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New Reporting Obligations Imposed on Mining Companies Under the Dodd-Frank Act_

Author(s): Kevin D. Cramer

Sept 2, 2010

While much has been written about the wide-ranging impact of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) on financial institutions, mining companies whose securities are publicly traded in the United States will need to consider the implications of three provisions of the Act dealing with new reporting obligations affecting this industry.  Two of these provisions are directly applicable to mining companies and mandate disclosure regarding mine safety information and payments to various government entities in connection with the commercial development of oil, natural gas, or minerals.  The third provision, which relates to manufacturing companies’ use of conflict minerals originating in the Democratic Republic of the Congo and adjoining countries, may indirectly affect mining companies with operations in those countries.  As with many aspects of the Act, implementation of these requirements is dependent upon future regulatory rulemaking.  Nevertheless, mining executives should start familiarizing themselves now with these new reporting obligations in light of the lead times necessary to implement the policies and procedures to enable compliance with the Act.

Mine Safety Information

Mine operators must include in each periodic report (i.e., quarterly and/or annual reports) filed with the U.S. Securities and Exchange Commission (the SEC) certain information concerning safety matters relating to the issuer and any subsidiary that operates a mine during the period covered by such report.  The information required by Section 1503 of the Act includes:

  • Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to a mine safety or health hazard under the U.S. Federal Mine Safety and Health Act (the Mine Safety Act) for which the operator received a citation from the U.S. Mine Safety and Health Administration (MSHA);
  • Total number of orders issued under the Mine Safety Act;
  • Total number of citations and orders for unwarrantable failure of the operator to comply with mandatory health or safety standards under the Mine Safety Act;
  • Total number of flagrant violations under the Mine Safety Act;
  • Total number of imminent danger orders issued under the Mine Safety Act;
  • Total dollar value of proposed assessments from the MSHA; and
  • Total number of mining-related fatalities.

Operators will also need to disclose in their periodic reports a list of mines that have received written notice from the MSHA regarding either a pattern, or the potential to have a pattern, of violations of mandatory health or safety standards of a nature that could have significantly and substantially contributed to mine health and safety hazards under the Mine Safety Act.  Finally, operators must disclose any pending legal action before the U.S. Federal Mine Safety and Health Review Commission involving their mines.

As of July 21, 2010, the date of enactment of the Act, public companies who comply with reporting obligations on domestic forms required of U.S. companies under the U.S. Securities Exchange Act are obligated to file a current report with the SEC on Form 8-K whenever they are in receipt of an imminent danger order issued pursuant to the Mine Safety Act or receipt of written notice from the MSHA that the mine has a pattern, or the potential to have a pattern, of violations of mandatory health or safety standards under the Mine Safety Act.  The SEC has yet to issue details on the specific disclosure that will be mandated through rulemaking.  A review of recent Form 8-K filings reveals that mining companies are complying with this new obligation by utilizing Item 8.01 Other Events to describe the receipt of an order or notice and any action taken to remedy the situation.  Given that Section 1503 refers solely to a disclosure obligation on Form 8-K and that foreign private issuers do not have Form 8-K reporting obligations under U.S. federal securities laws, it remains to be seen whether the SEC will issue a rule compelling foreign private issuers who operate mines in the United States to make comparable disclosure on an appropriate form.

In addition, the new periodic reporting requirements will apply to any Form 10-Q quarterly reports or any Form 10-K annual reports filed by mine operators on or after July 21, 2010.  While not specifically addressed in the Act, it is expected that foreign private issuers will be required by the SEC to include the mandated disclosure in their Form 20-F or Form 40-F annual reports.  As virtually all of the new disclosure obligations imposed by Section 1503 refer to the standards of the Mine Safety Act and the MSHA, mining operations outside the United States will not be subject to most of these new requirements. 

Payments By Resource Extraction Issuers to Government Entities

Companies engaged in the commercial development of oil, natural gas, or minerals will be required to include in their annual reports information relating to any payment made by the company, a subsidiary or an entity under the company’s control to the U.S. federal government or a foreign government (including a department, agency or instrumentality of a foreign government) for the purpose of such commercial development.  Section 1504 defines “commercial development of oil, natural gas, or minerals” to include exploration, extraction, processing, export, and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity.  The SEC is authorized to make further determinations as to what constitutes a foreign government and commercial development of oil, natural gas, or minerals.

Issuers must disclose non-de minimis payments made to further the commercial development of oil, natural gas, or minerals, including taxes, royalties (including license fees), production entitlements, bonuses, and other material benefits that the SEC, consistent with the guidelines of the Extractive Industries Transparency Initiative (to the extent practicable), determines are part of the commonly recognized revenue stream for such commercial development.  Information concerning the Initiative can be found at

Within 270 days after the date of enactment of the Act (i.e., no later than April 17, 2011) the SEC must promulgate final rules requiring issuers to include the required payment disclosure in their annual report.  Issuers will be required to disclose (i) the type and total amount of such payments made for each project relating to the commercial development of oil, natural gas, or minerals and (ii) the type and total amount of such payments made to each government entity.

Section 1504 also specifies that the required information must be included in the issuer’s annual report in an interactive data standard to be established by the SEC.  Furthermore, electronic tags must identify, for any payments made to a government entity, the following information:

  • Total amounts of payments by category;
  • Currency used to make payments;
  • Financial period in which payments were made;
  • Business segment of the issuer that made the payments;
  • Government that received the payments and the country in which the government is located;
  • Project to which such payments relate; and
  • Such other information as the SEC may determine is necessary or appropriate in the public interest or for the protection of investors.

These new disclosure obligations will apply to an issuer’s annual report for the first fiscal year end on or after the date on which the SEC promulgates final rules implementing this section.

Conflict Minerals

Manufacturing companies will be required to disclose annually whether a specified list of “conflict minerals” necessary to the functionality or production of a product manufactured by such companies originates in the Democratic Republic of the Congo (“DRC”) or an adjoining country.  While it is expected that this provision will largely apply to manufacturers of jewelry and various consumer electronic devices, it is likely that the disclosure and audit requirements discussed below will in turn give rise to record keeping and compliance obligations on the part of companies mining conflict minerals in such jurisdictions. 

Section 1502 of the Act defines “conflict minerals” as:

  • columbite – tantalite (coltan);
  • cassiterite;
  • gold;
  • wolframite;
  • any of their derivatives; and
  • any other mineral or its derivative determined by the U.S. Secretary of State to be financing conflict in the DRC or an adjoining country.

Issuers who are subject to this provision must file with the SEC and publish on their websites a report providing a description of the measures they have implemented to exercise due diligence on the source and chain of custody of such minerals.  Section 1502 specifically requires that such measures must include an independent private sector audit of such report that is conducted in accordance with standards established by the Comptroller General of the United States, in accordance with rules promulgated by the SEC, in consultation with the U.S. Secretary of State.  The report must also describe (i) the products manufactured or contracted to be manufactured that are not DRC conflict free (i.e., products will be considered “DRC conflict free” if they do not contain minerals that directly or indirectly finance or benefit armed groups in the DRC or an adjoining country); (ii) the entity that conducted the independent private sector audit; (iii) the facilities used to process the conflict minerals; (iv) the country of origin of the conflict materials; and (v) the efforts to determine the mine or location of origin with the greatest possible specificity.  Furthermore, the issuer submitting the report must certify the audit.  Companies operating mines in the DRC and adjoining countries should expect that issuers subject to these requirements and their auditors will be making demands for information (and possibly access to their mines) to satisfy these reporting obligations.

Section 1502 states that the SEC must promulgate regulations implementing these conflict minerals requirements no later than 270 days after enactment of the Act (i.e., by April 17, 2011).  Issuers will be required to comply with these disclosure obligations on an annual basis, commencing with the annual report for the first full fiscal year that begins after the SEC rules become effective.

Osler will continue to monitor developments involving these matters and update our clients as the SEC issues proposed rules related to Sections 1502, 1503 and 1504 of the Act.  In the interim, we would be pleased to discuss any aspects of the Act discussed above.