National Post Articles
Lessons for Canada
Jim Middlemiss, Financial Post • Wednesday, Dec. 8, 2010
Buried deep in the almost 900 pages of U.S. financial reform law recently passed by Congress are a few gems that Canadian mining companies need to be aware of if they trade on U.S. exchanges, lawyers say.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most significant overhaul of the U.S. financial services since the Great Depression. Kevin Cramer, a lawyer at Osler, Hoskin & Harcourt in New York, says it has three provisions that specifically affect the mining industry.
The most controversial involves "conflict minerals," which include such things as coltan, gold, cassiterite and wolframite.
Section 1502 of the law requires manufacturers of jewellery and electronic devices to disclose whether the conflict minerals they used in their production came from the Democratic Republic of Congo or an adjoining country, such as Tanzania, Zambia, Burundi and Uganda.
Lawyers say the provision is designed to address the ongoing civil war in the DRC, which is being financed through the exploration and trade of minerals, such as coltan and gold.
"The challenge is to figure out how to make sure there is the required disclosure which allows for [an] apples-to-apples comparison," Mr. Cramer said.
Manufacturers will be required to submit an independent audit that attests to the custody and source of such minerals and disclose those reports on their website.
Andrew Beck, a lawyer at Torys in New York, said the new disclosure requirements mean that manufacturers will be calling more on miners to find out about the source of their precious metals.
"If you do have conflict minerals obtained from the Congo or adjoining countries, you've got to basically show due diligence and that you did the whole chain of custody to make sure that none of the proceeds are going to finance armed conflict."
Manufacturers will have to "certify the whole chain of custody and show what kind of due diligence they did. That can be quite significant and onerous."
He said resource companies are going to be in a position where they will have to "provide their customers sufficient backup to comfortably make these certifications."
The U.S. government also wants to know more about payments companies are making to extract resources. Section 1504 requires companies engaged in commercial development of minerals, oil and natural gas to disclose in their annual reports information relating to any extraction payments made to a foreign government.
Payments are broadly defined to include taxes, royalties, licence fees, production entitlements, bonuses and "other material benefits."
Mr. Cramer says companies must report the amount of payments, the currency used to make them, the financial periods during which the payments were made, the project the payments relate to and the level of government and the country that received the money.
The third provision of note, section 1503, involves disclosures around mine safety. Lawyers say this clause is in response to recent mine accidents in the United States.
Mining companies subject to U.S. regulators will be required to report a wide range of new information touching on the safety of their mines.
That includes the total number of mining-related deaths and violations of health or safety standards issued under the U.S. Federal Mine Safety and Health Act, including the number of orders issued under that legislation and citations and orders for failing to comply with it.
Mr. Cramer said the law applies to companies with mines in the United States, however, he said it will be interesting to see if "mining regulators in other jurisdictions are thinking about imposing a comparable disclosure obligation."
Gerald Shepherd, a lawyer at Davies Ward Phillips & Vineberg in New York, said for mining companies the main focus of the Dodd-Frank law will be "additional disclosure requirements and the need to make sure their internal disclosure controls are [properly] set."
"It shouldn't be too terribly cumbersome," he said, noting the changes are not like s. 404 of the Sarbanes-Oxley Act, the last set of major reforms set by the U.S. government in 2002, which imposed a range of obligations on companies to report and certify financial data.
Mr. Shepherd, however, adds there are a number of other interesting provisions within the mammoth piece of legislation that could affect Canadian inter-listed companies. That includes a whistleblower provision where people who voluntarily provide information to the U.S. Securities and Exchange Commission will be entitled to a "bounty" of US$1-million or more. He said it's to "create an incentive for people to blow the whistle on securities violations."
While the legislation sets out the broad parameters, Mr. Cramer said the devil is still in the details. The law leaves it to the SEC to draft regulations on how the law will be deployed. He said the securities regulator is in the process of drafting that information and putting out proposed rules.