
apply to 80% of the registrant's mining properties based on asset value
rather than the top 20 properties out of concern that the proposed
requirement would be costly for registrants with numerous immaterial
properties and only a few material properties.\918\
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    \917\ See, e.g., letters from AngloGold, CBRR, Columbia, Davis
Polk, Midas, Rio Tinto, and SRK 1.
    \918\ See id.
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    A number of commenters supported the proposed summary disclosure
requirements but stated that the requirement to disclose information
about the top 20 properties by asset value should include only material