SEC Adopts Mine Safety Disclosure Requirements | Practical Law

SEC Adopts Mine Safety Disclosure Requirements | Practical Law

On December 21, 2011, the SEC adopted new rules to outline how mining companies must disclose the mine safety information required by the Dodd-Frank Act.

SEC Adopts Mine Safety Disclosure Requirements

Practical Law Legal Update 7-517-0201 (Approx. 6 pages)

SEC Adopts Mine Safety Disclosure Requirements

by PLC Corporate & Securities
Published on 22 Dec 2011 • USA (National/Federal)
On December 21, 2011, the SEC adopted new rules to outline how mining companies must disclose the mine safety information required by the Dodd-Frank Act.
On December 21, 2011, the SEC adopted final rules to implement the mine safety disclosure requirements set out in Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Under Section 1503, reporting companies that operate a coal or other mine must disclose in their periodic reports filed with the SEC information regarding:
  • Specified health and safety violations.
  • Orders and citations.
  • Related assessments and legal actions.
  • Mining-related fatalities.
Section 1503 of the Dodd-Frank Act also requires issuers to file a Form 8-K to disclose the receipt of certain orders and notices from the Mine Safety and Health Administration (MSHA). Many of the disclosure requirements under the final rules are based on the safety and health requirements under the Federal Mine Safety and Health Act of 1977 (Mine Act), which is administered by MSHA.
The final rules are based on the rules initially proposed by the SEC on December 15, 2010 (see Legal Update, SEC Proposes Disclosure Rules Regarding Conflict Minerals, Mine Safety and Payments by Resource Extraction Issuers). The final rules adhere closely to Section 1503 of the Dodd-Frank Act and do not include certain rules initially proposed in December 2010 that would have expanded the disclosure requirements beyond those set out in Section 1503.
The final rules become effective 30 days after publication in the Federal Register.
Update: The final rules become effective on January 27, 2012.

Required Disclosure in Periodic Reports

Section 1503(a) of the Dodd-Frank Act requires reporting companies that are operators, or that have a subsidiary that is an operator, of a coal or other mine to disclose specified information about mine health and safety in their periodic reports filed with the SEC.

Scope of the Rules

The final disclosure rules adopted by the SEC:
  • Apply only to mines located in the US.
  • Require disclosure on a mine-by-mine basis. Issuers are not permitted to group mines for disclosure purposes by project or geographic region.
  • Do not require an issuer to report orders and citations issued to its independent contractors (who are not subsidiaries of the issuer).
  • Do not provide special treatment for smaller reporting companies or foreign private issuers.
  • Are not eligible for the special provisions of Form 10-K or Form 10-Q that permit the omission of certain information by wholly owned subsidiaries and asset-backed issuers (see the General Instruction, "Omission of Information by Certain Wholly-Owned Subsidiaries," in each Form).

Location of Disclosure

The final rules amend:
  • Form 10-K to add new Item 4 to Part I and Form 10-Q to add new Item 4 to Part II, each of which requires the information required by new Items 104 and 601(b)(95) of Regulation S-K.
  • Form 20-F to add new Item 16H.
  • Form 40-F to add new paragraph (16) of General Instruction B.
Under the amendments to these forms, issuers that have matters to report under the requirements of Section 1503(a) of the Dodd-Frank Act must include brief disclosure in Part I of Forms 10-K, 20-F and 40-F and in Part II of Form 10-Q stating that:
  • They have mine safety violations or other regulatory matters to report under Section 1503(a) of the Dodd-Frank Act.
  • The required disclosure is included in an exhibit to the periodic report.
The exhibit must include the detailed disclosure required by 1503(a), as implemented in the final rules (see Required Disclosure Items). The final rule amends Item 601 of Regulation S-K to add new Exhibit 95, Mine Safety Disclosure Exhibit.
Though the final rules do not specify any particular presentation requirements for the new disclosure, the SEC encourages issuers to use tabular presentation whenever possible. An example of a possible tabular presentation is included in the adopting release. There is no requirement to provide the information in interactive data format.
The final rules require the disclosure to be included in each periodic report filed with the SEC and this disclosure will be considered "filed," not "furnished." Accordingly, the required mine safety disclosure is subject to potential liability under Section 18 of the Securities Exchange Act of 1934 (Exchange Act) and is covered by the officer certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. This treatment is consistent with other disclosure filed as part of an issuer's periodic reports.
In addition to the amendments to Forms 10-K, 10-Q, 20-F and 40-F for periodic reports, the final rules also make amendments to Form 8-K (see New Form 8-K Filing Requirement).

Time Periods Covered

The final rules as adopted require the Form 10-K to include the required disclosure only for the fiscal year covered by the report, with no separate requirement for disclosure for the fourth quarter of that fiscal year. Likewise, Form 10-Q must include required disclosure for the relevant fiscal quarter and Forms 20-F and 40-F must include required disclosure for the fiscal year covered by the report.
The final rules do not permit issuers to exclude information about orders or citations that were received during the time period covered by the report but that:
  • Were later dismissed, reduced or vacated.
  • The issuer is contesting at the time the periodic report is filed.

Required Disclosure Items

Section 1503(a) includes a list of items that must be disclosed in periodic reports. The final rules adopted by the SEC amend Regulation S-K to add this list of disclosure items as new Item 104.
An issuer that is the operator, or has a subsidiary that is an operator, of a coal or other mine must provide the following information for the time period covered by each periodic report:
  • For each mine of which the issuer or its subsidiary is the operator, identify the mine and disclose:
    • the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety hazard under Section 104 of the Mine Act for which the mine operator received a citation from the MSHA;
    • the total number of orders issued under Section 104(b) of the Mine Act;
    • the total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health and safety standards under Section 104(d) of the Mine Act;
    • the total number of flagrant violations under Section 110(b)(2) of the Mine Act;
    • the total number of imminent danger orders issued under Section 107(a) of the Mine Act;
    • the total dollar value of proposed assessments from MSHA under the Mine Act during the period covered by the report, regardless of whether the proposed assessments are being contested or were dismissed or reduced before the date of filing of the periodic report (see Time Periods Covered); and
    • the total number of mining-related fatalities. An instruction to this item clarifies that fatalities determined by MSHA not to be mining-related may be excluded from the number being disclosed.
  • A list of mines, of which the issuer or its subsidiary is the operator, that receive written notice from the MSHA of:
    • a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under Section 104(e) of the Mine Act; or
    • the potential to have such a pattern.
  • Any pending legal action before the Federal Mine Safety and Health Review Commission (FMSHRC) involving a coal or other mine. Under this requirement, issuers must disclose:
    • the number of legal actions involving such mine that were pending before the FMSHRC (categorized according to the type of the proceeding, according to categories set by the procedural rules of the FMSHRC) as of the last day of the period covered by the periodic report; and
    • the aggregate number of legal actions instituted and the aggregate number of legal actions resolved during the reporting period.
    In a departure from the initial rules proposal issued by the SEC in December 2010, the final rules do not require the disclosure of certain additional information about the legal actions, such as the date the action was instituted and by whom and the location of the mine. The final rules also do not require that information about legal actions be updated for material developments in later periodic reports.

New Form 8-K Filing Requirement

The final rules amend Form 8-K to add new Item 1.04. Issuers must file a Form 8-K under new Item 1.04 no later than four business days after receipt by the issuer (or its subsidiary) of any of the following:
  • An imminent danger order under Section 107(a) of the Mine Act.
  • Written notice from MSHA of a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under Section 104(e) of the Mine Act.
  • Written notice from MSHA of the potential to have a pattern of such violations.
Item 1.04 of Form 8-K requires the issuer to disclose:
  • The date of receipt of the triggering order or notice.
  • The category of the order or notice.
  • The name and location of the mine involved.
In the adopting release, the SEC stresses that the Item 1.04 filing requirement is triggered by the receipt of an order or notice. Once an order or notice has been received, a Form 8-K must be filed within four business days, even if MSHA vacates the order or notice within that four-business-day period.
The new Form 8-K disclosure requirements do not apply to foreign private issuers. While they will not be subject to the Form 8-K requirement, foreign private issuers cannot avoid disclosing the orders and notices specified in Item 1.04 of Form 8-K. This is because the final rules amend Form 20-F and Form 40-F to require foreign private issuers to disclose in their annual reports the same information specified in Item 1.04 of Form 8-K.

Amendment to Eligibility Requirements for the Use of Form S-3

General Instruction I.A. of Form S-3 sets out the registrant requirements an issuer must satisfy to be eligible to register securities on Form S-3. Subparagraph 3.(b) of General Instruction I.A. states that the registrant must have filed in a timely manner all Exchange Act reports that it was required to file in the preceding twelve months. However, subparagraph 3.(b) exempts from this timely filing requirement any Form 8-K that is required solely under specified items of that Form (including Item 1.01, 1.02 and others).
The final rules setting out the mine safety disclosure requirements amend General Instruction I.A.3.(b) of Form S-3 to add new Item 1.04 of Form 8-K to the list of other Form 8-K items exempted from this timely filing requirement. Adding Item 1.04 of Form 8-K to General Instruction I.A.3.(b) means that an issuer's late filing of a Form 8-K required solely under the new mine safety disclosure requirements does not constitute a failure of the timely filing requirement for purposes of determining whether the issuer is eligible to use Form S-3.

No Safe Harbor Protection from Potential Liability under Section 10(b) or Rule 10b-5 under the Exchange Act

The final rules do not add Item 1.04 to the list of items in Rules 13a-11(c) and 15d-11(c) of the Exchange Act for which the failure to file a report on Form 8-K will not be deemed a violation of Section 10(b) or Rule 10b-5 under the Exchange Act.
In the adopting release, the SEC stated that the safe harbor from liability under Section 10(b) and Rule 10b-5 that is provided under Rules 13a-11(c) and 15d-11(c) is only appropriate if the event triggering the Form 8-K filing requires management to make a rapid decision about the materiality of the event. The SEC's view is that the triggering event for the filing of an Item 1.04 Form 8-K does not require a rapid materiality determination.