Transparency Recommendations Released For Disclosing Canadian Mining Company Payments To Governments

On January 16, 2014, the Resource Revenue Transparency Working Group (the Working Group) released its final recommendations for the creation of mandatory transparency standards that would see mining companies publicly traded on Canadian stock exchanges publicly disclose payments to governments.

The Working Group, consisting of the Mining Association of Canada, the Prospectors & Developers Association of Canada, Publish What You Pay Canada and the Revenue Watch Institute, was formed in September 2012 with the objective of improving transparency in the mining sector in Canada and overseas. Our legal update from June 2013 provides an overview of the Working Group's background and the international movement toward increased disclosure.

The group's final recommendations will weigh heavily on legislators, who are expected to introduce legislation for mandatory reporting in 2014.

This update will outline the Working Group's recommendations. Public issuers in the mining industry should expect that such recommendations will become part of their disclosure requirements in the near future.

Scope of reporting

The Working Group's recommendations are for all reporting issuers, as defined under Canadian securities law, to publicly disclose certain categories of payments made to national and sub-national authorities, including states, provinces, counties, districts, municipalities and state-owned enterprises. In addition, companies will need to detail the mining project to which these payments are associated.

To increase the complexity of this issue, the Canadian government's announcement to develop mandatory payment transparency standards includes a commitment to require the disclosure of payments to First Nations self-governments. The Working Group did not address this issue in its recommendations; however, it promises to be an area of contention as the federal government moves forward with its commitment.

Control/subsidiaries

In its draft recommendations, the Working Group included references to the relationships between parent and subsidiary companies, recognizing that public mining companies often hold projects by way of subsidiary companies. The final recommendations have refined this relationship to require reporting by all companies, their subsidiaries and jointly controlled and/or associated entities. The Working Group's recommendations rely on definitions of control outlined in the International Financial Reporting Standards and require that...