February 24, 2020

February 24, 2020

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The SEC Insists On "Terminological Inexactitude" For Resource Extraction Issuer Rule

As previously mentioned in this blog, the Securities and Exchange Commission is trying for the third time to implement Congress' directive to adopt rules requiring disclosure by "resource extraction issuers".  See The SEC's Extraction Distraction.  The SEC is proposing to define "resource extraction issuer" as an issuer that: "(i) Is required to file an annual report with the Commission on Form 10-K (17 CFR 249.310), Form 20-F (18 CFR 249.220f), or Form 40-F (17 CFR 249.240f) pursuant to Section 13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 78o(d)); and (ii) Engages in the commercial development of oil, natural gas, or minerals".

Is an issuer that operates a gravel pit, a limestone quarry, or coal mine a resource extraction issuer?  The answer, of course, depends on the meaning of "minerals", a term that the SEC has inexplicably, but resolutely, refused to define.  Some define "minerals" to specifically include gravel, sand, limestone and/or coal.  Others do not.  Some limit the term to inorganic materials while others do not.  Some require that minerals have a crystalline structure while others do not.  

The SEC asserts in its proposing release that "minerals" is a "commonly understood" term.  The U.S. Supreme Court, however, has concluded the opposite:

"The word ‘mineral’ is used in so many senses, dependent upon the context, that the ordinary definitions of the dictionary throw but little light upon its signification in a given case."

Northern Pacific R. Co. v. Soderberg, 188 U. S. 526, 530 (1903). 

In lieu of defining "minerals", the SEC is proposing to add an instruction referring issuers to the use of the term “minerals” in our other disclosure rules [current Guide 7 and its successor, 17 CFR 229.1300 et seq.].  It remains to be seen how helpful this might be because neither defines "mineral". 

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...