Under NI 43-101 Standards of Disclosure for Mineral Projects, a qualified person is responsible for preparing or supervising the preparation of the technical report and providing scientific and technical advice in accordance with applicable professional standards. Exploration campaigns on mineral properties frequently span many years with differing qualities of data generated by multiple operators. The technical report content requirement under Form 43-101F1 covers a broad range of subject material that extends beyond the technical expertise of most engineers or geoscientists. What allowance is there for a qualified person preparing a technical report to reasonably rely on others?
Section 3.2 of Companion Policy 43-101CP advises that if a qualified person relies on the work of a person who is not a qualified person to prepare a technical report or to provide information or advice to the issuer, the qualified person must take responsibility for that work, information, or advice and must take whatever steps are appropriate, in his or her professional judgment, to ensure that the work, information, or advice that he or she relies upon is sound.
CIM Best Practice Guidelines expect that data acquired over multiple periods and by various workers should be verified by the qualified person and checked prior to entry into the database. Throughout the process of mineral exploration, the qualified persons should ensure that a quality assurance program is in place and that any required quality control measures are implemented. As explained under NI 43-101, data verification must include: (a) a discussion of quality control measures and data verification procedures applied; (b) a statement as to whether the qualified person has verified the data referred to or relied upon; (c) a discussion of the nature of and any limitations on such verification; and (d) the reasons for any failure to verify the data. Blind acceptance of the accuracy or completeness of sampling data would not be acceptable practice.
Mineral resource and reserve estimates
CIM Definition Standards that are incorporated by reference into NI 43-101 provide the following instructions to qualified persons preparing mineral resource and reserve estimates: It is important that the Qualified Person accepting overall responsibility for a Mineral Resource and/or Mineral Reserve estimate and supporting documentation, which has been prepared in whole or in part by others, is satisfied that the other contributors are Qualified Persons with respect to the work for which they are taking responsibility and that such persons are provided adequate documentation.
Section 3.3 of Companion Policy 43-101CP provides guidance on the inclusion in a new technical report of mineral resource or reserve estimates prepared by other qualified persons. When one or more qualified persons prepare a technical report that includes a mineral resource or mineral reserve estimate prepared by another qualified person for a previously filed technical report, one of the qualified persons preparing the new technical report must take responsibility for those estimates. In doing this, that qualified person should make whatever investigations are necessary to reasonably rely on that information.
Relying on other experts
Content requirements of a technical report go beyond what is of a scientific and technical nature. A qualified person must include information on property title, surface rights, environmental liabilities, permitting requirements, and discuss legal, political, marketing, socio-economic, or taxation issues if estimates of mineral resources or mineral reserves are included in the technical report. Clearly, a qualified person must rely on input from others for discussion on this type of content.
Item 5: Reliance on Other Experts of the Technical Report Form allows a qualified person to rely on a report, opinion or statement of a legal or other expert, who is not a qualified person, for information concerning legal, environmental, political or other issues and factors relevant to the technical report. The qualified person may include a disclaimer of responsibility for this type of information on the condition that they identify:
- the report, opinion or statement relied upon;
- the maker of that report, opinion or statement;
- the extent of reliance; and
- the portions of the technical report to which the disclaimer applies.
It should not be considered reasonable for a qualified person to simply rely on the issuer for information on property title, surface rights, permits required, status of property agreements, royalties, back-in rights, or identification of any other encumbrances on the property. These really require legal opinion, which frequently exists because underwriters will nearly always request one to be prepared in support of company finance.
The qualified person should request written permission from the law firm to reference the legal opinion in the technical report.
An audit firm with an office in the host country is a reasonable source of taxation information or other government levies that production from the mineral project would be subject to. A report by an environmental firm would be expected to support statements on environmental liabilities that exist on the mineral property.
Qualified persons, providing a technical report or advice that is to be relied upon by officers, directors, or underwriters of reporting issuers in jurisdictions in Canada, are subject to civil liability under securities law. Qualified persons have a defence against civil liability for a misrepresentation in their report or opinion as long as they conducted a reasonable investigation in preparing their report or opinion. In determining whether an investigation was reasonable, the court will consider all relevant circumstances, including any professional standards applicable to the expert. CIM Best Practice Guidelines and Definition Standards for Mineral Resources and Mineral Reserves, and Companion Policy 43-101CP provide guidance on industry standards when it comes to reasonably relying on information provided by others. It would behoove qualified persons to review these standards when relying on others and to seek advice from legal counsel experienced in securities law if they are uncertain about what is reasonable.
If a qualified person is unsure whether they should rely on someone else’s work, then they better be clear on what the downside is if the information they are relying on proves to have significant errors or omissions. Securities lawyers cannot make decisions on technical information but they can explain the legal implications to the qualified person, if there is insufficient due diligence because of blind reliance and then something goes wrong.
Greg Gossen is technical director, geology and geostatistics, AMEC Americas Limited.