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SEC Proposes Rules to Implement the Dodd-Frank Act’s Mine Safety Disclosure Requirements

January 25, 2011

The Securities and Exchange Commission (SEC) recently published for public comment proposed rules to implement Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The provisions of Section 1503 are currently in effect and require SEC reporting issuers that are operators (or that have a subsidiary that is an operator) of a coal or other mine to:

  • disclose in each periodic report certain mine safety violations, citations and orders and related matters for each coal or other mine that they operate; and
  • file a current report on Form 8-K to disclose the receipt of certain orders and notices from the U.S. Labor Department’s Mine Safety and Health Administration (MSHA) related to a coal or other mine that they operate.

Issuers subject to Section 1503 must currently comply with its disclosure requirements even if the SEC does not adopt its proposed rules. The SEC issued its proposed rules to implement and clarify the scope and application of the disclosure requirements of Section 1503 and to require a limited amount of additional disclosure.

Based on the comment requests contained throughout the proposing release, which can be found here, the SEC’s final rules may vary from its proposed rules. Comments on the proposed rules must be submitted to the SEC by January 31, 2011. 

This client alert briefly summarizes the proposed rules and provides a list of action items for issuers to consider in response to the proposed rules.

Proposed Mine Safety Disclosure Rules

What Issuers Would be Subject to the Disclosure Rules? Consistent with Section 1503, any issuer (including a foreign private issuer or smaller reporting company) that (1) is required to file periodic reports with the SEC and (2) that is an operator (or that has a subsidiary that is an operator) of a coal or other mine.

How is “Operator” Defined? Consistent with Section 1503, the term has the meaning set forth in Section 3 of the Federal Mine Safety and Health Act of 1977 (Mine Act). 

How is “Coal or Other Mine” Defined? Consistent with Section 1503, the phrase means a coal or other mine (as defined in Section 3 of the Mine Act) that is subject to the Mine Act (referred to throughout this alert as a mine).

What Time Period Would the Disclosure in Periodic Reports Cover? Generally, the time period covered by the periodic report (referred to throughout this alert as the reporting period) as follows:

  • for quarterly reports on Form 10-Q, the quarter covered by the report;
  • for annual reports on Form 10-K, both the fourth fiscal quarter and the entire fiscal year; and
  • for annual reports on Forms 20-F and 40-F, the entire fiscal year.

What Disclosure Would be Required in Periodic Reports? The information currently required by Section 1503(a) to be disclosed in periodic reports along with a limited amount of additional disclosure (the additional disclosure is italicized in the following list). The proposed rules would require for the applicable reporting period:

  • the identity of each mine for which the issuer or its subsidiary is an operator and disclosure, on a mine-by-mine basis, of:
    • the total number of mandatory health or safety standard violations that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under Section 104 of the Mine Act for which the 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 operator to comply with mandatory health or 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 the MSHA under the Mine Act (both the total dollar value of assessments proposed during the reporting period and the total dollar value of all outstanding assessments on the reporting period’s last day); and
    • the total number of mining-related fatalities;
  • a list of mines for which the issuer or its subsidiary is an operator that receive written notice from the MSHA of:
    • a pattern of mandatory health or safety standard violations that could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e) of the Mine Act; or
    • the potential to have a pattern of violations described in the previous bullet;
  • a brief description of each category of reported violations, orders and citations (so that investors can understand and assess the disclosure without having to reference the Mine Act and MSHA regulations); and
  • disclosure of any pending legal action before the Federal Mine Safety and Health Review Commission (Mine Safety Commission) involving a mine operated by the issuer or its subsidiary.

Disclosure would only be required for mines located in the United States.  However, to the extent mine safety issues (both domestic and foreign) are material under existing SEC rules, disclosure may be required pursuant to the rules applicable to the sections of the periodic report entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors, Business and Legal Proceedings.

Issuers would be required to disclose all specified orders, violations or citations received during the applicable reporting period even if they are subsequently dismissed or reduced. In addition, disclosure would be required of all proposed assessments received from the MSHA during the applicable reporting period even if they are contested or appealed. However, issuers may provide contextual information to address any dismissals, reductions or other relevant information for orders, violations or citations or to indicate that certain proposed assessments are being contested or appealed.

All mining-related fatalities required to be reported pursuant to MSHA regulations would be disclosable unless a fatality is determined to be “non-chargeable” to the mining industry (for example, homicides, suicides, deaths due to natural causes and deaths involving trespassers). 

The pending legal action disclosure would be required to include the date the action was instituted, by whom, the mine’s name and location and a brief description of the category of violation, order or citation that is the subject of the action. For each reporting period, issuers would be required to disclose not only the commencement of any legal action before the Mine Safety Commission but also any material developments related to previously reported legal actions.

Where Would the Disclosure be Located? In an exhibit to quarterly reports on Form 10-Q and annual reports on Form 10-K, Form 20-F and Form 40-F. An issuer would also be required to disclose in an appropriately captioned section of the periodic report that the information concerning mine safety violations or other regulatory matters is included in a specified exhibit. The mine safety disclosure would not be required in registration statements, but the information would be incorporated by reference into registration statements.

What Mine-Related Events Would Trigger a Form 8-K Filing? Consistent with Section 1503(b), the receipt of any of the following notices or orders with respect to a mine that the issuer or its subsidiary operates:

  • an imminent danger order under Section 107(a) of the Mine Act;
  • a written notice from the MSHA that the mine has a pattern of mandatory health or safety standard violations that could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e) of the Mine Act; or
  • a written notice from the MSHA that the mine has the potential to have a pattern of violations described in the previous bullet.

For each specified notice or order, issuers would be required to disclose under new Item 1.04:

  • the date of receipt;
  • a brief description of the category of notice or order; and
  • the subject mine’s name and location. 

The Form 8-K would need to be filed within four business days of the triggering event. Filing a Form 8-K to report receipt of the specified orders and notices would not eliminate the requirement to include the required disclosure regarding the orders and notices in the periodic report for the applicable reporting period. 

Do the Disclosure Rules Contain a Materiality Threshold? Section 1503 does not contemplate materiality thresholds and the SEC did not include any in its proposed rules.  As a result, issuers would continue to be required to disclose any reportable mine safety event regardless of the event’s materiality. For example, an issuer filed a Form 8-K pursuant to Section 1503 to announce the receipt of a Section 107(a) imminent danger order stating coyotes had been spotted in the vicinity of mine employees and requiring that all miners be removed when the coyotes are present. The issuer also indicated that the conditions cited in the order did not have a material adverse impact on its operations.

Would Foreign Private Issuers be Subject to the Current and Quarterly Disclosure Requirements? Unlike domestic issuers, foreign private issuers would not be required to file a current report (on Form 6-K or Form 8-K) to report the receipt of a specified order or notice or provide mine safety disclosure on a quarterly basis. Foreign private issuers would only be required to provide mine safety disclosure on an annual basis in an annual report on Form 20-F or 40-F, as applicable.

When Will the Rules be Effective? Issuers will not know the effective date of the disclosure rules until the SEC adopts final rules. The SEC currently expects to adopt final rules between April and July 2011. However, issuers must currently comply with the disclosure requirements of Section 1503.

Action Items

Issuers that operate mines (either directly or indirectly through subsidiaries) have been subject to the disclosure requirements of Section 1503 since August 2010 and have presumably already developed data gathering systems and disclosure controls and procedures to collect, review, prepare and report the required information in periodic and current reports. However, these issuers should consider taking the following actions in advance of the SEC’s adoption of final rules:

  • Consider the proposed rules and the proposing release when preparing disclosure required by Section 1503 prior to the SEC’s adoption of final rules.
  • Determine whether to comment (either individually or as part of a trade or industry group) on the proposed rules by responding to the SEC’s general and specific questions contained in the proposing release.
  • Determine whether existing data gathering systems would need to be modified to track and collect the additional mine safety information proposed by the SEC and, if so, how and the timeline for implementing the modifications.
  • Determine whether existing disclosure controls and procedures would need to be modified in order to record, process, summarize and report the additional mine safety information proposed by the SEC and, if so, how and the timeline for implementing the modifications.

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Andrews Kurth advises numerous public companies, including publicly traded partnerships, in a variety of industries and will continue to follow developments related to the topic of this client alert, including adoption of the final rules, and other SEC rulemaking and guidance. 

If you would like more information about the subject of this client alert and other securities law developments, please contact your Andrews Kurth representative in the Corporate Securities Practice Section.

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