Recommendations on Mandatory Disclosure of Payments from Canadian Mining Companies
On January 16, 2014, the Resource Revenue Transparency Working Group (the “Working Group”) released its final recommendations for mandatory disclosure by publicly traded mining companies of their payments to governments for developing mineral resources (the “Report”).
The Working Group was formed in September 2012 by the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay Canada and the Revenue Watch Institute. According to the Report, the objective of the Working Group is the development of a reporting framework for Canadian extractive companies, with an overarching goal of establishing greater transparency in the mining sector in Canada and throughout the world. In particular, the Working Group has sought to develop a framework that would require Canadian mining companies to publicly disclose the payments that they make to governments in the countries in which they operate, disaggregated by project.
This proposed reporting framework will have a significant impact on the mining sector, as, according to the Report, almost 60% of the world’s mining companies are listed on Canadian stock exchanges and Canadian mining companies operate in more than 100 countries worldwide.
The following is a summary of the key recommendations from the Report:
1. Broad Scope of Reporting
The Working Group recommends a reporting framework that requires all mining companies that are reporting issuers in Canada to publicly disclose certain types of payments made to Canadian and foreign governments related to the commercial development of mineral deposits. This would include payments made to national and sub-national authorities (including states, provinces, counties, districts, municipalities and state-owned enterprises) that meet a minimum threshold, in each country of operation and for each project. The Report recommends reporting by all companies, including their subsidiaries and jointly controlled and/or associated entities.
The Working Group recommends that disclosure be required for the following categories of payments:
- profit taxes (including profit, income and production taxes)
- royalties (including royalties-in-kind)
- fees (including license fees, rental fees, and concession fees)
- production entitlements (by value and volume)
- bonuses (including signature, discovery and production bonuses)
- dividends (i.e., withholding tax)
- infrastructure payments required by law or contract (such as building a road)
- transportation and terminal operations fees
The proposed reporting requirements will exist at every stage of the project (from exploration to the relinquishment or sale of the project) and over the value chain of the project (from exploration and development to production, transport and export).
The Report proposes different thresholds for issuers listed on the TSX and TSXV. A threshold of $100,000 is recommended for issuers listed on the TSX, which is aligned with rules in the U.S. and Europe. For TSXV issuers, a lower threshold of $10,000 is recommended. The Report states that this lower threshold is important to prevent instances where no revenue is reported as paid and to allow venture issuers to communicate the flow of revenues clearly and credibly.
The Report recommends that companies disclose information disaggregated by project. The Working Group recommends that a “project” be defined using the U.S. model of looking at extractive companies’ contractual arrangements with governments that give rise to payment liabilities, instead of defining a project based on materiality to the company, the geological basin, or other basis.
2. Form of Disclosure
The Report recommends that payment disclosure be filed in a separate form on SEDAR on an annual basis, in line with an issuer’s fiscal year. Filing a separate form will create consistent standards for companies and is consistent with the approach adopted in the U.S. and the U.K.
The Working Group recommends that disclosure include the following:
- total amounts of payments made, by category
- the currency used to make the payments
- the financial period in which the payments were made
- the business segment of the issuer that made the payments
- the government and country that received the payments
- the project to which the payments relate
The Working Group recommends that the reporting requirements be implemented through provincial securities regulators. This could be accomplished through a national instrument by the Canadian Securities Administrators. The Working Group also recommends that mining companies that fail to report, or report incorrect information, be subject to penalties imposed by provincial securities regulators.
3. No Exemptions
The Working Group recommends that there be no exemptions from these reporting requirements, as exemptions would “run counter to the spirit of improving transparency with enhanced company disclosure, and would result in uneven reporting and differential treatment of companies” (page 9 of the Report).
Mandatory disclosure requirements have already been established in various jurisdictions, including the U.S. The Working Group recommends establishing equivalency mechanisms into the reporting framework so that a company can comply with the Canadian disclosure requirements by submitting an equivalent report that it has filed in another jurisdiction. This will help to avoid undue reporting burdens on mining companies listed in multiple markets.
The full text of the Report is available here.