On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) into law. The Act contains a number of provisions that will affect disclosure by SEC reporting companies that develop natural resources or that manufacture products utilizing minerals from specified areas of conflict.

Reporting of Payments by Natural Resource Issuers. Section 1504 of the Act adds a new Section 13(q) to the Securities Exchange Act of 1934 (the “Exchange Act”) that will require the SEC to adopt final rules, by April 17, 2011, requiring natural resource companies that engage in the commercial development of oil, natural gas or minerals to disclose in their SEC annual report payments to the U.S. government or foreign governments for the purpose of the commercial development of oil, natural gas, or minerals. Required disclosures include:
  • the type and total amount of payments made for each project of the issuer relating to the commercial development of oil, natural gas or minerals; and
  • the type and total amount of the payments made to each government.

The term “payments” is quite broad. It excludes de minimis amounts but includes taxes, royalties, fees (including license fees), production entitlements, bonuses and other material benefits consistent, to the extent practicable, with the guidelines of the Extractive Industries Transparency Initiative that the SEC determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas or minerals. The new rules will apply to an issuer’s annual report relating to its fiscal year ending not earlier than one year after the issuance of the final rules by the SEC. The SEC is directed to issue rules, to the extent practicable, which support the commitment of the United States federal government to international transparency relating to the commercial development of oil, natural gas or minerals. For this reason, we expect that these disclosure rules will also apply to foreign private issuers filing on Form 20-F or 40-F, although the extent of the compliance burden will not be known until the proposed rules are published.

The Act requires that this information be provided in “interactive data format,” which includes electronic tags identifying:
  •  the total amounts of the payments, by category;
  • the currency used to make the payments;
  • the financial period in which the payments were made;
  • the business segment of the resource extraction issuer that made the payments;
  • the government that received the payments, and the country in which the government is located;
  • the project of the resource extraction issuer to which the 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.
Reporting Regarding Conflict Minerals. In response to the extreme levels of violence in the eastern Democratic Republic of the Congo, which Congress felt was financed in part by the trade of “conflict minerals,”1 Congress adopted Section 1502 of the Act. Section 1502 adds a new Section 13(p) to the Exchange Act that will require the SEC to adopt regulations, by April 17, 2011, requiring additional disclosure by SEC reporting companies for whom “conflict minerals” are necessary to the functionality or production of a product manufactured by the company. Companies will be required to annually submit to the SEC and post on their websites a description of:
  • the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector audit of such report;
  • the products manufactured or contracted to be manufactured that are not conflict free;
  • the entity that conducted the independent private sector audit;
  • the facilities used to process the conflict minerals;
  • the country of origin of the conflict minerals; and
  • the efforts to determine the mine or location of origin with the greatest possible specificity.

The Act requires the independent private sector audit to be certified. Such certification “shall constitute a critical component of due diligence in establishing the source and chain of such minerals.”
Under the President’s direction, the SEC is able to revise or temporarily waive the disclosure requirements in the interests of national security. These disclosure requirements shall terminate on the later of: the date the President determines that no armed groups continue to be directly involved and benefiting from commercial activity involving conflict minerals, and the fifth anniversary of the Act.

The Act also creates directives to the Secretary of State, the Secretary of Commerce, and the Comptroller General of the United States to further analyze the effects that trade in conflict materials have on extreme levels of violence in the Democratic Republic of the Congo.

Reporting Regarding Coal or Other Mine Safety. Section 1503 of the Act creates additional disclosure obligations for any SEC reporting company that is an operator, or that has a subsidiary that is an operator, of a “coal or other mine”.2 Many of the required disclosures relate only to mines that are subject to the Federal Mine Safety and Health Act of 1977 (the “MSHA”).

Effective immediately, SEC reporting companies are required to file a Form 8-K with the SEC disclosing receipt of imminent danger orders issued under the MSHA or written notice from the Mine Safety and Health Administration that the mine has 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, or the potential to have such a pattern. This Section 1503(b) specifically requires reporting on Form 8-K. For issuers who report on Form 20-F or 40-F and Form 6-K, the applicability of this section is unclear. However, we note that in the past when Form 8-K reporting has been mandated, the SEC required foreign private issuers who report on Form 20-F or 40-F and Form 6-K to include the required information in their annual report on Form 20-F or 40-F.

Effective August 20, 2010, mine operators and their subsidiaries shall include in each periodic report filed with the SEC the following information for the period covered by that report:
  • for each mine:
      • the total number of violations of mandatory health and safety standards under the MSHA for which citations were received from the Mine Safety and Health Administration;
      • the total number of closure orders issued under Section 104(b) of the MSHA;
      • the total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety violations under the MSHA;
      • the total number of flagrant violations under Section 110(b)(2) of the MSHA;
      • the total dollar value of proposed assessments under the MSHA; and
      • the total number of mining-related fatalities (the Act does not specify that this fatality disclosure is limited to mines subject to the MSHA).
  • a list of mines that receive written notice from the Mine Safety and Health Administration 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; or
      • the potential to have such a pattern; and
  • any pending legal action before the Federal Mine Safety and Health Review Commission involving the company’s mine.

The SEC is authorized to issue rules and regulations to carry out the purposes of this section of the Act.

 

1 “Conflict minerals” are defined as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.
2 "Coal or other mine" means (A) an area of land from which minerals are extracted in nonliquid form or, if in liquid form, are extracted with workers underground, (B) private ways and roads appurtenant to such area, and (C) lands, excavations, underground passageways, shafts, slopes, tunnels and workings, structures, facilities, equipment, machines, tools, or other property including impoundments, retention dams, and tailings ponds, on the surface or underground, used in, or to be used in, or resulting from, the work of extracting such minerals from their natural deposits in nonliquid form, or if in liquid form, with workers underground, or used in, or to be used in, the milling of such minerals, or the work of preparing coal or other minerals, and includes custom coal preparation facilities.