The Canadian Securities Administrators adopted National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (NI 52-112) in 2021, turning a non-binding policy into a legal requirement and expanding its breadth, marking a significant shift in how Canadian reporting issuers are permitted to communicate financial performance outside of their generally accepted accounting principles (GAAP) financial statements. NI 52-112 imposes requirements for non-GAAP financial measures, non-GAAP ratios and certain other financial measures (specified financial measures) disclosed by reporting issuers in Canada. Designed to enhance transparency and comparability, the intention is that investors receive clear, consistent and meaningful information when companies present financial data that falls outside of standard accounting frameworks. Whether used in news releases, investor presentations, or technical reports, these measures must be accompanied by detailed explanations, reconciliations and cautionary language to comply with securities laws and avoid misleading disclosure.
There are particular implications for mining issuers and this note is intended to summarize the applicability of NI 52-112 to scientific and technical disclosure. Issuers are reminded to refer to NI 52-112 for the exact detailed requirements as it is important that they are adhered to when presenting non-GAAP financial measures when preparing mining disclosure.
NI 52-112 and Mining Issuers
NI 52-112 applies to all reporting issuers in respect of disclosure of non-GAAP financial measures in a document if the document is “intended to be, or reasonably likely to be, made available to the public” and, in certain circumstances, to non-reporting issuers as well.
For mining issuers, the application of NI 52-112 means greater scrutiny of how non-GAAP financial data is presented in technical reports prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101) and in other mining-related disclosures. Common non-GAAP financial measures that are disclosed by mining issuers include “All-in Sustaining Costs” (AISC), “Cash Costs”, “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA) and “Adjusted EBITDA”, each of which lack standard meanings. Importantly, NI 52-112 applies to both historical and forward-looking specified financial measures.
Disclosure prescribed under NI 43-101 is excluded from the scope of NI 52-112. This means that if a technical report includes specified financial measures required to be disclosed by NI 43-101, issuers do not need to meet the detailed labelling, reconciliation and prominence requirements set forth in NI 52-112 for those specified financial measures. The most common of these measures are Net Present Value (NPV) and Internal Rate of Return (IRR), which are required under Item 22 (economic analysis) of Form 43-101F1. In all other instances, where a specified financial measure that is not specifically required to be disclosed under NI 43-101 is disclosed (for example, AISC and EBITDA), NI 52-112 remains applicable.
Treatment of Non-GAAP Financial Measures
Pre-Production – Forward-Looking Information
For mineral projects in pre-production, it is often difficult to comply with the disclosure requirements under NI 52-112 if an issuer wants to disclose non-GAAP financial measures beyond NPV and IRR. NI 52-112 requires that issuers must not disclose non-GAAP financial measures that are “forward-looking information” unless all of the following apply:
- the document discloses an equivalent historical non-GAAP financial measure;
- the measure is labelled using the same label used for the equivalent historical non-GAAP financial measure;
- the measure is presented with no more prominence in the document than that of the equivalent historical non-GAAP financial measure; and
- in proximity to the first instance of the measure, the document discloses, directly or by incorporating it by reference as otherwise permitted, a description of any significant difference between the measure and the equivalent historical non-GAAP financial measure.
This can be challenging because there is no historical information available and, accordingly, there is no equivalent historical non-GAAP financial measure to which to equate the disclosure measure. In such a case, an issuer would need to specify that the mineral project is not in production and therefore the prospective non-GAAP financial measures or ratios presented may not be reconciled to the nearest comparable historical non-GAAP financial measure. In order to include such measures where there is no directly comparable historical measure, explanatory language, such as the following should be included in proximity to the first instance of the measure to specify the pre-production context:
“Such measures have no standardized meaning under GAAP and may not be comparable to similar measures used by other issuers. The issuer believes that these measures and ratios provide investors with an improved ability to evaluate the prospects of the issuer and, in particular, the issuer’s mineral project. As the issuer’s mineral project is not in production, the prospective non-GAAP financial measures presented may not be reconciled to the nearest comparable measure under GAAP and the equivalent historical non-GAAP financial measure for the prospective non-GAAP financial measure discussed herein is $nil.”
In addition, issuers should provide a description of the significant differences between the non-GAAP financial measure that is forward-looking and either (i) the equivalent historical non-GAAP financial measure (i.e., which is $nil) by setting out the cost-components comprising the forward-looking non-GAAP financial measure, or (ii) the most directly comparable forward-looking GAAP measure.
For example, in the case of a forward-looking disclosure of projected AISC:
In the case of (i):
| Historical AISC | $0 |
| Significant cost component 1: XX | $xx |
| Significant cost component 2: XX, etc…. | $xx |
| Projected AISC (non-GAAP forward-looking information) | $xx |
In the case of (ii):
| Most directly comparable projected financial measure (i.e., which will be disclosed in the primary financial statements – forward-looking information) | $xx |
| Adjustment 1: XX | $xx |
| Adjustment 2: XX, etc…. | $xx |
| Projected AISC (non-GAAP forward-looking information) | $xx |
When disclosing such forward-looking non-GAAP financial measures, issuers must also adhere to the requirements in National Instrument 51-102 – Continuous Disclosure Obligations in respect of material “forward-looking information” and “future-oriented financial information,” meaning the issuer ought to having a reasonable basis for the inclusion and must include the standard cautions that actual results may vary from the forward-looking information and identify material factors/assumptions upon which it is based, and the material risk factors that could cause actual results to differ materially from the forward-looking information.
Production – Historical Information
In the case of producing issuers disclosing historical information, issuers must not disclose non-GAAP financial measures that are historical information unless all of the following apply:
- the non-GAAP financial measure is labelled in a sufficiently descriptive manner which distinguishes the measure from the corresponding financial measures in the issuer’s financial statements;
- the non-GAAP financial measure is identified as such;
- the document discloses the most directly comparable financial measure disclosed in the issuer’s financial statements;
- the measure is presented with no more prominence in the document than that of the comparable non-GAAP financial measure;
- in proximity to the first instance of the measure, the document discloses, directly or by incorporating it by reference as otherwise permitted, the composition of the measure, an explanation of how the measure provides useful information to an investor, a quantitative reconciliation of the measure to the most directly comparable financial measure disclosed in the issuer’s financial statements; and
- if the non-GAAP financial measure is disclosed in an MD&A or in an earnings release of the issuer, the corresponding measure for a comparative period is disclosed in the document, unless impracticable to do so.
NI 52-112 allows an issuer to incorporate by reference certain disclosure to meet certain of these specific requirements, if the reference is to the issuer’s MD&A available on SEDAR+ and the location of the information therein is specified.
Conclusion
NI 52-112 reinforces the importance of transparency and consistency in financial disclosures when issuers present metrics outside of traditional accounting principles. While mining issuers benefit from targeted exemptions under NI 52-112, these are limited and careful attention must still be paid to the use of specified financial measures. Issuers should ensure that all non-GAAP disclosures, whether historical, forward-looking, or otherwise, are clearly defined, appropriately reconciled and presented with the necessary context to meet investor expectations and regulatory requirements. Issuers should consult with legal counsel in respect of these disclosure obligations to avoid missteps and maintain market confidence.
For more on National Instrument 43-101, find all our articles in this series here.
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