On December 21, 2011, the Securities and Exchange Commission (SEC) adopted final rules to implement and clarify the scope and application of the mine safety disclosure requirements of Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Section 1503’s disclosure requirements are currently in effect and require each SEC-reporting issuer that is an “operator” (or that has a subsidiary that is an “operator”) of a “coal or other mine” (generally defined as any area of land located in the United States from which non-liquid minerals are extracted or, if liquid minerals, are extracted with workers underground and certain appurtenant areas) 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.
The SEC’s final rules adhere closely to Section 1503’s statutory language as a result of the SEC’s decision in response to public comments to remove many of the additional disclosure requirements included in the proposed rules.1
The rules will be effective on January 27, 2012. As a result, subject issuers with a December 31 fiscal year-end will need to ensure that their mine safety disclosures comply with the new rules beginning with their upcoming Form 10-K. Furthermore, subject issuers will need to ensure that any orders and notices that trigger a Form 8-K filing are filed within four business days under new Item 1.04 starting on January 27, 2012.
Who is Subject to the Mine Safety Disclosure Rules? Any issuer that (1) is required to file periodic reports with the SEC (including a foreign private issuer, smaller reporting company, wholly-owned subsidiary or asset-backed issuer) 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? The term has the meaning set forth in Section 3 of the Federal Mine Safety and Health Act of 1977 (Mine Act) and includes any owner, lessee or other person who operates, controls or supervises a “coal or other mine” or any independent contractor performing services or construction at such mine.
How is “Subsidiary” Defined? The term has the meaning set forth in Rule 12b-2 of the Securities Exchange Act of 1934 (Exchange Act).2
How is “Coal or Other Mine” Defined? The term means a coal or other mine (as defined in Section 3 of the Mine Act) that is subject to the Mine Act, which applies only to mines located in the United States.3
Periodic Reporting Disclosure Rules
What Disclosure is Required in Periodic Reports? For the time period covered by the periodic report, the identity of each coal or other 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 coal or other mine safety or health hazard under Section 104 of the Mine Act for which the operator received a citation from the MSHA, including any citations that are subsequently dismissed, reduced or vacated;
- the total number of orders issued under Section 104(b) of the Mine Act, including any orders that are subsequently dismissed, reduced or vacated;
- 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, including any citations or orders that are subsequently dismissed, reduced or vacated;
- 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, including any orders that are subsequently dismissed, reduced or vacated;
- the total dollar amount of all proposed assessments from the MSHA under the Mine Act relating to any type of violation regardless of whether the proposed assessments are being contested or were dismissed or reduced prior to the periodic report’s filing date; and
- the total number of all mining-related fatalities at coal or other mines that are subject to the Mine Act, except for those fatalities determined by the MSHA to be unrelated to mining activity such as homicides, suicides, deaths due to natural causes and deaths involving trespassers.
In addition, for the time period covered by the periodic report issuers must disclose:
a list of coal or other 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 coal or other 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; and
- the total number of all legal actions pending before the Federal Mine Safety and Health Review Commission (Mine Safety Commission) as of the last day of the reporting period involving a coal or other mine operated by the issuer or its subsidiary, including a numerical breakdown by type of legal action in accordance with the categories established in the Mine Safety Commission’s procedural rules, as well as the aggregate number of legal actions instituted and resolved during the reporting period.
Disclosure is only required for mines located in the United States. There are no materiality thresholds for the above-described disclosures. To the extent mine safety issues (both domestic and foreign) are material to issuers, disclosure may also be required pursuant to the rules applicable to other sections of the periodic report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors, Business and Legal Proceedings. In addition to the required mine safety disclosures noted above, issuers may provide additional disclosure (1) explaining the status of orders, citations, assessments and pending legal proceedings and (2) indicating whether the MSHA is reviewing a mining-related fatality.
Issuers are not required to report orders and citations issued to independent contractors (who are not subsidiaries of the issuer) working at the issuer’s mine.4 However, issuers may be required to provide disclosure under existing SEC rules if the individual orders or citations, or a pattern of violations, at issuer-owned mines operated by an independent contractor are material to the issuer.
Issuers should carefully analyze legal actions involving coal or other mines to determine not only whether the actions trigger disclosure under the mine safety disclosure rules noted above, but also under rules applicable to the Legal Proceedings section of the periodic report. For example, mine-related legal actions under the Mine Act that do not involve the Mine Safety Commission at any stage of the proceedings are not within the scope of the mine safety disclosure rules, but may require disclosure under the Legal Proceedings section. If disclosure of a mine-related legal action is required in the Legal Proceedings section, issuers must disclose under that section additional information regarding the action as well as disclose in subsequent periodic reports material developments involving the action.
What Time Period Does the Disclosure Cover? For quarterly reports on Form 10-Q, the quarter covered by the report, and for annual reports on Form 10-K, Form 20-F and Form 40-F, the entire fiscal year.
Where Will the Disclosure be Located? In an exhibit to the periodic report. Issuers with mine safety matters to report must also disclose in an appropriately captioned section of the periodic report that the information concerning mine safety violations or other regulatory matters required by Dodd-Frank Section 1503(a) is included in a specified exhibit to the report.
What Are the Presentation Requirements for the Disclosure? The rules do not prescribe any particular presentation requirements, but the SEC encourages issuers to use tabular presentations whenever possible if doing so would facilitate investor understanding. In the adopting release, the SEC included an example of a potential tabular presentation to encourage uniformity and comparability of disclosures but indicated that issuers are free to present the disclosure in any manner that they believe is appropriate. The mine safety information is not required to be reported in interactive data format (i.e., XBRL).
Will the Disclosure be Considered “Furnished” or “Filed” with the SEC? The disclosure will be considered “filed,” not “furnished,” with the SEC. As a result, issuers will be subject to liability under Section 18 of the Exchange Act for the disclosure, the disclosure will be encompassed by the chief executive officer and chief financial officer certifications filed with each annual and quarterly report and the disclosure will be incorporated by reference into registration statements that incorporate by reference an issuer’s periodic reports.
Form 8-K Disclosure Requirements
What Mine-Related Events Will Trigger a Form 8-K Filing? The receipt by an issuer or its subsidiary of any of the following notices or orders with respect to a coal or other mine for which the issuer or its subsidiary is the operator:
- an imminent danger order under Section 107(a) of the Mine Act;
- a written notice from the MSHA that the coal or other mine has a pattern of mandatory health or safety standard violations that 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
- a written notice from the MSHA that the coal or other mine has the potential to have a pattern of violations described in the previous bullet.
For each specified notice or order, issuers are required to report under the new Item 1.04 of Form 8-K:
- the date of receipt;
- the category of notice or order; and
- the subject mine’s name and location.
The Item 1.04 Form 8-K must be filed within four business days of the triggering event, even if a specified notice or order was vacated by the MSHA prior to the required filing date. However, issuers may include additional disclosure regarding the status of any reported notice or order. Failure to timely file an Item 1.04 Form 8-K will not result in the loss of Form S-3 eligibility.
Filing a Form 8-K to report receipt of the specified notices and orders would not eliminate the requirement to include the required disclosure regarding the notices and orders in the periodic report for the applicable reporting period. Thus, depending on the timing of the triggering event, a domestic issuer may report receipt of a specified notice or order three times - in a Form 8-K, in a Form 10-Q (unless the event occurs in the fourth quarter) and in a Form 10-K.
Are Foreign Private Issuers Subject to the Form 8-K Disclosure Requirements? Unlike domestic issuers, foreign private issuers are not required to file a current report (either on Form 6-K or Form 8-K) to report the receipt of a specified notice or order. Instead, foreign private issuers are only required to provide mine safety disclosure (including the notices and orders specified in Item 1.04 of Form 8-K) on an annual basis in an annual report on Form 20-F or 40-F, as applicable.
1. Please see our client alert dated January 25, 2011, SEC Proposes Rules to Implement the Dodd-Frank Act’s Mine Safety Disclosure Requirements.
2. Exchange Act Rule 12b-2 defines a “subsidiary” of a specified person as “an affiliate controlled by such person directly, or indirectly through one or more intermediaries.”
3. Section 3(h) of the Mine Act defines “coal or other mine” as “(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. In making a determination of what constitutes mineral milling for purposes of this Act, the Secretary shall give due consideration to the convenience of administration resulting from the delegation to one Assistant Secretary of all authority with respect to the health and safety of miners employed at one physical establishment."
4. The independent contractor is required to report the orders and citations if it is required to file reports with the SEC and is an operator, or has a subsidiary that is an operator, of a coal or other mine.© 2014 Andrews Kurth LLP